Silicon Laboratories Annual Report 2009

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FY2009 Annual Report · Silicon Laboratories

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THRIVE › SURVIVE

We are proud of our results; we had a record year despite the challenging

market environment. But it’s what lies ahead that we are most excited about.

We have broken new ground in a number of markets this year. In the following

pages we’ll show you why we believe we’ll continue to thrive in 2010.

S I L I C O N L A B O R AT O R I E S 2 0 0 9 A N N U A L R E P O R T

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 1,000 patents issued or pending.

Based in Austin, Texas, Silicon Laboratories’
common stock is traded on the NASDAQ®
exchange under the ticker symbol “SLAB.”

FINANCIAL HIGHLIGHTS

ANNUAL REVENUE
IN MILLIONS

2005

2006

2007

2008

2009

2009 NON-GAAP QUARTERLY FINANCIALS
IN THOUSANDS, EXCEPT PER SHARE DATA

REVENUE

SEQUENTIAL GROWTH %

NON-GAAP MEASURES*

GROSS MARGIN

% OF REVENUE

OPERATING INCOME

% OF REVENUE

DILUTED EPS

1 Q 2 0 0 9

$83,701

(15.7%)

$51,083

61.0%

$12,137

14.5%

$0.22

2 Q 2 0 0 9

$104,216

24.5%

$65,153

62.5%

$23,577

22.6%

$0.42

3 Q 2 0 0 9

$125,913

20.8%

$81,410

64.7%

$37,716

30.0%

$0.67

4 Q 2 0 0 9

$127,190

1.0%

$83,575

65.7%

$37,876

29.8%

$1.06

*Please see the supplemental tables provided in this report for a reconciliation of GAAP to non-GAAP results in Appendix I.

Past performance does not guarantee future results. This Annual Report to Shareholders contains forward-looking statements, and actual results could
differ materially. Risk factors that could cause actual results to differ are set forth in the “Risk Factors” section and throughout our 2009 Form 10-K, which is
included in this Annual Report.

S I L I C O N L A B O R AT O R I E S 2 0 0 9 A N N U A L R E P O R T / 1

LETTER TO OUR SHAREHOLDERS

2009 was a challenging year by any measure.
But for Silicon Labs, a strong portfolio of
differentiated products, solid financial footing
entering the recession and market share
with the leaders in our target markets resulted
in a record year for the company.

I am pleased to report we preserved our human capital, the

I N C R E A S I N G M A R k E T S H A R E

momentum of our business and protected our financial health.

In 2009, we had record revenue in our audio, video, MCU, power,

We achieved record revenue, record gross margin, record

timing and wireless products. Even in the face of decelerating

operating margin and record earnings.

end markets, these products continued to gain share against

S E C U L A R G R O W T H

the competition.

For many in our industry, the weakest demand environment in

Our broadcast business led the charge, growing in the double-

recent memory exposed business model weaknesses, separating

digits year over year. Our audio business in handsets and

secular vs. cyclical growth. Secular growth companies are able

consumer devices grew strongly. We added design wins at tier

to expand their business consistently over a multi-year period,

one customers and now supply all of the leaders in the handset

regardless of market transitions or cycles in the industry.

and consumer audio markets. In our video business, we began

shipping our video demodulator in volume in European TVs

This is accomplished through sustained investment in innovative

creating a new revenue stream, and our revolutionary silicon

products that make a meaningful difference to customers and

tuner started winning designs with top TV makers.

therefore command value. These products are hard to duplicate

and protected by patents, extending life cycles. Continuous

Our timing business, made up of an innovative family of

product cost reductions ensure the business is well fortified

programmable clocks and oscillators, grew in the double-digits

against competitive pricing environments. A discipline around

again for the year as we increased our penetration at leading

gross margin ensures new products are built from the ground up

communications equipment providers. These products, which

to maintain the company’s margin model. A corporate-wide view

fundamentally change the way timing sub-systems are designed,

of new product ideas and a centralized prioritization process

dramatically simplify design, enable a single chip to replace

ensures that the constant stream of new products creates

multiple devices, improve reliability and eliminate supply chain

cross-selling synergies, maximizes penetration of our customers

headaches. We believe timing represents one of our most exciting

and most importantly, expands our served market over time.

long-term growth areas.

Our MCU products recovered nicely in the second half and ended

We introduced digital isolation technology that replaces the

the year slightly up, an indication of the market share gains we

need for non-silicon optical based solutions, significantly

achieved given the double-digit declines faced by competitors.

improving reliability, longevity and performance compared to the

This continues to be a strategic area for us, and we are entering

conventional way of achieving isolation in electronic systems.

2010 with significant momentum in terms of design wins and

new products.

M O R E O N T H E H O R I Z O N

And we ended the year with the announcement of a significant

innovation for human interface applications, delivering highly

sensitive, low power touch and proximity sense solutions ideal

One of the most exciting things about Silicon Labs is that we’re

for any electronic device attempting to interact with users

never content with the status quo. We are constantly working

through a more sophisticated interface.

to achieve a greater level of commercial success, and we are

highly motivated to deliver disruptive new products that solve

Silicon Labs is a one of a kind story in the semiconductor

our customers’ problems in unique ways, allowing us to gain

industry. 2009 gave us an opportunity to demonstrate the

market leading share.

power of our business model, the strength of our products

and the discipline of our management team. With a healthier

We broke new ground in a number of markets this year. We

outlook for the industry in 2010, we are looking forward

introduced the first silicon tuner for televisions that exceeds the

to another strong year of growth and market share gains.

performance of the existing discrete, non-silicon solutions. This

is a milestone that players in the industry have been working on

for more than a decade. We’ll have TVs shipping with our new

solution in early 2010.

We paired our innovative short-range wireless transceiver

technology and our low power MCUs to deliver the most

reliable, energy efficient utility metering solution for gas,

water and heat meters being upgraded as part of Smart Energy

initiatives worldwide.

Necip Sayiner

President and CEO

S I L I C O N L A B O R AT O R I E S 2 0 0 9 A N N U A L R E P O R T / 3

IS GREATER THAN TRADITIONAL
DISCRETE TV TUNERS

S i 2 17 0 H Y B R I D T V T U N E R

• Dramatically reduces total
number of components

• Significantly reduces

module thickness and cost

• Exceeds the performance

of traditional discrete
tuner implementations

iDTV

OUR SILICON TV
TUNER'S PERFORMANCE

TV makers are working to break
the 1" barrier—only a silicon
tuner is thin enough to enable
that new milestone.

One of the most significant mixed-signal challenges in consumer

electronics is the RF front end for televisions, which acts as

the primary agent for channel reception and impacts picture

quality. For decades, TV makers have relied on tuners that are

made of hundreds of discrete components, many of which are

tuned by hand. They have tolerated the complexity and hefty

real estate requirements of these solutions because they meet

their stringent performance requirements. However, with the

industry moving to slimmer and slimmer form factors, and the

ever present need to reduce the cost and complexity of the TV

system, semiconductor makers have attempted to displace this

discrete tuner with a silicon solution.

Silicon Labs’ Si2170, a complete, globally-compliant hybrid TV

tuner with analog TV demodulator in a single CMOS IC, is the

first silicon tuner to deliver improved performance, size and cost

compared to traditional tuner solutions. Leveraging Silicon Labs’

patented technology, the Si2170 delivers unmatched sensitivity

and selectivity, enabling TV makers to improve picture quality

and reception for both analog and digital broadcasts. The high

level of integration eliminates over 100 discrete components,

enabling simpler design, lower manufacturing costs, higher

production yields and improved reliability for integrated digital

televisions (iDTVs), set-top boxes and PC TV applications.

Targeting a $400 million market, Silicon Labs’ TV tuner and

road map of video products represent a significant new growth

opportunity for the company.

COMPE TITOR SOLUTION

Si2170

I T TA k E S C O M P E T I T O R S T W O S I D E S
O F T H E B O A R D T O D O W H AT W E D O

• Best-in-class real-world reception

• Delivers superior picture quality

• A higher number of received stations
in real-world reception conditions

Better reception

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S I L I C O N L A B O R AT O R I E S 2 0 0 9 A N N U A L R E P O R T / 5

IS GREATER THAN TODAY'S
INEFFICIENT ENERGY GRID

E Z R a d i o P R O ® T R A N S C E I V E R

• Unparalleled combination of

sensitivity, reliability and efficiency

• Meets the demands of
intelligent metering

SMART ENERGY

Home automation and the utility
markets will reach an inflection
point in 2010 as governments
globally invest in Smart Energy and
related initiatives. Silicon Labs
is leveraging its wealth of patented
mixed-signal technologies to
help enable the next wave of smart
home and smart grid innovations.

The idea of using technology and intelligent systems to more

efficiently use energy began with a relatively simple idea. If you

add a communications link into a traditional metering device, you

have the ability to remotely access the data that the meter has

collected. Through this enhancement an explosion of applications

and innovations is transforming the way energy is measured,

priced and consumed.

Utilities today are implementing two-way networks which

allow individuals and businesses to make more efficient use

of the energy they consume through in-home energy displays,

thermostats and load controllers. Operators enjoy the benefits

of improved reliability and dynamic billing capability.

These new intelligent devices require sophisticated mixed-signal

ICs. Silicon Labs’ EZRadioPRO® wireless transceivers and ultra

low power MCUs offer an unparalleled combination of sensitivity,

reliability and efficiency to meet the demands of intelligent

metering. Our solution enables battery life of more than a

decade (up to 20 years), further range and reliability of wireless

data reception, and more intelligence to capture, compute and

communicate information in the system.

We view the global market for smart meters as a strategic new

growth area for Silicon Labs.

Smart meters allow better use of
alternative energy sources such as
solar panels and wind energy.

More efficiency in the grid results
in less energy usage—directly
impacting the environment.

2-way communication via
reliable wireless links allows
utilities and users to easily
access usage data.

Governments all over the world are
investing billions of dollars on energy
independence initiatives making
modernization of the energy grid a priority.
A more intelligent energy grid can
dramatically reduce energy consumption
resulting in significant cost savings.

15–20 year battery life
sustains gas and water meters
longer, reducing maintenance.

Real time feedback helps customers
see their household power
consumption at a glance.

A smart grid can help
home owners manage
their energy consumption.

S I L I C O N L A B O R AT O R I E S 2 0 0 9 A N N U A L R E P O R T / 7

IS GREATER THAN THE
PUSH OF A BUTTON

HUMAN INTERFACE

A WAVE OF THE HAND

One of the most significant trends
in electronics is the replacement
of traditional buttons, keys
and sliders by human interface
technology enabling users to
interact with devices through
a simple touch or gesture.

Increasingly, sophisticated sensing technology is being added to

everything from consumer devices to industrial equipment. This

over $1 billion opportunity includes portable displays, handsets,

small appliances, residential light controls, thermostat controls,

T O U C H - L E S S I N T E R FA C E

home security panels, set-top boxes and commercial point-of-

sale interfaces, kiosks, dispensers, interactive toys, personal

navigation devices, portable gaming systems and many other

electronics products.

• Silicon Labs patented technology enables users
to interact with electronics with a simple gesture

• This touch-less interface enables entirely new form
factors and usage models for common electronics

The use of advanced human interface functionality introduces

challenges into equipment design, creating power and

performance tradeoffs and introducing a higher level of software

complexity. These are challenges directly aligned with Silicon

Labs core competency. Our new QuickSense™ portfolio of highly

accurate and fast-response touch, proximity and ambient light

sense devices announced in 2009 offers a more flexible, better

performing and lower power alternative to existing sensing

solutions. Silicon Labs’ QuickSense family leverages proven,

patented and patent-pending technologies and a straightforward

design environment to provide developers with a single source

for human interface technology.

The QuickSense portfolio is designed to spark fresh innovation in

human interfaces for our customers and is expected to become

a significant product line for Silicon Labs.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

(Mark One)

(cid:1) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended January 2, 2010

(cid:2) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934
For the transition period from

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)

400 West Cesar Chavez, Austin, Texas
(Address of principal executive offices)

74-2793174
(I.R.S. Employer Identification No.)

78701
(Zip Code)

(512) 416-8500
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class

Name of exchange on which registered

Common Stock, $0.0001 par value

The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities

Act. (cid:1) Yes (cid:2) 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. (cid:2) Yes (cid:1) 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. (cid:1) Yes (cid:2) No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if
any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files). (cid:2) Yes (cid:2) No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this
chapter) 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. (cid:1)

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer’’ and ‘‘smaller
reporting company’’ in Rule 12b-2 of the Exchange Act.
Large accelerated filer (cid:1)

Non-accelerated filer (cid:2)

Accelerated filer (cid:2)

Smaller reporting company (cid:2)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange

Act). (cid:2) Yes (cid:1) 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 2, 2009) was $1,565,624,619 (assuming, for this purpose, that only directors
and officers are deemed affiliates).

There were 45,929,347 shares of the registrant’s common stock issued and outstanding as of January 31, 2010.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the registrant’s 2010 Annual Meeting of Stockholders are incorporated by

reference into Part III of this Form 10-K.

Table of Contents

Part I

Part II

Part III

Part IV

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.

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters

Item 6.
Item 7.

and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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.
Changes in and Disagreements with Accountants on Accounting and
Item 9.

Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11.
Security Ownership of Certain Beneficial Owners and Management and
Item 12.

Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 13.

Certain Relationships and Related Transactions, and Director

Item 14.

Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . .

Item 15.

Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . .

Page
Number

2
13
26
26
26
27

28
31

32
46
47

47
47
47

48
51

51
51

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.

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 a broad range of
applications in a variety of markets, including communications, consumer, industrial, automotive,
medical and power management.

Our world-class, mixed-signal ICs use standard complementary metal oxide semiconductor (CMOS)

technology to 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, simplifying our
customers’ designs and improving their time-to-market.

Industry Background

Communications, computing and consumer electronics continue to drive semiconductor

consumption. Growth in these markets has been driven primarily by the increasing pervasiveness of
Internet usage, development of new communications technologies and the availability of improved
communication services at lower costs over high-speed, highly reliable networks. This demand has
fueled tremendous growth in the number of electronic devices. Demand for functionality in mobile,
handheld devices such as mobile phones, portable media players and personal navigation devices, has
increased as manufacturers attempt to further differentiate their products. Consumer and enterprise
demand for Internet connectivity, the availability of alternative telephony services and the transition to
digital video are also key trends driving demand for innovative, mixed-signal ICs.

All of these applications are characterized by an intersection between the analog world we live in

and the digital world of computing, and therefore require analog-intensive, mixed-signal circuits.
Traditional mixed-signal designs relied upon solutions built with numerous, complex discrete analog and
digital components. While these traditional designs provide the required functionality, they are often
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,
electronics manufacturers need to reduce the cost and complexity of their systems and enable new
features or functionality to differentiate themselves from their competitors.

Simultaneously, these manufacturers face accelerating time-to-market demands and must be able

to rapidly 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 requires specific
expertise and relies on creative, experienced engineers to deliver solutions that optimize speed, power
and performance despite the noisy digital environment and within the constraints of standard
manufacturing processes. The development of this 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 portable devices, satellite set top boxes, AM/FM radios and other
consumer electronics, networking equipment, test and measurement equipment, industrial monitoring
and control, central office telephone equipment and customer premises 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 competing products:

(cid:127) Require less board space;

(cid:127) Reduce the use of external components lowering the system cost and simplifying design;

(cid:127) Offer superior performance improving our customers’ end products;

(cid:127) Provide increased reliability and manufacturability, improving customer yields; and/or

(cid:127) Reduce system power requirements enabling smaller form factors and/or longer battery life.

We group our products into the following categories:

(cid:127) Broadcast products, which include our broadcast radio receivers and transmitters, video tuners

and demodulators, satellite set-top box receivers and satellite radio tuners;

(cid:127) Access products, which include our ISOmodem(cid:4) embedded modems, Voice over IP (VoIP)
products, such as our ProSLIC(cid:4) subscriber line interface circuits and voice direct access
arrangement (DAA), and our Power over Ethernet devices;

(cid:127) Broad-based products, which include 8-bit microcontroller products, timing products (including
clocks, precision clock & data recovery ICs and oscillators), short-range wireless transceivers,
isolators, current sensors and our QuickSense(cid:5) portfolio of touch, proximity and ambient light
sensing devices; and

(cid:127) Mature products, which include our silicon DAA for PC modems, DSL analog front end ICs,

optical physical layer transceivers and RF Synthesizers.

The following table summarizes the diverse product areas and applications for the various ICs that

we have introduced to customers:

Product Areas and Description

Broadcast Products

Broadcast Radio Receivers and Transmitters

Applications

Our FM and AM receivers deliver the entire tuner from antenna
input to audio output in a single chip. Ideal for portable audio
applications, the broadcast audio products are based on an
innovative digital architecture that enables significant
improvements in performance, which translates to a better
consumer experience, while reducing system cost and board
space for our customers. The AM/FM receivers enable AM
and/or FM radio in virtually any device and the transmitters
allow customers to cost effectively add wireless AM/FM audio
playback capability to any portable media device.

(cid:127) Mobile phones
(cid:127) Stand-alone AM/FM radios
(cid:127) Personal computers
(cid:127) Portable audio devices
(cid:127) MP3/digital media players
(cid:127) Navigation/GPS devices
(cid:127) Satellite radios
(cid:127) Home stereos
(cid:127) Automotive infotainment

systems

Product Areas and Description

Video tuners and demodulators

Our complete, globally-compliant hybrid TV tuner with analog
TV demodulator in a single CMOS IC leverages our proven
digital low-IF architecture and exceeds the performance of
traditional discrete TV tuners, enabling TV makers to deliver
improved picture quality and better reception for both analog
and digital broadcasts. Our small, low power and high
performance digital video demodulators support DVB-T, DVB-C
and fixed reception DVB-H in a single chip and are ideal for
equipment receiving digital terrestrial and/or cable services.

Access Products

ISOmodem Embedded Modems

The ISOmodem embedded modems leverage innovative silicon
DAA technology and a digital signal processor to deliver a
globally compliant, very small analog modem for embedded
applications like set-top boxes, Personal Video Recorders
(PVRs) and fax capability in multi-function printers.

ProSLIC Subscriber Line Interface Circuits

Our ProSLIC provides the analog subscriber line 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.

Voice Direct Access Arrangement

Our DAA provides electrical isolation to guard against power
surges in the telephone line, while the codec provides
analog-to-digital and digital-to-analog conversion. In a voice over
DSL application, our voice DAA also enables emergency backup
telephone service in the event the data network goes down.

Applications

(cid:127) Integrated digital televisions

(iDTV)

(cid:127) Free-to-Air (FtA) or pay-TV

set-top box receivers

(cid:127) PC-TV applications
(cid:127) DVD/HDD personal video

recorders

(cid:127) Set-top and digital cable boxes
(cid:127) Industrial monitoring
(cid:127) Postage meters
(cid:127) Security systems
(cid:127) Remote medical monitoring
(cid:127) Gaming consoles
(cid:127) PVRs
(cid:127) Point of sale (POS) terminals
(cid:127) Fax machines and multi-

function printers

(cid:127) Wireless local loop providing
remote access for a wireline
system

(cid:127) Voice over broadband modems

and terminal adapters
(cid:127) VoIP residential gateways
(cid:127) PBXs
(cid:127) Wired long loop and central

office systems

(cid:127) PBXs and IP telephony

products

Product Areas and Description

Power over Ethernet

Our Power over Ethernet (PoE) Power Source Equipment and
Powered Device ICs offer highly differentiated solutions with a
reduced total bill of materials (BOM) cost and improved
performance and reliability. Our solutions also offer an
integration level that enables functionality not available with
competing solutions. These devices are still in the early stages of
customer adoption.

Broad-based Products

Microcontrollers

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.

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. Our Any-Rate
Precision Clock product family offers the additional flexibility of
generating any output frequency from any input frequency with
0.3 picosecond jitter performance. Leveraging our DSPLL(cid:4)
technology to offer frequency agile, extremely low jitter clock
products, these devices replace traditional solutions implemented
using expensive, bulky modules, numerous crystal sources,
complicated discrete circuitry requiring numerous components,
or hybrid IC/discrete solutions that offer limited functionality.

Oscillators

Applications

(cid:127) Wireless access points (WAP)
(cid:127) VoIP phones
(cid:127) Radio frequency identification

(RFID) tag readers

(cid:127) POS terminals
(cid:127) Networking routers and

switches

(cid:127) Security systems
(cid:127) Cameras

(cid:127) Industrial automation and

control

(cid:127) Automotive sensors and

controls

(cid:127) Medical instrumentation
(cid:127) Electronic test and

measurement equipment

(cid:127) Consumer electronics
(cid:127) Computer peripherals
(cid:127) White goods

(cid:127) Next-generation networking

equipment

(cid:127) Telecommunications
(cid:127) Wireless base stations
(cid:127) Test and measurement

equipment
(cid:127) HDTV video
(cid:127) High-speed data acquisition
(cid:127) SONET/SDH line cards

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,
manufacturability and performance.

(cid:127) Networking equipment
(cid:127) Base stations
(cid:127) Test and measurement

equipment

(cid:127) Storage area networks
(cid:127) Video systems

Product Areas and Description
EZRadio(cid:4) Short-Range Wireless Transceivers

Applications

Our EZRadio family of fully integrated, low power, low data
rate and low cost short range wireless ICs are designed to meet
the needs of customers developing applications requiring a
secure, point to point transmission such as industrial monitoring
and control.

(cid:127) Remote keyless entry
(cid:127) Home security monitors
(cid:127) Automated Meter Readers
(cid:127) Remote controls

Isolators

Our digital isolator product family leverages an innovative
technology to enable up to four channels of isolation in a single
device, simplifying design and reducing system cost. These
products are still in the early stages of customer adoption.

(cid:127) Switch mode power supplies
(cid:127) Isolated analog data acquisition
(cid:127) Industrial networking
(cid:127) Motor control

Current Sensors

Our low-loss, high-accuracy alternating current sensor family
measures up to 20 amps of current for control and protection in
power systems. Our current sensors integrate the functional
equivalent of a current transformer circuit into a tiny package,
including the current transformer, blocking diode, burden
resistor and output RC filter, thereby decreasing board space
and reducing enclosure volume requirements. These products
are still in the early stages of customer adoption.

Mature Products

(cid:127) AC-DC switching power

supplies

(cid:127) Isolated DC-DC supplies
(cid:127) Motor control
(cid:127) Electronic ballasts for lighting

Our silicon DAA for PC modems provides the functionality of both a direct access arrangement

and a codec in a single chipset. Our 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.

During fiscal 2009, 2008 and 2007, sales of our mixed-signal products accounted for substantially

all of our revenue.

Divestiture

In March 2007, we sold our Aero(cid:4) transceiver, AeroFONE(cid:5) single-chip phone and power
amplifier product lines (the ‘‘Aero product lines’’) to NXP B.V. and NXP Semiconductors France SAS
(collectively ‘‘NXP’’). These products represented about one third of our quarterly revenue at the time
of the divestiture. We intend to selectively compete in wireless applications and have retained a
substantial portion of our core RF intellectual property.

Customers, Sales and Marketing

We market our products through our direct sales force and through a network of independent
sales representatives and 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 Avnet, represented 27% and 10% of our revenues

during fiscal 2009. 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 2009.

During fiscal 2009, our ten largest end customers accounted for 43% of our revenues. We had one

end customer, Samsung, whose purchases across a variety of product areas represented 16% of our
total revenues during fiscal 2009. No other single end customer accounted for more than 10% of our
revenues during this period. Our major customers include 2Wire, Apple, Huawei, LG Electronics,
Nokia, Philips, Samsung, Sony Ericsson, Thomson and Varian Medical Systems.

We maintain numerous sales offices in North America, Europe and Asia. 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 88% in fiscal 2009. For further information
regarding our revenues and long-lived assets by geographic area, see Note 17, Segment Information, to
the Consolidated Financial Statements for additional information.

Our direct sales force includes regional sales managers in the field and area business managers to

further support customer communications. 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.

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 $104.4 million, $101.2 million and $89.3 million in fiscal

2009, 2008 and 2007, respectively.

Technology

Our product development process facilitates the design of highly-innovative, analog-intensive,
mixed-signal ICs. 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:

(cid:127) Analog design expertise in CMOS;

(cid:127) Digital signal processing design expertise;

(cid:127) Microcontroller and system on a chip design expertise; and

(cid:127) 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 world-class analog design capability.
Additionally, we strive to design substantially all of our ICs in standard 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. These finer line geometries can
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.

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.

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 allow our ICs to perform the required analog functions with increased digital
capabilities. For example, our broadcast audio products use a proven digital low-IF receiver and
transmitter architecture to deliver superior RF performance and interference rejection compared to
traditional, analog-only approaches. Digital signal processing is utilized to optimize sound quality under
varying signal conditions, enabling a better consumer experience.

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 device physics and accumulated design expertise.

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:

(cid:127) Isolation, which is critical for existing and emerging telecom networks;

(cid:127) Frequency synthesis, which is core technology for wireless and clocking applications;

(cid:127) Integration, which enables third-party software with our ICs to create combined solutions; and

(cid:127) 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) or its
affiliates 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 moved to the final testing stage. This operation can be
performed by the same contractor that assembled the IC, other third-party test subcontractors or within
our internal facilities prior to shipping to our customers. During fiscal 2009, the vast majority 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 about this level during fiscal 2010.

Backlog

As of January 2, 2010, our backlog was approximately $74.2 million, compared to approximately

$45.8 million as of January 3, 2009. 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. Shipments to distributors are 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.

Competition

The markets for semiconductors generally, and for analog and mixed-signal ICs in particular, are
intensely competitive. We anticipate that the market for our products will continually evolve and will be
subject to rapid technological change. We believe the principal competitive factors in our industry are:

(cid:127) Product size;
(cid:127) Level of integration;
(cid:127) Product capabilities;
(cid:127) Reliability;
(cid:127) Price;
(cid:127) Performance;

(cid:127) Power requirement;
(cid:127) Customer support;
(cid:127) Reputation;
(cid:127) Ability to rapidly introduce new products to market; and
(cid:127) Intellectual property.

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.

As we target and supply products to numerous markets and applications, we face competition from

a relatively large number of competitors. We compete with Analog Devices, Atmel, Broadcom,
Conexant, Cypress, Epson, Freescale, IDT, Lantiq, LSI, Maxim Integrated Products, Microchip, NXP
Semiconductors, Renesas, Sony Semiconductor, ST-Ericsson, STMicroelectronics, Texas Instruments,
Vectron International, Zarlink Semiconductor 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. Our competitors may also offer bundled solutions 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.

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 January 2, 2010, we had approximately 900 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, the visual images of certain ICs with the
U.S. Copyright Office. We have registered the ‘‘Silicon Labs’’ 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 January 2, 2010, we employed 736 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 U.S. employees are represented by a
labor organization. We consider our employee relations to be good.

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.

Available Information

Our website address is 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 free of charge as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the Securities and Exchange Commission (SEC).
Our website and the information contained therein or connected thereto are not intended to be
incorporated into this Annual Report on Form 10-K.

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. In some future period our revenues or operating results may 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:

(cid:127) The timing and volume of orders received from our customers;

(cid:127) The timeliness of our new product introductions and the rate at which our new products may

cannibalize our older products;

(cid:127) 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’’;

(cid:127) The time lag and realization rate between ‘‘design wins’’ and production orders;

(cid:127) The demand for, and life cycles of, the products incorporating our ICs;

(cid:127) The rate of adoption of mixed-signal ICs in the markets we target;

(cid:127) Deferrals or reductions of customer orders in anticipation of new products or product

enhancements from us or our competitors or other providers of ICs;

(cid:127) Changes in product mix;

(cid:127) 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;

(cid:127) The average selling prices for our products generally decline over time;

(cid:127) Changes in market standards;

(cid:127) Impairment charges related to inventory, equipment or other long-lived assets;

(cid:127) The software used in our products, including software provided by third-parties, may not meet

the needs of our customers;

(cid:127) Significant legal costs to defend our intellectual property rights or respond to claims against us;

and

(cid:127) 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.

The markets for mobile handsets, consumer electronics, satellite 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. 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.

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:

(cid:127) Requirements of customers;

(cid:127) Accurate prediction of market and technical requirements;

(cid:127) Timely completion and introduction of new designs;

(cid:127) Timely qualification and certification of our ICs for use in our customers’ products;

(cid:127) Commercial acceptance and volume production of the products into which our ICs will be

incorporated;

(cid:127) Availability of foundry, assembly and test capacity;

(cid:127) Achievement of high manufacturing yields;

(cid:127) Quality, price, performance, power use and size of our products;

(cid:127) Availability, quality, price and performance of competing products and technologies;

(cid:127) Our customer service, application support capabilities and responsiveness;

(cid:127) Successful development of our relationships with existing and potential customers;

(cid:127) Technology, industry standards or end-user preferences; and

(cid:127) 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.

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 in fiscal 2009 was $104.4 million, or 23.7% 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.

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 2009, our ten largest
customers accounted for 43% of our revenues. During fiscal 2009, Samsung’s purchases across a variety
of product areas represented 16% of our total revenues. Some 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:

(cid:127) We do not have material long-term purchase contracts with our customers;

(cid:127) 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;

(cid:127) Some of our customers may have efforts underway to actively diversify their vendor base which

could reduce purchases of our ICs; and

(cid:127) 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.

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 we deem 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. 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:

(cid:127) Cease selling products that use the challenged intellectual property;

(cid:127) 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;

(cid:127) Redesign those products that use infringing intellectual property; or

(cid:127) Pursue legal remedies with third parties to enforce our indemnification rights, which may not

adequately protect our interests.

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.

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.

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. Our new products are increasingly being designed in more complex processes
which further increases the risk of errors. 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.

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 acquisitions
that we have made and may make in the future, including our acquisition of Integration Associates,
entail a number of risks that could materially and adversely affect our business and operating results,
including:

(cid:127) Problems integrating the acquired operations, technologies or products with our existing business

and products;

(cid:127) Diversion of management’s time and attention from our core business;

(cid:127) Need for financial resources above our planned investment levels;

(cid:127) Difficulties in retaining business relationships with suppliers and customers of the acquired

company;

(cid:127) Risks associated with entering markets in which we lack prior experience;

(cid:127) Risks associated with the transfer of licenses of intellectual property;

(cid:127) Increased operating costs due to acquired overhead;

(cid:127) Tax issues associated with acquisitions;

(cid:127) Acquisition-related disputes, including disputes over earn-outs and escrows;

(cid:127) Potential loss of key employees of the acquired company; and

(cid:127) 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.

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.
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 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 Asia. This has included the
establishment of a headquarters in Singapore for non-U.S. operations. The percentage of our revenues
derived from customers located outside of the United States was 88% during fiscal 2009. 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:

(cid:127) Increased complexity and costs of managing international operations and related tax obligations,

including our headquarters for non-U.S. operations in Singapore;

(cid:127) Protectionist laws and business practices that favor local competition in some countries;

(cid:127) Difficulties related to the protection of our intellectual property rights in some countries;

(cid:127) Multiple, conflicting and changing tax and other laws and regulations that may impact both our
international and domestic tax and other liabilities and result in increased complexity and costs;

(cid:127) Longer sales cycles;

(cid:127) Greater difficulty in accounts receivable collection and longer collection periods;

(cid:127) High levels of distributor inventory subject to price protection and rights of return to us;

(cid:127) Political and economic instability;

(cid:127) Greater difficulty in hiring and retaining qualified technical sales and applications engineers and

administrative personnel; and

(cid:127) 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.

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 on third-party

vendors to manufacture the ICs we design. We also currently rely on Asian third-party assembly
subcontractors 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:

(cid:127) Failure by us, our customers or their end customers to qualify a selected supplier;

(cid:127) Potential insolvency of the third-party subcontractors;

(cid:127) Reduced control over delivery schedules and quality;

(cid:127) Limited warranties on wafers or products supplied to us;

(cid:127) Potential increases in prices or payments in advance for capacity;

(cid:127) Increased need for international-based supply, logistics and financial management;

(cid:127) Their inability to supply or support new or changing packaging technologies; and

(cid:127) 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 12 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

Our past 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. To the extent 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.

We are subject to risks relating to product concentration

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:

(cid:127) A decline in demand for any of our more significant products, including our modem products,

FM tuners or ProSLIC;

(cid:127) Failure of our products to achieve continued market acceptance;

(cid:127) Competitive products;

(cid:127) New technological standards or changes to existing standards that we are unable to address with

our products;

(cid:127) A failure to release new products or enhanced versions of our existing products on a timely

basis; and

(cid:127) The failure of our new products to achieve market acceptance.

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. The current economic situation could increase the likelihood of
such defaults and bankruptcies. Our ten largest customers or distributors represent a substantial
majority of our accounts receivable. If any such customer or distributor, or a material portion of our
smaller customers or distributors, were to become insolvent or otherwise not satisfy their obligations to
us, we could be materially harmed.

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. 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 dispositions we make could harm our financial condition

In connection with our sale of the Aero product lines, we incurred various risks. This disposition
and any disposition that we may make in the future entail a number of risks that could materially and
adversely affect our business and operating results, including:

(cid:127) Diversion of management’s time and attention from our core business;

(cid:127) Difficulties separating the divested business;

(cid:127) Risks to relations with customers who previously purchased products from our disposed product

lines;

(cid:127) Reduced leverage with suppliers due to reduced aggregate volume;

(cid:127) Risks related to employee relations;

(cid:127) Risks associated with the transfer and licensing of intellectual property;

(cid:127) Security risks and other liabilities related to the transition services provided in connection with

the disposition;

(cid:127) Tax issues associated with dispositions; and

(cid:127) Disposition-related disputes, including disputes over earn-outs and escrows.

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:

(cid:127) Actual or anticipated fluctuations in our operating results;

(cid:127) Changes in financial estimates by securities analysts or our failure to perform in line with such

estimates;

(cid:127) Changes in market valuations of other technology companies, particularly semiconductor

companies;

(cid:127) Announcements by us or our competitors of significant technical innovations, acquisitions,

strategic partnerships, joint ventures or capital commitments;

(cid:127) Introduction of technologies or product enhancements that reduce the need for our products;

(cid:127) The loss of, or decrease in sales to, one or more key customers;

(cid:127) A large sale of stock by a significant shareholder;

(cid:127) Dilution from the issuance of our stock in connection with acquisitions;

(cid:127) The addition or removal of our stock to or from a stock index fund;

(cid:127) Departures of key personnel; and

(cid:127) The required expensing of stock awards.

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, distributors 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 several of our assembly and test subcontractors’ sites are located in

Taiwan and our other assembly and test subcontractors are located in the Pacific Rim region. In
addition, many of our customers 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. Earthquakes, fire, flooding, lack of water or other natural disasters, an epidemic, political
unrest, war, labor strikes or work stoppages in countries where our semiconductor manufacturers,
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 alternate capacity could be obtained on
favorable terms, if at all.

A natural disaster, epidemic, labor strike, war or political unrest where our customers’ facilities are
located would likely reduce our sales to such customers. North Korea’s geopolitical maneuverings have
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 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.

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 and may decrease our gross margins due to higher unit costs

The manufacturing of our products is a highly complex and technologically demanding process.
Although we work closely with our foundries and assemblers to minimize the likelihood of reduced
manufacturing yields, we have from time to time experienced lower than anticipated manufacturing
yields. Changes in manufacturing processes or the inadvertent use of defective or contaminated
materials could result in lower than anticipated manufacturing yields or unacceptable performance
deficiencies, which could lower our gross margins. 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.

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, some of our customers 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.

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 margins and/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:

(cid:127) The division of our Board of Directors into three classes to be elected on a staggered basis, one

class each year;

(cid:127) 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;

(cid:127) A prohibition on stockholder action by written consent;

(cid:127) Elimination of the right of stockholders to call a special meeting of stockholders;

(cid:127) 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

(cid:127) 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.

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. Deteriorating general worldwide economic conditions, including

reduced economic activity, concerns about credit and inflation, increased energy costs, decreased
consumer confidence, reduced corporate profits, decreased spending and similar adverse business
conditions, would make it very difficult for our customers, our vendors, and us to accurately forecast
and plan future business activities and could cause U.S. and foreign businesses to slow spending on our
products. We cannot predict the timing, strength, or duration of any economic slowdown or economic
recovery. If the economy or markets in which we operate deteriorate, our business, financial condition,
and results of operations would likely be materially and adversely affected.

Downturns have been characterized by diminished product demand, production overcapacity, high

inventory levels and accelerated erosion of average selling prices. We believe the semiconductor
industry has suffered a downturn due in large part to adverse conditions in the global credit and
financial markets, including diminished liquidity and credit availability, declines in consumer confidence,
declines in economic growth, increased unemployment rates and general uncertainty regarding the
economy. Such downturns may have a material adverse effect on our business and operating results.

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.

The average selling prices of our products could decrease rapidly which may negatively impact our
revenues and gross margins

We may experience substantial period-to-period fluctuations in future operating results due to the

erosion of our average selling prices. 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 margins and revenues will suffer. To maintain our gross margin 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 could cause our revenues and gross margin
percentage to decline.

Competition within the numerous markets we target may reduce sales of our products and reduce our
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. We compete with
Analog Devices, Atmel, Broadcom, Conexant, Cypress, Epson, Freescale, IDT, Lantiq, LSI, Maxim
Integrated Products, Microchip, NXP Semiconductors, Renesas, Sony Semiconductor, ST-Ericsson,
STMicroelectronics, Texas Instruments, Vectron International, Zarlink Semiconductor 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. 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.

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 certain applications are based on industry standards that are continually evolving. 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.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our primary facilities, housing engineering, sales and marketing, administration and test

operations, are located in Austin, Texas. Our Austin, Texas operations currently occupy approximately
190,000 square feet of leased floor space with lease terms expiring at various dates through 2013. In
addition to these properties, we lease smaller facilities in various locations in the United States, China,
France, Germany, Hungary, Japan, Portugal, South Korea, Singapore, Taiwan and the United Kingdom
for engineering, sales and marketing, administrative and manufacturing support activities. 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 Complaint alleges violations of the Securities Act of
1933 and the Securities Exchange Act of 1934. 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 December 5, 2006, the Second Circuit vacated a decision by the District
Court granting class certification in six of the coordinated cases, which are intended to serve as test, or
‘‘focus’’ cases. The plaintiffs selected these six cases, which do not include us. On April 6, 2007, the
Second Circuit denied a petition for rehearing filed by the plaintiffs, but noted that the plaintiffs could
ask the District Court to certify more narrow classes than those that were rejected.

The parties in the approximately 300 coordinated cases, including the parties in the case against us,

reached a settlement. The insurers for the issuer defendants in the coordinated cases will make the
settlement payment on behalf of the issuers, including us. On October 5, 2009, the Court granted final
approval of the settlement. Six notices of appeal have been filed. Judgment was entered on January 13,
2010. The time to file additional notices of appeal is set to expire on February 12, 2010. A group of
three objectors, who filed a notice of appeal, also filed a petition to the Second Circuit seeking
permission to appeal the District Court’s final approval of the settlement on the basis that the
settlement class is broader than the class previously rejected by the Second Circuit in its December 5,
2006 order vacating the District Court’s order certifying classes in the focus cases.

As the litigation process is inherently uncertain, we are unable to predict the outcome of the above

described matter if the settlement does not survive the appeal. While we do maintain liability
insurance, we could incur losses that are not covered by our liability insurance or that exceed the limits
of our liability insurance. Such losses could have a material impact on our business and our results of
operations or financial position.

Other

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 our consolidated financial position or results of
operations.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases

Part II

of Equity Securities

Market Information and Holders

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 January 31, 2010, there were 137 holders of record
of our common stock.

Fiscal Year 2008

First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fiscal Year 2009

High

Low

$37.93
39.24
35.23
28.93

$28.13
39.29
49.08
49.06

$25.39
31.31
28.74
17.05

$20.40
26.19
34.59
40.56

Dividend Policy

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.

Stock Performance Graph

The graph depicted below shows a comparison of cumulative total stockholder returns for an

investment in Silicon Laboratories Inc. common stock, the NASDAQ Composite Index and the
NASDAQ Electronic Components Index.

COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG SILICON LABORATORIES INC.,
THE NASDAQ COMPOSITE INDEX
AND THE NASDAQ ELECTRONIC COMPONENTS INDEX

150

100

D
O
L
L
A
R
S

1/01/05

12/31/05

12/30/06

12/29/07

01/03/09

01/02/10

Silicon Laboratories Inc.

NASDAQ Composite

NASDAQ Electronic Components

5FEB201021303849

(1) The graph assumes that $100 was invested in our common stock and in each index at the market
close on January 1, 2005, and that all dividends were reinvested. No cash dividends have been
declared on our common stock.

(2) Stockholder returns over the indicated period should not be considered indicative of future

stockholder returns.

(3) The NASDAQ Composite Index was previously referred to as the NASDAQ Stock Market (US)

Index.

Issuer Purchases of Equity Securities

The following table summarizes repurchases of our common stock during the three months ended

January 2, 2010:

Period

October 4, 2009 - October 31, 2009 .
November 1, 2009 - November 28,

Total Number of
Shares Purchased

Average Price
Paid per Share

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs

Approximate
Dollar Value of
Shares that May
Yet Be Purchased
Under the Plans or
Programs

—

$ —

—

$150,000,000

2009 . . . . . . . . . . . . . . . . . . . . .

120,100

November 29, 2009 - January 2,

2010 . . . . . . . . . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . .

61,368

181,468

$42.85

$44.09

$43.27

120,100

$144,853,903

61,368

181,468

$142,148,226

In October 2009, our Board of Directors authorized a program to repurchase up to $150 million of

our common stock through 2010. The program allows for repurchases to be made in the open market
or in private transactions, including structured or accelerated transactions, subject to applicable legal
requirements and market conditions. This new program replaced the previously authorized program to
repurchase up to $100 million of our common stock which ended on November 3, 2009.

Item 6. Selected Financial Data

Please 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. Financial data for fiscal years 2005
through 2006 has been reclassified to reflect the sale of our former Aero product lines as discontinued
operations. The sale of these product lines closed in March 2007. See Note 3, Discontinued Operation,
to the Consolidated Financial Statements for additional information.

Consolidated Statements of Income Data

Revenues . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . .
Income from discontinued operations, net
. . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . .

of income taxes

Income from continuing operations per

share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Balance Sheet Data

Fiscal Year

2009

2008

2007

2006

2005

(in thousands, except per share data)

$441,020
66,511
73,092(1)

$415,630

43,656(2)
32,935(2)

$337,461
23,097
39,687

$288,156

$238,587

6,052(6)
15,343(6)

18,945(7)
17,699(7)

—

165,149(4)
$ 73,092(1) $ 32,935(2) $204,836(4) $ 31,158(6) $ 47,506(7)

15,815

29,807

—

$
$

1.62
1.57

$
$

0.68
0.67

$
$

0.72
0.70

$
$

0.28
0.27

$
$

0.33
0.32

Cash, cash equivalents and investments . .
Working capital . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . .
Long-term obligations . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . .

$434,899
435,359
742,838
24,403
629,796

$325,360(3) $572,974(5) $386,292
402,085
289,716(3)
686,995
624,245(3)
16,691
48,789
568,682
502,460(3)

599,300(5)
840,246(5)
43,309
703,545

$363,710
369,304
601,062
7,418
498,048

(1) Includes a benefit related to the resolution of prior year uncertain tax benefits.

(2) Includes a charge for in-process research and development costs in connection with our acquisition

of Integration Associates.

(3) Reflects repurchases of our common stock in fiscal 2008.

(4) Includes a gain on the sale of our Aero product lines, net of related income taxes.

(5) Includes proceeds from the sale of our Aero product lines, less repurchases of our common stock

in fiscal 2007.

(6) At the beginning of fiscal 2006, we changed our method of accounting for stock-based

compensation to conform to Financial Accounting Standards Board (FASB) Accounting Standards
Codification (ASC) 718-10, formerly FASB Statement of Financial Accounting Standards
(SFAS) No. 123 (revised 2004), Share-Based Payment, (SFAS 123R).

(7) Includes a charge for acquired research and development costs in connection with our acquisition

of Silicon MAGIKE.

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. This discussion contains forward-looking statements. Please see the ‘‘Cautionary Statement’’ and
‘‘Risk Factors’’ above for discussions 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 year 2009 had 52 weeks and ended on January 2, 2010. Fiscal
year 2008 had 53 weeks with the extra week occurring in the first quarter of the year and ended on
January 3, 2009. Fiscal year 2007 had 52 weeks and ended December 29, 2007. Except as noted, financial
results are for continuing operations. Our former Aero product lines are reported as discontinued operations.
The sale of these product lines closed in March 2007.

Overview

We design and develop 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 a broad range of applications in a variety of
markets, including communications, consumer, industrial, automotive, medical and power management.
Our major customers include 2Wire, Apple, Huawei, LG Electronics, Nokia, Philips, Samsung, Sony
Ericsson, Thomson and Varian Medical Systems.

As a ‘‘fabless’’ semiconductor company, we rely on third-party semiconductor fabricators in Asia,

and to a lesser extent the United States and Europe, 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 most cases, test these devices and ship
these units to our customers. Testing performed by such third parties 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.

Our expertise in analog-intensive, high-performance, mixed-signal ICs enables us to develop highly

differentiated solutions that address multiple markets. We group our products into the following
categories:

(cid:127) Broadcast products, which include our broadcast radio receivers and transmitters, video tuners

and demodulators, satellite set-top box receivers and satellite radio tuners;

(cid:127) Access products, which include our ISOmodem embedded modems, Voice over IP products, such
as our ProSLIC subscriber line interface circuits and voice direct access arrangement, and our
Power over Ethernet devices;

(cid:127) Broad-based products, which include 8-bit microcontroller products, timing products (including
clocks, precision clock & data recovery ICs and oscillators), short-range wireless transceivers,
isolators, current sensors and our QuickSense portfolio of touch, proximity and ambient light
sensing devices; and

(cid:127) Mature products, which include our silicon DAA for PC modems, DSL analog front end ICs,

optical physical layer transceivers and RF Synthesizers.

Through acquisitions and internal development efforts, we have continued to diversify our product

portfolio and introduce next generation ICs with added functionality and further integration. In fiscal
2009, we introduced a family of ultra-efficient microcontrollers for power-sensitive and battery-powered
embedded systems, a family of highly integrated, energy-efficient quad Power over Ethernet (PoE)
Power Sourcing Equipment (PSE) controllers, a new line of automotive-qualified microcontrollers that

enable a dramatic reduction in system cost and footprint in body electronics applications, our
QuickSense portfolio of highly accurate and fast-response touch, proximity and ambient light sensing
devices, the expansion of our Any-Rate Precision Clock family with both a low jitter clock generator for
broadcast video applications and web-customizable CMOS clock generators, a silicon hybrid TV tuner
that supports both analog and digital broadcasts in a single device, a family of ProSLIC single channel
telephony ICs for broadband networking equipment, the expansion of our small form factor
microcontrollers in a tiny 2x2 mm footprint, a family of ISOpro high-performance, digital isolators, a
family of high pin-count capacitive touch-sense microcontrollers for cost-sensitive embedded systems
and the EZRadioPRO(cid:4) embedded wireless radio family. We plan to continue to introduce products
that increase the content we provide for existing applications, thereby enabling us to serve markets we
do not currently address and expanding our total available market opportunity.

During fiscal 2009, we had one customer, Samsung, whose purchases across a variety of product
areas represented 16% of our total revenues. We had no customers that accounted for more than 10%
of our revenues during fiscal 2008 or 2007. 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 Avnet, represented 27% and 10% of our revenues during fiscal
2009, respectively. Edom represented 31% of our revenues during fiscal 2008. Edom and Avnet
represented 36% and 10% of our revenues during fiscal 2007, respectively. There were no other
distributors or contract manufacturers that accounted for more than 10% of our revenues in fiscal 2009,
2008 or 2007.

The percentage of our revenues derived from customers located outside of the United States was

88% in fiscal 2009 and 2008 and 87% in fiscal 2007. 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.

The sales cycle for our ICs can be as long as 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 research and development and selling, general and administrative expenses, and the
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 televisions, personal

video recorders, set-top boxes, portable navigation devices and mobile handsets, we expect that the
demand for our products will be typically subject to some degree of seasonal 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.

Discontinued Operation

In March 2007, we sold our Aero transceiver, AeroFONE single-chip phone and power amplifier

product lines to NXP for $285 million in cash, plus additional earn-out potential of up to an aggregate

of $65 million over the following three years. The results of operations of the sold product lines have
been presented as discontinued operations.

Results of Operations

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 to direct 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, the mix of products we sell 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.

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; and allocable depreciation of testing equipment and leasehold improvements.

Research and Development. Research and development expense consists primarily of personnel-

related expenses, including stock compensation, new product mask, wafer, packaging and test costs,
external consulting and services costs, equipment tooling, equipment depreciation, amortization of
acquired intangible assets, as well as an allocated portion of our occupancy costs for such operations.
Research and development activities include the design of new products, 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, patent litigation legal fees, costs related to relocating our headquarters and
promotional and marketing expenses.

In-Process Research and Development.

In-process research and development (IPR&D)

represents acquired technology resulting from business combinations that had not achieved
technological feasibility as of the acquisition closing date and had no alternative future use. For
acquisitions occurring prior to fiscal 2009, these costs were expensed on the date of acquisition.
Beginning in fiscal 2009, IPR&D acquired in business combinations is recorded as an indefinite-lived

intangible asset at fair value. The asset is tested for impairment through its completion and then
amortized over its useful life.

Interest Income.
investment balances.

Interest income reflects interest earned on our cash, cash equivalents and

Interest Expense.

Interest expense consists of interest on our short and long-term obligations.

Other Income (Expense), Net. Other income (expense), net reflects foreign currency

remeasurement adjustments and gains and losses on the disposal of fixed assets.

Provision (Benefit) for Income Taxes. Provision (benefit) for income taxes includes both domestic

and foreign income taxes at the applicable statutory rates adjusted for non-deductible expenses
(including a portion of our stock compensation), research and development tax credits, interest income
from tax-exempt investments and interest and penalties related to unrecognized tax benefits.

The following table sets forth our Consolidated Statements of Income data as a percentage of

revenues for the periods indicated:

Year Ended

January 2,
2010

January 3,
2009

December 29,
2007

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

100.0% 100.0%
36.6

38.5

Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

63.4

61.5

100.0%
38.6

61.4

Operating expenses:

Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . .
In-process research and development . . . . . . . . . . . . . . . . . . . . .

Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other income (expense):

Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income from continuing operations before income taxes . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . . . . . .

Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . .
Income from discontinued operations, net of income taxes . . . . . . .

23.7
24.7
—

48.4

15.0

0.7
(0.0)
(0.0)

15.7
(0.9)

16.6
—

24.3
24.2
2.5

51.0

10.5

2.5
(0.1)
(0.1)

12.8
4.9

7.9
—

26.5
28.1
—

54.6

6.8

7.3
(0.2)
(0.1)

13.8
2.0

11.8
48.9

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

16.6%

7.9%

60.7%

Comparison of Fiscal 2009 to Fiscal 2008

Revenues

(in millions)

Year Ended

January 2,
2010

January 3,
2009

Change

%
Change

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$441.0

$415.6

$25.4

6.1%

The growth in revenue in fiscal 2009 was driven primarily by market share gains. Increased unit
volumes outpaced declines in average selling prices. Unit volumes of our products increased compared
to fiscal 2008 by 19.6%. Average selling prices decreased during the same period by 10.8%. In general,
as our products become more mature, we expect to experience decreases in average selling prices. We
anticipate that newly announced, higher priced, next generation products and product derivatives will
offset these decreases to some degree.

Gross Margin

(in millions)

Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percent of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended

January 2,
2010

January 3,
2009

Change

%
Change

$279.8

$255.8

$24.0

9.4%

63.4%

61.5%

The increase in the dollar amount of gross margin in fiscal 2009 was primarily due to our

increased sales. The increase in gross margin as a percent of revenue in fiscal 2009 was primarily due
to a charge of $2.2 million to record inventory acquired from Integration Associates at fair value during
fiscal 2008, improvements in our inventory management and manufacturing cost reductions. We may
continue to experience declines in the average selling prices of certain of our products. This downward
pressure on gross margin as a percentage of revenues may be offset to the extent we are able to:
1) introduce higher margin new products and gain market share with our ICs; 2) achieve lower
production costs from our wafer suppliers and third-party assembly and test subcontractors; 3) achieve
lower production costs per unit as a result of improved yields throughout the manufacturing process; or
4) reduce logistics costs.

Research and Development

(in millions)

Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percent of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended

January 2,
2010

January 3,
2009

Change

%
Change

$104.4

$101.2

$3.2

3.2%

23.7%

24.3%

The increase in research and development expense in fiscal 2009 was principally due to an increase
of $3.7 million for personnel-related expenses, including personnel costs associated with the acquisition
of Integration Associates. The decrease in research and development expense as a percent of revenues
is due to our increased sales. For fiscal 2010, we expect that research and development expense will
increase in absolute dollars, but remain relatively stable as a percentage of sales.

Significant recent development projects include a family of ultra-efficient microcontrollers for
power-sensitive and battery-powered embedded systems, a family of highly integrated, energy-efficient
quad PoE PSE controllers, a new line of automotive-qualified microcontrollers that enable a dramatic
reduction in system cost and footprint in body electronics applications, our QuickSense portfolio of
highly accurate and fast-response touch, proximity and ambient light sensing devices, the expansion of
our Any-Rate Precision Clock family with both a low jitter clock generator for broadcast video
applications and web-customizable 8-output CMOS clock generators, a silicon hybrid TV tuner that
supports both analog and digital broadcasts in a single device, a family of ProSLIC single channel
telephony ICs for broadband networking equipment, the expansion of our small form factor
microcontrollers in a tiny 2x2 mm footprint, a family of ISOpro high-performance, digital isolators, a
family of high pin-count capacitive touch-sense microcontrollers for cost-sensitive embedded systems
and the EZRadioPRO embedded wireless radio family.

Selling, General and Administrative

(in millions)

Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . .
Percent of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended

January 2,
2010

January 3,
2009

Change

%
Change

$108.8

$100.7

$8.1

8.1%

24.7%

24.2%

The increase in selling, general and administrative expense in fiscal 2008 was principally due to an

increase of $8.7 million for personnel-related expenses, including personnel costs associated with the
acquisition of Integration Associates. For fiscal 2010, we expect that selling, general and administrative
expense will increase in absolute dollars and decline slightly as a percentage of sales.

In-Process Research and Development

In-process research and development (IPR&D) recorded in connection with the acquisition of

Integration Associates was $10.3 million in fiscal 2008. The IPR&D projects included optoelectronic,
power, and radio transmitter and transceiver technologies. The optoelectronic projects are used for
infrared data communications and proximity sensing. The power projects enable AC-DC conversion in
power supply systems. The radio transmitters and transceivers projects enable the delivery of data over
proprietary, short range wireless links. The fair value of each project was determined using the income
approach. The discount rate applicable to the cash flows was 20%. This rate reflects the weighted-
average cost of capital and the risks inherent in the development process.

There was no acquisition of IPR&D in fiscal 2009.

Interest Income

(in millions)

Year Ended

January 2,
2010

January 3,
2009

Change

Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.7

$ 10.4

$(7.7)

The decrease in interest income for the recent period was due to lower interest rates on the

underlying instruments and lower average cash and investment balances.

Interest Expense

Interest expense in fiscal 2009 was $0.2 million compared to $0.4 million in fiscal 2008.

Other Income (Expense), Net

Other income (expense), net in fiscal 2009 was $(0.1) million compared to $(0.6) million in fiscal

2008.

Provision (Benefit) for Income Taxes

(in millions)

Year Ended

January 2,
2010

January 3,
2009

Change

Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . . .
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (4.1)

$ 20.2

$(24.3)

(6.0)% 38.0%

The effective tax rate for fiscal 2009 decreased from the prior period, primarily due to resolution
of uncertain tax positions as a result of us entering into an Advance Pricing Agreement with the U.S.

Internal Revenue Service during the fourth quarter of fiscal 2009. In addition, the effective tax rate for
fiscal 2009 decreased from the prior period due to the intercompany license of certain technology and
the non-deductible write-off of in-process research and development costs during fiscal 2008, both of
which were related to the acquisition of Integration Associates. See Note 16, Income Taxes, to the
Consolidated Financial Statements for additional information.

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 limited deductibility of stock compensation expense and other permanent
items including changes to the liability for unrecognized tax benefits.

Comparison of Fiscal 2008 to Fiscal 2007

Revenues

(in millions)

Year Ended

January 3,
2009

December 29,
2007

Change

%
Change

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$415.6

$337.5

$78.1

23.2%

The growth in the sales of our products in fiscal 2008 was driven primarily by increased revenues

from all of our product groups. Unit volumes of our products increased compared to fiscal 2007 by
50.8%. Average selling prices decreased during the same period by 19.4%. Unit volumes and average
selling prices were substantially affected by the addition of certain high volume, low average selling
price products through the Integration Associates acquisition. Excluding the Integration Associates
products, during the same period, unit volumes increased by 28.1% and average selling prices decreased
by only 8.1%.

Gross Margin

(in millions)

Year Ended

January 3,
2009

December 29,
2007

Change

%
Change

Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percent of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$255.8

$207.2

$48.6

23.4%

61.5%

61.4%

The increase in the dollar amount of gross margin in fiscal 2008 was primarily due to our

increased sales.

Research and Development

(in millions)

Year Ended

January 3,
2009

December 29,
2007

Change

%
Change

. . . . . . . . . . . . . . . . . . . . . . . . .
Research and development
Percent of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$101.2

24.3%

$89.3
26.5%

$11.9

13.3%

The increase in research and development expense in fiscal 2008 was principally due to (a) an
increase of $8.6 million for personnel-related expenses, (b) $2.7 million of reduced occupancy and IT
support costs during fiscal 2007, which were billed to NXP in connection with our transition services
agreement (TSA) which has now expired, and (c) an increase of $1.8 million for product introduction
costs. These impacts were partially offset by increased foreign research credits and incentives of
$1.2 million in fiscal 2008. The decrease in research and development expense as a percent of revenues
was due to our increased sales.

Selling, General and Administrative

(in millions)

Year Ended

January 3,
2009

December 29,
2007

Change

%
Change

Selling, general and administrative . . . . . . . . . . . . . . . . . . . .
Percent of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$100.7

24.2%

$94.8
28.1%

$5.9

6.2%

The increase in selling, general and administrative expense in fiscal 2008 was principally due to
(a) an increase of $6.4 million for personnel-related expenses, (b) $1.0 million of reduced occupancy
costs during fiscal 2007 which were billed to NXP in connection with our TSA, and (c) an increase of
$0.7 million for sales commissions. These impacts were partially offset by decreased legal fees, primarily
related to litigation, of $2.6 million. The decrease in selling, general and administrative expense as a
percent of revenues was due to our increased sales.

In-Process Research and Development

In-process research and development (IPR&D) recorded in connection with the acquisition of
Integration Associates was $10.3 million in fiscal 2008. There was no acquisition of IPR&D in fiscal
2007.

Interest Income

(in millions)

Year Ended

January 3,
2009

December 29,
2007

Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 10.4

$24.5

Change

$(14.1)

The decrease in interest income for fiscal 2008 was due to lower interest rates on the underlying

instruments and lower average cash and investment balances.

Interest Expense

Interest expense in fiscal 2008 was $0.4 million compared to $0.6 million in fiscal 2007.

Other Income (Expense), Net

Other income (expense), net in fiscal 2008 was $(0.6) million compared to $(0.5) million in fiscal

2007.

Provision (Benefit) for Income Taxes

(in millions)

Year Ended

January 3,
2009

December 29,
2007

Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . .
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 20.2

38.0%

$ 6.8
14.7%

Change

$13.4

The effective tax rate for fiscal 2008 was higher than fiscal 2007 primarily due to a one-time tax

cost associated with the intercompany licensing of certain intellectual property, the unfavorable impact
of a reduction in tax exempt interest income and the non-deductible write-off of in-process research
and development costs. These increases were partially offset by an increase in the foreign tax rate
benefit and the reduction of the liability for unrecognized tax benefits due to the closure of an open tax
year.

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, tax exempt interest income, the limited deductibility of stock compensation
expense and other permanent items including reductions of the liability for unrecognized tax benefits
and non-deductible in-process research and development.

Income from Discontinued Operations, Net of Income Taxes

(in millions)

Year Ended

January 3,
2009

December 29,
2007

Change

Income from discontinued operations, net of income taxes . . . . . . . .

$—

$165.1

$(165.1)

Revenues from our discontinued operations in fiscal 2008 were zero, as compared to $46.3 million

in fiscal 2007. Income from our discontinued operations in fiscal 2007 included a gain on the sale of
our Aero product lines of $224.9 million and a provision for income taxes of $62.2 million. We do not
expect to recognize any additional revenue from our discontinued operations. See Note 3, Discontinued
Operation, to the Consolidated Financial Statements for additional information.

Business Outlook

We expect revenues in the first quarter of fiscal 2010 to be in the range of $120 to $125 million.

Furthermore, we expect our diluted earnings per share to be in the range of $0.33 to $0.38.

Liquidity and Capital Resources

Our principal sources of liquidity as of January 2, 2010 consisted of $410.2 million in cash, cash

equivalents and short-term investments. Our short-term investments consist primarily of U.S.
government agency bonds and discount notes, corporate bonds, municipal bonds, U.S. Treasury bills,
commercial paper, international government bonds and auction-rate securities purchased through UBS
(‘‘UBS auction-rate securities’’).

Our long-term investments consist of non-UBS auction-rate securities. Early in fiscal 2008, auctions
for many of our auction-rate securities failed because sell orders exceeded buy orders. As of January 2,
2010, we held $51.3 million par value auction-rate securities, all of which have experienced failed
auctions. The securities had previously been valued using quoted prices in active markets. When the
auctions began to fail, quoted prices for the securities were no longer observable. As such, we changed
our fair value measurement methodology for all auction-rate securities from quoted prices in active
markets to a cash flow model. The assumptions used in preparing the discounted cash flow model
include estimates for interest rates, amount of cash flows, expected holding periods of the securities
and a discount to reflect our inability to liquidate the securities.

The underlying assets of our auction-rate securities consisted of student loans and municipal
bonds, of which $47.3 million were guaranteed by the U.S. government and the remaining $4.0 million
were privately insured. As of January 2, 2010, $40.3 million of the auction-rate securities had credit
ratings of AAA, $4.0 million had credit ratings of AA and $7.0 million had a credit rating of BBB.
These securities had contractual maturity dates ranging from 2025 to 2046 and were yielding 0.46% to
2.79% per year at January 2, 2010. We are receiving the underlying cash flows on all of our
auction-rate securities. The principal amounts associated with failed auctions are not expected to be
accessible until a successful auction occurs, the issuer redeems the security, a buyer is found outside of
the auction process or the underlying securities mature. We are unable to predict if these funds will
become available before their maturity dates.

In November 2008, we entered into an agreement with UBS AG, which provides us certain rights
to sell to UBS the auction-rate securities which were purchased through them. As of January 2, 2010,
we held $24.0 million par value auction-rate securities purchased from UBS. We have the option to sell
these securities to UBS at par value from June 30, 2010 through July 2, 2012. UBS, at its discretion,
may purchase or sell these securities on our behalf at any time provided we receive par value for the
securities sold. The issuers of the auction-rate securities continue to have the right to redeem the
securities at their discretion. The agreement allows for the continuation of the accrual and payment of
interest due on the securities. The agreement also provides us with access to loans of up to 75% of the
market value of the unredeemed securities until June 30, 2010. These loans would carry interest rates
which would be consistent with the interest income on the related auction-rate securities. As of
January 2, 2010, we had no loans outstanding under this agreement.

We do not expect to need access to the capital represented by any of our auction-rate securities
prior to their maturities. We do not intend to sell, and we believe that it is not more likely than not
that we will be required to sell, our non-UBS investments before their anticipated recovery in market
value or final settlement at the underlying par value. See Note 5, Cash, Cash Equivalents and
Investments, to the Consolidated Financial Statements for additional information.

Net cash provided by operating activities was $120.9 million during fiscal 2009, compared to net
cash provided of $119.7 million during fiscal 2008. Operating cash flows during fiscal 2009 reflect our
net income of $73.1 million, adjustments of $66.2 million for depreciation, amortization, deferred
income taxes and stock compensation, and a net cash outflow of $18.4 million due to changes in our
operating assets and liabilities.

Accounts receivable increased to $56.1 million at January 2, 2010 from $36.1 million at January 3,

2009. The increase in accounts receivable resulted primarily from an increase in revenues during the
three months ended January 2, 2010 compared to the three months ended January 3, 2009. Our
average days sales outstanding (DSO) increased to 40 days at January 2, 2010 from 33 days at
January 3, 2009.

Inventory increased to $31.5 million at January 2, 2010 from $28.3 million at January 3, 2009. Our
inventory level is primarily impacted by our need to make purchase commitments to support forecasted
demand and variations between forecasted and actual demand. Our average days of inventory (DOI)
was 65 days at January 2, 2010 and January 3, 2009.

Net cash used in investing activities was $104.3 million during fiscal 2009, compared to net cash

provided of $69.2 million during fiscal 2008. The decrease was principally due to an increase of
$238.2 million in net outflows for purchases of investments and the receipt of $14.3 million previously
held in escrow in connection with the sale of the Aero product lines during fiscal 2008, offset by a
payment of $78.5 million for the acquisition of Integration Associates during fiscal 2008.

We anticipate capital expenditures of approximately $12 to $16 million for fiscal 2010. 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 $6.9 million during fiscal 2009, compared to net cash

used of $281.0 million during fiscal 2008. The increase was principally due to a decrease of
$266.0 million for repurchases of our common stock and an increase of $20.9 million from proceeds
from the issuance of common stock. In October 2009, our Board of Directors authorized a program to
repurchase up to $150 million of our common stock prior to the end of 2010.

Contractual Obligations

The following table summarizes our contractual obligations as of January 2, 2010 (in thousands):

Total

2010

2011

2012

2013

2014

Thereafter

Payments due by period

Operating lease obligations(1) . . . . .
Purchase obligations(2) . . . . . . . . . .
Other long-term obligations(3) . . . .

$30,280
35,021
720

$ 7,642
34,705
—

$6,636
316
456

$6,474
—
—

$2,550
—
—

$1,307
—
—

$5,671
—
264

(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.

(3) We are unable to make a reasonably reliable estimate as to when cash settlement with taxing

authorities may occur for our unrecognized tax benefits. Therefore, our liability for unrecognized
tax benefits is not included in the table above. See Note 16, Income Taxes, to the Consolidated
Financial Statements for additional information.

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 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.

Off-Balance Sheet Arrangements

In March 2006, we entered into an operating lease agreement and a related participation
agreement for a facility at 400 W. Cesar Chavez (‘‘400 WCC’’) in Austin, Texas for our corporate
headquarters. The lease has a term of seven years. The base rent for the term of the lease is an
amount equal to the interest accruing on $44.3 million at 110 basis points over the three-month LIBOR
(which would be approximately $1.9 million over the remaining term assuming LIBOR averages 0.25%
during such term).

In March 2008, we entered into an operating lease agreement and a related participation

agreement for a facility at 200 W. Cesar Chavez (‘‘200 WCC’’) in Austin, Texas for the expansion of our
corporate headquarters. The lease has a term of five years. The base rent for the term of the lease is
an amount equal to the interest accruing on $50.1 million at 155 basis points over the three-month
LIBOR (which would be approximately $2.9 million over the remaining term assuming LIBOR
averages 0.25% during such term).

We have granted certain rights and remedies to the lessors in the event of certain defaults,
including the right to terminate the leases, to bring suit to collect damages, and to compel us to
purchase the facilities. The leases contain other customary representations, warranties, obligations,
conditions, indemnification provisions and termination provisions, including covenants that we shall
maintain unencumbered cash and highly-rated short-term investments of at least $75 million. If our
unencumbered cash and highly-rated short-term investments are less than $150 million, we must also
maintain a ratio of funded debt to earnings before interest expense, income taxes, depreciation,
amortization, lease expense and other non-cash charges (EBITDAR) over the four prior fiscal quarters

of no greater than 2 to 1. As of January 2, 2010, we believe we were in compliance with all covenants
of the leases.

During the terms of the leases, we have on-going options to purchase the buildings for purchase
prices of approximately $44.3 million for 400 WCC and $50.1 million for 200 WCC. Alternatively, we
can cause each such property to be sold to third parties provided we are not in default under that
property’s lease. We are contingently liable on a first dollar loss basis for up to $35.3 million to the
extent that the 400 WCC sale proceeds are less than the $44.3 million purchase option and up to
$40.0 million to the extent that the 200 WCC sale proceeds are less than the $50.1 million purchase
option.

We determined that the fair value associated with the guaranteed residual values was $1.0 million

for 400 WCC and $1.2 million for 200 WCC, as of the inception of the leases. These amounts were
recorded in ‘‘Other assets, net’’ and ‘‘Long-term obligations and other liabilities’’ in the Consolidated
Balance Sheets and are being amortized over the term of the leases.

We are required to periodically evaluate the expected fair value of each facility at the end of the
lease terms. If we determine that it is estimable and probable that the expected fair values will be less
than $44.3 million for 400 WCC and $50.1 million for 200 WCC, we will ratably accrue the loss up to a
maximum of approximately $35.3 million and $40.0 million, respectively, over the remaining lease terms
as additional rent expense. As of January 2, 2010, we do not believe that a loss contingency accrual is
required for either property. However, a prolonged economic downturn could increase the likelihood of
such a loss accrual.

In connection with our headquarters leases, during fiscal 2008 we entered into interest rate swap

agreements as a hedge against the variable rent under the leases. Under the terms of the swap
agreements, we have effectively converted the variable rents to fixed rents through March 2011 for 400
WCC and March 2013 for 200 WCC. See Note 6, Derivative Financial Instruments, to the Consolidated
Financial Statements for additional information.

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.

Inventory valuation—We assess the recoverability of inventories through the application of a set of
methods, assumptions and estimates. In determining net realizable value, we write down inventory that
may be slow moving or have some form of obsolescence, including inventory that has aged more than
12 months. We also adjust the valuation of inventory when its standard cost exceeds the estimated
market value. We assess the potential for any unusual customer returns based on known quality or
business issues and write-off inventory losses for scrap or non-saleable material. Inventory not
otherwise identified to be written down is compared to an assessment of our 12-month forecasted
demand. The result of this methodology is compared against the product life cycle and competitive
situations in the marketplace to determine 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.

Stock compensation—We recognize the fair-value of stock-based compensation transactions in the

Consolidated Statement of Income. The fair value of our stock-based awards is estimated at the date of
grant using the Black-Scholes option pricing model. The Black-Scholes valuation calculation requires us
to estimate key assumptions such as future stock price volatility, expected terms, risk-free rates and
dividend yield. Expected stock price volatility is based on implied volatility from traded options on our
stock in the marketplace and historical volatility of our stock. The expected term of options granted is
derived from an analysis of historical exercises and remaining contractual life of stock options, and
represents the period of time that options granted are expected to be outstanding. The risk-free rate is
based on the U.S. Treasury yield curve in effect at the time of grant. We have never paid cash
dividends, and do not currently intend to pay cash dividends, and thus have assumed a 0% dividend
yield. In addition, we are required to estimate the expected forfeiture rate of our stock grants and only
recognize the expense for those shares expected to vest. If our actual experience differs significantly
from the assumptions used to compute our stock-based compensation cost, or if different assumptions
had been used, we may have recorded too much or too little stock-based compensation cost. See
Note 13, Stock-Based Compensation, to the Consolidated Financial Statements for additional
information.

Investments in auction-rate securities—We determine the fair value of our investments in
auction-rate securities using a discounted cash flow model. The assumptions used in preparing the
discounted cash flow model include estimates for interest rates, amount of cash flows, expected holding
periods of the securities and a discount to reflect our inability to liquidate the securities. For
available-for-sale auction-rate securities, if the calculated value is below the carrying amount of the
securities, we then determine if the decline in value is other-than-temporary. We consider various
factors in determining whether an impairment is other-than-temporary, including the severity and
duration of the impairment, changes in underlying credit ratings, forecasted recovery, our intent to sell
or the likelihood that we would be required to sell the investment before its anticipated recovery in
market value and the probability that the scheduled cash payments will continue to be made. When we
conclude that an other-than-temporary impairment has occurred, we assess whether we intend to sell
the security or if it is more likely than not that we will be required to sell the security before recovery.
If either of these two conditions is met, we recognize a charge in earnings equal to the entire
difference between the security’s amortized cost basis and its fair value. If we do not intend to sell a
security or it is not more likely than not that we will be required to sell the security before recovery,
the unrealized loss is separated into an amount representing the credit loss, which is recognized in
earnings, and the amount related to all other factors, which is recorded in accumulated other
comprehensive loss.

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.

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.

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.

We recognize liabilities for uncertain tax positions based on a two-step process. The first step
requires us to determine if the weight of available evidence indicates that the tax position has met the
threshold for recognition; therefore, we must evaluate whether it is more likely than not that the
position will be sustained on audit, including resolution of any related appeals or litigation processes.
The second step requires us to measure the tax benefit of the tax position taken, or expected to be
taken, in an income tax return as the largest amount that is more than 50% likely of being realized
upon ultimate settlement. This measurement step is inherently complex and requires subjective
estimations of such amounts to determine the probability of various possible outcomes. We re-evaluate
the uncertain tax positions each quarter based on factors including, but not limited to, changes in facts
or circumstances, changes in tax law, expirations of statutes of limitation, effectively settled issues under
audit, and new audit activity. Such a change in recognition or measurement would result in the
recognition of a tax benefit or an additional charge to the tax provision in the period.

Although we believe the measurement of our liabilities for uncertain tax positions is reasonable, no

assurance can be given that the final outcome of these matters will not be different than what is
reflected in the historical income tax provisions and accruals. If additional taxes are assessed as a result
of an audit or litigation, it could have a material effect on our income tax provision and net income in
the period or periods for which that determination is made. 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 April 2009, the FASB issued the following:

(cid:127) FASB ASC 820-10-65, formerly FASB Staff Position (FSP) FAS No. 157-4, Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly, provides additional guidance for estimating fair
value when the volume and level of activity for the asset or liability have significantly decreased.
This ASC also includes guidance on identifying circumstances that indicate a transaction is not
orderly.

(cid:127) FASB ASC 320-10-65, formerly FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation
of Other-Than-Temporary Impairments, amends the other-than-temporary impairment guidance in
U.S. GAAP for debt securities to make the guidance more operational and to improve the
presentation and disclosure of other-than-temporary impairments on debt and equity securities
in the financial statements.

(cid:127) FASB ASC 825-10-65, formerly FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair
Value of Financial Instruments, requires disclosures about fair value of financial instruments for
interim reporting periods of publicly traded companies as well as in annual financial statements.

These ASCs are effective for reporting periods ending after June 15, 2009 and were adopted by us
on April 5, 2009. The adoption of the ASCs did not have a material impact on our financial statements.

In June 2008, the FASB issued FASB ASC 260-10-45, formerly FSP Emerging Issues Task Force

(EITF) 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities. ASC 260-10-45 provides that unvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating
securities and shall be included in the computation of earnings per share pursuant to the two-class
method described in FASB ASC 260, Earnings per Share. ASC 260-10-45 is effective for financial
statements issued for fiscal years beginning after December 15, 2008 and interim periods within those
years on a retrospective basis. We adopted ASC 260-10-45 at the beginning of fiscal 2009. The adoption
did not have a material impact on our financial statements.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Interest Income

Our investment portfolio includes cash, cash equivalents, short-term investments and long-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 investment portfolio holdings as of
January 3, 2009, an immediate 100 basis point decline in the yield for such instruments would decrease
our annual interest income by approximately $3.3 million. Our investment portfolio holdings as of
January 2, 2010 yielded less than 100 basis points. A decline in yield to zero basis points on our
investment portfolio holdings as of January 2, 2010 would decrease our annual interest income by
approximately $2.6 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.

Headquarters Lease Rent

We are exposed to interest rate fluctuations in the normal course of our business, including
through our corporate headquarters leases. The base rents for these leases are calculated using a
variable interest rate based on the three-month LIBOR. We have entered into interest rate swap
agreements with notional values of $44.3 million and $50.1 million and, effectively, fixed the rent
payment amounts on these leases through March 2011 and March 2013, respectively. The fair value of
the interest rate swap agreements at January 2, 2010 was a $4.5 million obligation.

Investments in Auction-rate Securities

Beginning in fiscal 2008, auctions for many of our auction-rate securities failed because sell orders
exceeded buy orders. As of January 2, 2010, we held $51.3 million par value auction-rate securities, all
of which have experienced failed auctions. The principal amounts associated with failed auctions are
not expected to be accessible until a successful auction occurs, the issuer redeems the securities, a
buyer is found outside of the auction process or the underlying securities mature. We are unable to
predict if these funds will become available before their maturity dates. Additionally, if we determine
that an other-than-temporary decline in the fair value of any of our available-for-sale auction-rate
securities has occurred, we may be required to adjust the carrying value of the investments through an
impairment charge. In November 2008, we entered into an agreement with UBS, which provides us
certain rights to sell to UBS the auction-rate securities which were purchased through them. As of
January 2, 2010, we held $24.0 million par value auction-rate securities purchased from UBS. We have

the option to sell these securities to UBS at par value from June 30, 2010 through July 2, 2012. See
Note 5, Cash, Cash Equivalents and Investments, to the Consolidated Financial Statements for
additional information.

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.

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 January 2, 2010 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. Such disclosure controls and
procedures include controls and procedures designed to ensure that information required to be
disclosed is accumulated and communicated to our management, including our CEO and CFO, to
allow timely decisions regarding required disclosures. There was no change in our internal controls
during the fiscal quarter ended January 2, 2010 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

January 2, 2010. 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 concluded that, as of January 2, 2010, 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 internal control over financial reporting. This report appears on page F-1.

Item 9B. Other Information

None.

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, Executive Officers and Corporate Governance

Set forth below is information regarding the executive officers and directors of Silicon Laboratories

as of January 31, 2010.

Name

Age

Position

Navdeep S. Sooch . . . . . . . . . . . . . . .
Necip Sayiner . . . . . . . . . . . . . . . . . .
William G. Bock . . . . . . . . . . . . . . . .
Jonathan D. Ivester . . . . . . . . . . . . .
Kurt W. Hoff . . . . . . . . . . . . . . . . . .
Paul V. Walsh, Jr. . . . . . . . . . . . . . . .
David R. Welland . . . . . . . . . . . . . . .
Harvey B. Cash . . . . . . . . . . . . . . . .
Nelson C. Chan . . . . . . . . . . . . . . . .
R. Ted Enloe III . . . . . . . . . . . . . . . .
Kristen M. Onken . . . . . . . . . . . . . . .
Laurence G. Walker . . . . . . . . . . . . .
William P. Wood . . . . . . . . . . . . . . . .

Senior Vice President of Worldwide Operations

47 Chairman of the Board
44 Chief Executive Officer, President and Director
59 Chief Financial Officer and Senior Vice President
54
52 Vice President of Worldwide Sales
45 Chief Accounting Officer and Vice President of Finance
54 Vice President and Director
71 Director
48 Director
71 Director
60 Director
61 Director
54 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 an M.S. in Electrical Engineering from Stanford University. Mr. Sooch’s prior experience as our
Chief Executive Officer as well as a semiconductor designer provides him with extensive insight into
our operations and qualifies him to serve as Chairman of the Company’s Board of Directors.

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, an M.S. in Electrical
Engineering from Southern Illinois University, and a Ph.D. in Electrical Engineering from the
University of Pennsylvania. Mr. Sayiner’s experience and understanding of our business gained through
his role as our President and Chief Executive Officer qualifies him to serve as a member of our Board
of Directors.

William G. Bock has served as Senior Vice President of Finance and Administration and Chief
Financial Officer since November 2006. Mr. Bock joined Silicon Laboratories as a director in March
2000, and served as Chairman of the audit committee until November 2006 when he stepped down

from the Board of Directors to assume his current role. From April 2001 to November 2006, Mr. Bock
participated in the venture capital industry, principally as a partner with CenterPoint Ventures. From
February 1997 to March 2001, Mr. Bock led DAZEL Corporation, a provider of electronic information
delivery systems, initially as its President and Chief Executive Officer and subsequent to its acquisition
by Hewlett-Packard in June 1999 as an HP Vice President and General Manager. Prior to 1997,
Mr. Bock served as Chief Operating Officer of Tivoli Systems, a client server software company
acquired by IBM in March 1996, in senior sales and financial management positions with Convex
Computer Corporation and began his career with Texas Instruments. Mr. Bock holds a B.S. in
Computer Science from Iowa State University and an M.S. in Industrial Administration from Carnegie
Mellon University.

Jonathan D. Ivester joined Silicon Laboratories in September 1997 as Vice President. He served as

Vice President of Worldwide Operations since May 2005. Mr. Ivester was promoted to Senior Vice
President of Worldwide Operations in June 2008. 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 an M.B.A. from Stanford University.

Kurt W. Hoff has served as Vice President of Worldwide Sales for Silicon Laboratories since July
2007. From 2005 until July 2007, he managed the company’s European sales and operations. Prior to
joining Silicon Laboratories in 2005, Mr. Hoff served as president, chief executive officer and director
of Cognio, a spectrum management company. Mr. Hoff also managed the operations and sales of
C-Port Corporation, a network processor company acquired by Motorola in May 2000. Additionally,
Mr. Hoff spent 10 years in various sales positions at AMD. Mr. Hoff holds an M.B.A. from the
University of Chicago and a B.S. in Physics from the University of Illinois.

Paul V. Walsh, Jr. joined Silicon Laboratories in January 2004 as Director of Finance, Worldwide
Operations, and was appointed Corporate Controller in May 2005. In November 2006, Mr. Walsh was
promoted to Vice President and Chief Accounting Officer. In January 2009, Mr. Walsh was appointed
to the Board of Directors of Grande Communications Holdings, Inc., a provider of cable, internet and
phone services, where he also serves as the Chairman of the Audit Committee and as a member of the
Finance Committee. Prior to joining Silicon Laboratories, Mr. Walsh was Site Controller from February
2003 to January 2004 with PerkinElmer, a supplier to the health sciences and photonics markets. From
1992 to 2003, Mr. Walsh held various operational, finance and management roles at Teradyne and
Analog Devices. Mr. Walsh received his B.S. in Mechanical Engineering from the University of Maine,
and an M.B.A from Boston University.

David R. Welland co-founded Silicon Laboratories in August 1996, 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, a designer and manufacturer of integrated circuits, including Senior Design Engineer.
Mr. Welland holds a B.S. in Electrical Engineering from the Massachusetts Institute of Technology.
Mr. Welland’s years of experience as a semiconductor designer provide him with extensive insight into
our operations and qualifies him to serve as a member of our Board of Directors.

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: Ciena Corporation, a designer and
manufacturer of dense wavelength division multiplexing systems for fiber optic networks; Argo Group
International Holdings, Ltd., a specialty insurance company; and First Acceptance Corp, a provider of

low-cost auto insurance. Mr. Cash holds a B.S. in Electrical Engineering from Texas A&M University
and an M.B.A. from Western Michigan University. Mr. Cash’s independence and experience as a
director of various public companies as well as his prior operational experience as an executive qualifies
him to serve as a member of our Board of Directors.

Nelson C. Chan has served as a director of Silicon Laboratories since September 2007. Mr. Chan
is an independent consultant in the semiconductor and consumer electronics industry. From December
2006 through July 2009, Mr. Chan served as president and chief executive officer of Magellan, a
leading maker of GPS devices for consumer and professional applications. He also serves on the board
of directors of Synaptics Incorporated, a provider of user interface solutions for mobile electronic
appliances. From 1992 through 2006, Mr. Chan served in various senior management positions with
SanDisk Corporation, including most recently as Executive Vice President and General Manager of the
Consumer Business. From 1983 to 1992, Mr. Chan held various marketing and engineering positions at
Chips and Technologies, Signetics, and Delco Electronics. Mr. Chan holds a B.S. in Electrical and
Computer Engineering from the University of California at Santa Barbara, and an M.B.A. from Santa
Clara University. Mr. Chan’s independence and prior experience as an executive officer and current
experience as a consultant with companies in the semiconductor and consumer electronics industry
qualifies him to serve as a member of our Board of Directors.

R. Ted Enloe III has served as a director of Silicon Laboratories since April 2003. Mr. Enloe is
currently the Managing General Partner of Balquita Partners, Ltd., a family investment firm. Previously,
Mr. Enloe served as President and Chief Executive Officer of Optisoft, Inc., a provider of intelligent
traffic signal platforms. Mr. Enloe formerly served as Vice Chairman and member of the office of chief
executive of Compaq Computer Corporation. He also served as President of Lomas Financial
Corporation and Libert´e 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. and Live
Nation, Inc. Mr. Enloe holds a B.S. in Engineering from Louisiana Polytechnic University and a J.D.
from Southern Methodist University. Mr. Enloe’s combination of independence, qualification as an
audit committee financial expert and his experience, including past experience as an executive officer
and current and past experience as a director of various public companies, qualifies him to serve as a
member of our Board of Directors.

Kristen M. Onken has served as a director of Silicon Laboratories since September 2007.

Ms. Onken retired from Logitech in May 2006, a maker of electronics peripherals, where she served as
Senior Vice President, Finance, and Chief Financial Officer from February 1999 to May 2006. From
September 1996 to February 1999, Ms. Onken served as Vice President of Finance at Fujitsu PC
Corporation, the U.S. subsidiary of the Japanese electronics manufacturer. From 1991 to September
1996, Ms. Onken was employed by Sun Microsystems initially as Controller of the Southwest Area, and
later as Director of Finance, Sun Professional Services. Ms. Onken served on the Board of Directors as
well as the Audit Committee of Biosensors International Group Ltd, a Singapore Company, from
August 2006 to July 2008. Ms. Onken holds a B.S. from Southern Illinois University, and an M.B.A. in
Finance from the University of Chicago. Ms. Onken’s independence, prior experience as the Chief
Financial Officer of Logitech and her finance and Audit Committee roles with other technology
companies qualifies her to serve as a member of our Board of Directors.

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 holds a B.S. in Electrical Engineering from Princeton
University and an M.S. and Ph.D. in Electrical Engineering from the Massachusetts Institute of
Technology. Mr. Walker’s combination of independence and his experience, including past experience as
an executive officer, qualifies him to serve as a member of our Board of Directors.

William P. Wood has served as a director of Silicon Laboratories since March 1997 and 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 an M.B.A. from Harvard University. Mr. Wood’s combination of independence and his
experience, including past experience as an investor in numerous semiconductor and technology
companies, qualifies him to serve as a member of our Board of Directors.

The remaining information required by this Item is incorporated by reference to the Proxy

Statement under the sections captioned ‘‘Proposal One: Election of Directors’’, ‘‘Executive
Compensation’’, ‘‘Section 16(a) Beneficial Ownership Reporting Compliance’’ and ‘‘Code of Ethics.’’

Item 11. Executive Compensation

The information under the caption ‘‘Executive Compensation’’ and ‘‘Proposal One: Election of

Directors’’ 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, and Director Independence

The information under the caption ‘‘Certain Relationships and Related Transactions, and Director

Independence’’ appearing in the Proxy Statement is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services

The information under the caption ‘‘Proposal Two: Ratification of Appointment of Independent

Registered Public Accounting Firm’’ appearing in the Proxy Statement is incorporated herein by
reference.

Item 15. Exhibits and Financial Statement Schedules

(a) 1.

Financial Statements

Part IV

Index

Report of independent registered public accounting firm . . . . . . . . . . . . . . . . .
Report of independent registered public accounting firm . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets at January 2, 2010 and January 3, 2009 . . . . . . . .
Consolidated Statements of Income for the fiscal years ended January 2, 2010,
January 3, 2009 and December 29, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Changes in Stockholders’ Equity for the fiscal

Page

F-1
F-2
F-3

F-4

years ended January 2, 2010, January 3, 2009 and December 29, 2007 . . . . .

F-5

Consolidated Statements of Cash Flows for the fiscal years ended January 2,

2010, January 3, 2009 and December 29, 2007 . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . .

F-6
F-7

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*

3.1*

3.2*

4.1*

10.1*

Agreement and Plan of Reorganization, dated June 24, 2008, by and among Silicon
Laboratories Inc., Irving Merger Sub, Inc., Integration Associates Incorporated and
Shareholder Representative Services, LLC (filed as Exhibit 2.1 to the Form 8-K filed
June 25, 2008).

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’’)).

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).

Specimen certificate for shares of common stock (filed as Exhibit 4.1 to the IPO
Registration Statement).

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).

Exhibit
Number

10.2*+

10.3*+

10.4*+

10.5*+

10.6*+

10.7*+

10.8*+

10.9*+

10.10*

10.11*

10.12*

10.13*

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).

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).

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).

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).

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).

Silicon Laboratories Inc. Employee Stock Purchase Plan (filed as Exhibit 10.7 to the
Registrant’s Annual Report on Form 10-K for the year ended December 31, 2005).

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).

Employment Agreement dated November 3, 2006 between Silicon Laboratories Inc. and
William Bock (filed as Exhibit 10.1 to the Form 8-K filed November 8, 2006).

Lease, Deed of Trust and Security Agreement dated March 30, 2006 among Silicon
Laboratories Inc., BAL Investment & Advisory, Inc. and Gary S. Farmer (filed as
Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on April 5, 2006).

Participation Agreement dated March 30, 2006 among Silicon Laboratories Inc., BAL
Investment & Advisory, Inc., Wells Fargo Bank Northwest, National Association and various
other financial institutions named therein (filed as Exhibit 10.2 to the Registrant’s Current
Report on Form 8-K filed on April 5, 2006).

Sale and Purchase Agreement dated February 8, 2007 by and between NXP B.V., NXP
Semiconductors France SAS, Silicon Laboratories Inc. and Silicon Laboratories International
Pte. Ltd. (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on
February 9, 2007).

Intellectual Property License Agreement dated as of March 23, 2007, by and among Silicon
Laboratories Inc., Silicon Laboratories International Pte. Ltd., NXP B.V. and NXP
Semiconductors France SAS (filed as Exhibit 10.1 to the Registrant’s Current Report on
Form 8-K filed on March 29, 2007).

10.14*+ Amendment to Stock Options Agreement between Silicon Laboratories Inc. and William G.

Bock dated July 19, 2007 (filed as Exhibit 10.1 to the Registrant’s Current Report on
Form 8-K filed on July 20, 2007).

10.15*

Lease, Deed of Trust and Security Agreement dated March 14, 2008 among Silicon
Laboratories Inc., BA Leasing BSC, LLC and Gary S. Farmer (filed as Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K filed on March 19, 2008).

Exhibit
Number

10.16*

Participation Agreement dated March 14, 2008 among Silicon Laboratories Inc., BA Leasing
BSC, LLC, Wells Fargo Bank Northwest, National Association and various other financial
institutions named therein (filed as Exhibit 10.2 to the Registrant’s Current Report on Form
8-K filed on March 19, 2008).

10.17*+ Silicon Laboratories Inc. 2009 Stock Incentive Plan (filed as Exhibit 10.1 to the Registrant’s

Current Report on Form 8-K filed on April 27, 2009).

10.18*+ Silicon Laboratories Inc. 2009 Employee Stock Purchase Plan (filed as Exhibit 10.2 to the

Registrant’s Current Report on Form 8-K filed on April 27, 2009).

10.19*+ Form of Restricted Stock Units Grant Notice and Restricted Stock Units Award Agreement

under Registrant’s 2009 Stock Incentive Plan (filed as Exhibit 10.3 to the Registrant’s
Current Report on Form 8-K filed on April 27, 2009).

10.20*+ Form of Stock Option Grant Notice and Stock Option Award Agreement under Registrant’s

2009 Stock Incentive Plan (filed as Exhibit 10.4 to the Registrant’s Current Report on
Form 8-K filed on April 27, 2009).

10.21*+ Silicon Laboratories Inc. 2010 Bonus Plan (filed as Exhibit 10.1 to the Registrant’s Current

23.1

31.1

31.2

Report on Form 8-K filed on January 29, 2010).

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 Financial 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.

+ Management contract or compensatory plan or arrangement

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 10, 2010.

SIGNATURES

SILICON LABORATORIES INC.

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 William G. Bock, 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

Chairman of the Board

February 10, 2010

/s/ NECIP SAYINER

Necip Sayiner

President, Chief Executive Officer and
Director (Principal Executive Officer)

February 10, 2010

/s/ WILLIAM G. BOCK

William G. Bock

Senior Vice President and Chief
Financial Officer (Principal Financial
Officer)

February 10, 2010

/s/ PAUL V. WALSH, JR.

Paul V. Walsh, Jr.

Vice President and Chief Accounting
Officer (Principal Accounting Officer)

February 10, 2010

Name

Title

Date

/s/ DAVID R. WELLAND

David R. Welland

/s/ HARVEY B. CASH

Harvey B. Cash

/s/ NELSON C. CHAN

Nelson C. Chan

/s/ ROBERT TED ENLOE, III

Robert Ted Enloe, III

/s/ KRISTEN M. ONKEN

Kristen M. Onken

/s/ LAURENCE G. WALKER

Laurence G. Walker

/s/ WILLIAM P. WOOD

William P. Wood

Vice President and Director

February 10, 2010

Director

February 10, 2010

Director

February 10, 2010

Director

February 10, 2010

Director

February 10, 2010

Director

February 10, 2010

Director

February 10, 2010

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Silicon Laboratories Inc.

We have audited Silicon Laboratories Inc.’s internal control over financial reporting as of

January 2, 2010, 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
included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on 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, assessing the risk that a material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk, 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, Silicon Laboratories Inc. maintained, in all material respects, effective internal

control over financial reporting as of January 2, 2010, 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
January 2, 2010 and January 3, 2009, 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 January 2,
2010 of Silicon Laboratories Inc. and our report dated February 10, 2010 expressed an unqualified
opinion thereon.

/s/ ERNST & YOUNG LLP

Austin, Texas
February 10, 2010

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

January 2, 2010 and January 3, 2009, 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 January 2,
2010. 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 January 2, 2010 and January 3, 2009,
and the consolidated results of its operations and its cash flows for each of the three fiscal years in the
period ended January 2, 2010, 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), Silicon Laboratories Inc.’s internal control over financial reporting as
of January 2, 2010, 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 10, 2010 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

Austin, Texas
February 10, 2010

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 $567 at

January 2, 2010 and $1,011 at January 3, 2009 . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets, net
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

January 2,
2010

January 3,
2009

$195,737
214,486

$172,272
101,267

56,128
31,512
7,620
18,515

523,998
24,676
27,785
105,109
41,886
19,384

36,144
28,293
6,439
18,297

362,712
51,821
30,496
105,515
49,728
23,973

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$742,838

$624,245

Current liabilities:

Liabilities and Stockholders’ Equity

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income on shipments to distributors . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term obligations and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 28,759
25,399
28,470
6,011

88,639
24,403

$ 22,274
29,119
21,599
4

72,996
48,789

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

113,042

121,785

Commitments and contingencies

Stockholders’ equity:

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; 45,772 and
44,613 shares issued and outstanding at January 2, 2010 and January 3,
2009, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

5
128,262
505,885
(4,356)

4
75,711
432,793
(6,048)

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

629,796

502,460

Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$742,838

$624,245

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)

Year Ended

January 2,
2010

January 3,
2009

December 29,
2007

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$441,020
161,267

$415,630
159,845

$337,461
130,225

Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:

279,753

255,785

207,236

104,394
108,848
—

101,205
100,674
10,250

89,320
94,819
—

Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

213,242

212,129

184,139

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense):

Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income from continuing operations before income taxes . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . . . . .

Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . .
Income from discontinued operations, net of income taxes . . . . . . .

66,511

43,656

23,097

2,725
(180)
(90)

68,966
(4,126)

73,092
—

10,449
(433)
(556)

53,116
20,181

32,935
—

24,525
(628)
(469)

46,525
6,838

39,687
165,149

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 73,092

$ 32,935

$204,836

Basic earnings per share:

Income from continuing operations . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Diluted earnings per share:

Income from continuing operations . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$

1.62
1.62

1.57
1.57

$
$

0.68
0.68

0.67
0.67

$
$

0.72
3.74

0.70
3.64

Weighted-average common shares outstanding:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

45,023
46,542

48,109
48,989

54,826
56,321

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)

Balance as of December 30, 2006 . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . .
Stock issuances under employee plans, net

Number
of Shares

Par
Value

54,802
—

$ 5
—

of shares withheld for taxes . . . . . . . . .

2,445

Income tax benefit from employee stock-

based awards

. . . . . . . . . . . . . . . . . .
Repurchases of common stock . . . . . . . . .
Stock compensation . . . . . . . . . . . . . . . .

—
(4,437)
—

Balance as of December 29, 2007 . . . . . . . .

52,810

Comprehensive income:

Net income . . . . . . . . . . . . . . . . . . .
Unrealized losses on available-for-sale

securities, net of tax of $1,297 . . . . . .

Unrealized losses on cash flow hedges,

net of tax of $1,961 . . . . . . . . . . . . .

Total comprehensive income . . . . . . . . .

—

Stock issuances under employee plans, net

of shares withheld for taxes . . . . . . . . .

972

Income tax benefit from employee stock-

based awards

. . . . . . . . . . . . . . . . . .
Repurchases of common stock . . . . . . . . .
Stock compensation . . . . . . . . . . . . . . . .
Purchase acquisition . . . . . . . . . . . . . . .

—
(9,371)
—
202

Balance as of January 3, 2009 . . . . . . . . . . .

44,613

Comprehensive income:

Net income . . . . . . . . . . . . . . . . . . .
Unrealized gains on available-for-sale

securities, net of tax of $522 . . . . . . .
Unrealized gains on cash flow hedges, net
of tax of $389 . . . . . . . . . . . . . . . .

Total comprehensive income . . . . . . . . .

—

Stock issuances under employee plans, net

of shares withheld for taxes . . . . . . . . .

1,669

Income tax benefit from employee stock-

based awards

. . . . . . . . . . . . . . . . . .
Repurchases of common stock . . . . . . . . .
Stock compensation . . . . . . . . . . . . . . . .

—
(633)
123

—

—
—
—

—

—
(1)
—
—

—

—
—
—

Common Stock

Accumulated
Other
Comprehensive
Loss

$ —
—

Total
Stockholders’
Equity

$ 568,682
204,836

Retained
Earnings

$195,022
204,836

Additional
Paid-In
Capital

$ 373,655
—

41,536

4,696
(163,182)
46,977

—

—
—
—

303,682

399,858

—

4,266

963
(280,286)
40,565
6,521

32,935

—

—
—
—
—

—

—
—
—

—

(2,406)

(3,642)

—

—
—
—
—

41,536

4,696
(163,182)
46,977

703,545

32,935

(2,406)

(3,642)

26,887

4,266

963
(280,287)
40,565
6,521

75,711

432,793

(6,048)

502,460

—

25,186

3,890
(20,181)
43,656

73,092

—

—
—
—

—

969

723

—

—
—
—

73,092

969

723

74,784

25,187

3,890
(20,181)
43,656

Balance as of January 2, 2010 . . . . . . . . . . .

45,772

$ 5

$ 128,262

$505,885

$(4,356)

$ 629,796

The accompanying notes are an integral part of these Consolidated Financial Statements.

F-5

Silicon Laboratories Inc.
Consolidated Statements of Cash Flows
(in thousands)

Year Ended

January 2,
2010

January 3,
2009

December 29,
2007

$ 73,092

$ 32,935

$ 204,836

Operating Activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to cash provided by operating activities:

Income from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on disposal of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of other intangible assets and other assets . . . . . . . . . . . . . . . . .
Stock compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased in-process research and development
. . . . . . . . . . . . . . . . . . . . . .
Income tax benefit from employee stock-based awards . . . . . . . . . . . . . . . . . .
Excess income tax benefit from employee stock-based awards . . . . . . . . . . . . . .
Deferred income taxes
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income on shipments to distributors . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net cash provided by operating activities of continuing operations . . . . . . . . . . . .
Investing Activities
Purchases of available-for-sale investments . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
Proceeds from sales and maturities of marketable securities
Purchases of property and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from the sale of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions of businesses, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . .

Net cash provided by (used in) investing activities of continuing operations . . . . . . .
Financing Activities
Proceeds from issuance of common stock, net of shares withheld for taxes . . . . . . .
Excess income tax benefit from employee stock-based awards . . . . . . . . . . . . . . .
Repurchases of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net cash provided by (used in) financing activities of continuing operations
Discontinued Operations
Operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . .

Net cash provided by discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . .

—
11,887
33
7,842
43,974
—
2,422
(1,862)
1,896

(19,657)
(3,216)
3,362
8,036
(825)
6,871
(12,914)

—
10,766
685
7,858
40,669
10,250
832
(888)
1,816

19,619
3,729
11,412
(5,634)
(6,202)
(6,849)
(1,316)

120,941

119,682

(237,968)
153,275
(8,943)
—
(6,408)
(4,300)

(104,344)

25,187
1,862
(20,181)

(151,470)
304,928
(12,525)
14,265
(7,551)
(78,477)

69,170

4,264
888
(286,140)

6,868

(280,988)

—
—
—

—

—
—
—

—

(165,149)
11,105
64
4,980
39,978
—
2,997
(1,959)
(153)

(14,554)
(6,393)
9,271
(3,129)
3,060
7,880
(48,847)

43,987

(555,798)
565,336
(5,387)
270,750
(9,502)
(8,540)

256,859

15,362
1,959
(157,332)

(140,011)

10,794
(1,654)
26,245

35,385

196,220
68,188

Increase (decrease) in cash and cash equivalents
. . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . .

23,465
172,272

(92,136)
264,408

Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 195,737

$ 172,272

$ 264,408

Supplemental Disclosure of Cash Flow Information:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

279

440

703

4,500

$ 18,613

$ 49,191

The accompanying notes are an integral part of these Consolidated Financial Statements.

F-6

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2010

1. Description of Business

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.

In March 2007, the Company sold its Aero transceiver, AeroFONE single-chip phone and power
amplifier product lines (the ‘‘Aero product lines’’) to NXP B.V. and NXP Semiconductors France SAS
(collectively ‘‘NXP’’). The financial results of the sold product lines have been presented as
discontinued operations in the Consolidated Financial Statements. See Note 3, Discontinued Operation,
for additional information.

2. Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The Company prepares financial statements on a 52-53 week year that ends on the Saturday

closest to December 31. Fiscal 2009 had 52 weeks and ended January 2, 2010. Fiscal 2008 had 53 weeks
with the extra week occurring in the first quarter of the year and ended January 3, 2009. Fiscal year
2007 had 52 weeks and ended December 29, 2007. 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.

Foreign Currency Transactions

The functional currency of the Company’s foreign subsidiaries is the U.S. dollar; accordingly, all

gains and losses resulting from remeasuring transactions denominated in currencies other than U.S.
dollars are included in net 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, stock compensation, investments in
auction-rate securities, goodwill, long-lived assets and income taxes. Actual results could differ from
those estimates, and such differences could be material to the financial statements.

Reclassifications

Certain reclassifications have been made to prior year financial statements to conform to current

year presentation.

F-7

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements (Continued)
January 2, 2010

2. Significant Accounting Policies (Continued)

Fair Value of Financial Instruments

The fair values of the Company’s financial instruments are recorded using a hierarchal disclosure

framework based upon the level of subjectivity of the inputs used in measuring assets and liabilities.
The three levels are described below:

Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at
the measurement date.

Level 2—Inputs are inputs other than quoted prices included within Level 1 that are observable
for the asset or liability, either directly or indirectly.

Level 3—Inputs are unobservable for the asset or liability and are developed based on the best
information available in the circumstances, which might include the Company’s own data.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash deposits, money market funds and investments in debt

securities with original maturities of ninety days or less when purchased.

Investments

The Company’s investments consist primarily of U.S. government agency bonds and discount notes,

corporate bonds, municipal bonds, U.S. Treasury bills, commercial paper, international government
bonds and auction-rate securities. These securities typically have original maturities greater than ninety
days as of the date of purchase and are classified as available-for-sale or trading securities. Investments
in available-for-sale securities are reported at fair value, with unrealized gains and losses, net of tax,
recorded as a component of accumulated other comprehensive loss in the Consolidated Balance Sheet.
Investments in trading securities are reported at fair value, with both realized and unrealized gains and
losses recorded in other income (expense), net in the Consolidated Statement of Income. Investments
in which the Company has the ability and intent, if necessary, to liquidate in order to support its
current operations (including those with contractual maturities greater than one year from the date of
purchase) are classified as short-term. The Company’s long-term investments consist of auction-rate
securities.

The Company reviews its available-for-sale investments as of the end of each reporting period for
other-than-temporary declines in fair value based on the specific identification method. The Company
considers various factors in determining whether an impairment is other-than-temporary, including the
severity and duration of the impairment, changes in underlying credit ratings, forecasted recovery, its
intent to sell or the likelihood that it would be required to sell the investment before its anticipated
recovery in market value and the probability that the scheduled cash payments will continue to be
made. When the Company concludes that an other-than-temporary impairment has occurred, the
Company assesses whether it intends to sell the security or if it is more likely than not that it will be
required to sell the security before recovery. If either of these two conditions is met, the Company
recognizes a charge in earnings equal to the entire difference between the security’s amortized cost
basis and its fair value. If the Company does not intend to sell a security or it is not more likely than
not that it will be required to sell the security before recovery, the unrealized loss is separated into an

F-8

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements (Continued)
January 2, 2010

2. Significant Accounting Policies (Continued)

amount representing the credit loss, which is recognized in earnings, and the amount related to all
other factors, which is recorded in accumulated other comprehensive loss.

Derivative Financial Instruments

The Company uses derivative financial instruments to manage exposures to the variability of

interest rates used to calculate base rents for its corporate headquarters leases. The Company’s
objective is to offset increases and decreases in expenses resulting from changes in interest rates with
losses and gains on the derivative contracts, thereby reducing volatility of earnings. The Company does
not use derivative contracts for speculative purposes. The effective portion of the gain or loss on
interest rate swaps is recorded in accumulated other comprehensive loss as a separate component of
stockholders’ equity and is subsequently recognized in earnings when the hedged exposure affects
earnings. Cash flows from derivatives are classified as cash flows from operating activities in the
Consolidated Statement of Cash Flows.

Inventories

Inventories are stated at the lower of cost, determined using the first-in, first-out method, or

market.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is
computed using the straight-line method over the useful lives of the assets ranging from three to five
years. Leasehold improvements are depreciated over the contractual lease period or their useful life,
whichever is shorter.

Long-Lived Assets

Purchased intangible assets are stated at cost, net of accumulated amortization, and are amortized

using the straight-line method over their estimated useful lives, ranging from four to twelve years.

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.

The carrying value of goodwill is reviewed at least annually by the Company for possible
impairment. 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, several valuation methodologies are allowed, although
quoted market prices are the best evidence of fair value. If the results of the first step demonstrate that
the net book value is greater than the fair value, the Company must proceed to step two of the
analysis. 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

F-9

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements (Continued)
January 2, 2010

2. Significant Accounting Policies (Continued)

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.

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. Generally, revenue from product sales to direct customers and
contract manufacturers is recognized upon shipment.

A portion of the Company’s sales are made to distributors under agreements allowing certain
rights of return and price protection related to the final selling price to the end customers. Accordingly,
the Company defers revenue and cost of revenue on such sales until the distributors sell the product to
the end customers. The net balance of deferred revenue less deferred cost of revenue associated with
inventory shipped to a distributor but not yet sold to an end customer is recorded in the ‘‘deferred
income on shipments to distributors’’ liability on the Consolidated Balance Sheet. Such net deferred
income balance reflects the Company’s estimate of the impact of rights of return and price protection.

Shipping and Handling

Shipping and handling costs are classified as a component of cost of revenues in the Consolidated

Statements of Income.

Stock-Based Compensation

The Company has stock-based compensation plans, which are more fully described in Note 13,

Stock-Based Compensation. The Company accounts for those plans using a fair-value method and
recognizes the expense in its Consolidated Statement of Income.

Advertising

Advertising costs are expensed as incurred. Advertising expenses were $1.5 million, $1.7 million

and $1.1 million and in fiscal 2009, 2008 and 2007, respectively.

Income Taxes

The Company accounts for income taxes using 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 laws and related rates
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.

F-10

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements (Continued)
January 2, 2010

2. Significant Accounting Policies (Continued)

Uncertain tax positions must meet a more-likely-than-not threshold to be recognized in the

financial statements and the tax benefits recognized are measured based on the largest benefit that has
a greater than 50% likelihood of being realized upon final settlement. See further discussion in
Note 16, Income Taxes.

Recent Accounting Pronouncements

In April 2009, the Financial Accounting Standards Board (FASB) issued the following:

(cid:127) FASB Accounting Standards Codification (ASC) 820-10-65, formerly FASB Staff Position (FSP)
FAS No. 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, provides
additional guidance for estimating fair value when the volume and level of activity for the asset
or liability have significantly decreased. This ASC also includes guidance on identifying
circumstances that indicate a transaction is not orderly.

These ASCs are effective for reporting periods ending after June 15, 2009 and were adopted by

the Company on April 5, 2009. The adoption of the ASCs did not have a material impact on the
Company’s financial statements.

In June 2008, the FASB issued FASB ASC 260-10-45, formerly FSP Emerging Issues Task Force

(EITF) 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities. ASC 260-10-45 provides that unvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating
securities and shall be included in the computation of earnings per share pursuant to the two-class
method described in FASB ASC 260, Earnings per Share. ASC 260-10-45 is effective for financial
statements issued for fiscal years beginning after December 15, 2008 and interim periods within those
years on a retrospective basis. The Company adopted ASC 260-10-45 at the beginning of fiscal 2009.
The adoption did not have a material impact on the Company’s financial statements.

3. Discontinued Operation

In March 2007, the Company sold its Aero product lines to NXP for $285 million in cash, plus
additional earn-out potential of up to an aggregate of $65 million over the next three years. To date, no
additional earn-out has been recognized from this transaction.

F-11

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements (Continued)
January 2, 2010

3. Discontinued Operation (Continued)

The financial results of the sold product lines have been presented as discontinued operations in

the Consolidated Financial Statements. The following summarizes results from the discontinued
operations (in thousands, except per share data):

Year Ended
December 29,
2007

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs of revenues and operating expenses . . . . . . . . . . . . . . . . . . . . . .

$ 46,310
43,810

Gain on sale of discontinued operations . . . . . . . . . . . . . . . . . . . . . . .

Income from discontinued operations before income taxes . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,500
224,887

227,387
62,238

Income from discontinued operations, net of income taxes . . . . . . . . . .

$165,149

Income from discontinued operations per common share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Weighted-average common shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$

3.02
2.94

54,826
56,321

During fiscal 2007, the Company made $45.0 million of estimated tax payments due primarily to

the gain on the sale of its Aero product lines and received $26.2 million for the exercise of stock
options from employees who were hired by NXP associated with the sale of the Aero products.

Continuing Involvement

In connection with the closing of the sale, the Company entered into certain ancillary agreements

with NXP, including a Transition Services Agreement (‘‘TSA’’) and an Intellectual Property License
Agreement (‘‘IPLA’’). Through the TSA, the Company subleased certain premises to NXP and
provided various temporary support services, such as IT support services. Such services were provided
for approximately six months from the closing date and are no longer being provided. The fees for
these services were generally equivalent to the Company’s cost and were approximately $3.9 million in
fiscal 2007. Through the IPLA, the Company granted NXP a license with respect to retained
intellectual property and NXP granted a license to the Company with respect to transferred intellectual
property. However, these cross-license agreements do not involve the receipt or payment of any
royalties and therefore are not considered to be a component of continuing involvement.

F-12

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements (Continued)
January 2, 2010

4. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share from

continuing operations (in thousands, except per share data):

Year Ended

January 2,
2010

January 3,
2009

December 29,
2007

Income from continuing operations . . . . . . . . . . .

$73,092

$32,935

$39,687

Shares used in computing basic earnings per

share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

45,023

48,109

54,826

Effect of dilutive securities:

Stock options and awards . . . . . . . . . . . . . . . .

1,519

880

1,495

Shares used in computing diluted earnings per

share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

46,542

48,989

56,321

Income from continuing operations

Basic earnings per share . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . .

$
$

1.62
1.57

$
$

0.68
0.67

$
$

0.72
0.70

Approximately 2.1 million, 4.2 million and 4.0 million weighted-average dilutive potential shares of

common stock have been excluded from the diluted earnings per share calculation for fiscal years
ended January 2, 2010, January 3, 2009 and December 29, 2007, respectively, as they were anti-dilutive.

5. Cash, Cash Equivalents and Investments

The Company’s cash equivalents and short-term investments consist primarily of money market

funds, U.S. government agency bonds and discount notes, corporate bonds, municipal bonds, U.S.
Treasury bills, U.S. government bonds, commercial paper, international government bonds and
auction-rate securities purchased through UBS (‘‘UBS auction-rate securities’’). The Company’s
long-term investments consist of non-UBS auction-rate securities. Early in fiscal 2008, auctions for
many of the Company’s auction-rate securities failed because sell orders exceeded buy orders. As of
January 2, 2010, the Company held $51.3 million par value auction-rate securities, all of which have
experienced failed auctions. The underlying assets of the securities consisted of student loans and
municipal bonds, of which $47.3 million were guaranteed by the U.S. government and the remaining
$4.0 million were privately insured. As of January 2, 2010, $40.3 million of the auction-rate securities
had credit ratings of AAA, $4.0 million had credit ratings of AA and $7.0 million had a credit rating of
BBB. These securities had contractual maturity dates ranging from 2025 to 2046 and with current yields
of 0.46% to 2.79% per year at January 2, 2010. The Company is receiving the underlying cash flows on
all of its auction-rate securities. The principal amounts associated with failed auctions are not expected
to be accessible until a successful auction occurs, the issuer redeems the securities, a buyer is found
outside of the auction process or the underlying securities mature. The Company is unable to predict if
these funds will become available before their maturity dates.

F-13

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements (Continued)
January 2, 2010

5. Cash, Cash Equivalents and Investments (Continued)

In November 2008, the Company entered into an agreement with UBS AG, which provides the
Company certain rights to sell to UBS the auction-rate securities which were purchased through them.
As of January 2, 2010, the Company held $24.0 million par value auction-rate securities purchased from
UBS. The Company has the option to sell these securities to UBS at par value from June 30, 2010
through July 2, 2012. UBS, at its discretion, may purchase or sell these securities on the Company’s
behalf at any time provided the Company receives par value for the securities sold. The issuers of the
auction-rate securities continue to have the right to redeem the securities at their discretion. The
agreement allows for the continuation of the accrual and payment of interest due on the securities. The
agreement also provides the Company with access to loans of up to 75% of the market value of the
unredeemed securities until June 30, 2010. These loans would carry interest rates which would be
consistent with the interest income on the related auction-rate securities. As of January 2, 2010, the
Company had no loans outstanding under this agreement.

The Company’s right to sell the auction-rate securities to UBS commencing June 30, 2010

represents a put option for a payment equal to the par value of the auction-rate securities. As the put
option is non-transferable and cannot be attached to the auction-rate securities if they are sold to
another entity other than UBS, it represents a freestanding instrument between the Company and UBS.
The Company elected to record the put option at fair value. During fiscal 2008, the Company recorded
a gain of $5.0 million representing (a) the initial fair value of the put option, and (b) the changes in
the fair value of the put option from November to the end of the year. The Company has classified the
UBS auction-rate securities as trading securities and, accordingly, recognizes changes in fair value in
earnings. During fiscal 2008, the Company recorded a loss of $5.1 million representing (a) the transfer
of the UBS auction-rate securities from available-for-sale to trading securities and, accordingly,
recognizing the unrealized losses previously recorded in accumulated other comprehensive loss in
earnings at the election date, and (b) the subsequent changes in fair value from the election date to the
end of the year. Both the gain from recording the put option at fair value and the loss due to the
transfer from available-for-sale to trading securities, as well as subsequent fair value adjustments, were
recorded in ‘‘other income (expense), net’’. Adjustments to the fair values of the put option and the
trading securities generally offset each other. The Company intends to exercise its option to sell its
UBS auction-rate securities to UBS on June 30, 2010 and has therefore classified both the UBS
auction-rate securities and the related put option as short-term investments as of January 2, 2010.

The Company does not expect to need access to the capital represented by any of its auction-rate

securities prior to their maturities. The Company does not intend to sell, and believes it is not more
likely than not that it will be required to sell, its non-UBS auction-rate securities before their
anticipated recovery in market value or final settlement at the underlying par value. The Company
believes that the credit ratings and credit support of the security issuers indicate that they have the
ability to settle the securities at par value. As such, the Company has determined that no material
other-than-temporary impairment losses existed as of January 2, 2010.

F-14

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements (Continued)
January 2, 2010

5. Cash, Cash Equivalents and Investments (Continued)

The Company’s cash, cash equivalents and investments consist of the following (in thousands):

January 2, 2010

Gross
Unrealized
Losses

Gross
Unrealized
Gains

Cost

Cash and Cash Equivalents:

Cash on hand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available-for-sale securities:

$ 21,622

Money market funds . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Treasury bills . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government agency . . . . . . . . . . . . . . . . . . . . . .

167,139
5,000
2,000

$ —
—
(24)

Total available-for-sale securities . . . . . . . . . . . . . . . . .

174,139

Total cash and cash equivalents . . . . . . . . . . . . . . . . . . . .

$195,761

(24)

$ —
—
—

—

Fair Value

$ 21,622

167,139
5,000
1,976

174,115

$ —

$195,737

Short-term Investments:

Available-for-sale securities:

Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government agency . . . . . . . . . . . . . . . . . . . . . .
Municipal bonds . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Treasury bills . . . . . . . . . . . . . . . . . . . . . . . . . .
International government bonds . . . . . . . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 74,431
41,790
37,401
21,488
12,467
2,699

$ (133)
(1)
(3)
—
(10)
—

Total available-for-sale securities . . . . . . . . . . . . . . . . .

$190,276

$ (147)

$188
32
132
7
6
—

$365

Trading securities:

Auction rate securities and put option . . . . . . . . . . . .

Total short-term investments . . . . . . . . . . . . . . . . . . . . . .

Long-term Investments:

Available-for-sale securities:

$ 74,486
41,821
37,530
21,495
12,463
2,699

190,494

23,992

$214,486

Auction rate securities . . . . . . . . . . . . . . . . . . . . . . .

$ 27,325

$(2,649)

Total long-term investments . . . . . . . . . . . . . . . . . . . . . . .

$ 27,325

$(2,649)

$ —

$ 24,676

F-15

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements (Continued)
January 2, 2010

5. Cash, Cash Equivalents and Investments (Continued)

Cash and Cash Equivalents:

Cash on hand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available-for-sale securities:

$ 21,544

January 3, 2009

Gross
Unrealized
Losses

Gross
Unrealized
Gains

Cost

Fair Value

$ 21,544

Money market funds . . . . . . . . . . . . . . . . . . . . . . . .

150,728

$ —

150,728

Total cash and cash equivalents . . . . . . . . . . . . . . . . . . . .

$172,272

$ —

$ — $172,272

Short-term Investments:

Available-for-sale securities:

Municipal bonds . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government agency . . . . . . . . . . . . . . . . . . . . . .

Trading securities:

Auction rate securities . . . . . . . . . . . . . . . . . . . . . . .

Total short-term investments . . . . . . . . . . . . . . . . . . . . . .

Long-term Investments:

Available-for-sale securities:

$ 88,907
10,001

$ 98,908

(1)
—

(1)

$ 504
56

$ 560

$ 89,410
10,057

99,467

1,800

$101,267

Auction-rate securities . . . . . . . . . . . . . . . . . . . . . . .

$ 30,000

$(4,260)

$ — $ 25,740

Trading securities:

Auction rate securities and put option . . . . . . . . . . . .

Total long-term investments . . . . . . . . . . . . . . . . . . . . . . .

26,081

$ 51,821

The available-for-sale investments that were in a continuous unrealized loss position as of

January 2, 2010, aggregated by length of time that individual securities have been in a continuous loss
position, were as follows (in thousands):

Corporate bonds . . . . . . . . . . . . . . . .
Auction rate securities . . . . . . . . . . . .
International government bonds . . . . .
U.S. government agency . . . . . . . . . . .
Municipal bonds . . . . . . . . . . . . . . . . .

Less Than 12 Months

12 Months or Greater

Total

Fair
Value

$39,513
—
5,213
4,978
1,643

Gross
Unrealized
Losses

Fair
Value

Gross
Unrealized
Losses

Fair
Value

$(133)
—
(10)
(25)
(3)

$ — $ — $39,513
24,676
(2,649)
5,213
—
4,978
—
1,643
—

24,676
—
—
—

Gross
Unrealized
Losses

$ (133)
(2,649)
(10)
(25)
(3)

$51,347

$(171)

$24,676

$(2,649)

$76,023

$(2,820)

All of the Company’s available-for-sale investments with gross unrealized losses as of January 3,

2009 had been in a continuous loss position for less than 12 months. The gross unrealized losses as of

F-16

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements (Continued)
January 2, 2010

5. Cash, Cash Equivalents and Investments (Continued)

January 2, 2010 and January 3, 2009 were due primarily to the illiquidity of the Company’s auction-rate
securities and, to a lesser extent, to changes in market interest rates.

The following summarizes the contractual underlying maturities of the Company’s available-for-sale

investments at January 2, 2010 (in thousands):

Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after one year through three years . . . . . . . . . . . . . . . . .
Due after ten years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$282,067
82,348
27,325

$282,263
82,346
24,676

Cost

Fair Value

$391,740

$389,285

In addition, the Company has made equity investments in non-publicly traded companies that it

accounts for under the cost method. The Company periodically reviews these investments for
other-than-temporary declines in fair value based on the specific identification method and writes down
investments to their fair values when it determines that an other-than-temporary decline has occurred.

6. Derivative Financial Instruments

The Company is exposed to interest rate fluctuations in the normal course of its business,

including through its corporate headquarters leases. The base rents for these leases are calculated using
a variable interest rate based on the three-month LIBOR. The Company has entered into interest rate
swap agreements with notional values of $44.3 million and $50.1 million and, effectively, fixed the rent
payment amounts on these leases through March 2011 and March 2013, respectively. The interest rate
swap agreements are designated and qualify as cash flow hedges.

The Company estimates the fair values of derivatives based on quoted prices and market

observable data of similar instruments. If the lease agreements or the interest rate swap agreements are
terminated prior to maturity, the fair value of the interest rate swaps recorded in accumulated other
comprehensive loss may be recognized in the Consolidated Statement of Income based on an
assessment of the agreements at the time of termination. The Company did not discontinue any cash
flow hedges in any of the periods presented.

The Company measures the effectiveness of its cash flow hedges by comparing the change in fair

value of the hedged item with the change in fair value of the interest rate swap. The Company
recognizes ineffective portions of the hedge, as well as amounts not included in the assessment of
effectiveness, in the Consolidated Statement of Income. As of January 2, 2010, no portions of the gains
or losses from the hedging instruments were excluded from the assessment of effectiveness. There was
no hedge ineffectiveness for any of the periods presented.

The Company’s derivative financial instruments consisted of the following (in thousands):

Interest rate swaps . . . . . . . . . . . . . . . . . . . . Long-term obligations and

$4,491

other liabilities

January 2, 2010

Balance Sheet
Location

Fair Value

F-17

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements (Continued)
January 2, 2010

6. Derivative Financial Instruments (Continued)

The before-tax effect of derivative instruments in cash flow hedging relationships was as follows (in

thousands):

Loss Recognized in
OCI on Derivatives
(Effective Portion)
during the Year Ended

January 2,
2010

January 3,
2009

Location of Loss
Reclassified into
Income

Loss Reclassified
from Accumulated
OCI into Income
(Effective Portion)
during the Year Ended

January 2,
2010

January 3,
2009

Interest rate swaps . . . . . . . . . . . . . . . . . .

$(1,681)

$(5,615) Rent expense

$(2,792)

$(12)

The Company expects to reclassify $3.0 million of its interest rate swap losses included in

accumulated other comprehensive loss as of January 2, 2010 into earnings in the next 12 months, which
is offset by lower rent payments.

The Company’s interest rate swap agreements contain provisions that require it to maintain
unencumbered cash and highly-rated short-term investments of at least $150 million. If the Company’s
unencumbered cash and highly-rated short-term investments are less than $150 million, it would be
required to post collateral with the counterparty in the amount of the fair value of the interest rate
swap agreements in net liability positions. Both of the Company’s interest rate swaps were in a net
liability position at January 2, 2010. No collateral has been posted with the counterparties as of
January 2, 2010.

7. Fair Value of Financial Instruments

The following summarizes the valuation of the Company’s financial instruments (in thousands).

The tables do not include either cash on hand or assets and liabilities that are measured at historical
cost or any basis other than fair value.

Description

Assets

Cash equivalents . . . . . . . . . . . . . . . . . .
Short-term investments(1) . . . . . . . . . . .
Long-term investments(2) . . . . . . . . . . . .

Liabilities

Derivative instruments . . . . . . . . . . . . . .

Fair Value Measurements at January 2, 2010 Using

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total

$174,115
190,494
—

$364,609

—

$ —
—
—

$ —

$4,491

$ — $174,115
214,486
24,676

23,992
24,676

$48,668

$413,277

$ — $

4,491

$ — $

4,491

(1) Included in the Company’s short-term investments are $74.5 million of corporate debt securities,

$41.8 million of U.S. government agency debt securities, $37.5 million of municipal debt securities,
$21.5 million of U.S. Treasury bills, $12.5 million of international government debt securities,
$2.7 million of commercial paper and $20.9 million of UBS auction-rate securities classified as
trading together with $3.1 million for a put option.

(2) The Company’s long-term investments consist entirely of available-for-sale auction-rate securities.

F-18

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements (Continued)
January 2, 2010

7. Fair Value of Financial Instruments (Continued)

Description

Assets

Cash equivalents . . . . . . . . . . . . . . . . . .
Short-term investments(1) . . . . . . . . . . .
Long-term investments(2) . . . . . . . . . . . .

Liabilities

Derivative instruments . . . . . . . . . . . . . .

Fair Value Measurements at January 3, 2009 Using

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total

$150,728
101,267
—

$251,995

—

$ —
—
—

$ —

$5,603

$ — $150,728
101,267
51,821

—
51,821

$51,821

$303,816

$ — $

5,603

$ — $

5,603

(1) Included in the Company’s short term investments are $89.4 million of municipal debt securities,
$10.1 million of U.S. government agency debt securities and $1.8 million of auction-rate securities
which settled shortly after year end.

(2) Included in the Company’s long term investments are $25.7 million of available-for-sale

auction-rate securities, $21.1 million of auction-rate securities classified as trading and $5.0 million
for a put option.

The Company’s cash equivalents and short-term investments (other than its UBS auction-rate
securities and put option) are valued using quoted prices and other relevant information generated by
market transactions involving identical assets. The Company’s auction-rate securities and put option are
valued using a discounted cash flow model. The assumptions used in preparing the discounted cash
flow model include estimates for interest rates, amount of cash flows, expected holding periods of the
securities, a discount to reflect the Company’s inability to liquidate the securities and counterparty risk.
The Company’s derivative instruments are valued using quoted prices and market observable data of
similar instruments.

F-19

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements (Continued)
January 2, 2010

7. Fair Value of Financial Instruments (Continued)

The following summarizes the activity in Level 3 financial instruments for the years ended

January 2, 2010 and January 3, 2009 (in thousands):

Balance at January 3, 2009 . . . . . . . . . . . . . . . . . . . . .
Net purchases, sales, issuances and settlements . . . . . .
Unrealized gains (losses) . . . . . . . . . . . . . . . . . . . . . .
Net recognized gains (losses) . . . . . . . . . . . . . . . . . . .

Auction
Rate
Securities

$46,859
(4,574)
1,855
1,435

Put
Option

Total

$ 4,962
(301)
—
(1,568)

$51,821
(4,875)
1,855
(133)

Balance at January 2, 2010 . . . . . . . . . . . . . . . . . . . . .

$45,575

$ 3,093

$48,668

Gain (loss) for period included in earnings attributable

to the Level 3 financial instruments still held at
January 2, 2010 related to:
Trading securities . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of the put option . . . . . . . . . . . . . . . . . .

$ 1,435

$ — $ 1,435
(1,568)

— (1,568)

$ 1,435

$(1,568) $ (133)

Auction
Rate
Securities

Put
Option

Total

Balance at December 29, 2007 . . . . . . . . . . . . . . . . . .
Net transfers into Level 3(1) . . . . . . . . . . . . . . . . . . .
Net purchases, sales, issuances and settlements . . . . . .
Unrealized losses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net recognized gains (losses) . . . . . . . . . . . . . . . . . . .

— $ — $ —
— 68,800
(9,911)
— (4,260)
(2,808)

68,800
(12,600)
(4,260)
(5,081)

2,689

2,273

Balance at January 3, 2009 . . . . . . . . . . . . . . . . . . . .

$ 46,859

$ 4,962

$51,821

Gain (loss) for period included in earnings

attributable to the Level 3 financial instruments still
held at January 3, 2009 related to:
Trading securities . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of the put option . . . . . . . . . . . . . . . . . .

$ (5,081) $ — $ (5,081)
4,962
4,962

—

$ (5,081) $ 4,962

$ (119)

(1) Early in fiscal 2008, quoted prices for the Company’s long-term investments were no

longer observable. As such, the Company changed its fair value measurement
methodology from quoted prices in active markets to a cash flow model. Accordingly,
these securities were reclassified from Level 1 to Level 3. In November 2008, the
Company recorded a put option to sell a portion of its auction-rate securities, which
resulted in a gain recorded in earnings. The gain was offset by the reclassification of
unrealized losses on the associated securities to realized losses recorded in earnings. Both
the gain from recording the put option at fair value and the loss due to the
reclassification of unrealized losses were recorded in ‘‘other income (expense), net’’.

The Company’s other financial instruments, including cash, accounts receivable and accounts
payable, are recorded at amounts that approximate their fair values due to their short maturities.

F-20

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements (Continued)
January 2, 2010

8. Balance Sheet Details

Balance sheet details consist of the following (in thousands):

Inventories

Work in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$24,642
6,870

$23,474
4,819

January 2,
2010

January 3,
2009

Property and Equipment

$31,512

$28,293

January 2,
2010

January 3,
2009

Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computers and purchased software . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 36,232
39,296
3,174
19,029

$ 34,838
39,171
3,167
15,703

Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . .

Accrued Expenses

97,731
(69,946)

92,879
(62,383)

$ 27,785

$ 30,496

January 2,
2010

January 3,
2009

Accrued compensation and benefits . . . . . . . . . . . . . . . . . . . .
Escrow withheld in acquisitions . . . . . . . . . . . . . . . . . . . . . . .
Accrued price protection credits . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$15,757
—
2,957
6,685

$11,489
4,425
4,360
8,845

Long-term Obligations and Other Liabilities

$25,399

$29,119

January 2,
2010

January 3,
2009

Unrecognized tax benefits (including interest) . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$12,025
12,378

$34,169
14,620

$24,403

$48,789

F-21

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements (Continued)
January 2, 2010

9. Risks and Uncertainties

Financial Instruments

Financial instruments that potentially subject the Company to significant concentrations of credit

risk consist primarily of cash equivalents, investments, accounts receivable and derivatives. The
Company places its cash equivalents and investments primarily in U.S. government agency bonds and
discount notes, corporate bonds, municipal bonds, U.S. Treasury bills, commercial paper, international
government bonds and auction-rate securities. Concentrations of credit risk with respect to accounts
receivable are primarily due to customers with large outstanding balances. The Company’s customers
that accounted for greater than 10% of accounts receivable consist of the following:

Edom Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Avnet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Flextronics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

33%
14%
**

28%
**
12%

January 2,
2010

January 3,
2009

** Less than 10% of 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 potential
credit losses based upon the expected collectibility of such receivables. Losses have not been significant
for any of the periods presented.

Suppliers

A significant portion of the Company’s products are fabricated by Taiwan Semiconductor

Manufacturing Co. (TSMC) or its affiliates. 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.

Customers

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. None of the Company’s contract manufacturers
accounted for greater than 10% of revenue during fiscal 2009, 2008 or 2007. The Company’s end
customers and distributors that accounted for greater than 10% of revenue consists of the following:

Year Ended

January 2,
2010

January 3,
2009

December 29,
2007

End Customers
Samsung . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Distributors
Edom Technology . . . . . . . . . . . . . . . . . . . . . . .
Avnet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

16%

27%
10%

31%
**

36%
10%

** Less than 10% of revenue

F-22

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements (Continued)
January 2, 2010

10. Acquisitions

Integration Associates

In July 2008, the Company completed its acquisition of Integration Associates, a privately held

company that designed and developed silicon solutions for wireless, wireline and power system
management applications. The Company acquired Integration Associates for approximately
$87.1 million, including $80.6 million in cash and approximately 202,000 shares of the Company’s
common stock valued at $6.5 million on the closing date. Of such consideration, $9.0 million in cash
was deposited in escrow as security for breaches of representations and warranties and certain other
expressly enumerated matters.

The acquisition was recorded using the purchase method of accounting and accordingly, the results

of Integration Associates’ operations are included in the Company’s consolidated results of operations
beginning with the date of the acquisition. Pro forma financial information has not been presented
since the effect of the acquisition was not material. The Company believes that the acquisition enables
the Company to address new product vectors, accelerates its entry into certain markets and further
scales the Company’s engineering team. These factors contributed to a purchase price that was in
excess of the fair value of the net assets acquired and, as a result, the Company recorded goodwill. The
goodwill is not deductible for tax purposes. The purchase price was allocated as follows (in thousands):

Weighted-Average
Amortization Period
(Years)

Amount

Intangible assets:

Core and developed technology . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . . .
In-process research and development . . . . . . . . . . . . .

$36,270
1,080
10,250

9.7
10.0

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . .

47,600
2,644
4,879
5,925
3,604
32,013
4,688
(2,833)
(4,471)
(6,908)

Total purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . .

$87,141

F-23

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements (Continued)
January 2, 2010

10. Acquisitions (Continued)

In-process research and development (IPR&D) represents acquired technology that had not
achieved technological feasibility as of the acquisition closing date and that had no alternative future
use. These costs were expensed on the date of acquisition. The fair value of each project was
determined using the income approach. The discount rate applicable to the cash flows was 20%. This
rate reflects the weighted-average cost of capital and the risks inherent in the development process.
The IPR&D recorded in connection with the acquisition consisted of the following (in thousands):

Projects

Radio transmitters and transceivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Optoelectronic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fair Value

$ 7,740
2,020
490

$10,250

The radio transmitters and transceivers projects enable the delivery of data over proprietary, short

range wireless links. The optoelectronic projects are used for infrared data communications and
proximity sensing. The power projects enable AC-DC conversion in power supply systems.

SourceCore

In October 2007, the Company completed its acquisition of substantially all of the assets of

SourceCore, a privately held mixed-signal design company for approximately $10.6 million, which
includes direct acquisition costs. The acquisition was recorded using the purchase method of accounting
and accordingly, the results of SourceCore’s operations are included in the Company’s consolidated
results of operations from the date of the acquisition. Through the acquisition, the Company acquired
RF designers as well as an applications and software team in close proximity to our customer base in
China. These factors contributed to a purchase price that was in excess of the fair value of the net
assets acquired and, as a result, the Company recorded goodwill. None of the goodwill is deductible for
tax purposes. The purchase price was allocated as follows: goodwill—$7.6 million; intangible assets—
$2.6 million; and net tangible assets—$0.4 million.

11. Goodwill and Other Intangible Assets

The gross carrying amount and accumulated amortization of goodwill and other intangible assets

are as follows (in thousands):

Weighted-
Average
Amortization
Period (Years)

January 2, 2010

January 3, 2009

Gross
Amount

Accumulated
Amortization

Gross
Amount

Accumulated
Amortization

Goodwill . . . . . . . . . . . . . . . . . . . . . Not amortized

$105,109

— $105,515

—

Amortized intangible assets:

Core & developed technology . . . .
Customer relationships . . . . . . . . .
Patents . . . . . . . . . . . . . . . . . . . . .
Internal use software . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . .

9.3
6.6
7.0
7.0

9.0

$ 54,920
3,380
4,638
600

$(16,024)
(1,188)
(3,921)
(519)

$ 55,220
5,480
4,663
600

$(10,132)
(2,389)
(3,281)
(433)

$ 63,538

$(21,652)

$ 65,963

$(16,235)

F-24

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements (Continued)
January 2, 2010

11. Goodwill and Other Intangible Assets (Continued)

Amortization expense related to intangible assets for fiscal 2009, 2008 and 2007 was $7.8 million,
$5.7 million, and $4.3 million, respectively. Fully amortized assets are written off against accumulated
amortization. The estimated aggregate amortization expense for intangible assets for each of the five
succeeding fiscal years is as follows (in thousands):

Fiscal Year

2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amount

$7,205
6,888
6,427
5,042
4,259

12. Stockholders’ Equity

Common Stock

The Company issued 1.8 million shares of common stock during fiscal 2009. Approximately

189 thousand shares were withheld by the Company during fiscal 2009 to satisfy employee tax
obligations for the vesting of certain stock grants made under the Company’s stock incentive plans.

Share Repurchase Program

In October 2009, the Company’s Board of Directors authorized a program to repurchase up to
$150 million of the Company’s common stock through 2010. The program allows for repurchases to be
made in the open market or in private transactions, including structured or accelerated transactions,
subject to applicable legal requirements and market conditions. The Company’s most recent prior
repurchase program, which was announced in October 2008 and authorized the repurchase of up to
$100 million of the Company’s common stock over a 12-month period, was completed in November
2009. The Company repurchased 0.6 million shares, 9.4 million shares and 4.4 million shares of its
common stock for $20.2 million, $280.3 million and $163.2 million during fiscal 2009, 2008 and 2007,
respectively.

Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss, net of taxes, were as follows (in

thousands):

Balance at January 3, 2009 . . . . . . . . . . .
Change associated with current period

transactions, net of tax . . . . . . . . . . . .
Amount reclassified into earnings, net of
tax . . . . . . . . . . . . . . . . . . . . . . . . . .

Unrealized
Losses on Cash
Flow Hedges

Net Unrealized
Losses on Available-
For-Sale Securities

Total

$(3,642)

$(2,406)

$(6,048)

(1,092)

1,815

969

—

(123)

1,815

Balance at January 2, 2010 . . . . . . . . . . .

$(2,919)

$(1,437)

$(4,356)

F-25

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements (Continued)
January 2, 2010

13. Stock-Based Compensation

In fiscal 2009, the stockholders of the Company approved the 2009 Stock Incentive Plan (the ‘‘2009

Plan’’) and the 2009 Employee Stock Purchase Plan (the ‘‘2009 Purchase Plan’’). The 2009 Plan is
currently effective, and no further grants will be issued under the Company’s 2000 Stock Incentive Plan
(the ‘‘2000 Plan’’) as of the effective date of the 2009 Plan. The 2009 Purchase Plan will become
effective upon the termination of the existing Employee Stock Purchase Plan (the ‘‘Purchase Plan’’), on
April 30, 2010.

The shares issuable under the 2000 Plan and Purchase Plan automatically increased on the first

stock market trading day of each calendar year. The amount of shares reserved for the 2000 Plan
increased by 2.2 million shares, and for the Purchase Plan increased by 220 thousand shares on
January 2, 2009. The amount of shares reserved for the Purchase Plan increased by 230 thousand
shares on the first stock market trading day of 2010. There is no provision for an automatic share
reserve increase in either the 2009 Plan or the 2009 Purchase Plan.

2009 Stock Incentive Plan

In fiscal 2009, the Company’s Board of Directors and stockholders approved the 2009 Plan, which

has a term of 10 years from the shareholders’ approval date. Under the 2009 Plan, the following may
be granted: stock options, stock appreciation rights, performance shares, performance stock units,
restricted stock units, performance-based awards and other awards (collectively, all such grants are
referred to as ‘‘awards’’). Awards of stock options and stock appreciation rights each deduct one share
from the 2009 Plan shares available for issuance for each share granted, and full value awards (awards
other than for which the participant is required to pay at least the fair market value of the underlying
shares on the date of grant) deduct 1.55 shares from the 2009 Plan shares available for issuance for
each share granted. Awards granted under the 2009 Plan generally contain vesting provisions ranging
from three to four years. The exercise price of stock options granted under the 2009 Plan may not be
less than 100% of the fair market value of a share of our common stock on the date of grant. To the
extent awards granted under the 2009 Plan terminate, expire or lapse for any reason, or are settled in
cash, shares subject to such awards will again be available for grant.

2000 Stock Incentive Plan

In fiscal 2000, the Company’s Board of Directors and stockholders approved 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 (as granted under direct issuance shares
in stock awards and restricted stock units (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, RSUs and stock options
generally contain vesting provisions 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.

F-26

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements (Continued)
January 2, 2010

13. Stock-Based Compensation (Continued)

Stock Grants and Modifications

The Company granted to its employees zero, 0.3 million and 0.5 million stock options, and
0.8 million, 1.0 million and 1.0 million of stock awards and RSUs from the 2000 Plan during fiscal
2009, 2008 and 2007, respectively. The Company granted to its employees 0.2 million of stock awards
and RSUs from the 2009 Plan during fiscal 2009. The Company recorded $5.5 million of stock
compensation expense in ‘‘Income from discontinued operations, net of income taxes’’ during fiscal
2007 in connection with modifications of equity grants to employees who were hired by NXP in
connection with the sale of the Aero product lines. As of the closing date of the sale, the Company
accelerated the vesting of 0.5 million shares of options and awards, and extended the exercise period of
0.9 million shares of options through December 31, 2007. Further, the Company cancelled 0.3 million
shares of unvested options and awards related to the terminated employees. There were no other
significant modifications made to any stock grants during these periods.

2009 Employee Stock Purchase Plan

In fiscal 2009, the Company’s Board of Directors and stockholders approved the 2009 Purchase

Plan. The rights to purchase common stock granted under the 2009 Purchase Plan are intended to be
treated as either (i) purchase rights granted under an ‘‘employee stock purchase plan,’’ as that term is
defined in Section 423(b) of the Internal Revenue Code (i.e., the 423(b) Plan), or (ii) purchase rights
granted under an employee stock purchase plan that is not subject to the terms and conditions of
Section 423(b) of the Internal Revenue Code (i.e., the Non-423(b) Plan). The Company will retain the
discretion to grant purchase rights under either the 423(b) Plan or the Non-423(b) Plan. Eligible
employees may purchase a limited number of shares of the Company’s common stock at no less than
85% of the fair market value of a share of common stock at prescribed purchase intervals during an
offering period. Each offering period will be comprised of a series of one or more successive and/or
overlapping purchase intervals and has a maximum term of 24 months.

Employee Stock Purchase Plan

The Purchase Plan was adopted by the Company’s Board of Directors in fiscal 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. During fiscal 2009, 2008 and 2007, the
Company issued a total of 148,000, 120,000 and 116,000 shares under the Purchase Plan to its
employees. The weighted-average fair value for purchase rights granted under the Purchase Plan for
fiscal 2009 was $10.49 per share.

Accounting for Stock Compensation

Stock-based compensation costs are generally based on the fair values on the date of grant for
stock options and on the date of enrollment for the employee stock purchase plans, estimated by using
the Black-Scholes option-pricing model. The fair values of stock awards and RSUs generally equal their
intrinsic value on the date of grant.

F-27

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements (Continued)
January 2, 2010

13. Stock-Based Compensation (Continued)

The Black-Scholes valuation calculation requires us to estimate key assumptions such as future
stock price volatility, expected terms, risk-free rates and dividend yield. Expected stock price volatility is
based upon a combination of both historical volatility and implied volatility derived from traded options
on the Company’s stock in the marketplace. Expected term is derived from an analysis of historical
exercises and remaining contractual life of options. The risk-free rate is based on the U.S. Treasury
yield curve in effect at the time of grant. The Company has never paid cash dividends and does not
currently intend to pay cash dividends, thus it has assumed a 0% dividend yield.

The Company must estimate potential forfeitures of stock grants and adjust compensation cost

recorded accordingly. The estimate of forfeitures will be adjusted over the requisite service period to
the extent that actual forfeitures differ, or are expected to differ, from such estimates. Changes in
estimated forfeitures are recognized through a cumulative catch-up adjustment in the period of change
and will also impact the amount of stock compensation expense to be recognized in future periods.

The fair values of stock options and RSUs are amortized as compensation expense on a
straight-line basis over the vesting period of the grants. The fair values of stock awards are fully
expensed in the period of grant, when shares are immediately issued with no vesting restrictions.
Compensation expense from continuing operations recognized is shown in the operating activities
section of the Consolidated Statements of Cash Flows.

The fair values estimated from the Black-Scholes option-pricing model were calculated using the

following assumptions:

Year Ended

January 2,
2010

January 3,
2009

December 29,
2007

2000 Stock Incentive Plan:

Expected volatility . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate % . . . . . . . . . . . . . . . .
Expected term (in years) . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . .

Employee Stock Purchase Plan:

Expected volatility . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate % . . . . . . . . . . . . . . . .
Expected term (in months) . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . .

—
—
—
—

44%
0.3%
8
—

44%
2.6%
5.0
—

41%
1.3%
12
—

48%
4.6%
4.9
—

37%
4.8%
14
—

There were no stock options granted during fiscal 2009.

F-28

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements (Continued)
January 2, 2010

13. Stock-Based Compensation (Continued)

A summary of the Company’s stock compensation activity with respect to fiscal 2009 follows:

Stock Options

Outstanding at January 3, 2009 . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled or expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Weighted-
Average
Remaining
Contractual
Term
(In Years)

Aggregate
Intrinsic
Value
($000s)

Weighted-
Average
Exercise
Price

$32.84
—
27.50
41.86

Shares
(000s)

5,254
—
(1,048)
(160)

Outstanding at January 2, 2010 . . . . . . . . . . . . . . . . . . . . . .

4,046

$33.86

Vested at January 2, 2010 and expected to vest . . . . . . . . . . .

4,030

$33.86

Exercisable at January 2, 2010 . . . . . . . . . . . . . . . . . . . . . . .

3,502

$33.94

4.6

4.2

$60,976

$60,742

$52,811

Aggregate
Intrinsic
Value
($000s)

Weighted-
Average
Remaining
Vesting
Term
(In Years)

Weighted-
Average
Purchase
Price

Stock Awards and RSUs

Outstanding at January 3, 2009 . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled or expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Shares
(000s)

2,023
951
(662)
(80)

Outstanding at January 2, 2010 . . . . . . . . . . . . . . . . . . . . . . .

2,232

Outstanding at January 2, 2010 and expected to vest

. . . . . . .

2,059

$0.00
0.00
0.00
0.00

$0.00

Exercisable at January 2, 2010 . . . . . . . . . . . . . . . . . . . . . . . .

— $ —

1.3

—

$107,999

$ 99,593

—

The following summarizes the Company’s weighted average fair value at the date of grant

(including activity related to discontinued operations):

Per grant of stock options . . . . . . . . . . . . . . . . .
Per grant of stock award or RSUs . . . . . . . . . . .

$ —
$27.45

$12.92
$31.77

$16.18
$34.28

Year Ended

January 2,
2010

January 3,
2009

December 29,
2007

F-29

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements (Continued)
January 2, 2010

13. Stock-Based Compensation (Continued)

The following summarizes the Company’s stock-based payment and stock option values (in

thousands):

Intrinsic value of stock options exercised . . . . . . .
Intrinsic value of stock awards issued and RSUs

Year Ended

January 2,
2010

January 3,
2009

December 29,
2007

$14,549

$ 5,454

$23,684

that vested . . . . . . . . . . . . . . . . . . . . . . . . . . .

$23,983

$19,469

$22,661

Grant date fair value of stock awards and RSUs

that vested . . . . . . . . . . . . . . . . . . . . . . . . . . .

$22,764

$22,420

$22,416

The Company had approximately $51.3 million of total unrecognized compensation costs related to

stock options, stock and RSUs at January 2, 2010 that are expected to be recognized over a weighted-
average period of 1.7 years. There were no significant stock compensation costs capitalized into assets
in any of the periods presented.

The Company received cash of $25.2 million for the issuance of common stock, net of shares

withheld for taxes during fiscal 2009. The Company issues shares from the shares reserved under its
stock plans upon the exercise of stock options, issuance of stock awards, and vesting of RSUs. The
Company does not currently expect to repurchase shares from any source to satisfy such obligation
under the Plan.

The following are the stock-based compensation costs recognized in the Company’s Consolidated

Statements of Income (in thousands):

Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . .

Provision for income taxes . . . . . . . . . . . . . . . . .

Year Ended

January 2,
2010

January 3,
2009

December 29,
2007

$ 1,457
13,866
28,651

43,974
6,221

$ 1,437
14,906
24,326

40,669
5,647

$ 1,539
16,385
22,054

39,978
6,755

$37,753

$35,022

$33,223

F-30

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements (Continued)
January 2, 2010

13. Stock-Based Compensation (Continued)

As of January 2, 2010, the Company had reserved shares of common stock for future issuance as

follows (in thousands):

2000 Stock Incentive Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 Stock Incentive Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee Stock Purchase Plan(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 Employee Stock Purchase Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6,132
6,731
1,795
1,250

Total shares reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

15,908

(1) Shares reserved for the Employee Stock Purchase Plan will be cancelled upon the
effective date of the 2009 Employee Stock Purchase Plan on April 30, 2010.

14. 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 contributed $2.2 million, $2.2 million and $1.8 million to the 401(k) Plan during
fiscal 2009, 2008 and 2007, respectively.

15. Commitments and Contingencies

Operating Leases

The Company leases its facilities under operating lease agreements that expire at various dates

through 2019. Some of these arrangements contain renewal options and require the Company to pay
taxes, insurance and maintenance costs.

Rent expense under operating leases was $5.1 million, $3.8 million and $4.6 million for fiscal 2009,

2008 and 2007, respectively.

The minimum annual future rentals under the terms of these leases as of January 2, 2010 are as

follows (in thousands):

Fiscal Year

2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 7,642
6,636
6,474
2,550
1,307
5,671

Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minimum sublease rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

30,280
(8,466)

Total net minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$21,814

F-31

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements (Continued)
January 2, 2010

15. Commitments and Contingencies (Continued)

Headquarters Leases

In March 2006, the Company entered into an operating lease agreement and a related

participation agreement for a facility at 400 W. Cesar Chavez (‘‘400 WCC’’) in Austin, Texas for its
corporate headquarters. The lease has a term of seven years. The base rent for the term of the lease is
an amount equal to the interest accruing on $44.3 million at 110 basis points over the three-month
LIBOR (which would be approximately $1.9 million over the remaining term assuming LIBOR
averages 0.25% during such term).

In March 2008, the Company entered into an operating lease agreement and a related

participation agreement for a facility at 200 W. Cesar Chavez (‘‘200 WCC’’) in Austin, Texas for the
expansion of its corporate headquarters. The lease has a term of five years. The base rent for the term
of the lease is an amount equal to the interest accruing on $50.1 million at 155 basis points over the
three-month LIBOR (which would be approximately $2.9 million over the remaining term assuming
LIBOR averages 0.25% during such term).

The Company has granted certain rights and remedies to the lessors in the event of certain

defaults, including the right to terminate the leases, to bring suit to collect damages, and to compel the
Company to purchase the facilities. The leases contain other customary representations, warranties,
obligations, conditions, indemnification provisions and termination provisions, including covenants that
the Company shall maintain unencumbered cash and highly-rated short-term investments of at least
$75 million. If the Company’s unencumbered cash and highly-rated short-term investments are less than
$150 million, it must also maintain a ratio of funded debt to earnings before interest expense, income
taxes, depreciation, amortization, lease expense and other non-cash charges (EBITDAR) over the four
prior fiscal quarters of no greater than 2 to 1. As of January 2, 2010, the Company believes it was in
compliance with all covenants of the leases.

During the terms of the leases, the Company has on-going options to purchase the buildings for

purchase prices of approximately $44.3 million for 400 WCC and $50.1 million for 200 WCC.
Alternatively, the Company can cause each such property to be sold to third parties provided it is not
in default under that property’s lease. The Company is contingently liable on a first dollar loss basis for
up to $35.3 million to the extent that the 400 WCC sale proceeds are less than the $44.3 million
purchase option and up to $40.0 million to the extent that the 200 WCC sale proceeds are less than the
$50.1 million purchase option.

The Company determined that the fair value associated with the guaranteed residual values was

$1.0 million for 400 WCC and $1.2 million for 200 WCC, as of the inception of the leases. These
amounts were recorded in ‘‘Other assets, net’’ and ‘‘Long-term obligations and other liabilities’’ in the
Consolidated Balance Sheets and are being amortized over the term of the leases.

The Company is required to periodically evaluate the expected fair value of each facility at the end

of the lease terms. If the Company determines that it is estimable and probable that the expected fair
values will be less than $44.3 million for 400 WCC and $50.1 million for 200 WCC, it will ratably
accrue the loss up to a maximum of approximately $35.3 million and $40.0 million, respectively, over
the remaining lease terms as additional rent expense. As of January 2, 2010, the Company does not
believe that a loss contingency accrual is required for either property. However, a prolonged economic
downturn could increase the likelihood of such a loss accrual.

F-32

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements (Continued)
January 2, 2010

15. Commitments and Contingencies (Continued)

Interest Rate Swap Agreements

In connection with its headquarters leases, during fiscal 2008 the Company entered into interest
rate swap agreements as a hedge against the variable rent under the leases. Under the terms of the
swap agreements, the Company has effectively converted the variable rents to fixed rents through
March 2011 for 400 WCC and March 2013 for 200 WCC. See Note 6, Derivative Financial Instruments,
for additional information.

Litigation

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 Complaint alleges violations
of the Securities Act of 1933 and the Securities Exchange Act of 1934. 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 December 5, 2006, the Second Circuit
vacated a decision by the District Court granting class certification in six of the coordinated cases,
which are intended to serve as test, or ‘‘focus’’ cases. The plaintiffs selected these six cases, which do
not include the Company. On April 6, 2007, the Second Circuit denied a petition for rehearing filed by
the plaintiffs, but noted that the plaintiffs could ask the District Court to certify more narrow classes
than those that were rejected.

The parties in the approximately 300 coordinated cases, including the parties in the case against
the Company, reached a settlement. The insurers for the issuer defendants in the coordinated cases will
make the settlement payment on behalf of the issuers, including the Company. On October 5, 2009, the
Court granted final approval of the settlement. Six notices of appeal have been filed. Judgment was
entered on January 13, 2010. The time to file additional notices of appeal is set to expire on
February 12, 2010. A group of three objectors, who filed a notice of appeal, also filed a petition to the
Second Circuit seeking permission to appeal the District Court’s final approval of the settlement on the
basis that the settlement class is broader than the class previously rejected by the Second Circuit in its
December 5, 2006 order vacating the District Court’s order certifying classes in the focus cases.

As the litigation process is inherently uncertain, the Company is unable to predict the outcome of

the above described matter if the settlement does not survive the appeal. While the Company does
maintain liability insurance, it could incur losses that are not covered by its liability insurance or that
exceed the limits of its liability insurance. Such losses could have a material impact on the Company’s
business and its results of operations or financial position.

F-33

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements (Continued)
January 2, 2010

15. Commitments and Contingencies (Continued)

Other

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 its consolidated financial position
or results of operations.

Discontinued Operations Indemnification

In connection with the sale of the Aero product lines, the Company agreed to indemnify NXP with

respect to liabilities for certain tax matters. There is no contractual limit on exposure with respect to
such matters. As of January 2, 2010, the Company had no material liabilities recorded with respect to
this indemnification obligation.

16. Income Taxes

Significant components of the provision (benefit) for income taxes attributable to continuing

operations are as follows (in thousands):

Year Ended

January 2,
2010

January 3,
2009

December 29,
2007

Current:

Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
International

$(11,560)
5,538

$14,557
3,808

Total Current . . . . . . . . . . . . . . . . . . . . . . . . .

(6,022)

18,365

$5,182
1,809

6,991

Deferred:

Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
International

Total Deferred . . . . . . . . . . . . . . . . . . . . . . . .

2,234
(338)

1,896

2,261
(445)

1,816

(177)
24

(153)

$ (4,126)

$20,181

$6,838

F-34

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements (Continued)
January 2, 2010

16. Income Taxes (Continued)

The Company’s provision (benefit) 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 . . . . . . . . . . . . . . . . . . . . .
Stock compensation . . . . . . . . . . . . . . . . . . . . . .
Foreign tax rate benefit . . . . . . . . . . . . . . . . . . .
Tax-exempt interest income . . . . . . . . . . . . . . . .
Research and development tax credits . . . . . . . . .
In-process research and development . . . . . . . . .
Release of prior year unrecognized tax benefits . .
Intercompany technology license . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended

January 2,
2010

January 3,
2009

December 29,
2007

35.0%
0.3
(16.7)
(0.6)
(3.1)
—
(23.4)
—
2.5

35.0%
3.0
(14.4)
(3.0)
(2.1)
6.8
(12.5)
22.1
3.1

(6.0)% 38.0%

35.0%
4.9
(2.4)
(11.6)
(3.4)
—
(8.7)
—
0.9

14.7%

The effective tax rate for fiscal 2009 decreased from fiscal 2008, primarily due to the resolution of

uncertain tax positions as a result of the Company entering into a unilateral Advance Pricing
Agreement with the U.S. Internal Revenue Service during the fourth quarter of fiscal 2009. In addition,
the effective tax rate for fiscal 2009 decreased from fiscal 2008 due to the intercompany license of
certain technology and the non-deductible write-off of in-process research and development costs
during fiscal 2008, both of which were related to the acquisition of Integration Associates. The increase
in the effective rate for fiscal 2008 from fiscal 2007 was primarily attributable to a tax charge related to
the intercompany license of certain technology obtained in the acquisition of Integration Associates, the
non-deductible write-off of in-process research and development costs and lower tax-exempt interest
income in fiscal 2008.

Income before income taxes included approximately $39.5 million, $22.6 million and $28.7 million

related to foreign operations in fiscal 2009, 2008 and 2007, respectively.

At the end of fiscal 2009, undistributed earnings of the Company’s foreign subsidiaries of

approximately $237.9 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.

F-35

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements (Continued)
January 2, 2010

16. Income Taxes (Continued)

Significant components of the Company’s deferred taxes as of January 2, 2010 and January 3, 2009

are as follows (in thousands):

Deferred tax assets:

Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . .
Research and development tax credit carryforwards . . . . . . .
Stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciable assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserves and allowances . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized losses on available-for-sale securities . . . . . . . . .
Unrealized losses on cash flow hedges . . . . . . . . . . . . . . . . .
Deferred income on shipments to distributors . . . . . . . . . . .
Accrued liabilities and other . . . . . . . . . . . . . . . . . . . . . . . .

Less: Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . .

Deferred tax liabilities:

Acquired intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long term obligations for tax purposes . . . . . . . . . . . . . . . .
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . .

January 2,
2010

January 3,
2009

$ 2,246
3,926
9,853
33,407
335
774
1,572
1,778
4,629

58,520
—

58,520

13,882
33,023
857

47,762

$ 5,945
4,211
8,594
35,899
560
1,297
1,961
2,043
3,880

64,390
—

64,390

16,174
33,023
751

49,948

Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$10,758

$14,442

As of January 2, 2010, the Company had federal net operating loss and research and development

credit carryforwards of approximately $3.6 million and $0.9 million, respectively, as a result of the
Cygnal Integrated Products and Integration Associates acquisitions. These carryforwards expire in fiscal
years 2019 through 2028. Recognition of these loss and credit carryforwards is subject to an annual
limit, which may cause them to expire before they are used.

The Company also had state loss and research and development credit carryforwards of
approximately $25.9 million and $5.0 million, respectively. A portion of these loss and credit
carryforwards was generated by the Company and a portion was acquired through the Integration
Associates acquisition. Certain of these carryforwards expire in fiscal years 2024 through 2028 and
others do not expire. Recognition of some of these loss and credit carryforwards is subject to an annual
limit, which may cause them to expire before they are used.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying

value of assets and liabilities for financial reporting purposes and the values used for income tax
purposes. Related to the acquisition of Integration Associates in July 2008, the Company has recorded
net deferred tax liabilities of approximately $5.1 million due to differences between book and tax bases
of acquired assets and assumed liabilities.

F-36

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements (Continued)
January 2, 2010

16. Income Taxes (Continued)

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 $6.3 million
(representing $0.13 per diluted share) in fiscal 2009 and $5.9 million (representing $0.12 per diluted
share) in fiscal 2008.

The Company adopted FASB ASC 740, formerly FASB Interpretation No. (FIN) 48, Accounting for

Uncertainty in Income Taxes, at the beginning of fiscal 2007. A reconciliation of the beginning and
ending amounts of unrecognized tax benefits is as follows (in thousands):

Balance at January 3, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions based on tax positions related to prior years . . . . . . . . . . . . . . .
Reductions for tax positions related to prior years . . . . . . . . . . . . . . . . . .
Reductions for tax positions as a result of a lapse of the applicable statute
of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions for settlements with taxing authorities . . . . . . . . . . . . . . . . . .

$ 32,695
4,127
(14,954)

(1,197)
(8,511)

Balance at January 2, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 12,160

At January 2, 2010, the Company had gross unrecognized tax benefits of $12.2 million,
$11.9 million of which would affect the effective tax rate if recognized. During fiscal 2009, the
Company recorded gross decreases of $1.2 million to its unrecognized tax benefits related to the
closure of an open tax year. During the fourth quarter of fiscal 2009, the Company entered into a
unilateral Advance Pricing Agreement with the U.S. Internal Revenue Service which resolves certain
intercompany transfer pricing matters beginning in fiscal 2005. As a result of the agreement, the
Company recorded gross decreases of $15.0 million to its unrecognized tax benefits related to prior
years and recorded gross decreases of $8.5 million related to settlements with taxing authorities, which
it recorded as additional taxes payable of the same amount. In addition, the Company recorded gross
increases of $4.1 million to its unrecognized tax benefits related to prior years, primarily due to
uncertainty related to the deductibility of certain items.

The Company recognizes interest and penalties related to unrecognized tax benefits in the
provision for income taxes. During fiscal 2009, 2008 and 2007, the Company recognized $0.8 million,
$0.9 million and $1.0 million of interest, respectively, net of tax, in the provision for income taxes. In
addition, the Company had decreases of interest, net of tax, of $1.8 million related to resolution of
certain intercompany transfer pricing matters and the closure of an open tax year in fiscal 2009, of
$1.2 million related to the closure of an open tax year in fiscal 2008 and of $1.1 million related to the
closure of an income tax audit and the closure of open tax years in fiscal 2007. The Company had
accrued $0.1 million and $1.7 million for the payment of interest related to unrecognized tax positions
at the end of fiscal 2009 and 2008, respectively.

The tax years 2004 through 2009 remain open to examination by the major taxing jurisdictions to

which the Company is subject. The Company’s 2005 through 2008 federal income tax returns are under
examination by the U.S. Internal Revenue Service. Although the outcome of tax audits is always
uncertain, the Company believes that the results of the examination will not materially affect its
financial position or results of operations.

F-37

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements (Continued)
January 2, 2010

17. Segment Information

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 its Chief
Executive Officer. The chief operating decision maker allocates resources and assesses performance of
the business and other activities at the operating segment level.

Revenue is attributed to a geographic area based on the end customer’s shipped-to location. The

following summarizes the Company’s revenue by geographic area (in thousands):

Year Ended

January 2,
2010

January 3,
2009

December 29,
2007

United States . . . . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
South Korea . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taiwan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rest of world . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 54,065
105,509
91,974
68,320
121,152

$ 51,829
94,779
56,364
79,351
133,307

$ 43,743
79,261
36,571
83,176
94,710

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$441,020

$415,630

$337,461

The following summarizes the Company’s property and equipment, net by geographic area (in

thousands):

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Singapore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rest of world . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$22,528
3,739
1,518

$24,895
3,453
2,148

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$27,785

$30,496

January 2,
2010

January 3,
2009

18. Headquarter Relocation Costs

In fiscal 2006, the Company relocated most of its Austin, Texas employees to a new corporate

headquarters. In fiscal 2007, the Company relocated the remainder of its Austin employees to its
headquarters. The Company recorded $3.8 million for the expected costs related to vacating certain
leased facilities in the ‘‘selling, general and administrative’’ line of the Consolidated Statements of
Income. The following table summarizes the accrued relocation costs activity (in thousands):

Fiscal Year

Balance at
Beginning
of Year

Additions
Charged to
Expenses

Deductions(1)

Balance at
End of Year

2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 986
2,618
2,261

$ —
—
704

$ 916
1,632
347

70
986
2,618

(1) Deductions represent lease and brokerage commission payments.

F-38

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements (Continued)
January 2, 2010

19. Subsequent Events

The Company evaluates events and transactions that occur after the balance sheet date as
potential subsequent events. This evaluation was performed through February 10, 2010, the date on
which the Company’s financial statements were issued.

F-39

Supplementary Financial Information (Unaudited)

Quarterly financial information for fiscal 2009 and 2008 is as follows. The first quarter of fiscal

2008 had 14 weeks. All other quarterly periods reported here had 13 weeks (in thousands, except per
share amounts):

Fiscal 2009

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$127,190
83,260
26,078

$125,913
81,035
26,539
$ 40,251(2) $ 22,439

Fourth
Quarter

Third
Quarter

Second
Quarter

$104,216
64,781
12,726
9,730

First
Quarter

$83,701
50,678
1,167
671

Earnings per share:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$

0.88
0.84

$
$

0.50
0.47

$
$

0.22
0.21

$
$

0.02
0.01

Earnings per share:

Fourth
Quarter

$ 99,348
60,096
7,088
6,324

Fiscal 2008

Third
Quarter

Second
Quarter

$104,620
$113,483
66,033
69,309
7,334(1)
18,169
1,154(1) $ 14,643

First
Quarter

$98,179
60,347
11,065
$10,814

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$

0.14
0.14

$
$

0.02
0.02

$
$

0.30
0.29

$
$

0.21
0.21

(1) Includes a charge for in-process research and development costs in connection with our acquisition

of Integration Associates.

(2) Includes a benefit related to the resolution of prior year uncertain tax benefits.

F-40

Supplementary Financial Information
to the Annual Report

Appendix I. Reconciliation of GAAP
to Non-GAAP Financial Measures

[This Page Intentionally Left Blank]

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, except per share data)

Non-GAAP Income
Statement Items

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . .

Non-GAAP Income
Statement Items

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . .

Non-GAAP Income
Statement Items

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . .

Non-GAAP Income
Statement Items

Revenues . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . .
Operating income . . . . . . . . . . .

GAAP
Measure

$83,701
50,678
1,167

Three Months Ended
January 2, 2010

GAAP
Percent of
Revenue

Stock
Compensation
Expense

Non-GAAP
Measure

Non-GAAP
Percent of
Revenue

65.5%
20.5%

315
11,798

$83,575
37,876

65.7%
29.8%

Three Months Ended
October 3, 2009

GAAP
Percent of
Revenue

Stock
Compensation
Expense

Non-GAAP
Measure

Non-GAAP
Percent of
Revenue

64.4%
21.1%

375
11,177

$81,410
37,716

64.7%
30.0%

Three Months Ended
July 4, 2009

GAAP
Percent of
Revenue

Stock
Compensation
Expense

Non-GAAP
Measure

Non-GAAP
Percent of
Revenue

62.2%
12.3%

372
10,851

$65,153
23,577

62.5%
22.6%

GAAP
Measure

$127,190
83,260
26,078

GAAP
Measure

$125,913
81,035
26,539

GAAP
Measure

$104,216
64,781
12,726

Three Months Ended
April 4, 2009

GAAP
Percent of
Revenue

Stock
Compensation
Expense

Termination
Costs and
Impairments

Non-GAAP
Measure

Non-GAAP
Percent of
Revenue

60.5%
1.4%

395
10,149

$ 10
821

$51,083
12,137

61.0%
14.5%

Unaudited Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands, except per share data)
(Continued)

Non-GAAP Diluted
Earnings Per Share

Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted shares outstanding . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . .

Non-GAAP Diluted
Earnings Per Share

GAAP
Measure

$40,251
47,786
0.84

GAAP
Measure

$22,439
47,322
0.47

GAAP
Measure

$ 9,730
45,975
0.21

Non-GAAP Diluted
Earnings Per Share

Net Income . . . . . . . . . . . . . . . . . . . . . . .
Diluted shares outstanding . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . .

GAAP
Measure

671
45,083
0.01

Three Months Ended
April 4, 2009

Stock
Compensation
Expense

Termination
Costs and
Impairments

$8,641
—

$732
—

Three Months Ended
January 2, 2010

Stock
Compensation
Expense

$10,234
—

Non-GAAP
Measure

$50,485
47,786
1.06

Three Months Ended
October 3, 2009

Stock
Compensation
Expense

$9,484
—

Non-GAAP
Measure

$31,923
47,322
0.67

Three Months Ended
July 4, 2009

Stock
Compensation
Expense

$9,394
—

Non-GAAP
Measure

$19,124
45,975
0.42

Non-GAAP
Measure

$10,044
45,083
0.22

2 0 0 9 D i r e c t o r s

NAV S. SOOCH
Chairman, Silicon Laboratories

NECIP SAYINER, PHD
President and Chief Executive Officer,
Silicon Laboratories

DAVID R. WELLAND
Vice President and Fellow,
Silicon Laboratories

HARVEY B. CASH
InterWest Partners,
General Partner

NELSON C. CHAN

ROBERT TED ENLOE, III
Balquita Partners, Ltd.,
Managing General Partner

kRISTEN M. ONkEN

LAURENCE G. WALkER, PHD

WILLIAM P. WOOD
Silverton Partners,
General Partner

c U r r e n t
e x e c U t i v e of f i c e r s

NECIP SAYINER, PHD
President and Chief Executive Officer

WILLIAM G. BOCk
Senior Vice President and
Chief Financial Officer

JONATHAN IVESTER
Senior Vice President
of Worldwide Operations

kURT HOFF
Vice President of Worldwide Sales

PAUL V. WALSH JR.
Vice President and
Chief Accounting Officer

c o r p o r at e i n f o r m at i o n

Stock listing: Common stock
traded on NASDAQ®

SYMBOL:
SLAB

LEGAL COUNSEL
DLA Piper US LLP
401 Congress Avenue, Suite 2500
Austin, TX 78701

INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Ernst & Young LLP
401 Congress, Suite 1800
Austin, TX 78701

t r a n s f e r a g e n t
a n D r e g i s t r a r

American Stock Transfer & Trust Company
59 Maiden Lane
Plaza Level
New York, NY 10038
800-937-5449

STOCk DATA
As of January 31, 2010, there were 137
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 2009

Q2 2009

Q3 2009

Q4 2009

HIGH

$28.13

$39.29

$49.08

$49.06

LOW

$20.40

$26.19

$34.59

$40.56

ANNUAL MEETING
The Silicon Laboratories Inc. annual meeting
will be held on Thursday, April 22, 2010 at
9:30am Central Time at the Lady Bird Johnson
Wildflower Center, 4801 La Crosse Avenue,
Austin, TX 78739.

INVESTOR RELATIONS
For more information about Silicon
Laboratories, please visit our website
at www.silabs.com, or contact:

Investor Relations
Silicon Laboratories Inc.
400 W. Cesar Chavez
Austin, TX 78701
512-464-9254
investor.relations@silabs.com

OPTIONS
The Company’s options are traded on the
Chicago Board Option Exchange and the
American Stock Exchange.

Design by Frank+Victor Design, Austin, TX.
www.frankandvictor.com

S I L I C O N L A B O R AT O R I E S I N C . | 4 0 0 W. C E S A R C H AV E Z | A U S T I N , T X 7 8 7 0 1 | 512 - 416 - 8 5 0 0 | S I L A B S . C O M