Engineering for a mixed-signal world. S I L I C O N L A B O R AT O R I E S 2 011 A N N U A L R E P O R T 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 E S T C E S A R C H AV E Z | A U S T I N , T E X A S 7 8 7 01 | 512 - 416 - 8 5 0 0 | W W W. S I L A B S . C O M 2 0 11 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 WILLIAM G. BOCk HARVEy B. CASH InterWest Partners, General Partner kRISTEN M. ONkEN ROBERT TED ENLOE, III Balquita Partners, Ltd., Managing General Partner LAURENCE G. WALkER, PhD BILL WOOD Silverton Partners, General Partner 2 0 11 e x e c u t i v e o f f i c e r s NECIP SAyINER, PhD President and Chief Executive Officer PAUL WALSH Vice President and Chief Financial Officer G. TySON TUTTLE Senior Vice President and Chief Operating Officer JONATHAN IVESTER Senior Vice President of Worldwide Operations 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 OPTIONS LEGAL COUNSEL DLA Piper US LLP 401 Congress Avenue, Suite 2500 Austin, Texas 78701 INDEPENDENT REGISTERED PUBLIC ACCOUNTING fIRM Ernst & Young LLP 401 Congress Avenue, Suite 1800 Austin, Texas 78701 American Stock Transfer & Trust Company 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 New York, New York 10038 59 Maiden Lane Plaza Level 800-937-5449 STOCk DATA As of January 31, 2012, there were 126 holders of record of the Company’s Common Stock. The following table shows the record high and low per share prices of the Company’s Common Stock as reported by the NASDAQ for the periods. Q1 2011 Q2 2011 Q3 2011 Q4 2011 HIGH $50.27 $46.28 $42.88 $45.10 LOW $41.48 $37.56 $30.36 $31.92 ANNUAL MEETING The Silicon Laboratories Inc. annual meeting will be held on Thursday, April 19, 2012 at 9:30 am Central Time at the Lady Bird Johnson Wildflower Center, 4801 La Crosse Avenue, Austin, Texas, 78739. Laboratories, please visit our website at www.silabs.com, or contact: Investor Relations Silicon Laboratories Inc. 400 West Cesar Chavez Austin, Texas 78701 512-464-9254 investor.relations@silabs.com kURT HOff INVESTOR RELATIONS Vice President of Worldwide Sales For more information about Silicon 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 Silicon Laboratories Inc. is a global leader in the innovation of mixed-signal integrated circuit (IC) technology bridging the analog world we live in and the digital world of computing. The company applies its renowned design expertise to develop proprietary analog-intensive, mixed-signal ICs that 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 1,300 patents issued or pending. Based in Austin, Texas, Silicon Laboratories’ common stock is traded on the NASDAQ® exchange under the ticker symbol “SLAB.” F I N A N C I A L H I G H L I G H T S In 2011, Silicon Labs performed in line with the industry despite macroeconomic headwinds. Strong revenue ramps in new products were able to offset demand weakness in many of our end markets as well as some secular declines in maturing products. Revenue of $492 million was about flat with 2010 and non-GAAP gross margin was slightly below our target of 62 percent. Operating expenses generally declined as a percentage of revenue throughout the year as we continued to tightly manage spending to reflect the changing market environment and protect profitability. We continued to make a considerable investment in R&D and believe that this critical funding will be the basis for potential future growth. N O N - G A A P F I N A N C I A L S * I N T H O U S A N D S , E X C E P T P E R S H A R E D ATA REVENUE (000's) % GROWTH NON-GAAP MEASURES* GROSS MARGIN % OF SALES R&D % OF SALES SG&A % OF SALES OPERATING EXPENSES % OF SALES OPERATING INCOME % OF SALES NET INCOME % OF SALES NON-GAAP EARNINGS 1Q11 $119,636 6.9% $73,645 61.6% $29,747 24.9% $23,193 19.4% $52,940 44.3% $20,705 17.3% $18,204 15.2% $0.40 2Q11 $126,197 5.5% $78,334 62.1% $30,464 24.1% $22,540 17.9% $53,004 42.0% $25,330 20.1% $21,865 17.3% $0.48 3Q11 $119,100 (5.6%) $73,232 61.5% $28,134 23.6% $22,434 18.8% $50,568 42.5% $22,664 19.0% $19,111 16.0% $0.44 4Q11 $126,692 6.4% $77,483 61.2% $29,564 23.3% $22,466 17.7% $52,030 41.1% $25,453 20.1% $21,384 16.9% $0.49 FY11 $491,625 (0.3%) $302,694 61.6% $117,909 24.0% $90,633 18.4% $208,542 42.4% $94,152 19.2% $80,564 16.4% $1.80 Silicon Labs was founded on principles of conservative financial management, and has shown impressive operating performance through semiconductor industry cycles. Over the last five years, the company generated $492 million in cash flow from operations and has committed to returning that cash to shareholders through a very successful share repurchase program. In 2011, the company repurchased shares in excess of $100 million. Since the program’s inception in 2006, the company has used more than three quarters of a billion dollars for repurchases, totaling over 22 million shares and reducing our float by 35 percent. *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 2011 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 11 A N N U A L R E P O R T / 1 S I L I C O N L A B O R AT O R I E S 2 0 11 A N N U A L R E P O R T / 1 Letter to Our Shareholders 2011 was a challenging year for the semiconductor industry as economic weakness reduced end-user demand and a number of natural disasters disrupted supply chains. For Silicon Labs, it marked an important transition as we put the secular decline in our handset FM and set-top box modem products behind us. It also marked the final chapter of our multi-year transformation into a well-diversified growth-oriented business. The journey we started in 2006 Our strongest product cycle in 2011 is a great example. We following the crucial decision introduced a radical change in how the RF front-end of a to monetize our transceiver television is designed, integrating dozens of components into business took strong investment a single mixed-signal IC. Our silicon TV tuner solution was dis cipline and unw aver ing adopted in 20 percent of iDTVs in its first year of production; focus on gaining market share an impressive number that we think will increase to over to result in the complexion of 30 percent in 2012. We’ve also benefited from new product the business we enjoy today. cycles in Human Interface technology. Our touch controllers We have built upon our core have expanded beyond industrial applications as we secured competencies in mixed-signal design to create a series of our first Smartphone design win, establishing the basis for highly differentiated products that have garnered significant what could be a large and fast growing business for us over success in the marketplace. the next several years. To do this, we focus our world-class design team on tackling Our broad-based business, which includes our MCU and challenging technical problems for large existing markets. Timing products sold into thousands of customers and We design semiconductor solutions that offer meaningful hundreds of applications, is also benefiting from share gains. integration, performance, power and cost advantages. Our New products continue to extend our technology leadership products displace incumbents and often fundamentally and allow us to outgrow the end markets. Many of the most change how customers design and manufacture their challenging system design hurdles our customers face are systems, resulting in a long-term competitive advantage. mixed-signal in nature — reducing power budgets, adding wireless or other communications, integrating sensors, As a company that has been able to outperform the industry providing more interfaces for machine-to-machine and over multiple business cycles, our discipline of staying human-to-machine interactions. Our competency in this focused on those things we can control, in particular how area is providing not only significant growth opportunities, we invest in new products, has served us well during this but also increasing our strategic value to customers and multi-year transformation. In fact, if we look at the revenue creating a rich funnel of new product ideas. profile of those products we’ve been investing in, the very high compounded annual growth rate is evidence of the In 2012, I expect that any recovery in end-user demand will be strong return on our R&D investment. modest and fragile. But with the change in complexion of our 3 0 % C A G R F O R I N v E S T m E N T P R O D U C T S product cycles, I believe we’re entering 2012 from a position E X C L U D E S m O D E m S A N D F m R A D I O S I N T O H A N D S E T S of strength. We are once again very well positioned to begin business and the layering on of multiple high-potential new to deliver the outperformance we’ve become known for. $400,000 $350,000 $300,000 $250,000 We possess a highly differentiated capability that has proven difficult to duplicate and is increasingly critical across a broad set of customer applications. We have more engines of growth today than any other time in our history. As $200,000 we begin the next chapter of Silicon Labs, this gives me $150,000 confidence in our growth potential, not just for the next 2005 2006 2007 2008 2009 2010 2011 $100,000 $50,000 $0 couple of years, but for the long-term. Necip Sayiner President and CEO, Silicon Laboratories S I L I C O N L A B O R AT O R I E S 2 0 11 A N N U A L R E P O R T / 3 S I L I C O N L A B O R AT O R I E S 2 0 11 A N N U A L R E P O R T / 3 Mega-trends fueling mixed-signal design Innovation in electronics has been relentless. As a result, electronics products T H E I N T E R N E T O F T H I N G S Combine billions of IP-enabled (Internet protocol) devices, wireless sensor networks, machine-to- machine (M2M) communications, Smartphone apps, and cloud computing, and the result is the practical realization of the “Internet of Things.” In 2012, we’ll see the first waves of the Internet of Things in our homes, offices, factories, warehouses, hospitals and in metro infrastructure, transportation and agriculture. What makes the Internet of Things interesting to a mixed-signal IC company like Silicon Labs is that this new paradigm calls for devices with a combination of functions including capturing information from the external world, accurately processing it, and then communicating it, often through a reliable, low-cost wireless link. And doing this while consuming minimal power. These mixed-signal challenges require sophisticated analog capability paired with efficient digital design and software and firmware exper tise. These capabilities need to be combined into a single IC to reduce the footprint and power requirements and they need to be delivered in a standard, low cost process technology like CMOS to ensure they are cost effective. Silicon Labs is one of the few companies with a successful track record designing high performance, low power, mixed-signal ICs in CMOS. For example, our latest microcontrollers, wireless receivers and digital isolators are all breaking records in terms of our new design wins as we intercept this trend. S I L I C O N L A B O R AT O R I E S 2 0 11 A N N U A L R E P O R T / 5 S I L I C O N L A B O R AT O R I E S 2 0 11 A N N U A L R E P O R T / 5 G R E E N E R P O w E R The advent of the Internet of Things is also linked to the current draw and up to 65 percent longer battery life than increasing relevance of reducing power consumption in competing solutions. electronics and using greener power sources. Surveys of electronics equipment manufacturers indicate that making Silicon Labs’ low power technology also provides one of their end products more “green” is now a critical design the most energy-efficient wireless sensor node solutions consideration. In many applications our customers need powered by a solar energy harvesting source. In addition to to extend battery life. In some cases, batteries need to last being environmentally friendly and virtually inexhaustible, decades. In others, customers are attempting to harvest harvested energy provides a cost-effective, convenient energy and eliminate batteries altogether. They need to do alternative to batteries in many applications. Silicon Labs’ this without compromising system performance. turnkey energy harvesting reference design enables Optimizing power is driven by smart mixed-signal circuit wireless sensor networks for home and building automation, design. Silicon Labs is leading the industry in low power mixed-signal devices. In 2011, we introduced our latest advancement in low power wireless MCUs based on patented technology that enables 40 percent less system security systems, industrial control applications, medical monitoring devices, agricultural monitoring systems and more. customers to implement self-sustaining, ultra-low-power 100G 40G 10G Increases in bandwidth rely on high-performance timing devices—just like those in our portfolio B I G G E R , FA S T E R P I P E S All of this connectivity is creating tremendous demand for more bandwidth worldwide, requiring investment in networking infrastructure to support faster pipes. These networks are transitioning from 10G to 40G and now to 100G and rely heavily on high performance timing devices like those in our clock and oscillator portfolio. Our programmable devices are not constrained by the supply chain issues that plague traditional clock and oscillator products, and industry leading performance allows telecom equipment makers to use our comprehensive portfolio of timing ICs across their products. While this market may ebb and flow quarter to quarter, we believe the long-term trend is in our favor as we expand our footprint in the timing market. S I L I C O N L A B O R AT O R I E S 2 0 11 A N N U A L R E P O R T / 7 S I L I C O N L A B O R AT O R I E S 2 0 11 A N N U A L R E P O R T / 7 Industry observers expect these mega-trends will be the force behind industry growth over the next decade. We believe our capabilities, our focus and our existing and new products in development position Silicon Labs to be at the center of these key market drivers. E A S I E R A N D m O R E A C C E S S I B L E T E C H N O L O G Y And finally, expectations of electronics have changed completely with the introduction of the iPhone® and similar products that have created new use cases for consumers Silicon Labs’ formula for relentless integration without performance compromise, our highly sensitive and responsive analog circuits and designs that consolidate interacting with electronics. The demand for smaller, more the bill of materials to reduce system cost will play an cost effective and user-friendly electronics from handsets to home automation controls is accelerating. Emerging economies are intensifying these demands as they bring new consumers to the global marketplace. integral role in helping customers to achieve their goals. Newly acquired clocks that are the smallest in the industry, high performance touch controllers, and integrated AM/FM radios are just a few examples of the Silicon Labs products supporting this trend. 2 0 11 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 WILLIAM G. BOCk HARVEy B. CASH InterWest Partners, General Partner kRISTEN M. ONkEN ROBERT TED ENLOE, III Balquita Partners, Ltd., Managing General Partner LAURENCE G. WALkER, PhD BILL WOOD Silverton Partners, General Partner 2 0 11 e x e c u t i v e o f f i c e r s NECIP SAyINER, PhD President and Chief Executive Officer PAUL WALSH Vice President and Chief Financial Officer G. TySON TUTTLE Senior Vice President and Chief Operating Officer JONATHAN IVESTER Senior Vice President of Worldwide Operations kURT HOff Vice President of Worldwide Sales 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 OPTIONS The Company’s options are traded on the Chicago Board Option Exchange and the American Stock Exchange. LEGAL COUNSEL DLA Piper US LLP 401 Congress Avenue, Suite 2500 Austin, Texas 78701 INDEPENDENT REGISTERED PUBLIC ACCOUNTING fIRM Ernst & Young LLP 401 Congress Avenue, Suite 1800 Austin, Texas 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, New York 10038 800-937-5449 STOCk DATA As of January 31, 2012, there were 126 holders of record of the Company’s Common Stock. The following table shows the record high and low per share prices of the Company’s Common Stock as reported by the NASDAQ for the periods. Q1 2011 Q2 2011 Q3 2011 Q4 2011 HIGH $50.27 $46.28 $42.88 $45.10 LOW $41.48 $37.56 $30.36 $31.92 ANNUAL MEETING The Silicon Laboratories Inc. annual meeting will be held on Thursday, April 19, 2012 at 9:30 am Central Time at the Lady Bird Johnson Wildflower Center, 4801 La Crosse Avenue, Austin, Texas, 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 West Cesar Chavez Austin, Texas 78701 512-464-9254 investor.relations@silabs.com Design by Frank+Victor Design, Austin, TX. www.frankandvictor.com Silicon Laboratories Inc. is a global leader in the innovation of mixed-signal integrated circuit (IC) technology bridging the analog world we live in and the digital world of computing. The company applies its renowned design expertise to develop proprietary analog-intensive, mixed-signal ICs that 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 1,300 patents issued or pending. Based in Austin, Texas, Silicon Laboratories’ common stock is traded on the NASDAQ® exchange under the ticker symbol “SLAB.” Engineering for a mixed-signal world. S I L I C O N L A B O R AT O R I E S 2 011 A N N U A L R E P O R T 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 E S T C E S A R C H AV E Z | A U S T I N , T E X A S 7 8 7 01 | 512 - 416 - 8 5 0 0 | W W W. S I L A B S . C O M