Silicon Laboratories Annual Report 2019

FY2019 Annual Report · Silicon Laboratories

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2019 Annual Report

The leading provider of silicon, software and
solutions for a smarter, more connected world.

silabs.com

To Our Shareholders

Silicon Labs is on a mission to develop groundbreaking
products and technologies that transform industries,
grow businesses and improve lives. We made mea-
surable progress in 2019 toward achieving our goals
despite a challenging macro environment for the semi-
conductor industry, with weakness in broad-based
industrial and automotive markets, as well as trade
policy volatility and export controls on key customers
impacting growth. Total revenue declined 3.5 percent
from 2018, with growth in IoT offset by declines in
Infrastructure, Broadcast and Access. Although these
results are below expectations, we are pleased to
have outperformed the market due to secular growth
drivers in wireless IoT and Infrastructure.

We saw strong design win activity in 2019, which
increased more than 30 percent year-on-year in
expected lifetime revenue, providing a tailwind for
future growth and a validation of our strategy in IoT,
Infrastructure and automotive markets, which have
grown to more than 80 percent of total revenue.

IoT products grew five percent year-on-year, falling
short of expectations primarily due to broad-based
macro weakness, which impacted microcontroller
and wireless products. Wireless is our fastest growing
product category, achieving more than one billion
units shipped to date and representing more than
65 percent of total IoT revenue. Our wireless revenue
grew 14 percent in fiscal 2019, powered by secular
drivers including ramps in smart home, security and
high-volume lighting customers; progress in the UK
smart metering market; continued integration of
connectivity into gateways; and adoption of IoT in
the broader industrial market. In contrast, the World
Semiconductor Trade Statistics (WSTS) reported a
16 percent decline in the wireless market.

Infrastructure revenue declined eight percent year-
on-year, with secular growth in 5G, solar and electric
vehicles providing some offset to macro weakness in
timing and isolation. We have established ourselves
as the leading provider of digital isolation technology
to the cloud, telecom, solar and electric vehicle
markets, which delivered growth despite a weak
automotive market. Over the past few years, we
have expanded and diversified our timing portfolio
beyond core and metro optical networking markets
to address adjacent opportunities in industrial, data
center, wireless infrastructure and automotive mar-
kets, which combined, now represent more than
40 percent of overall timing revenue. We are well
positioned to address the large, emerging 5G growth
opportunity with four out of the top five suppliers
of wireless infrastructure equipment using Silicon
Labs’ timing solutions in their initial 5G deployments.

In 2019, we delivered GAAP and non-GAAP gross
margins of 61 percent, above the high end of our target
operating model range and reflecting the quality of our
products and served markets, as well as our product
mix. GAAP operating margin was seven percent of
revenue in 2019, with non-GAAP operating margin also
down slightly at 19 percent. GAAP diluted earnings per
share declined 77 percent to $0.43 due to a one-time
non-cash tax adjustment. Non-GAAP diluted earnings
per share declined 13 percent to $3.22.

Strong operating cash flow of $167 million enabled
us to repurchase $27 million of our shares. We ended
the year with $732 million in cash, cash equivalents
and investments, and have $134 million remaining
in our share repurchase authorization through fiscal
2020. We are well-positioned to execute on our capital
deployment strategy focusing on M&A and share
repurchases.

World-class quality, social and environmental
standards are integral to everything we do. Silicon
Labs employs strict process controls and continual
improvement of our quality, social and environmental
management systems. As a fabless semiconductor
company, we demand the highest standards from our
manufacturing partners to ensure delivery of reliable
products to our customers. Environmental respon-
sibility guides how we design and manufacture our
semiconductor products, conduct business globally
and give back to local communities. We are committed
to conserving energy and natural resources, designing
smaller and more energy-efficient chips, delivering
solutions to help address climate change, investing in
sustainable technologies and contributing to a clean-
er, healthier environment. Embracing environmental
responsibility not only makes good business sense,
it’s simply the right thing to do.

Electronic devices pervade every aspect of our lives.
Our solutions enable a wide range of energy-efficient
applications including smart lighting, smart meters and
electric vehicles, where we have established leading
market share. Our IoT solutions seamlessly connect
“things,” data and people, enabling our customers
to address several of the United Nations Sustainable
Development goals, with the greatest impact on indus-
try, innovation and infrastructure; sustainable cities
and communities; affordable and clean energy; good
health and well-being; and responsible products and
consumption.

Our dedication to integrity is evident in our product
development, workplace culture, diversity and com-
munity engagement, and sets Silicon Labs apart in the
industry. Silicon Labs’ leadership team has created

a hard-to-beat workplace environment, resulting
in market-leading products for our customers and
continued growth for our company. We received
numerous industry awards in 2019, reflecting our
strong commitment to empower and encourage
employees to strive for excellence across all facets
of the organization. Accolades include four product
excellence awards, a supplier of the year recog-
nition, four culture and community engagement
awards, and a Great Place to Work certification.

We believe we are uniquely positioned to address
the IoT, Infrastructure and automotive markets,
which offer tremendous opportunities and where
we continue to invest and have established lead-
ership positions. Tens of thousands of customers
worldwide choose Silicon Labs because they want
to work with a technology leader focused on the
big picture and offering a long-term commitment,
which is a key driver of the growth we are seeing in
the channel, in our pipeline and in our design win
momentum. We believe we have the right technical
expertise, are developing the right solutions and
are investing in the right segments to continue to
outperform the market.

We appreciate your investment in Silicon Labs.

Nav Sooch
Founder and
Chairman

Tyson Tuttle
President and
Chief Executive Officer

Revenue
In millions

$645

$698

$868

$838

$769

Access

Broadcast

Infrastructure

IoT

FY15

FY16

FY17

FY18

FY19

Silicon Labs 2019 Annual Report | 1

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

FORM 10-K

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

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 28, 2019

(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

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.0001 par value

SLAB

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 every Interactive Data File required to be
submitted 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 such files). (cid:1) Yes (cid:2) No

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

Large accelerated filer (cid:1)

Accelerated filer (cid:2)

Non-accelerated filer (cid:2)

Smaller reporting company (cid:2)
Emerging growth company (cid:2)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange
Act. (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 (June 28, 2019) was approximately $4.4 billion (assuming, for this purpose, that only directors and officers
are deemed affiliates).

There were 43,498,444 shares of the registrant’s common stock issued and outstanding as of January 20, 2020.

Portions of the Proxy Statement for the registrant’s 2019 Annual Meeting of Stockholders are incorporated by reference

into Part III of this Form 10-K.

DOCUMENTS INCORPORATED BY REFERENCE

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.
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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.
Item 16.

Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . .
Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page
Number

2
14
30
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48

49
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 ‘‘believe,’’ ‘‘estimate,’’ ‘‘expect,’’ ‘‘intend,’’ ‘‘anticipate,’’ ‘‘plan,’’ ‘‘project,’’ ‘‘will’’ 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. is a leading provider of silicon, software and solutions for a smarter, more

connected world. Our award-winning technologies are shaping the future of the Internet of Things
(IoT), Internet infrastructure, industrial automation, consumer and automotive markets. Our world-
class engineering team creates products focused on performance, energy savings, connectivity and
simplicity.

Our primary semiconductor products are mixed-signal integrated circuits (ICs), which are

electronic components that convert real-world analog signals into digital signals that electronic products
can process. Our mixed-signal ICs leverage standard complementary metal oxide semiconductor
(CMOS), a low cost, widely available process technology. Use of CMOS technology enables smaller,
more cost-effective and energy-efficient solutions. 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

The pervasiveness of connectivity and mobile devices is driving semiconductor consumption.
Intelligence is being added to electronic systems to enable Internet connectivity, power efficiency,
monitoring our health, safety and consumption of precious resources and an improved user experience.
This in turn is increasing the demand for bandwidth, requiring more infrastructure to support higher
performance networks. The nearly ubiquitous availability of Internet access and the increasing
intelligence of electronic devices and mobility are enabling what is called the Internet of Things, a term
that describes the exponential increase in IP-enabled devices connected to the Internet.

These trends require more and more interaction between the analog world we live in and the
digital world of computing, which is driving the need for analog-intensive, mixed-signal circuits in a
wide range of electronic products. 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. To improve
their competitive position, electronics manufacturers must 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 rapidly

adapt to evolving industry standards and new technologies. Because analog-intensive, mixed-signal
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 IC solution providers lack sufficient analog expertise to develop compelling mixed-signal
products. As a result, manufacturers of electronic devices value providers that can supply them with
mixed-signal solutions offering greater functionality, smaller size and lower power requirements at a
reduced cost and shorter time-to-market.

Products

We provide analog-intensive, mixed-signal solutions for use in a variety of electronic products in a
broad range of applications for the IoT including connected home and security, industrial automation
and control, smart metering, smart lighting, commercial building automation, consumer electronics,
asset tracking and medical instrumentation. We are a supplier of wireless connectivity solutions for the
IoT based on Zigbee(cid:4), sub-GHz proprietary technologies, Bluetooth(cid:4), Z-Wave(cid:4), Thread, and Wi-Fi(cid:4).

We provide a wide range of timing and isolation products for infrastructure applications including

high-performance clocks and oscillators for networking equipment, data centers, servers and storage,
wireless base stations, and automotive applications, as well as digital isolators and current sensors for
industrial control and automation, power supplies, electric vehicles and battery management, solar
inverters and motor control. We also provide broadcast products for applications such as TVs, set-top
boxes and automotive infotainment systems, and access products including subscriber line interface
circuits for voice over IP (VoIP), embedded modems, and Power over Ethernet (PoE) power source
equipment and powered device ICs.

Our products integrate complex mixed-signal functions that are frequently performed by numerous

discrete components in competing products into a single chip, chipset or system-on-chip (SoC). By
doing so, we create products that, when compared to many competing products, offer the following
benefits:

(cid:127) Require less printed circuit board (PCB) 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) Internet of Things products, which include wireless, microcontroller (MCU) and sensor products;

(cid:127) Broadcast products, which include broadcast consumer and automotive products;

(cid:127) Infrastructure products, which include timing products (clocks and oscillators), and isolation

devices; and

(cid:127) Access products, which include Voice over IP (VoIP) products, embedded modems and Power

over Ethernet (PoE) devices.

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

Applications

(cid:127) Home automation /security

systems

(cid:127) Industrial automation and

control

(cid:127) Smart metering
(cid:127) Smart lighting
(cid:127) Commercial building

automation

(cid:127) Consumer electronics
(cid:127) Asset tracking
(cid:127) Medical instrumentation

that we have introduced to customers:

Product Areas and Description

Internet of Things Products

Microcontrollers and Wireless Products

We offer a family of products ideally suited to ultra-low power
IoT embedded systems that include energy friendly 8-bit mixed-
signal microcontrollers, ultra-low power 32-bit microcontroller
and wireless MCU connectivity solutions using the ARM(cid:4)
Cortex-M0+/M3/M4 and newer M33 cores. Single and multi-
protocol SoC devices and modules provide flexible, highly
integrated solutions designed to meet demanding requirements
of IoT applications. Wireless protocols include Zigbee, sub-GHz
proprietary, Bluetooth, Z-Wave, Thread and Wi-Fi technologies.
Our EFM32(cid:5), EFM8(cid:5), 8051, wireless MCUs and wireless SoCs
are supported by Simplicity Studio(cid:5), which provides one-click
access to design tools, documentation, software and support
resources. In-house protocol stacks and Micrium(cid:4) real-time
operating system (RTOS) help simplify software development for
IoT developers by coordinating and prioritizing multiprotocol
connectivity, SoC peripherals and other system-level activities.
The introduction of our Series 2 portfolio provides a greater
focus on updatable device security which is becoming vital to the
evolution and success of IoT. We bring enhanced capability to
the industry protecting user data, system keys and manufacturer
brands from malicious threats both hands-on and Internet-based.
Our broad portfolio addresses a variety of target markets,
including smart home, commercial (building automation and
retail) and industrial (smart energy, factory automation, smart
cities).

Sensors

Our sensor products include optical sensors (proximity, ambient
light gestures and heart rate monitoring), as well as relative
humidity (RH) / temperature sensors and Hall effect magnetic
sensors. These devices leverage our mixed-signal capability to
provide high accuracy, process technology to improve
performance and lower power consumption than competing
parts.

(cid:127) Consumer health & fitness

(wearables)

(cid:127) Smart home sensing
(cid:127) Industrial controls
(cid:127) Toys and consumer electronics
(cid:127) Monitors and lavatory controls
(cid:127) Consumer medical

Product Areas and Description

Infrastructure Products

Timing Devices

Robust demand for bandwidth is driving the deployment of
next-generation Internet infrastructure equipment to deliver higher
speed, higher capacity and more flexible networks. This transition
puts unique requirements on the clocks and oscillators used to
provide timing and synchronization for the equipment responsible
for switching, transporting, processing and storing network traffic.
To meet this need, we provide low-jitter, frequency-flexible,
mass-customizable timing solutions that accelerate development
time, minimize cost and improve system reliability. Our
high-performance ‘‘clock-tree-on-a-chip’’ products offer highly
integrated single-chip IC solutions for clock synthesis and jitter
attenuation, offering superior jitter performance and frequency
flexibility for high data rate applications.

Isolation Products

Applications

(cid:127) Optical networking
(cid:127) Telecommunications
(cid:127) Data center
(cid:127) Switches/routers
(cid:127) Industrial
(cid:127) Servers and storage
(cid:127) Mobile fronthaul and backhaul
(cid:127) Wireless base stations
(cid:127) Small cells
(cid:127) Broadcast video
(cid:127) Automotive

Our digital isolation techniques enable customers to deploy more
energy efficient power solutions that meet isolation safety
standards and solve difficult electronic noise issues. Systems such
as data center servers, cellular base stations, uninterruptable
power supplies and electric vehicles require increasingly energy
efficient power solutions. Electric motors used in electric vehicles,
pumps, HVAC compressors, fans and automated machinery need
more sophisticated and efficient digital controls. Our isolation
technology enables customers to address these demanding
requirements. Products include multi-channel isolators, isolated
drivers, isolated power converters and mixed-signal devices that
simplify design, improve reliability, minimize noise emissions and
reduce system cost

(cid:127) Industrial control and
automation systems

(cid:127) Cloud, datacenter and telecom

power supplies

(cid:127) Electric vehicle charging and

battery management

(cid:127) Solar inverters
(cid:127) Hybrid / Electric automotive

drive trains

(cid:127) High power audio
(cid:127) Test and measurement

equipment

Broadcast Products

Broadcast Consumer

Our single-chip hybrid TV tuners leverage our proven digital
low-IF architecture and support all major analog and digital TV
standards, including NTSC, PAL/SECAM, ATSC 1.0/3.0,
DVB-T2/T/C2/C, ISDB-T and DTMB, enabling TV makers
worldwide to deliver improved picture quality and better
reception for both analog and digital broadcasts. Our single-chip,
low-power and high-performance single- and dual-channel digital
video demodulators are ideal for customer premises equipment
(CPE) receiving DVB-T/T2, DVB-S/S2/S2X, DVB-C/C2 and/or
ISDB-T. Our AM/FM, HD Radio(cid:5) and DAB/DAB+ receivers
deliver a complete radio solution, from antenna input to audio
output, in a single chip. Our broadcast audio products are based
on an innovative digital architecture enabling significant
improvements in performance, which translates to a better
consumer experience, while reducing system cost and board
space for our customers.

(cid:127) Worldwide 4K/8K UHD TVs

and smart TVs

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

set-top boxes

(cid:127) PVR/DVD/Blu-Ray/HDD

video recorders
(cid:127) PC-TV applications
(cid:127) AM/FM clock radios
(cid:127) DAB digital radios
(cid:127) HD Radio digital radios
(cid:127) Home theater systems
(cid:127) Portable audio devices
(cid:127) MP3/digital media players

Product Areas and Description

Broadcast Automotive

Our high-performance automotive infotainment solutions include
hybrid Software Defined Radio (SDR) tuners, data receivers and
digital radio coprocessors that improve the end user experience,
reduce system cost, and support all major digital radio standards,
including DAB/DAB+, HD Radio and DRM. Our scalable
architecture enables automotive infotainment system suppliers to
leverage their investments across multiple product lines ranging
from entry-level car radios to cutting-edge multi-tuner, multi-
antenna radios for premium vehicles.

Access Products
ProSLIC(cid:4) Subscriber Line Interface Circuits for VoIP

Applications

(cid:127) Automotive OEM infotainment

systems

(cid:127) Aftermarket car radios
(cid:127) Navigation/GPS devices

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 offerings are well suited for
the market for Voice over IP telephony applications deployed
over cable, DSL, optical and wireless fixed terminal networks.

(cid:127) Voice functionality for cable,

DSL and optical digital
modems and terminal adapters

(cid:127) VoIP residential gateways
(cid:127) Wireless local loop remote

ISOmodem(cid:4) Embedded Modems

Our ISOmodem embedded modems leverage innovative silicon
direct access arrangement (DAA) technology and a digital signal
processor (DSP) to deliver a globally compliant, compact analog
modem for embedded applications.

Power over Ethernet

Our PoE power source equipment and powered device ICs offer
highly differentiated solutions with a reduced total bill of
materials (BOM) and improved performance and reliability. Our
solutions offer a higher level of integration not available with
competing solutions.

access systems

(cid:127) PBXs

(cid:127) Fax machines and multi-

function printers

(cid:127) Point of sale (POS) terminals
(cid:127) Security systems
(cid:127) Industrial monitoring
(cid:127) Remote medical monitoring

(cid:127) Enterprise networking routers

and switches

(cid:127) Wireless access points (WAP)
(cid:127) VoIP phones
(cid:127) POS terminals
(cid:127) Security cameras

Revenues during fiscal 2019, 2018 and 2017 were generated predominately by sales of our mixed-

signal products. The following summarizes our revenue by product category (in thousands):

Fiscal Year

2019

2018

2017

Internet of Things . . . . . . . . . . . . . . . . . . . . . . . .
Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Broadcast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$488,156
183,189
114,899
51,310

$463,838
199,478
141,412
63,539

$395,012
152,158
152,980
68,717

$837,554

$868,267

$768,867

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 distribution 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. During fiscal 2019, our ten largest end customers accounted for 21% of
our revenues. We had no customer that represented more than 10% of our revenues during this period.
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 sell the products to, and are paid by
distributors and contract manufacturers, we refer to such end customer as our customer. Two of our
distributors who sell directly to our customers, Arrow Electronics and Edom Technology, each
represented 26% and 20% of our revenues during fiscal 2019, respectively.

We maintain numerous sales offices in Asia, the Americas and Europe. Revenue is attributed to a

geographic area based on the shipped-to location. The percentage of our revenues derived from outside
of the United States was 87% in fiscal 2019. For further information regarding our revenues and
long-lived assets by geographic area, see Note 18, Segment Information, to the Consolidated Financial
Statements.

Our direct sales force is comprised of many sales professionals who possess varied levels of
responsibility and experience, including directors, country managers, regional sales managers, district
sales managers, strategic account managers, field sales engineers and sales representatives. 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 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
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 products, we employ experienced applications
engineers who work closely with customers and distributors to support the design-win process, and can
significantly accelerate the customer’s time to market. A design win occurs when a customer has
designed our ICs into its product architecture and ordered product from us. A considerable amount of
effort to help a customer incorporate 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, or may result in less revenue than expected. 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 products and high

barriers to entry for competitive products, even if such competing products are offered at lower prices.
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 leverage experienced analog and mixed-signal

engineering talent and expertise to create new ICs that integrate functions typically performed less
efficiently 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 we have attracted many of the best engineers in our industry. We believe that reliable and
precise analog and mixed-signal ICs can only be developed by teams of 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 just one example of a critical activity requiring
experience and know-how to enable the rapid release of a new product for commercial success. We
have accumulated a vast set of trade secrets that allow us to pursue innovative approaches to mixed-
signal problems that are difficult for competitors to duplicate. We highly value our engineering talent
and strive to maintain a very high bar when bringing new recruits to the company.

Research and development expenses were $257.2 million, $238.3 million and $209.5 million in fiscal

2019, 2018 and 2017, 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 helps 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 and RF design expertise in CMOS;

(cid:127) Mixed-signal, firmware and system design expertise;

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

(cid:127) Software expertise, including multiprotocol connectivity and real-time operating systems for the

IoT;

(cid:127) Module integration and wireless design expertise;

(cid:127) Silicon-to-cloud security integration 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 and RF Design Expertise in CMOS

We believe that our most significant core competency is world-class analog and RF design

capability. Additionally, we strive to design substantially all our ICs in standard CMOS processes. Most

of our product designs now incorporate some type of RF in CMOS technology. While it is often
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 standalone
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.

Mixed-Signal, Firmware and System Design Expertise

We consider the partitioning of a circuit to be a proprietary and creative design technique. Deep
systems knowledge allows us to use our mixed-signal and RF in CMOS design expertise to maximize
the price/performance characteristics of both the analog and digital functions and allow our ICs to work
in an optimized manner to accomplish particular tasks. Generally, we attempt to move analog functions
into the digital domain as quickly as possible, creating system efficiencies without compromising
performance. These patented approaches require our advanced signal processing and systems expertise.
We then leverage our firmware know-how to change the ‘personality’ of our devices, optimizing
features and functions needed by various markets we serve. For example, our wireless SoC devices for
IoT applications integrate both digital and analog domains in a single chip. The SoCs combine ARM
Cortex-M processor cores, a variety of digital and analog peripherals, hardware cryptography
accelerators, and analog-intensive multiprotocol radio transceivers. This system integration at the chip
level leverages our deep expertise in mixed-signal and RF design, and low-power wireless MCU
architectures pioneered for more than a decade.

Microcontroller and System on a Chip Design Expertise

We have 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.

Software Expertise

Our software expertise allows us to develop products for markets where intelligent data capture,
high-performance processing and communication are increasingly important product differentiators. The
software we have developed to address these markets enables machine-to-machine communications,
providing intelligence to electronic systems. Our products integrate high-performance, low-power
wireless and microcontroller ICs with reliable and scalable software into a flexible and robust
networking platform.

The demand for low-power, small-footprint wireless technology is accelerating as more and more
IP-enabled end points are being connected to the IoT. Our software enables a broad range of power-
sensitive applications for the IoT, including smart energy, home automation, security and other
connected products. We believe that the combination of our software and IC design expertise
differentiates us from many of our competitors.

As the IoT continues to mature, a new class of embedded applications is emerging, presenting
feature-rich and task-intensive use cases. This growing complexity is driving the need for real-time
operating systems to help simplify software development for IoT applications by coordinating and
prioritizing multiprotocol connectivity, SoC peripherals and other system-level activities. In addition to
being able to manage numerous application tasks, an RTOS enhances scalability, and makes complex
applications predictable and reliable. To address these application needs, we acquired Micrium, an
embedded RTOS provider. Micrium has established itself as a reliable, high performance and trusted
RTOS software platform, with an installed base that has grown to millions of devices.

Module Integration and Wireless Design Expertise

The market for wireless modules has grown as customers search for solutions that provide turnkey

wireless connectivity for their products. The development of modules is difficult due to stringent
requirements, including high levels of integration, programmability, performance, reliability, security
and power efficiency. In addition, designs must meet numerous wireless standards deployed in various
environments and serving diverse requirements.

Our combined expertise in IC design and software development allows us to engineer modules that
provide robust, high-performance connections in challenging wireless environments. We have developed
wireless modules based on numerous wireless standards, including Z-Wave, Bluetooth, Zigbee, Thread,
Wi-Fi and sub-GHz. We believe our demonstrated proficiency in the design of modules provides our
customers with significant advantages such as fast time to market, reduced development cost, global
wireless certifications and software reuse.

Silicon-to-Cloud Security Integration Expertise

Security is of paramount importance to our customers. More than ever before, device

manufacturers and OEMs developing IoT products have specific needs to ensure their solutions are
secure. Security is a complex endeavor involving the convergence of multiple integrated hardware and
software technologies. IoT products are designed to ensure the devices operate in a trusted and reliable
manner, enforce policies as well as protect the confidentiality, authenticity and integrity of data and
private information being processed and transmitted. The building blocks are built in hardware based
on dedicated IC security components integrated into SoC designs. These specialized security
components are designed to enhance cryptographic capabilities and exploit unique physical
characteristics of CMOS to establish foundations of trust and enable device identity and assurance.

In addition to developing specific security hardware and software capabilities, we also focus design

and engineering efforts on technologies that simplify and accelerate adoption by customers of security
features engineered into our silicon chips. This is primarily achieved through software tools such as
Simplicity Studio and its integration with cloud-based services that simplify implementation, reduce
complexity and enable management of security for fleets of devices. Those capabilities are designed to
help customers develop products and solutions with chip-to-cloud security integration, enable faster
time to market and reduce security defects, risks and losses due to security attacks and incidents. We
are creating innovative security solutions that enable customers to develop best-in-class, simple and
economical solutions. We will continue investing in security-specific research and development that
addresses a dynamic threat landscape, emerging regulatory requirements, and evolving customer
security and privacy needs.

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 industrial, hybrid and hybrid-electric

applications and telecom networks;

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

(cid:127) Integration, which enables the elimination of discrete components in a system; 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 semiconductor company, 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 primarily with Taiwan Semiconductor Manufacturing Co. (TSMC) and
Semiconductor Manufacturing International Corporation (SMIC) to manufacture the majority of 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 2019, most 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 substantial during fiscal 2020.

Backlog

We include in backlog accepted product purchase orders from customers and worldwide distributor

stocking orders. 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. 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;
(cid:127) Intellectual property; and
(cid:127) Software.

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.

Due to our diversified product portfolio and the numerous markets and applications we serve, we

target a relatively large number of competitors. We compete with AltoBeam, Analog Devices, Aura,
Broadcom, Cypress, Dialog, Espressif, Infineon, Maxim Integrated Products, MaxLinear, MediaTek,
Microchip, Nordic Semiconductor, NXP, Qualcomm, Rafael, Renesas, STMicroelectronics, Synaptics,
Telink, Texas Instruments and others. We expect to face competition in the future from our current
competitors, other manufacturers and designers of semiconductors and start-up semiconductor design
companies. 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. We could also face
competition from module makers or other systems suppliers that may include mixed-signal components
in their products that could eliminate the need for our ICs.

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 December 28, 2019, we had approximately 1,771 issued or pending United States and
foreign patents. There can be no assurance that patents will ever be issued with respect to our patent
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.

Our licenses include industry standard licenses with our vendors, such as wafer fabrication tool

libraries, third-party core libraries, computer-aided design applications and business software
applications.

Employees

As of December 28, 2019, we employed 1,545 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 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 mixed-signal solutions;

(cid:127) The rate of adoption of mixed-signal products 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 mixed-signal 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;

(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) Our customers may not be able to obtain other components such as capacitors (which are

currently in short supply) that they need to incorporate in conjunction with our products, leading
to potential downturn in the demand for our products;

(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 consumer electronics, for example, 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 develop or acquire new products 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 products 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 products. If our products 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. The growth of the IoT market is dependent on the
adoption of industry standards to permit devices to connect and communicate with each other. If the
industry cannot agree on a common set of standards, then the growth of the IoT market may be slower
than expected.

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 products serve as components and solutions in electronic devices in various markets. As a

result, we have devoted and expect to continue to devote a large amount of resources to develop
products based on new and emerging technologies and standards that will be commercially introduced
in the future. Research and development expense during fiscal 2019 was $257.2 million, or 30.7% of
revenues. A number of 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 are a global company, which subjects us to additional business risks including logistical and financial
complexity, political instability and currency fluctuations

We have established international subsidiaries and have opened offices in international markets to

support our activities in Asia, the Americas and Europe. This has included the establishment of a
headquarters in Singapore for non-U.S. operations. During fiscal 2019, the percentage of our revenues
derived from outside of the United States was 87% (and the revenue associated with end customers in
China was 24%, and revenue attributed to China based on shipped-to location was 42%). We may not
be able to maintain or increase global market demand for our products. Our international operations
are subject to a number of risks, including:

(cid:127) 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, including trade restrictions, tariffs, export controls,

quotas and other trade barriers, including China-U.S. trade policies and the potential effects of
Brexit;

(cid:127) Trade tensions, geopolitical uncertainty, or governmental actions, including those arising from
the trade dispute between the U.S. and China, may lead customers to favor products from
non-US companies which could put us at a competitive disadvantage and result in decreased
customer demand for our products and our customers’ products;

(cid:127) Restrictions or tariffs imposed on certain countries and sanctions or export controls imposed on

customers or suppliers may affect our ability to sell and source our products;

(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,
including the impact of the Tax Cuts and Jobs Act;

(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 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, substantially 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. Similarly, a decrease
in the value of the U.S. dollar could reduce our buying power with respect to international suppliers.

Significant litigation over intellectual property in our industry may cause us to become involved in costly and
lengthy litigation which could adversely affect our business

The semiconductor and software industries have experienced significant litigation involving patents
and other intellectual property rights. From time to time, third parties, including non-practicing entities,
allege intellectual property infringement by our products, our customers’ products, or products using
technologies or communications standards used in our industry. We also receive communications from
customers or suppliers requesting indemnification for allegations brought against them by third parties.
Some of these allegations have resulted, and may result in the future, in our involvement in litigation.
We have certain contractual obligations to defend and indemnify our customers from certain
infringement claims. We also 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.

Given the unpredictable nature of litigation and the complexity of the technology, we may not

prevail in any such litigation. Legal proceedings could subject us to significant liability, invalidate our
proprietary rights, or harm our businesses and our ability to compete. 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 or merit, could be time-consuming and expensive to resolve
and could divert our management’s time and attention. Intellectual property litigation also could force
us to take specific actions, including:

(cid:127) Cease using, selling or manufacturing certain products, services or processes;

(cid:127) Attempt to obtain a license, which license may require the payment of substantial royalties or

may not be available on reasonable terms or at all;

(cid:127) Incur significant costs, time delays and lost business opportunities to develop alternative

technologies or redesign products; or

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

adequately protect our interests.

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 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.

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. During fiscal 2019, 73%
of our revenue was derived from distributors. 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. Because we consolidated our distribution relationships
to a single global distributor, Arrow Electronics, in fiscal 2018, termination of the relationship with
Arrow Electronics, either by us or by Arrow Electronics, could result in a temporary or permanent loss
of revenue. If Arrow Electronics fails to effectively market and sell our products in full compliance with

applicable laws, or if we are unable to maintain our existing relationship with Arrow Electronics, we
may not be able to find a distributor with the scale and resources of Arrow Electronics, maintain
existing levels of international revenue or realize expected long-term international revenue growth. We
may not be successful in finding suitable alternative global distributors on satisfactory terms, or at all,
and this could adversely affect our ability to effectively sell our solutions in certain geographical
locations or to certain end customers.

We do not have long-term commitments from our customers

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.

Customers may decide not to purchase our products at all, purchase fewer products 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 products; 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.

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 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 and/or when

new versions are released. Our products are increasingly designed in more complex processes, including
higher levels of software and hardware integration in modules and system-level solutions and/or include
elements provided by third parties which further increase the risk of errors. We rely primarily on our
in-house testing personnel to design test operations and procedures to detect any errors or
vulnerabilities prior to delivery of our products to our customers.

Should problems occur in the operation or performance of our products, we may experience delays
in meeting key introduction dates or scheduled delivery dates to our customers. These errors could also
cause significant re-engineering costs, the diversion of our engineering personnel’s attention from our
product development efforts and cause significant customer relations and business reputation problems.
Any defects could result in refunds, product replacement, product recall or other liability. Any of the
foregoing could impose substantial costs and harm our business.

Product liability, data breach or cyber liability claims may be asserted with respect to our products.

Many of our products focus on wireless connectivity and the IoT market and such connectivity may
make these products particularly susceptible to cyber-attacks. 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, failure or vulnerability 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
end-products. There can be no assurance that any insurance we maintain will sufficiently protect us
from such claims.

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 products 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.

Most of the silicon wafers for the products that we have sold were manufactured either by Taiwan
Semiconductor Manufacturing Co. (TSMC) or Semiconductor Manufacturing International Corporation
(SMIC). 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 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
product 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.

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 have recently had a material weakness in our internal control over financial reporting and if we are
unable to implement and maintain effective internal control over financial reporting, or our independent
registered public accounting firm is unable to provide an unqualified report thereon, we could be materially
adversely effected

We identified a material weakness that existed as of the end of our fiscal 2018 regarding our
internal controls over business combinations, primarily the maintenance of sufficient contemporaneous
documentation of management review controls over assumptions used in the valuation of acquired
intangible assets and related recording of goodwill. As a result of this material weakness, management
concluded that our disclosure controls and procedures and internal control over financial reporting
were not effective as of December 29, 2018.

This material weakness has been remediated. However, should new material weaknesses arise or
be discovered in the future, material misstatements could occur and go undetected in our interim or
annual consolidated financial statements and we may be required to restate our financial statements. In
addition, we may experience delays in satisfying our reporting obligations or to comply with Securities
and Exchange Commission rules and regulations, which could result in investigations and sanctions by
regulatory authorities. Any of these results could adversely affect our business and the value of our
common stock.

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.

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;

(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. 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 products. 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 could harm our financial condition

Any disposition of a product line would 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

line;

(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;

(cid:127) The required expensing of stock awards; and

(cid:127) The required changes in our reported revenue and revenue recognition accounting policy under

ASC Topic 606, Revenue from Contracts with Customers.

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 our foundries and several of our assembly and test subcontractors’ sites are located in
Taiwan and most of our other foundry, 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, tsunamis, 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 recent geopolitical
maneuverings, including nuclear weapons and long-range missile testing, 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 profit 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 profit. 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

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.

Our convertible senior notes could adversely affect our operating results and financial condition

Upon conversion, our convertible senior notes may be settled in cash, shares of our common stock

or a combination of cash and shares, at our election. We intend to settle the principal amount of the
notes in cash. If we do not have adequate cash available, we may not be able to settle the principal
amount in cash. In such case, we will be required to settle the principal amount in stock, which would
result in immediate, and likely material, dilution to the ownership interests of our existing stockholders.
Any sales in the public market of our common stock issuable upon such conversion could adversely
affect prevailing market prices of our common stock.

Following any conclusion that we no longer have the ability to settle the convertible senior notes in

cash, we will be required on a going forward basis to change our accounting policy for earnings per
share from the treasury stock method to the if-converted method. Earnings per share may be lower
under the if-converted method as compared to the treasury stock method.

The principal balance of the convertible senior notes was separated into liability and equity

components, which were recorded initially at fair value. The excess of the principal amount of the
liability component over its carrying amount represents the debt discount, which is accreted to interest
expense over the term of the notes using the effective interest method. Accordingly, we will report
higher interest expense because of the recognition of both the debt discount amortization and the
notes’ coupon interest.

Our debt could adversely affect our operations and financial condition

We believe we have the ability to service our debt, but our ability to make the required payments

thereunder when due depends upon our future performance, which will be subject to general economic
conditions, industry cycles and other factors affecting our operations, including risk factors described
herein, many of which are beyond our control. Our credit facility also contains covenants, including
financial covenants. If we breach any of the covenants under our credit facility and do not obtain
appropriate waivers, then, subject to any applicable cure periods, our outstanding indebtedness
thereunder could be declared immediately due and payable.

We could seek to raise additional debt or equity capital in the future, but additional capital may not be
available on terms acceptable to us, or at all

We believe that our existing cash, cash equivalents, investments and credit under our credit facility
will be sufficient to meet our working capital needs, capital expenditures, investment requirements and
commitments for at least the next 12 months. However, our ability to borrow further under the credit
facility is dependent upon our ability to satisfy various conditions, covenants and representations. 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 have 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 solutions 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. We also face increased
competition as a result of China actively promoting its domestic semiconductor industry through policy
changes and investment. These actions, as well as China-U.S. trade barriers, may restrict our
participation in the China market or may prevent us from competing effectively with Chinese
companies or companies from other countries that China favors over the United States. 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 profit 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 is currently suffering a downturn due in large part to adverse macroeconomic conditions,
characterized by a slowdown in overall GDP performance and factory activity in certain regions,
particularly in China , higher levels of customer inventory, the impact of tariffs on trade relations, and
greater overall uncertainty regarding the economy. This downturn has had, and may continue to 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 products. 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 profit

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 profit and revenues will suffer. To maintain our gross profit, 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 profit 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 products 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 AltoBeam, Analog Devices, Aura, Broadcom, Cypress, Dialog, Espressif, Infineon, Maxim
Integrated Products, MaxLinear, MediaTek, Microchip, Nordic Semiconductor, NXP, Qualcomm,
Rafael, Renesas, STMicroelectronics, Synaptics, Telink, Texas Instruments and others. We expect to face
competition in the future from our current competitors, other manufacturers and designers of
semiconductors, and start-up semiconductor design companies. 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 products 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.

We may be the victim of business disruptions and security breaches, including cyber-attacks, which could lead
to liability or could damage our reputation and financial results

Information technology system and/or network disruptions, regardless of the cause, but including

acts of sabotage, error, or other actions, could harm the company’s operations. Failure to effectively
prevent, detect, and recover from security breaches, including cyber-attacks, could result in the misuse
of company assets, disruption to the company, diversion of management resources, regulatory inquiries,
legal claims or proceedings, reputational damage, loss of sales and other costs to the company. We
routinely face attacks that attempt to breach our security protocols, gain access to or disrupt our
computerized systems or steal proprietary company, customer, partner or employee information. These
attacks are sometimes successful. These attacks may be due to security breaches, employee error, theft,
malfeasance, phishing schemes, ransomware, faulty password or data security management, or other
irregularities. The theft, loss, destruction, unavailability or misuse of personal or business data
collected, used, stored or transferred by us to run our business could result in increased security costs
or costs related to defending legal claims. Industrial espionage, theft or loss of our intellectual property
data could lead to counterfeit products or harm the competitive position of our products and services.
Costs to implement, test and maintain measures to promote compliance with applicable privacy and
data security laws as well as to protect the overall security of our system could be significant.

Attempted or successful attacks against our products and services could damage our reputation with
customers or users and reduce demand for our products and services.

Changes in the Privacy and Data Security/Protection Laws Could Have an Adverse Effect on our Operations

Federal, state and international privacy-related or data protection laws and regulations could have

an adverse effect on our operations. Complying with these laws and the possibility of proceedings
against us by governmental entities or others in relation to these laws could increase operational costs.
In May 2018, the European Union’s General Data Protection Regulation (‘‘GDPR’’) went into effect,
replacing the EU’s 1995 Data Protection Directive. The costs of compliance with the GDPR and the
potential for fines and penalties in the event of a breach of the GDPR may have an adverse effect on
our operations.

We may be subject to information technology failures that could damage our reputation, business operations
and financial condition

We rely on information technology for the effective operation of our business. Our systems are

subject to damage or interruption from a number of potential sources, including natural disasters,
accidents, power disruptions, telecommunications failures, acts of terrorism or war, computer viruses,
theft, physical or electronic break-ins, cyber-attacks, sabotage, vandalism, or similar events or
disruptions. Our security measures may not detect or prevent such security breaches. Any such
compromise of our information security could result in the theft or unauthorized publication or use of
our confidential business or proprietary information, result in the unauthorized release of customer,
supplier or employee data, result in a violation of privacy or other laws, expose us to a risk of litigation
or damage our reputation. In addition, our inability to use or access information systems at critical
points in time could unfavorably impact the timely and efficient operation of our business, which could
negatively affect our business and operating results.

Third parties with which we conduct business, such as foundries, assembly and test contractors,
distributors and customers, have access to certain portions of our sensitive data. In the event that these
third parties do not properly safeguard our data that they hold, security breaches could result and
negatively impact our reputation, business operations and financial results.

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.
For example, the IoT market is relatively new and is continuously evolving. Furthermore, products in

the IoT market frequently require interoperability across multiple standards. We may need to adjust
our portfolio to meet the needs of this evolving market through acquisitions or significant new
investments in research and development.

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 products fail to achieve market acceptance, our
growth prospects, operating results and competitive position could be adversely affected.

Customer demands and new regulations related to conflict-free minerals may adversely affect us

The Dodd-Frank Wall Street Reform and Consumer Protection Act imposes new disclosure
requirements regarding the use of ‘‘conflict’’ minerals mined from the Democratic Republic of Congo
and adjoining countries in products, whether or not these products are manufactured by third parties.
These new requirements could affect the pricing, sourcing and availability of minerals used in the
manufacture of semiconductor devices (including our products). There will be additional costs
associated with complying with the disclosure requirements, such as costs related to determining the
source of any conflict minerals used in our products. Our supply chain is complex and we may be
unable to verify the origins for all metals used in our products. We may also encounter challenges with
our customers and stockholders if we are unable to certify that our products are conflict free.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our corporate headquarters, housing engineering, sales and marketing, administration and test
operations, is located in Austin, Texas. Our headquarters facilities consist of two buildings, which we
own, that are located on land which we have leased through 2099. The buildings contain approximately
441,000 square feet of floor space, of which approximately 87,000 square feet were leased to other
tenants. In addition to these properties, we lease smaller facilities in various locations in the United
States, Australia, Canada, China, Denmark, Finland, France, Germany, Hungary, Italy, Japan, Norway,
Singapore, South Korea, 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

Information regarding legal proceedings is provided in Note 12, Commitments and Contingencies, to

the Consolidated Financial Statements. Such information is incorporated by reference herein.

Item 4. Mine Safety Disclosures

Not applicable.

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’’. As of January 20, 2020, there were 67 holders of record of our common stock.

Dividend Policy

We have never declared or paid any cash dividends on our common stock and we currently do not

intend to pay cash dividends. 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 PHLX
Semiconductor Index.

350

300

250

200

150

100

D
O
L
L
A
R
S

0
01/03/15

01/02/16

12/31/16

12/30/17

12/29/18

12/28/19

Silicon Laboratories Inc.

NASDAQ Composite

PHLX Semiconductor Index

7FEB202016272358

Company / Index

01/03/15

01/02/16

12/31/16

12/30/17

12/29/18

12/28/19

Silicon Laboratories Inc.
. . . . . . . . . . . . .
NASDAQ Composite Index . . . . . . . . . . .
PHLX Semiconductor Index . . . . . . . . . . .

$100.00
$100.00
$100.00

$102.17
$107.16
$ 98.43

$136.81
$116.66
$137.13

$185.86
$151.23
$192.73

$165.23
$145.80
$179.85

$245.25
$201.60
$297.05

(1) The graph assumes that $100 was invested in our common stock and in each index at the market
close on January 3, 2015, 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.

Issuer Purchases of Equity Securities

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

December 28, 2019 (in thousands, except per share amounts):

Period

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

September 29, 2019—October 26, 2019 . .

October 27, 2019—November 23, 2019 . .

November 24, 2019—December 28, 2019 .

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

—

$—

—

$134,023

Our existing share repurchase program has an authorization amount of $200 million and a
termination date of December 2020. 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.

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.

Fiscal Year

2019

2018 (1)

2017

2016

2015

(in thousands, except per share data)

Consolidated Statements of Income Data

Revenues . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . .

$ 837,554
56,697
$
19,265
$

$ 868,267
85,208
$
83,591
$

$ 768,867
84,974
$
47,092
$

$ 697,626
66,277
$
61,494
$

$ 644,826
32,234
$
29,586
$

Earnings per share:

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

$
$

0.44
0.43

$
$

1.94
1.90

$
$

1.11
1.09

$
$

1.47
1.45

$
$

0.70
0.69

Consolidated Balance Sheet Data

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

$ 731,618
806,158
1,674,853
422,101
1,115,051

$ 619,581
681,793
1,624,354
412,219
1,067,290

$ 769,704
785,317
1,535,082
419,741
953,016

$ 300,263
351,156
1,081,844
115,191
826,958

$ 250,112
280,819
1,011,463
108,028
761,114

(1) In fiscal 2018, we adopted Accounting Standards Codification (ASC) Topic 606, Revenue from

Contracts with Customers. We elected the modified retrospective method of adoption. Periods prior
to fiscal 2018 have not been adjusted.

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 fiscal year that ends on the Saturday closest to December 31. Fiscal 2019, 2018 and 2017
were 52-week years and ended on December 28, 2019, December 29, 2018 and December 30, 2017,
respectively. Fiscal 2020 will have 53 weeks with the extra week occurring in the first quarter of the
year.

Overview

We are a leading provider of silicon, software and solutions for a smarter, more connected world.

Our award-winning technologies are shaping the future of the Internet of Things (IoT), Internet
infrastructure, industrial automation, consumer and automotive markets. Our world-class engineering
team creates products focused on performance, energy savings, connectivity and simplicity. Our primary
semiconductor products are mixed-signal integrated circuits (ICs), which are electronic components that
convert real-world analog signals, such as sound and radio waves, into digital signals that electronic
products can process.

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 and software enables us to
develop highly differentiated solutions that address multiple markets. We group our products into the
following categories:

(cid:127) Internet of Things products, which include wireless, microcontroller (MCU) and sensor products;

(cid:127) Broadcast products, which include broadcast consumer and automotive products;

(cid:127) Infrastructure products, which include timing products (clocks and oscillators), and isolation

devices; and

(cid:127) Access products, which include Voice over IP (VoIP) products, embedded modems and Power

over Ethernet (PoE) devices.

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 some of our ICs are designed for use in consumer products such as televisions, set-top

boxes and radios, 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.

Current Period Highlights

Revenues decreased $30.7 million in fiscal 2019 compared to fiscal 2018, due to decreased

revenues from our Infrastructure, Broadcast and Access products offset by increased revenues from our
IoT products. Gross profit decreased $11.1 million during the same period due primarily to decreased
product sales. Gross margin increased to 60.9% in fiscal 2019 compared to 60.1% in fiscal 2018
primarily due to the fair value write-up associated with acquired inventory in fiscal 2018, offset in part
by a decrease resulting from variations in product mix. Operating expenses increased $17.4 million in
fiscal 2019 compared to fiscal 2018 due primarily to increased personnel-related expenses, occupancy
costs and amortization of intangible assets, offset in part by decreased acquisition-related costs and
sales commissions. Operating income in fiscal 2019 was $56.7 million compared to $85.2 million in
fiscal 2018.

We ended fiscal 2019 with $726.0 million in cash, cash equivalents and short-term investments. Net

cash provided by operating activities was $166.5 million during fiscal 2019. Accounts receivable was
$75.6 million at December 28, 2019, representing 31 days sales outstanding (DSO). Inventory was
$73.1 million at December 28, 2019, representing 76 days of inventory (DOI). In fiscal 2019, we
repurchased 0.3 million shares of our common stock for $26.7 million.

Through acquisitions and internal development efforts, we have continued to diversify our product
portfolio and introduce new products and solutions with added functionality and further integration. In
October 2019, we acquired IEEE 1588 precision time protocol (PTP) software and module assets from
Qulsar. This complementary portfolio simplifies adoption of IEEE 1588 synchronization in 5G wireless,
transport and access networks.

In fiscal 2019, we introduced new highly integrated Wireless Gecko modules that streamline secure

IoT product design; a portfolio of automotive grade timing solutions designed to meet the demanding
clocking needs of in-vehicle systems; robust isolated smart switches designed to drive loads in harsh
industrial environments; hybrid software-defined radio (SDR) tuners supporting global digital radio
standards with a common platform; 5G-ready jitter attenuators with new device options featuring a
fully integrated crystal; the next generation of our Wireless Gecko platform, Series 2, designed to make
IoT products more powerful, efficient and reliable; a portfolio of timing solutions that provide superior
jitter performance and meet the latest generation PCI Express(cid:4) (PCIe(cid:4)) 5.0 specification; isolation
products designed to provide precise current and voltage measurement with very low temperature drift;
new Bluetooth software for our Wireless Gecko portfolio that increases location services accuracy; and
Wi-Fi modules and transceivers that cut power consumption for IoT applications. 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 expand our total available market opportunity.

During fiscal 2019, 2018 and 2017, we had no customer that represented more than 10% of our

revenues. 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 who sell to our
customers, Arrow Electronics and Edom Technology, each represented 26% and 20% of our revenues
during fiscal 2019, and 21% and 17% of our revenues during fiscal 2018, respectively. Edom, Avnet and
Arrow, each represented 19%, 14% and 12% of our revenues during fiscal 2017, respectively.

The percentage of our revenues derived from outside of the United States was 87% in fiscal 2019,
83% in fiscal 2018 and 85% in fiscal 2017. 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.

Results of Operations

The following describes the line items set forth in our Consolidated Statements of Income:

Revenues. Revenues are generated predominately by sales of our products. 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.

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, other intellectual property license costs and certain acquired
intangible assets; and an allocated portion of our occupancy costs. Our gross margin fluctuates
depending on product mix, manufacturing yields, inventory valuation adjustments, average selling prices
and other factors.

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

related expenses, including stock-based compensation, as well as new product masks, external consulting
and services costs, equipment tooling, equipment depreciation, amortization of intangible assets and an
allocated portion of our occupancy costs. 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-based compensation, as well as an allocated
portion of our occupancy costs, sales commissions to independent sales representatives, amortization of
intangible assets, professional fees, legal fees, and promotional and marketing expenses.

Interest Income and Other, Net.

Interest income and other, net reflects interest earned on our

cash, cash equivalents and investment balances, foreign currency remeasurement adjustments and other
non-operating income and expenses.

Interest Expense.

Interest expense consists of interest on our short and long-term obligations,
including our convertible senior notes and credit facility. Interest expense on our convertible senior
notes includes contractual interest, amortization of the debt discount and amortization of debt issuance
costs.

Provision (Benefit) for Income Taxes. Provision (benefit) for income taxes includes both domestic
and foreign income taxes at the applicable tax rates adjusted for non-deductible expenses, research and
development tax credits and other permanent differences.

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

revenues for the periods indicated:

Fiscal Year

2019

2018

2017

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

100.0% 100.0% 100.0%
39.9
39.1

40.9

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

Research and development . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . .

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

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

Interest income and other, net . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income before income taxes . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . . . . . . . . .

60.9

30.7
23.4

54.1

6.8

1.5
(2.4)

5.9
3.6

60.1

27.5
22.8

50.3

9.8

0.8
(2.3)

8.3
(1.3)

59.1

27.2
20.8

48.0

11.1

0.8
(1.9)

10.0
3.9

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

2.3%

9.6%

6.1%

Comparison of Fiscal 2019 to Fiscal 2018

Revenues

(in millions)

Fiscal Year

2019

2018

Change

%
Change

Internet of Things . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Broadcast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$488.2
183.2
114.9
51.3

$463.8
199.5
141.4
63.6

$ 24.4
(16.3)
(26.5)
(12.3)

5.2%
(8.2)%
(18.7)%
(19.2)%

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$837.6

$868.3

$(30.7)

(3.5)%

The change in revenues in fiscal 2019 was due primarily to:

(cid:127) Increased revenues of $24.4 million for our IoT products, due primarily to the addition of
revenues from an acquisition and increased demand for our wireless products offset by
decreased demand for our MCU products.

(cid:127) Decreased revenues of $16.3 million for our Infrastructure products, due primarily to decreased

demand for our timing and isolation products.

(cid:127) Decreased revenues of $26.5 million for Broadcast products, due primarily to decreased demand

for our consumer broadcast products and decreased demand for our automotive broadcast
products.

(cid:127) Decreased revenues of $12.3 million for our Access products, due primarily to decreased

demand for our products and a decreasing market for such products.

Unit volumes of our products decreased by 3.8% and average selling prices increased by 0.2%
compared to fiscal 2018. The average selling prices of our products may fluctuate significantly from
period to period due to changes in product mix and other factors. 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 some of these
decreases.

Gross Profit

(in millions)

Fiscal Year

2019

2018

Change

Gross profit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$510.3

$521.4

$(11.1)

60.9% 60.1% 0.8%

Gross profit decreased in fiscal 2019 due primarily to decreased product sales. The change in gross

profit in fiscal 2019 was due to decreases in gross profit of $20.8 million for our Infrastructure
products, $13.2 million for our Broadcast products and $8.0 million for our Access products, offset by
an increase in gross profit of $30.9 million for our Internet of Things products. Gross profit in fiscal
2018 included $6.1 million in acquisition-related charges for the fair value write-up associated with
acquired inventory. Gross margin increased in fiscal 2019 primarily due to the impact of the fair value
write-up associated with acquired inventory in fiscal 2018. The increase in gross margin in fiscal 2019
was offset in part by a decrease in gross margin resulting from variations in product mix.

We may experience declines in the average selling prices of certain of our products. This creates
downward pressure on gross margin and may be offset to the extent we are able to introduce higher
margin new products and gain market share with our products; reduce costs of existing products
through improved design; achieve lower production costs from our wafer suppliers and third-party

assembly and test subcontractors; achieve lower production costs per unit as a result of improved yields
throughout the manufacturing process; or reduce logistics costs.

Research and Development

(in millions)

Fiscal Year

2019

2018

Change

%
Change

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

$257.2

$238.3

$18.9

7.9%

30.7% 27.5%

The increase in research and development expense in fiscal 2019 was primarily due to increases of

$13.7 million for personnel-related expenses, including costs associated with increased headcount and
an acquisition, $2.8 million for occupancy costs and $2.2 million for the amortization of intangible
assets. We expect that research and development expense will increase in absolute dollars in the first
quarter of 2020 compared to the fourth quarter of 2019.

Selling, General and Administrative

(in millions)

Fiscal Year

2019

2018

Change

%
Change

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

$196.4

$197.8

$(1.4)

(0.7)%

23.4% 22.8%

The decrease in selling, general and administrative expense in fiscal 2019 was primarily due to

decreases of $2.0 million for acquisition-related costs and $1.0 million for sales commissions. The
decrease in selling, general and administrative expense was offset in part by an increase of $1.8 million
for personnel-related expenses, including costs associated with increased headcount and an acquisition.
We expect that selling, general and administrative expense will increase in absolute dollars in the first
quarter of 2020 compared to the fourth quarter of 2019.

Interest Income and Other, Net

Interest income and other, net in fiscal 2019 was $13.2 million compared to $6.6 million in fiscal

2018. The increase in interest income and other, net in fiscal 2019 was primarily due to increased
interest income earned as a result of higher market interest rates and higher investment balances.

Interest Expense

Interest expense in fiscal 2019 was relatively flat at $20.2 million compared to $19.7 million in

fiscal 2018.

Provision (Benefit) for Income Taxes

(in millions)

Fiscal Year

2019

2018

Change

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

$30.4
61.2% (15.8)%

$(11.4)

$41.8

The effective tax rate for fiscal 2019 increased from fiscal 2018 primarily due to a change in our

financial statement position related to the treatment of stock-based compensation within our
intercompany cost-sharing arrangement. Due to the Ninth Circuit’s reversal of the Altera Corp v.
Commissioner Tax Court decision, we are no longer reflecting a net tax benefit within our financial
statements related to the removal of stock-based compensation from our intercompany cost-sharing

arrangement. As such, we recognized incremental, discrete income tax expense of $27.2 million in fiscal
2019 related to this change.

The effective tax rates for each of the periods presented differ from the U.S. federal statutory tax

rates of 21% due to the aforementioned impact of the Altera decision, the amount of income earned in
foreign jurisdictions where the tax rate may be higher or lower than the federal statutory tax rate, and
other permanent items including research and development tax credits and GILTI, or global intangible
low-tax income.

Comparison of Fiscal 2018 to Fiscal 2017

Revenues

(in millions)

Fiscal Year

2018

2017

Change

$463.8
199.5
141.4
63.6

$395.0
152.2
153.0
68.7

$ 68.8
47.3
(11.6)
(5.1)

%
Change

17.4%
31.1%
(7.6)%
(7.5)%

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$868.3

$768.9

$ 99.4

12.9%

The change in revenues in fiscal 2018 was due primarily to:

(cid:127) Increased revenues of $68.8 million for our IoT products, due primarily to increased demand for

our wireless products and the addition of revenues from an acquisition.

(cid:127) Increased revenues of $47.3 million for our Infrastructure products, due primarily to increased

demand for our isolation and timing products.

(cid:127) Decreased revenues of $11.6 million for Broadcast products, due primarily to decreases in the

market for our consumer products.

(cid:127) Decreased revenues of $5.1 million for our Access products, due primarily to decreased demand

for our VoIP products and decreases in the market for such products.

Unit volumes of our products increased by 11.5% and average selling prices increased by 1.1%

compared to fiscal 2017.

Gross Profit

(in millions)

Fiscal Year

2018

2017

Change

$521.4

$454.2

$67.2

60.1% 59.1% 1.0%

Gross profit increased in fiscal 2018 due primarily to increased product sales. The increased dollar

amount of gross profit in fiscal 2018 was due to increases in gross profit of $42.8 million for our
Internet of Things products and $34.6 million for our Infrastructure products, offset by decreases in
gross profit of $8.5 million for our Broadcast products and $1.7 million for our Access products. Gross
profit in fiscal 2018 included $6.1 million in acquisition-related charges for the fair value write-up
associated with acquired inventory. Gross margin increased in fiscal 2018 primarily due to a higher mix
of Infrastructure products sold.

Research and Development

(in millions)

Fiscal Year

2018

2017

Change

%
Change

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

$238.3

$209.5

$28.8

13.8%

27.5% 27.2%

The increase in research and development expense in fiscal 2018 was primarily due to increases of

$16.5 million for personnel-related expenses, including costs associated with increased headcount and
an acquisition, and $7.2 million for the amortization of intangible assets.

Selling, General and Administrative

(in millions)

Fiscal Year

2018

2017

Change

%
Change

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

$197.8

$159.7

$38.1

23.9%

22.8% 20.8%

The increase in selling, general and administrative expense in fiscal 2018 was primarily due to
increases of $23.6 million for personnel-related expenses, including costs associated with increased
headcount and an acquisition, $3.6 million for the amortization of intangible assets and $3.4 million for
acquisition-related costs.

Interest Income and Other, Net

Interest income and other, net in fiscal 2018 was $6.6 million compared to $6.1 million in fiscal

2017. The increase in interest income and other, net in fiscal 2018 was primarily due to increased
interest income earned as a result of higher market interest rates and higher investment balances, offset
by a net loss of $1.8 million recorded in connection with fair value adjustments to an equity investment.

Interest Expense

Interest expense in fiscal 2018 was $19.7 million compared to $14.1 million in fiscal 2017. The

increase in interest expense in fiscal 2018 was primarily due to increased interest expense of
$3.8 million on our convertible debt, including amortization of the debt discount and debt issuance
costs, as a result of recording a full year of interest expense in fiscal 2018 versus a partial year in fiscal
2017. In addition, interest expense in fiscal 2017 was lower than fiscal 2018 due to a $2.0 million gain
recorded in fiscal 2017 in connection with the termination of our interest rate swap agreement.

Provision (Benefit) for Income Taxes

(in millions)

Fiscal Year

2018

2017

Change

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

$(11.4)
(15.8)% 38.8%

$29.8

$(41.2)

The effective tax rate for fiscal 2018 decreased from fiscal 2017 primarily due to a reduction in the

U.S. federal statutory rate as well as the inclusion of one-time tax impacts recorded in 2017 from the
enactment of the Tax Cuts and Jobs Act. This overall decrease in the effective tax rate was offset by a
decrease in the Company’s foreign tax rate benefit.

Business Outlook

The following represents our business outlook for the first quarter of fiscal 2020.

Income Statement Item

Estimate

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

$209 million to $219 million

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

59.5%

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

$127 million

Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.0%

Diluted earnings (loss) per share . . . . . . . . . . . . . . . .

$(0.03) to $0.07

Liquidity and Capital Resources

Our principal sources of liquidity as of December 28, 2019 consisted of $726.0 million in cash, cash

equivalents and short-term investments, of which approximately $583.8 million was held by our U.S.
entities. The remaining balance was held by our foreign subsidiaries. Our cash equivalents and
short-term investments consisted of government debt securities, which include agency bonds, municipal
bonds, U.S. government securities and variable-rate demand notes; corporate debt securities, which
include asset-backed securities, corporate bonds and commercial paper; and money market funds. Our
long-term investments consisted of auction-rate securities.

Operating Activities

Net cash provided by operating activities was $166.5 million during fiscal 2019, compared to net
cash provided of $173.5 million during fiscal 2018. Operating cash flows during fiscal 2019 reflect our
net income of $19.3 million, adjustments of $147.8 million for depreciation, amortization, stock-based
compensation and deferred income taxes, and a net cash outflow of $0.6 million due to changes in our
operating assets and liabilities.

Net cash provided by operating activities was $173.5 million during fiscal 2018, compared to net
cash provided of $189.5 million during fiscal 2017. Operating cash flows during fiscal 2018 reflect our
net income of $83.6 million, adjustments of $114.7 million for depreciation, amortization, stock-based
compensation and deferred income taxes, and a net cash outflow of $24.8 million due to changes in our
operating assets and liabilities.

Accounts receivable increased to $75.6 million at December 28, 2019 from $73.2 million at
December 29, 2018. The increase in accounts receivable resulted primarily from normal variations in
the timing of collections and billings. Our average DSO was 31 days at December 28, 2019 and
December 29, 2018.

Inventory decreased to $73.1 million at December 28, 2019 from $75.0 million at December 29,
2018. 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 DOI was 76 days at
December 28, 2019 and 79 days at December 29, 2018.

Investing Activities

Net cash used in investing activities was $106.8 million during fiscal 2019, compared to net cash

used of $197.0 million during fiscal 2018. The decrease in cash outflows was principally due to a
decrease of $237.2 million in net payments for the acquisition of businesses, offset by a decrease of
$157.8 million in net purchases and sales of marketable securities in the current period.

Net cash used in investing activities was $197.0 million during fiscal 2018, compared to net cash

used of $374.3 million during fiscal 2017. The decrease in cash outflows was principally due to an
increase of $420.1 million in net purchases and sales of marketable securities, offset by an increase of
$224.6 million in net payments for the acquisition of businesses.

We anticipate capital expenditures of approximately $23 to $27 million for fiscal 2020. 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.

Financing Activities

Net cash used in financing activities was $29.6 million during fiscal 2019, compared to cash used of

$48.8 million during fiscal 2018. The decrease in cash outflows was principally due to a decrease of
$12.6 million for repurchases of our common stock during fiscal 2019. Our existing share repurchase
program has an authorization amount of $200 million and a termination date of December 2020.

Net cash used in financing activities was $48.8 million during fiscal 2018, compared to net cash

provided of $313.0 million during fiscal 2017. The decrease in cash inflows was principally due to
$389.5 million in net proceeds from the issuance of long-term debt during fiscal 2017 and an increase
of $39.3 million for repurchases of our common stock during fiscal 2018, offset by a decrease of
$72.5 million in payments on debt.

Our debt facilities include $400 million principal amount convertible senior notes (the ‘‘Notes’’)

and a $400 million revolving credit facility. The Notes bear interest semi-annually at a rate of 1.375%
per year and will mature on March 1, 2022, unless repurchased, redeemed or converted at an earlier
date. We have an option to increase the size of the borrowing capacity of the revolving credit facility by
up to the greater of an aggregate of $250 million and 100% of EBITDA, plus an amount that would
not cause a secured leverage ratio to exceed 3.25 to 1.00, subject to certain conditions. See Note 10,
Debt, 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, cash equivalents, investments and credit under our Credit
Facility 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.

Contractual Obligations

The following table summarizes our contractual obligations as of December 28, 2019 (in

thousands):

Long-term debt obligations (1) . .
Interest on long-term debt

obligations (2) . . . . . . . . . . . .
Operating lease obligations (3) . .
Purchase obligations (4) . . . . . .
Other long-term obligations (5) .

Payments due by period

Total

2020

2021

2022

2023

2024

Thereafter

$400,000

$ — $ — $400,000

$ — $ — $ —

$ 17,417
$ 20,584
$ 38,780
$ 21,902

$
$6,300
$ 6,300
$4,410
$
$ 5,604
$38,780
$ — $
$ — $ — $

3,550
3,713

$ 800
$3,061

$ 467
$2,524

$ —
$1,272
— $ — $ — $ —
$7,991

$4,753

$6,338

2,820

(1) Long-term debt obligations represent the principal portion of our convertible senior notes (the

‘‘Notes’’). The Notes mature on March 1, 2022, unless repurchased, redeemed or converted at an
earlier date.

(2) Interest on our long-term debt obligations primarily represents contractual interest on the Notes,

which bear interest semi-annually at a rate of 1.375% per year. Interest excludes non-cash
amortization of the debt discount and debt issuance costs.

(3) Operating lease obligations include amounts for leased facilities.

(4) 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.

(5) Other long-term obligations primarily represent non-current income taxes.

We are unable to make a reasonably reliable estimate as to when or if cash settlement with taxing
authorities will occur for our unrecognized tax benefits. Therefore, our liability of $2.4 million for
unrecognized tax benefits is not included in the table above. See Note 17, Income Taxes, to the
Consolidated Financial Statements for additional information.

Off-Balance Sheet Arrangements

As of December 28, 2019, we had no significant off-balance sheet arrangements.

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.

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 manufacturing cost exceeds the estimated
selling price less costs of completion, disposal and transportation. 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.

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.

Acquired intangible assets—When we acquire a business, a portion of the purchase price is typically
allocated to identifiable intangible assets, such as acquired technology and customer relationships. Fair
value of these assets is determined primarily using the income approach, which requires us to project
future cash flows and apply an appropriate discount rate. We amortize intangible assets with finite lives
over their expected useful lives. Our estimates are based upon assumptions believed to be reasonable
but which are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate,
and unanticipated events and circumstances may occur. Incorrect estimates could result in future
impairment charges, and those charges could be material to our results of operations.

Revenue recognition—We recognize revenue when control of the promised goods or services is

transferred to customers, in an amount that reflects the consideration we expect to be entitled to in
exchange for those goods or services. In order to achieve this core principle, we apply a five-step
process. As part of this process, we analyze the performance obligations in a customer contract and
estimate the consideration we expect to receive. The evaluation of performance obligations requires
that we identify the promised goods and services in the contract. For contracts that contain more than
one promised good and service, we then must determine whether the promises are capable of being
distinct and if they are separately identifiable from other promises in the contract. Additionally, for our
sales to distributors, we must estimate the impact that price adjustments and rights of return will have
on consideration. We make these estimates based on available information, including recent sales
activity and pricing data. If our evaluation of performance obligations is incorrect, we may recognize
revenue sooner or later than is appropriate. If our estimates of consideration are inaccurate, we may
recognize too much or too little revenue in a period.

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

the Consolidated Statements of Income. The fair value of our full-value stock awards (with the
exception of market-based performance awards) equals the fair market value of our stock on the date
of grant. The fair value of our market-based performance awards is estimated at the date of grant using

a Monte-Carlo simulation. The fair value of our stock option and employee stock purchase plan grants
is estimated at the date of grant using the Black-Scholes option pricing model. 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 15, Stock-Based
Compensation, to the Consolidated Financial Statements for additional information.

Income taxes—We are required to calculate income taxes in each of the jurisdictions in which we

operate. This process involves calculating 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 record a valuation allowance when it is more likely than not that some portion or all of the
deferred tax assets will not be realized. In assessing the need for a valuation allowance, we are required
to estimate the amount of expected future taxable income. Judgment is inherent in this process and
differences between the estimated and actual taxable income could result in a material impact on our
Consolidated Financial Statements.

We recognize liabilities for uncertain tax positions based on a two-step process. The first step
requires us to determine whether 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, they 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

Information regarding recent accounting pronouncements is provided in Note 2, Significant
Accounting Policies, to the Consolidated Financial Statements. Such information is incorporated by
reference herein.

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. A 100 basis point decline in yield on our investment

portfolio holdings as of December 28, 2019 and December 29, 2018 would decrease our future annual
interest income by approximately $6.6 million and $5.6 million, respectively. We believe that our
investment policy, which defines the duration, concentration, and minimum credit quality of the
allowable investments, meets our investment objectives.

Interest Expense

We are exposed to interest rate fluctuations in the normal course of our business, including

through our Credit Facility. The interest rate on the Credit Facility consists of a variable-rate of interest
and an applicable margin. While we have drawn from the Credit Facility in the past, we have no
borrowings as of December 28, 2019. If we borrow from the Credit Facility in the future, we will again
be exposed to interest rate fluctuations.

Foreign currency exchange rate risk

We are exposed to foreign currency exchange rate risk primarily through assets, liabilities and
operating expenses of our subsidiaries denominated in currencies other than the U.S. dollar. Our
foreign subsidiaries are considered to be extensions of the U.S. parent. The functional currency of the
foreign subsidiaries is the U.S. dollar. Accordingly, gains and losses resulting from remeasuring
transactions denominated in currencies other than U.S. dollars are recorded in the Consolidated
Statements of Income. We use foreign currency forward contracts to manage exposure to foreign
exchange risk. Gains and losses on foreign currency forward contracts are recognized in earnings in the
same period during which the hedged transaction is recognized.

Investments in Auction-rate Securities

As of December 28, 2019, we held $6.0 million par value auction-rate securities, all of which have
experienced failed auctions because sell orders exceeded buy orders. 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.

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

Evaluation of Disclosure Controls and Procedures

We have performed an evaluation under the supervision and with the participation of our

management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the
effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934 (the Exchange Act). Based on that evaluation, our management,
including our CEO and CFO, concluded that our disclosure controls and procedures were effective as
of December 28, 2019 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.

Changes in Internal Control over Financial Reporting

There was no change in our internal controls during the fiscal quarter ended December 28, 2019
that materially affected, or is reasonably likely to materially affect, our internal controls over financial
reporting.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over
financial reporting. Our internal control system was designed to provide reasonable assurance to our
management and Board of Directors regarding the preparation and fair presentation of published
financial statements.

Our management assessed the effectiveness of our internal control over financial reporting as of

December 28, 2019. 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 (2013 framework). Based on our assessment we concluded that, as of December 28, 2019,
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

The 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Balance Sheets at December 28, 2019 and December 29, 2018 . . . . . . . . . . . . . . .

Consolidated Statements of Income for the fiscal years ended December 28, 2019, December 29,
2018 and December 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

F-1

F-2

F-5

F-6

Consolidated Statements of Comprehensive Income for the fiscal years ended December 28,

2019, December 29, 2018 and December 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-7

Consolidated Statements of Changes in Stockholders’ Equity for the fiscal years ended

December 28, 2019, December 29, 2018 and December 30, 2017 . . . . . . . . . . . . . . . . . . . . . .

F-8

Consolidated Statements of Cash Flows for the fiscal years ended December 28, 2019,

December 29, 2018 and December 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-9

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-10

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*

4.2*

4.3*

Agreement and Plan of Merger, dated December 7, 2017, by and among Silicon
Laboratories Inc., Seguin Merger Subsidiary, Inc. and Sigma Designs, Inc. (filed as
Exhibit 2.1 to the Form 8-K filed on December 8, 2017).

Form of Fourth Amended and Restated Certificate of Incorporation of Silicon
Laboratories Inc. (filed as Exhibit 3.1 to the Registration Statement on Form S-1
(Securities and Exchange Commission File No. 333-94853) (the ‘‘IPO Registration
Statement’’)).

Fourth Amended and Restated Bylaws of Silicon Laboratories Inc. (filed as Exhibit 3.2 to
the Form 8-K filed on January 27, 2017).

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

Indenture between Silicon Laboratories Inc. and Wilmington Trust, National Association, as
trustee, dated March 6, 2017 (filed as Exhibit 4.1 to the Form 8-K filed on March 6, 2017).

Form of 1.375% Convertible Senior Note due 2022 (filed as Exhibit 4.2 to the Form 8-K
filed on March 6, 2017).

10.1*+ Form of Indemnification Agreement between Silicon Laboratories Inc. and each of its

directors and executive officers (filed as Exhibit 10.1 to the IPO Registration Statement).

10.2*

10.3*

10.4*

10.5*

10.6*

Credit Agreement, dated July 31, 2012, by and among Silicon Laboratories Inc., the
subsidiaries of the borrower identified therein, Bank of America, N.A., Wells Fargo
Bank, National Association, and Regions Bank (filed as Exhibit 10.1 to the Form 8-K
filed August 1, 2012).

First Amendment to Credit Agreement, dated July 24, 2015, by and among Silicon
Laboratories Inc., the subsidiaries of the borrower identified therein, Wells Fargo Bank,
National Association, Citibank, N.A., Regions Bank, Bank of America, N.A. and the
lenders party thereto (filed as Exhibit 10.1 to the Form 8-K filed on July 29, 2015).

Second Amendment to Credit Agreement, dated February 27, 2017, by and among
Silicon Laboratories Inc., the subsidiaries of the borrower identified therein, Wells Fargo
Bank, National Association and the lenders party thereto (filed as Exhibit 10.1 to the
Form 8-K filed on February 27, 2017).

Third Amendment to Credit Agreement, dated August 7, 2019, by and among Silicon
Laboratories Inc., the subsidiaries of the borrower identified therein, Wells Fargo Bank,
National Association and the lenders party thereto (filed as Exhibit 10.1 to the Form 8-K
filed on August 7, 2019).

Security and Pledge Agreement, dated July 31, 2012, by and among Silicon
Laboratories Inc., with the other parties identified as ‘‘Obligors’’ (as defined therein) and
such other parties that may become Obligors thereunder after the date thereof, and
Bank of America, N.A (filed as Exhibit 10.2 to the Form 8-K filed August 1, 2012).

10.7*+ Silicon Laboratories Inc. 2009 Stock Incentive Plan, as amended and restated on

April 20, 2017 (filed as Exhibit 10.1 to the Form 10-Q filed on July 26, 2017).

10.8*+ Silicon Laboratories Inc. 2009 Employee Stock Purchase Plan, as amended and restated

on April 20, 2017 (filed as Exhibit 10.2 to the Form 10-Q filed on July 26, 2017).

10.9*+ Form of Restricted Stock Units Grant Notice and Global Restricted Stock Units Award

Agreement under Registrant’s 2009 Stock Incentive Plan, as amended and restated (filed
as Exhibit 10.7 to the Form 10-K filed on February 1, 2017).

Exhibit
Number

10.10*+ Form of Market Stock Units Grant Notice and Global Market Stock Units Award

Agreement under Registrant’s 2009 Stock Incentive Plan, as amended and restated (filed
as Exhibit 10.8 to the Form 10-K filed on February 1, 2017).

10.11*+ Form of Stock Option Grant Notice and Global Stock Option Award Agreement under

Registrant’s 2009 Stock Incentive Plan, as amended and restated (filed as Exhibit 10.9 to
the Form 10-K filed on February 1, 2017).

10.12*+ Form of Performance Stock Units Grant Notice and Global PSU Award Agreement

under Registrant’s 2009 Stock Incentive Plan, as amended and restated (filed as
Exhibit 10.10 to the Form 10-K filed on February 1, 2017).

10.13*

Purchase Agreement between Silicon Laboratories Inc. and Goldman, Sachs & Co. and
Wells Fargo Securities, LLC, as representatives of the several initial purchasers named
therein, dated February 28, 2017 (filed as Exhibit 10.1 to the Form 8-K filed on March 6,
2017).

10.14*+ CEO Change in Control Agreement dated October 23, 2018 between Silicon

Laboratories Inc. and G. Tyson Tuttle (filed as Exhibit 10.1 to the Form 8-K filed on
October 24, 2018).

10.15*+ Silicon Laboratories Inc. Form of Change in Control Agreement (filed as Exhibit 10.2 to

the Form 8-K filed on October 24, 2018).

10.16*+ Silicon Laboratories Inc. 2020 Bonus Plan (filed as Exhibit 10.1 to the Form 8-K filed on

23.1

31.1

31.2

January 24, 2020).

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.

101.INS

Inline XBRL Instance Document—the instance document does not appear in the Interactive
Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

Incorporated herein by reference to the indicated filing.

+ Management contract or compensatory plan or arrangement

Item 16. Form 10-K Summary

None.

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 January 29, 2020.

SIGNATURES

SILICON LABORATORIES INC.

By:

/s/ G. TYSON TUTTLE

G. Tyson Tuttle
President and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears

below constitutes and appoints G. Tyson Tuttle and John C. Hollister 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

January 29, 2020

/s/ G. TYSON TUTTLE

G. Tyson Tuttle

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

January 29, 2020

/s/ JOHN C. HOLLISTER

John C. Hollister

/s/ WILLIAM G. BOCK

William G. Bock

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

January 29, 2020

Director

January 29, 2020

Name

Title

Date

January 29, 2020

/s/ JACK R. LAZAR

Jack R. Lazar

/s/ GREGG LOWE

Gregg Lowe

/s/ NINA RICHARDSON

Nina Richardson

/s/ SUMIT SADANA

Sumit Sadana

/s/ WILLIAM P. WOOD

William P. Wood

/s/ CHRISTY WYATT

Christy Wyatt

Director

(This page has been left blank intentionally.)

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Silicon Laboratories Inc.
Opinion on Internal Control Over Financial Reporting

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

December 28, 2019, based on criteria established in Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the
COSO criteria). In our opinion, Silicon Laboratories Inc. (the Company) maintained, in all material
respects, effective internal control over financial reporting as of December 28, 2019, based on the
COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting

Oversight Board (United States) (PCAOB), the consolidated balance sheets of Silicon Laboratories Inc.
as of December 28, 2019 and December 29, 2018, the related consolidated statements of income,
comprehensive income, stockholders’ equity and cash flows for each of the three years in the period
ended December 28, 2019, and the related notes and our report dated January 29, 2020 expressed an
unqualified opinion thereon.

Basis for Opinion

The Company’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 are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. 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.

Definition and Limitations of Internal Control Over Financial Reporting

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.

/s/ Ernst & Young LLP

Austin, Texas
January 29, 2020

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Silicon Laboratories Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Silicon Laboratories Inc. (the

Company) as of December 28, 2019 and December 29, 2018, the related consolidated statements of
income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the
period ended December 28, 2019, and the related notes (collectively referred to as the ‘‘consolidated
financial statements’’). In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 28, 2019 and December 29, 2018,
and the results of its operations and its cash flows for each of the three years in the period ended
December 28, 2019, 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) (PCAOB), the Company’s internal control over financial reporting as
of December 28, 2019, based on criteria established in Internal Control-Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our
report dated January 29, 2020 expressed an unqualified opinion thereon.

Adoption of ASU 2014-09 and ASU 2016-02

As discussed in Note 2 to the consolidated financial statements, the Company changed its method
of accounting for revenue from sales to distributors in 2018 due to the adoption of ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606). The Company changed its method of accounting for
leases in 2019 due to the adoption of ASU No. 2016-02, Leases (Topic 842).

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility

is to express an opinion on the Company’s financial statements based on our audits. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require

that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. We believe that
our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of

the financial statements that were communicated or required to be communicated to the audit
committee and that: (1) relate to accounts or disclosures that are material to the financial statements
and (2) involved especially challenging, subjective, or complex judgments. The communication of critical
audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matters below, providing separate opinions
on the critical audit matters or on the accounts or disclosures to which they relate.

F-2

Description of the Matter At December 28, 2019, the Company’s returns liability, which is included in

Recognition of Variable Consideration

How We Addressed the
Matter in Our Audit

the Deferred revenues and returns liability in the consolidated balance sheet,
was $19.3 million. As discussed in Note 2 of the consolidated financial
statements, when recording revenue for its contracts with customers the
Company estimates variable consideration at the most likely amount to
which it expects to be entitled. Variable consideration that does not meet
revenue recognition criteria is deferred and a returns liability amount is
recorded. The variable consideration estimate considers both the likelihood
of a return and the amount of a potential price concession.

Auditing management’s estimate of the returns liability was judgmental
because the calculation involves subjective management assumptions about
estimates of expected price concessions and product returns. For example,
the estimated variable consideration included in the transaction price reflects
management’s evaluation of contractual terms, historical experience and
assumptions about future economic conditions. Changes in those
assumptions can have a material effect on the amount of variable
consideration recognized.

We obtained an understanding, evaluated the design and tested the
operating effectiveness of controls over the measurement and valuation of
the variable consideration recognized as revenue and the returns liability.
For example, we tested controls over management’s review of the variable
consideration methodology, the significant assumptions, and the historical
data utilized in the estimate for assumed product returns and expected price
concessions.

To test the variable consideration recognized as revenue and the returns
liability, we performed audit procedures that included, among others, an
evaluation of the Company’s methodology and significant assumptions, and
tested the completeness and accuracy of the historical data utilized in the
estimate. In our assessment of the methodology, we considered changes in
the business and changes to specific distributor contracts. We evaluated
significant assumptions used by comparison to current trends and recent
transactions. We also evaluated the accuracy of management’s assumed
product returns and expected price concession at prior periods by comparing
to subsequent actual activity.

Uncertain Tax Positions

Description of the Matter As discussed in Note 2 of the consolidated financial statements, uncertain

tax positions must meet a more-likely-than-not threshold to be recognized in
the consolidated 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. The Company is a party
to many transactions in the ordinary course of business where the ultimate
tax outcome is uncertain. To account for this uncertainty, the Company uses
significant judgment in determining whether a tax position is more likely
than not to be sustained and measuring the amount of tax benefit that
qualifies for recognition. As described in Note 17 of the consolidated
financial statements, at December 28, 2019 the Company had gross
unrecognized tax benefits, inclusive of interest, of $2.4 million.

F-3

How We Addressed the
Matter in Our Audit

Auditing management’s analysis of the uncertainties in its tax positions was
complex and judgmental because the evaluation and measurement of each
tax position is based on interpretations of tax laws and legal rulings.

We obtained an understanding, evaluated the design and tested the
operating effectiveness of controls over the existence of uncertain tax
positions and measurement of the benefit of those positions. For example,
we tested controls over management’s review of the technical merits of tax
positions, the events and information that impacted tax positions, the
estimate of the most likely outcome, and the data utilized in the estimate.

To test the valuation of uncertain tax positions, our audit procedures
included, among others, analyzing the Company’s assumptions and data used
to determine the amount of tax benefit to recognize and tested the accuracy
of the calculations. In considering the measurement criteria, we involved our
tax professionals to assess the technical merits of the Company’s tax
positions. This included assessing the Company’s correspondence with the
relevant tax authorities and evaluating income tax opinions or other third-
party advice obtained by the Company. We also used our knowledge of, and
experience with, the application of international and local income tax laws
by the relevant income tax authorities to evaluate the Company’s accounting
for those tax positions. We also evaluated the Company’s income tax
disclosures included in Note 17 to the consolidated financial statements in
relation to these matters.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1996.
Austin, Texas
January 29, 2020

F-4

Silicon Laboratories Inc.
Consolidated Balance Sheets
(In thousands, except per share data)

December 28,
2019

December 29,
2018

Current assets:

Assets

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . .

$ 227,146
498,825
75,639
73,057
69,192

$ 197,043
416,779
73,194
74,972
64,650

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
Other intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

943,859
135,939
398,402
134,279
62,374

826,638
139,049
397,344
170,832
90,491

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

$1,674,853

$1,624,354

Current liabilities:

Liabilities and Stockholders’ Equity

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue and returns liability . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies
Stockholders’ equity:

Preferred stock—$0.0001 par value; 10,000 shares authorized; no shares

issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock—$0.0001 par value; 250,000 shares authorized; 43,496 and

43,088 shares issued and outstanding at December 28, 2019 and
December 29, 2018, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . .

38,899
19,251
79,551

137,701
368,257
53,844

559,802

41,171
22,494
81,180

144,845
354,771
57,448

557,064

—

4
133,793
980,608
646

4
107,517
961,343
(1,574)

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

1,115,051

1,067,290

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

$1,674,853

$1,624,354

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

F-5

Silicon Laboratories Inc.
Consolidated Statements of Income
(In thousands, except per share data)

Year Ended

December 28,
2019

December 29,
2018

December 30,
2017

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

$837,554
327,270

$868,267
346,868

$768,867
314,676

Gross profit
Operating expenses:

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Research and development . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . .

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

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

Interest income and other, net . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . .

510,284

521,399

454,191

257,150
196,437

453,587

56,697

13,185
(20,233)

49,649
30,384

238,347
197,844

436,191

85,208

6,647
(19,694)

72,161
(11,430)

209,491
159,726

369,217

84,974

6,057
(14,128)

76,903
29,811

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

$ 19,265

$ 83,591

$ 47,092

Earnings per share:

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

$
$

0.44
0.43

$
$

1.94
1.90

$
$

1.11
1.09

Weighted-average common shares outstanding:

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

43,346
44,290

43,159
44,044

42,446
43,332

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

F-6

Silicon Laboratories Inc.
Consolidated Statements of Comprehensive Income
(In thousands)

Year Ended

December 28,
2019

December 29,
2018

December 30,
2017

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

$19,265

$83,591

$47,092

Other comprehensive income (loss), before tax:
Net changes to available-for-sale securities:

Unrealized gains (losses) arising during the period . . . . . .
Reclassification for (gains) losses included in net income . .

Net changes to cash flow hedges:

Unrealized losses arising during the period . . . . . . . . . . . .
Reclassification for (gains) losses included in net income . .

Other comprehensive income (loss), before tax . . . . . . . . . . . .

Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . .

Other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . .

2,564
(218)

(321)
784

2,809

589

2,220

376
49

(953)
316

(212)

(45)

(167)

(729)
—

—
(1,808)

(2,537)

(888)

(1,649)

Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$21,485

$83,424

$45,443

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

F-7

Silicon Laboratories Inc.
Consolidated Statements of Changes in Stockholders’ Equity
(In thousands)

Common
Stock

Additional
Paid-In
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income
(Loss)

Total
Stockholders’
Equity

41,889

$ 4

$ 24,463

$801,999

492

$ 826,958

Balance as of December 31, 2016
Cumulative effect of adoption

of accounting standard . . . . .
Net income . . . . . . . . . . . . . . .
Other comprehensive income

(loss) . . . . . . . . . . . . . . . . . .

Stock issuances, net of shares

withheld for taxes

. . . . . . . .
Stock-based compensation . . . .
Convertible debt issuance . . . .

—
—

—

818
—
—

Balance as of December 30, 2017
Cumulative effect of adoption

42,707

of accounting standard . . . . .
Net income . . . . . . . . . . . . . . .
Other comprehensive income

(loss) . . . . . . . . . . . . . . . . . .

Stock issuances, net of shares

withheld for taxes

. . . . . . . .
Repurchases of common stock .
Stock-based compensation . . . .

Balance as of December 29, 2018
Net income . . . . . . . . . . . . . . .
Other comprehensive income

—
—

—

815
(434)
—

43,088
—

(loss) . . . . . . . . . . . . . . . . . .

—

Stock issuances, net of shares

withheld for taxes

. . . . . . . .
Repurchases of common stock .
Stock-based compensation . . . .

709
(301)
—

—
—

—

—
—
—

—
—

—

—
—
—

4
—

—

—
—
—

—
—

—

(3,938)
44,809
37,528

2,216
47,092

—
—

2,216
47,092

—

—
—
—

(1,649)

—
—
—

(3,938)
44,809
37,528

102,862

851,307

(1,157)

953,016

—
—

—

(6,180)
(39,276)
50,111

107,517
—

—

(1,799)
(26,716)
54,791

26,445
83,591

—

—
—
—

(250)
—

(167)

—
—
—

26,195
83,591

(167)

(6,180)
(39,276)
50,111

961,343
19,265

(1,574)
—

1,067,290
19,265

—

—
—
—

2,220

—
—
—

(1,799)
(26,716)
54,791

Balance as of December 28, 2019

43,496

$ 4

$133,793

$980,608

646

$1,115,051

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

F-8

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

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

operating activities:
Depreciation of property and equipment . . . . . . . . . . . . . . . . .
Amortization of other intangible assets and other assets . . . . . .
Amortization of debt discount and debt issuance costs . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities and income taxes . . . . . . . . . . . . . . .
Deferred income, deferred revenue and returns liability . . . . .
Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended

December 28,
2019

December 29,
2018

December 30,
2017

$ 19,265

$ 83,591

$ 47,092

16,883
39,584
13,485
54,799
23,048

(2,401)
2,171
8,965
7,830
(6,826)
(3,243)
(7,038)

15,912
44,102
12,892
50,077
(8,210)

3,931
7,660
(4,960)
5,952
(21,828)
(6,202)
(9,375)

14,766
27,246
10,146
44,752
(26,452)

3,234
(13,416)
25,266
(468)
61,924
4,453
(9,022)

Net cash provided by operating activities . . . . . . . . . . . . . . . . . .

166,522

173,542

189,521

Investing Activities
Purchases of available-for-sale investments . . . . . . . . . . . . . . . . .
Sales and maturities of available-for-sale investments . . . . . . . . . .
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . .
Purchases of other assets
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions of businesses, net of cash acquired . . . . . . . . . . . . . .

Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . .

Financing Activities
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . .
Payment of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . .
Payments on debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchases of common stock . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of taxes withheld for vested stock awards . . . . . . . . . . . .
Proceeds from the issuance of common stock . . . . . . . . . . . . . . .
Payment of acquisition-related contingent consideration . . . . . . . .

Net cash provided by (used in) financing activities . . . . . . . . . . . .

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

(424,524)
344,937
(16,279)
(8,396)
(2,510)

(106,772)

—
(1,132)
—
(26,716)
(16,295)
14,496
—

(29,647)

30,103
197,043

(395,904)
474,129
(24,462)
(11,063)
(239,729)

(197,029)

—
—
—
(39,276)
(19,483)
13,303
(3,380)

(48,836)

(72,323)
269,366

(636,363)
294,452
(12,252)
(4,960)
(15,168)

(374,291)

400,000
(10,532)
(72,500)
—
(15,753)
11,815
—

313,030

128,260
141,106

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

$ 227,146

$ 197,043

$ 269,366

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

6,367

6,227

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

$ 10,291

$ 20,599

3,859

8,929

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

F-9

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 28, 2019

1. Description of Business

Silicon Laboratories Inc. (the ‘‘Company’’), a Delaware corporation, is a leading provider of
silicon, software and solutions for a smarter, more connected world. Our award-winning technologies
are shaping the future of the Internet of Things (IoT), Internet infrastructure, industrial automation,
consumer and automotive markets. Within the semiconductor industry, the Company is known as a
‘‘fabless’’ company meaning that the integrated circuits (ICs) incorporated in its products are
manufactured by third-party foundry semiconductor companies.

2. Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

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

Saturday closest to December 31. Fiscal 2019, 2018 and 2017 had 52 weeks and ended on
December 28, 2019, December 29, 2018 and December 30, 2017, respectively. 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 in
consolidation.

Foreign Currency Transactions

The Company’s foreign subsidiaries are considered to be extensions of the U.S. Company. The
functional currency of the foreign subsidiaries is the U.S. dollar. Accordingly, gains and losses resulting
from remeasuring transactions denominated in currencies other than U.S. dollars are included in
interest income and other, net in the Consolidated Statements of Income.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted

in the United States requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Among the significant estimates affecting
the financial statements are those related to inventories, goodwill, acquired intangible assets, other
long-lived assets, revenue recognition, stock-based compensation and income taxes. Actual results could
differ from those estimates, and such differences could be material to the financial statements.

Adoption of New Lease Accounting Standard

The Company adopted Accounting Standards Codification (ASC) Topic 842, Leases, on

December 30, 2018, the first day of its fiscal year ended December 28, 2019. We elected the package of
practical expedients permitted under the transition guidance within the new standard, which allowed us
to not reassess historical lease classifications, initial direct costs of existing leases or whether any
expired or existing contracts were or contained leases.

The Company elected the retrospective method of adoption at the beginning of the period of
adoption through a cumulative-effect adjustment. Prior periods have not been adjusted. The following

F-10

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 28, 2019 (Continued)

2. Significant Accounting Policies (Continued)

reflects the material changes recorded in connection with the cumulative-effect adjustment (in
thousands):

Financial Statement Line Item

Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . .
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Increase
(Decrease)

$ (481)
$18,166
$ 3,516
$14,169

The primary impact of the Company’s adoption of ASC 842 resulted from the recognition of

right-of-use assets and operating lease liabilities. The adoption had no significant impact to the
Consolidated Statements of Income or to cash provided by or used in net operating, investing or
financing activities in the Consolidated Statements of Cash Flows.

Adoption of New Revenue Accounting Standard

The Company adopted Accounting Standards Codification (ASC) Topic 606, Revenue from
Contracts with Customers, on December 31, 2017, the first day of its fiscal year ended December 29,
2018. The Company elected the modified retrospective method of adoption which only applies to those
contracts which were not completed as of December 31, 2017. Prior periods have not been adjusted. In
connection with its adoption of ASC 606, the Company recorded a cumulative-effect adjustment to
retained earnings of $26.2 million on December 31, 2017. The following reflects the material changes
recorded in connection with the cumulative-effect adjustment (in thousands):

Financial Statement Line Item

Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . .
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue and returns liability . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income on shipments to distributors . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Increase
(Decrease)

$
230
$ 7,579
$ (2,282)
$ 27,806
$(50,115)
$ 1,641
$ 26,195

The primary impact of the Company’s adoption of ASC 606 resulted from the acceleration of the
timing of revenue recognition on sales to distributors. The Company previously deferred revenue and
cost of revenue on such sales until the distributors sold the product to the end customers. The
Company now recognizes revenue at the time of sale to the distributor provided all other revenue
recognition criteria have been met. The Company records a right of return asset and a returns liability
in place of the deferred income on shipments to distributors previously recorded under ASC 605.

F-11

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 28, 2019 (Continued)

2. Significant Accounting Policies (Continued)

Fair Value of Financial Instruments

The fair values of the Company’s financial instruments are recorded using a hierarchical 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, certificates of deposit, money market funds and

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

Investments

The Company’s investments typically have original maturities greater than ninety days as of the
date of purchase and are classified as either 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 income (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 interest income and other, 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 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 and 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
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 income (loss).

F-12

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 28, 2019 (Continued)

2. Significant Accounting Policies (Continued)

In addition, the Company has made equity investments in non-publicly traded companies. Equity

investments in which the Company does not have control, but has the ability to exercise significant
influence over operating and financial policies, are accounted for using the equity method. The
Company’s proportionate share of income or loss is recorded in interest income and other, net in the
Consolidated Statement of Income. All other non-marketable equity investments are recorded at cost
minus impairment, if any, plus or minus changes resulting from qualifying observable price changes.
The Company periodically reviews its equity 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.

Derivative Financial Instruments

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

of foreign currency exchange rates and interest rates. The Company’s objective is to offset increases
and decreases in expenses resulting from these exposures with gains and losses on the derivative
contracts, thereby reducing volatility of earnings. The Company does not use derivative contracts for
speculative or trading purposes. The Company recognizes derivatives, on a gross basis, in the
Consolidated Balance Sheet at fair value. Cash flows from derivatives are classified according to the
nature of the cash receipt or payment in the Consolidated Statement of Cash Flows.

Cash flow hedges used by the Company include foreign currency forward contracts and interest

rate swap agreements. Foreign currency forward contracts are used to reduce the earnings impact that
exchange rate fluctuations have on operating expenses denominated in currencies other than the U.S.
dollar. Interest rate swap agreements are used to manage exposure to interest rate risks.

The Company also uses foreign currency forward contracts to reduce the earnings impact that

exchange rate fluctuations have on non-U.S. dollar balance sheet exposures. The Company does not
apply hedge accounting to these foreign currency forward contracts.

Inventories

Inventories are stated at the lower of cost, determined using the first-in, first-out method, or net
realizable value. The Company writes down the carrying value of inventory to net realizable value for
estimated obsolescence or unmarketable inventory based upon assumptions about the age of inventory,
future demand and market conditions. Inventory impairment charges establish a new cost basis for
inventory and charges are not subsequently reversed to income even if circumstances later suggest that
increased carrying amounts are recoverable.

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 fifteen
years. Leasehold improvements are depreciated over the lease term or their useful life, whichever is
shorter.

The Company owns the facilities it had previously leased for its headquarters in Austin, Texas. The

buildings are located on land which is leased through 2099 from a third party. The rents for these

F-13

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 28, 2019 (Continued)

2. Significant Accounting Policies (Continued)

ground leases were prepaid for the term of the leases by the previous lessee. The buildings and
leasehold interest in ground leases are being depreciated on a straight-line basis over their estimated
useful lives of 40 years and 86 years, respectively.

Business Combinations

The Company records business combinations using the acquisition method of accounting and,
accordingly, allocates the fair value of purchase consideration to the assets acquired and liabilities
assumed based on their fair values at the acquisition date. The excess of the fair value of purchase
consideration over the fair value of the assets acquired and liabilities assumed is recorded as goodwill.
The results of operations of the businesses acquired are included in the Company’s consolidated results
of operations beginning on the date of the acquisition.

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. Fair
values are determined primarily using the income approach, in which the Company projects future
expected cash flows and applies an appropriate discount rate.

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 reporting unit to the net book value of the 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 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.

Leases

At the commencement date of a lease, the Company recognizes a liability to make lease payments
and an asset representing the right to use the underlying asset during the lease term. The lease liability
is measured at the present value of lease payments over the lease term. As its leases typically do not
provide an implicit rate, the Company uses its incremental borrowing rate based on the information
available at the commencement date taking into consideration necessary adjustments for collateral,
depending on the facts and circumstances of the lessee and the leased asset, and term to match the
lease term. The right-of-use (‘‘ROU’’) asset is measured at cost, which includes the initial measurement

F-14

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 28, 2019 (Continued)

2. Significant Accounting Policies (Continued)

of the lease liability and initial direct costs incurred by the Company and excludes lease incentives.
Lease liabilities are recorded in other current liabilities and other non-current liabilities. ROU assets
are recorded in other assets, net.

Lease terms may include options to extend or terminate the lease when it is reasonably certain
that the Company will exercise that option. Operating lease costs are recognized on a straight-line basis
over the lease term. Lease agreements that contain both lease and non-lease components are generally
accounted for separately.

Revenue Recognition

Revenue is recognized when control of the promised goods or services is transferred to customers,

in an amount that reflects the consideration the Company expects to be entitled to in exchange for
those goods or services. Substantially all of the Company’s contracts with customers contain a single
performance obligation, the sale of mixed-signal integrated circuit (IC) products. This performance
obligation is satisfied when control of the product is transferred to the customer, which typically occurs
upon delivery. Unsatisfied performance obligations primarily represent contracts for products with
future delivery dates. The Company has opted to not disclose the amount of unsatisfied performance
obligations as these contracts have original expected durations of less than one year.

The transaction price reflects the Company’s expectations about the consideration it will be

entitled to receive from the customer and may include fixed or variable amounts. Variable
consideration primarily includes sales made to distributors under agreements allowing certain rights of
return, referred to as stock rotation, and credits issued to the distributor due to price protection. The
Company estimates variable consideration at the most likely amount to which it expects to be entitled.
The estimate is based on information available to the Company, including recent sales activity and
pricing data. The Company applies a constraint to its variable consideration estimate which considers
both the likelihood of a return and the amount of a potential price concession. Variable consideration
that does not meet revenue recognition criteria is deferred. The Company records a right of return
asset in prepaid expenses and other current assets for the costs of distributor inventory not meeting
revenue recognition criteria. A corresponding deferred revenue and returns liability amount is recorded
for unrecognized revenue associated with such costs. The Company’s products carry a one-year
replacement warranty. Payments are typically due within 30 days of invoicing and do not include a
significant financing component.

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 15,

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

F-15

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 28, 2019 (Continued)

2. Significant Accounting Policies (Continued)

Research and Development

Research and development costs are expensed as incurred. Research and development expense
consists primarily of personnel-related expenses, including stock-based compensation, as well as new
product masks, external consulting and services costs, equipment tooling, equipment depreciation,
amortization of intangible assets, and an allocated portion of our occupancy costs. Assets purchased to
support the Company’s ongoing research and development activities are capitalized when related to
products which have achieved technological feasibility or have an alternative future use, and are
amortized over their estimated useful lives.

Advertising

Advertising costs are expensed as incurred. Advertising expenses were $1.6 million, $1.9 million

and $1.4 million in fiscal 2019, 2018 and 2017, 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 the 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 realized. A valuation
allowance is established against deferred tax assets to the extent the Company believes that it is more
likely than not that the deferred tax assets will not be realized, taking into consideration the level of
historical taxable income and projections for future taxable income over the periods in which the
temporary differences are deductible.

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 Note 17, Income Taxes, for
additional information.

Recent Accounting Pronouncements

In January 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards

Update (ASU) No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment. This ASU eliminates Step 2 from the goodwill impairment test, which previously
measured an impairment loss by comparing the implied fair value of goodwill with its carrying amount.
Instead, an entity should recognize an impairment charge for the amount by which the carrying value
exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that
reporting unit. This ASU is effective for annual or any interim goodwill impairment tests in fiscal years
beginning after December 15, 2019. The Company expects that the adoption will not have a material
impact on its financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments. This ASU requires instruments measured at

F-16

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 28, 2019 (Continued)

2. Significant Accounting Policies (Continued)

amortized cost to be presented at the net amount expected to be collected. Entities are also required to
record allowances for available-for-sale debt securities rather than reduce the carrying amount. This
ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within
those fiscal years. The Company expects that the adoption will not have a material impact on its
financial statements.

3. Earnings Per Share

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

thousands, except per share data):

Year Ended

December 28,
2019

December 29,
2018

December 30,
2017

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

$19,265

Shares used in computing basic earnings per share . . . . . . . . .

43,346

Effect of dilutive securities:

Stock-based awards and convertible debt . . . . . . . . . . . . . . .

944

Shares used in computing diluted earnings per share . . . . . . . .

44,290

$83,591

43,159

$47,092

42,446

885

44,044

886

43,332

Earnings per share:

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

$ 0.44
$ 0.43

$
$

1.94
1.90

$
$

1.11
1.09

The Company intends to settle the principal amount of its convertible senior notes in cash and any
excess value in shares in the event of a conversion. Accordingly, shares issuable upon conversion of the
principal amount have been excluded from the calculation of diluted earnings per share. If the market
value of the notes under certain prescribed conditions exceeds the conversion amount, the excess is
included in the denominator for the computation of diluted earnings per share using the treasury stock
method. For fiscal 2019 and 2018, approximately 0.4 million shares and 0.1 million shares, respectively,
were included in the denominator for the calculation of diluted earnings per share. For fiscal 2017, no
such shares were included in the denominator for the calculation of diluted earnings per share. See
Note 10, Debt, to the Consolidated Financial Statements for additional information.

F-17

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 28, 2019 (Continued)

4. 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.

Fair Value Measurements
at December 28, 2019 Using

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

Significant Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total

Description

Assets:
Cash equivalents:

Money market funds . . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . . . . . .
Total cash equivalents . . . . . . . . . . . . . . . . .

Short-term investments:

Government debt securities . . . . . . . . . . .
Corporate debt securities . . . . . . . . . . . . .
Total short-term investments . . . . . . . . . . . .

Other assets, net:

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

$ 92,379
—
$ 92,379

$ 85,189
—
$ 85,189

—
$
$
—
$177,568

—
1,325
1,325

$ 86,682
326,954
$413,636

—
$
$
—
$414,961

$ —
—
$ —

$5,647
$5,647
$5,647

$ 92,379
1,325
$ 93,704

$171,871
326,954
$498,825

5,647
$
$
5,647
$598,176

Description

Assets:
Cash equivalents:

Money market funds . . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . . . . . .
Government debt securities . . . . . . . . . . .
Total cash equivalents . . . . . . . . . . . . . . . . .

Short-term investments:

Government debt securities . . . . . . . . . . .
Corporate debt securities . . . . . . . . . . . . .
Total short-term investments . . . . . . . . . . . .

Other assets, net:

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

Fair Value Measurements
at December 29, 2018 Using

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

Significant Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total

—
18,820
—
$ 18,820

$ 99,211
269,427
$368,638

—
$
$
—
$387,458

$ —
—
—
$ —

$ —
—
$ —

$5,759
$5,759
$5,759

$ 74,990
18,820
9,338
$103,148

$147,352
269,427
$416,779

5,759
$
$
5,759
$525,686

$ 74,990
—
9,338
$ 84,328

$ 48,141
—
$ 48,141

—
$
$
—
$132,469

F-18

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 28, 2019 (Continued)

4. Fair Value of Financial Instruments (Continued)

Valuation methodology

The Company’s cash equivalents and short-term investments that are classified as Level 2 are
valued using non-binding market consensus prices that are corroborated with observable market data;
quoted market prices for similar instruments in active markets; or pricing models, such as a discounted
cash flow model, with all significant inputs derived from or corroborated with observable market data.
Investments classified as Level 3 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 and a discount to reflect the Company’s inability to liquidate
the securities. The Company’s derivative instruments are valued using discounted cash flow models. The
assumptions used in preparing the valuation models include foreign exchange rates, forward and spot
prices for currencies, and market observable data of similar instruments.

Available-for-sale investments

The Company’s investments are reported at fair value, with unrealized gains and losses, net of tax,

recorded as a component of accumulated other comprehensive income (loss) in the Consolidated
Balance Sheet. The following summarizes the contractual underlying maturities of the Company’s
available-for-sale investments at December 28, 2019 (in thousands):

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

$381,583
196,702
18,900

$382,259
197,370
18,547

$597,185

$598,176

Cost

Fair
Value

The available-for-sale investments that were in a continuous unrealized loss position, aggregated by

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

Less Than 12 Months

12 Months or Greater

Total

As of December 28, 2019

Fair
Value

Government debt securities . . . . . . . . .
Corporate debt securities . . . . . . . . . .
Auction rate securities . . . . . . . . . . . .

$11,947
68,116
—

Gross
Unrealized
Losses

$ (19)
(81)
—

Fair
Value

$ 7,183
20
5,647

Gross
Unrealized
Losses

(7)
—
(353)

Fair
Value

$19,130
68,136
5,647

$80,063

$(100)

$12,850

$(360)

$92,913

Gross
Unrealized
Losses

$ (26)
(81)
(353)

$(460)

F-19

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 28, 2019 (Continued)

4. Fair Value of Financial Instruments (Continued)

Less Than 12 Months

12 Months or Greater

Total

As of December 29, 2018

Fair
Value

Gross
Unrealized
Losses

Fair
Value

Government debt securities . . . . . .
Corporate debt securities . . . . . . . .
Auction rate securities . . . . . . . . . .

$ 13,278
112,699
—

$ (10)
(273)
—

$ 88,696
76,310
5,759

Gross
Unrealized
Losses

$ (583)
(448)
(241)

Fair
Value

$101,974
189,009
5,759

Gross
Unrealized
Losses

$ (593)
(721)
(241)

$125,977

$(283)

$170,765

$(1,272)

$296,742

$(1,555)

The gross unrealized losses as of December 28, 2019 and December 29, 2018 were due primarily to

changes in market interest rates and the illiquidity of the Company’s auction-rate securities. The
Company’s auction-rate securities have been illiquid since 2008 when auctions for the securities failed
because sell orders exceeded buy orders. These securities have a contractual maturity date of 2046. The
Company is unable to predict if these funds will become available before their maturity date.

The Company considers the declines in market value of its marketable securities investment

portfolio to be temporary in nature. When evaluating an investment for other-than-temporary
impairment, the Company reviews factors such as the severity and duration of the impairment, changes
in underlying credit ratings, forecasted recovery, the Company’s 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. As of December 28, 2019, the
Company has determined that no other-than-temporary impairment losses existed.

At December 28, 2019 and December 29, 2018, there were no material unrealized gains associated

with the Company’s available-for-sale investments.

Level 3 fair value measurements

The following summarizes quantitative information about Level 3 fair value measurements.

Auction rate securities

Fair Value at
December 28, 2019
(000s)

Valuation Technique

Unobservable Input

$5,647

Discounted cash flow Estimated yield

Expected holding period
Estimated discount rate

Weighted
Average

3.49%
10 years
3.03%

The Company has followed an established internal control procedure used in valuing auction rate
securities. The procedure involves the analysis of valuation techniques and evaluation of unobservable
inputs commonly used by market participants to price similar instruments, and which have been
demonstrated to provide reasonable estimates of prices obtained in actual market transactions. Outputs
from the valuation process are assessed against various market sources when they are available,
including marketplace quotes, recent trades of similar illiquid securities, benchmark indices and
independent pricing services. The technique and unobservable input parameters may be recalibrated
periodically to achieve an appropriate estimation of the fair value of the securities.

F-20

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 28, 2019 (Continued)

4. Fair Value of Financial Instruments (Continued)

Significant changes in any of the unobservable inputs used in the fair value measurement of

auction rate securities in isolation could result in a significantly lower or higher fair value measurement.
An increase in expected yield would result in a higher fair value measurement, whereas an increase in
expected holding period or estimated discount rate would result in a lower fair value measurement.
Generally, a change in the assumptions used for expected holding period is accompanied by a
directionally similar change in the assumptions used for estimated yield and discount rate.

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

December 28, 2019 and December 29, 2018 (in thousands):

Assets

Auction Rate Securities

Year Ended

December 28,
2019

December 29,
2018

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain (loss) included in other comprehensive income (loss) . . . . . . . . . . . . .

$5,759
(112)

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$5,647

$5,681
78

$5,759

Fair values of other financial instruments

The Company’s debt is recorded at cost, but is measured at fair value for disclosure purposes. The
fair value of the Company’s convertible senior notes is determined using observable market prices. The
notes are traded in less active markets and are therefore classified as a Level 2 fair value measurement.
As of December 28, 2019 and December 29, 2018, the fair value of the convertible senior notes was
$524.0 million and $419.0 million, respectively.

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.

5. Derivative Financial Instruments

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

Cash Flow Hedges

Foreign Currency Forward Contracts

The Company uses foreign currency forward contracts to reduce the earnings impact that exchange

rate fluctuations have on operating expenses denominated in currencies other than the U.S. dollar.
Changes in the fair value of the contracts are recorded in accumulated other comprehensive income
(loss) in the Consolidated Balance Sheet and subsequently reclassified into earnings in the period
during which the hedged transaction is recognized. The reclassified amount is reported in the same
financial statement line item as the hedged item. If the foreign currency forward contracts are

F-21

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 28, 2019 (Continued)

5. Derivative Financial Instruments (Continued)

terminated or can no longer qualify as hedging instruments prior to maturity, the fair value of the
contracts recorded in accumulated other comprehensive income (loss) may be recognized in the
Consolidated Statement of Income based on an assessment of the contracts at the time of termination.

The Company has entered into foreign currency forward contracts for a portion of its forecasted

operating expenses denominated in the Norwegian Krone. As of December 28, 2019, the contracts had
maturities of one to seven months and an aggregate notional value of $5.0 million. Losses expected to
be reclassified into earnings in the next 12 months were not material. The fair value of the contracts,
contract losses recognized in other comprehensive income (loss) and amounts reclassified from
accumulated other comprehensive income (loss) into earnings were not material for any of the periods
presented.

Interest Rate Swaps

The Company entered into an interest rate swap agreement with an original notional value of
$72.5 million in connection with its Credit Facility in July 2016. The Company terminated the swap
agreement in March 2017, which resulted in the reclassification of $1.8 million of unrealized gains into
earnings during fiscal 2017.

Non-designated Hedges

Foreign Currency Forward Contracts

The Company uses foreign currency forward contracts to reduce the earnings impact that exchange

rate fluctuations have on non-U.S. dollar balance sheet exposures. The Company recognizes gains and
losses on the foreign currency forward contracts in interest income and other, net in the Consolidated
Statement of Income in the same period as the remeasurement loss and gain of the related foreign
currency denominated asset or liability. The Company does not apply hedge accounting to these foreign
currency forward contracts.

As of December 28, 2019, the Company held one foreign currency forward contract denominated

in Singapore Dollars with a notional value of $6.2 million. The fair value of foreign contracts and
contract losses recognized in income were not material for any of the periods presented.

6. Balance Sheet Details

The following tables show the details of selected Consolidated Balance Sheet items (in thousands):

Accounts Receivable, Net

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . .

December 28,
2019

December 29,
2018

$76,277
(638)

$75,639

$73,832
(638)

$73,194

F-22

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 28, 2019 (Continued)

6. Balance Sheet Details (Continued)

Inventories

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

Property and Equipment

December 28,
2019

December 29,
2018

$52,350
20,707

$73,057

$50,983
23,989

$74,972

December 28,
2019

December 29,
2018

Buildings and improvements . . . . . . . . . . . . . . . . . . . . . .
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computers and purchased software . . . . . . . . . . . . . . . . .
Leasehold interest in ground leases . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 112,673
65,843
45,879
23,840
8,782
8,291

$ 109,025
62,895
42,487
23,840
12,006
7,794

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

Other Current Liabilities

Accrued compensation and benefits . . . . . . . . . . . . . . . . .
Accrued price protection credits . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

265,308
(129,369)

258,047
(118,998)

$ 135,939

$ 139,049

December 28,
2019

December 29,
2018

$41,138
4,918
33,495

$79,551

$37,113
12,033
32,034

$81,180

7. 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, notes receivable and
derivatives. The Company places its cash equivalents and investments primarily in municipal bonds,
money market funds, corporate bonds, variable-rate demand notes, U.S. government securities, agency
securities, asset-back securities, commercial paper and auction-rate securities. Concentrations of credit
risk with respect to accounts receivable are primarily due to customers with large outstanding balances.

F-23

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 28, 2019 (Continued)

7. Risks and Uncertainties (Continued)

The Company’s customers that accounted for greater than 10% of accounts receivable consisted of the
following:

Edom Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Arrow Electronics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17%
14%
11%

10%
12%
*

December 28,
2019

December 29,
2018

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.

The Company holds two notes receivable from a privately held company. The total carrying value

of the notes was $1.2 million as of December 28, 2019. The Company holds an equity investment in
another privately held company. The investment is accounted for using the equity method and had a
carrying value of $6.7 million as of December 28, 2019. The notes receivable and the investment were
recorded in other assets, net in the Consolidated Balance Sheet.

As a result of its use of derivative instruments, the Company is exposed to the risk that its
counterparties will fail to meet their contractual obligations. To mitigate this counterparty credit risk,
the Company has a policy to enter into contracts with only selected major financial institutions. The
Company periodically reviews and re-assesses the creditworthiness of such counterparties based on a
variety of factors.

Distributor Advances

On sales to distributors, the Company’s payment terms often require the distributor to initially pay

amounts owed to the Company for an amount in excess of their ultimate cost. The Company’s sales
price to its distributors may be higher than the amount that the distributors will ultimately owe the
Company because distributors often negotiate price reductions after purchasing the product from the
Company and such reductions are often significant. These negotiated price discounts are not granted
until the distributor sells the product to the end customer, which may occur after the distributor has
paid the original invoice amount to the Company. Payment of invoices prior to receiving an associated
discount can have an adverse impact on the working capital of the Company’s distributors. Accordingly,
the Company has entered into agreements with certain distributors whereby it advances cash to the
distributors to reduce the distributor’s working capital requirements. The advance amounts are based
on the distributor’s inventory balance, and are adjusted quarterly. Such amounts are recorded in
prepaid expenses and other current assets in the Consolidated Balance Sheet. The terms of these
advances are set forth in binding legal agreements and are unsecured, bear no interest on unsettled
balances and are due upon demand. The agreements governing these advances can be cancelled by the
Company at any time.

F-24

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 28, 2019 (Continued)

7. Risks and Uncertainties (Continued)

Suppliers

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

Manufacturing Co. (TSMC) or Semiconductor Manufacturing International Corporation (SMIC). The
inability of TSMC or SMIC 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, results of operations and cash flows.

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 end customers or
contract manufacturers accounted for greater than 10% of revenue during fiscal 2019, 2018 or 2017.
The Company’s distributors that accounted for greater than 10% of revenue consisted of the following:

Arrow Electronics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Edom Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Avnet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

26%
20%
*

21%
17%
*

12%
19%
14%

Year Ended

December 28,
2019

December 29,
2018

December 30,
2017

Less than 10% of revenue

8. Acquisitions

Z-Wave

On April 18, 2018, the Company completed the acquisition of the Z-Wave business from Sigma

Designs, Inc. for $243 million in cash. Z-Wave is an Internet of Things (IoT) technology for smart
home solutions.

This strategic acquisition expanded the Company’s IoT connectivity portfolio in the connected

home and security market, while further scaling 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

F-25

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 28, 2019 (Continued)

8. Acquisitions (Continued)

result, the Company recorded goodwill. A portion of the goodwill is deductible for tax purposes. The
purchase price was allocated as follows (in thousands):

Weighted-Average
Amortization Period
(Years)

Amount

Intangible assets:

In-process research and development . . . . . . . . . . . .
Developed technology . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . .
Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 20,900
69,875
25,000
9,900

Not amortized
7
4
7

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . .
Other non-current liabilities . . . . . . . . . . . . . . . . . . . .

125,675
2,841
5,311
15,581
329
109,117
2,587
(3,306)
(8,918)
(6,648)

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

$242,569

The following unaudited pro forma financial information presents combined results of operations

for each of the periods presented, giving effect to the acquisition as if it had been completed on
January 1, 2017. The pro forma financial information includes charges for the fair value write-up
associated with acquired inventory, adjustments for amortization expense of acquired intangible assets
and tax-related expenses. The pro forma results of operations are presented for informational purposes
only and are not necessarily indicative of the results of operations that would have been achieved if the
acquisition had taken place on January 1, 2017 or of results that may occur in the future (in thousands,
except per share data):

Year Ended

December 29,
2018

December 30,
2017

(Unaudited)

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$882,109
$ 87,874

$824,009
$ 27,958

Earnings per share:

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

$
$

2.04
2.00

$
$

0.66
0.65

F-26

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 28, 2019 (Continued)

8. Acquisitions (Continued)

Zentri

On January 20, 2017, the Company acquired Zentri, Inc., a private company. Zentri was an

innovator in low-power, cloud-connected Wi-Fi technologies for the IoT. The Company acquired Zentri
for approximately $18.1 million, including initial cash consideration of approximately $14.3 million, and
potential additional consideration with an estimated fair value of approximately $3.8 million at the date
of acquisition.

The purchase price was allocated as follows: intangible assets—$6.7 million; goodwill—

$12.1 million; and other net liabilities—$0.7 million. The goodwill is not deductible for tax purposes.
Pro forma information related to this acquisition has not been presented because it would not be
materially different from amounts reported.

Other

In October 2019, the Company acquired IEEE 1588 precision time protocol (PTP) software and
module assets from Qulsar. The transaction was accounted for as a business combination, which was
not material to the Company.

9. Goodwill and Other Intangible Assets

Goodwill

The following summarizes the activity in goodwill for the years ended December 28, 2019 and

December 29, 2018 (in thousands):

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions due to business combinations . . . . . . . . . . . . . .

$397,344
1,058

$288,227
109,117

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$398,402

$397,344

Year Ended

December 28,
2019

December 29,
2018

Other Intangible Assets

The gross carrying amount and accumulated amortization of other intangible assets are as follows

(in thousands):

Weighted-Average
Amortization
Period
(Years)

December 28, 2019

December 29, 2018

Gross
Amount

Accumulated
Amortization

Gross
Amount

Accumulated
Amortization

Core and developed technology . . . . .
Customer relationships . . . . . . . . . . .
Trademarks . . . . . . . . . . . . . . . . . . .

Total

. . . . . . . . . . . . . . . . . . . . . . . .

8
6
7

$219,695
40,795
12,310

$(111,634)
(22,742)
(4,145)

$237,265
46,890
12,310

$(102,116)
(21,075)
(2,442)

$272,800

$(138,521)

$296,465

$(125,633)

F-27

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 28, 2019 (Continued)

9. Goodwill and Other Intangible Assets (Continued)

Gross intangible assets decreased $26.6 million in fiscal 2019 due to the removal of fully amortized
assets. This decrease was offset by $3.0 million for the addition of certain assets acquired from Qulsar.

Amortization expense related to intangible assets for fiscal 2019, 2018 and 2017 was $39.5 million,

$38.0 million and $27.1 million, respectively. The estimated aggregate amortization expense for
intangible assets subject to amortization for each of the five succeeding fiscal years is as follows (in
thousands):

Fiscal Year

2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$38,100
33,266
23,801
18,029
15,569

10. Debt

1.375% Convertible Senior Notes

On March 6, 2017, the Company completed a private offering of $400 million principal amount

convertible senior notes (the ‘‘Notes’’). The Notes bear interest semi-annually at a rate of 1.375% per
year and will mature on March 1, 2022, unless repurchased, redeemed or converted at an earlier date.
The Company used $72.5 million of the proceeds to pay off the then remaining balance under its credit
agreement.

The Notes are convertible at an initial conversion rate of 10.7744 shares of common stock per

$1,000 principal amount of the Notes, or approximately 4.3 million shares of common stock, which is
equivalent to a conversion price of approximately $92.81 per share. The conversion rate is subject to
adjustment under certain circumstances. Holders may convert the Notes under the following
circumstances: during any calendar quarter after the calendar quarter ended on June 30, 2017 if the
closing price of the Company’s common stock for at least 20 trading days in the 30 consecutive trading
days ending on the last trading day of the preceding calendar quarter is greater than or equal to
$120.66 per share, representing 130% of the conversion price of the Notes; during the five business day
period after any ten consecutive trading day period (the ‘‘measurement period’’) in which the trading
price per $1,000 principal amount of notes for each trading day of the measurement period was less
than 98% of the product of the closing sale price of our common stock and the conversion rate on
each such trading day; if specified distributions or corporate events occur; if the Notes are called for
redemption; or at any time after December 1, 2021. The Company may redeem all or any portion of
the Notes, at its option, on or after March 6, 2020, if the last reported sale price of the Company’s
common stock has been at least 130% of the conversion price then in effect for at least 20 trading days
during any 30 consecutive trading day period. Upon conversion, the Notes may be settled in cash,
shares of the Company’s common stock or a combination of cash and shares, at the Company’s
election.

The principal balance of the Notes was separated into liability and equity components, and was
recorded initially at fair value. The excess of the principal amount of the liability component over its
carrying amount represents the debt discount, which is amortized to interest expense over the term of

F-28

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 28, 2019 (Continued)

10. Debt (Continued)

the Notes using the effective interest method. The carrying amount of the liability component was
estimated by discounting the contractual cash flows of similar non-convertible debt at an appropriate
market rate at the date of issuance.

The Company incurred debt issuance costs of approximately $10.6 million, which was allocated to
the liability and equity components in proportion to the allocation of the proceeds. The costs allocated
to the liability component are being amortized as interest expense over the term of the Notes using the
effective interest method.

The carrying amount of the Notes consisted of the following (in thousands):

December 28,
2019

December 29,
2018

Liability component

Principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unamortized debt discount . . . . . . . . . . . . . . . . . . . . .
Unamortized debt issuance costs . . . . . . . . . . . . . . . . .

$400,000
(27,580)
(4,163)

$400,000
(39,298)
(5,931)

Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . .

$368,257

$354,771

Equity component

Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 57,735

The liability component of the Notes is recorded in convertible debt on the Consolidated Balance

Sheet. The equity component of the Notes is recorded in additional paid-in capital. The effective
interest rate for the liability component was 4.75%. As of December 28, 2019, the remaining period
over which the debt discount and debt issuance costs will be amortized was 2.2 years.

Interest expense related to the Notes was comprised of the following (in thousands):

Contractual interest expense . . . . . . . . . . . .
Amortization of debt discount . . . . . . . . . . .
Amortization of debt issuance costs . . . . . . .

Year Ended

December 28,
2019

December 29,
2018

December 30,
2017

$ 5,485
11,717
1,768

$18,970

$ 5,500
11,202
1,690

$18,392

$ 4,492
8,816
1,330

$14,638

Credit Facility

On August 7, 2019, the Company and certain of its domestic subsidiaries (the ‘‘Guarantors’’)
amended its existing credit agreement. The amended agreement (the ‘‘Credit Facility’’) consists of a
$400 million revolving credit facility with a maturity date of August 7, 2024. The Credit Facility includes
a $25 million letter of credit sublimit and a $10 million swingline loan sublimit. The Company also has
an option to increase the size of the borrowing capacity by up to the greater of an aggregate of
$250 million and 100% of EBITDA, plus an amount that would not cause a secured leverage ratio
(funded debt secured by assets/EBITDA) to exceed 3.25 to 1.00, subject to certain conditions.

F-29

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 28, 2019 (Continued)

10. Debt (Continued)

The revolving credit facility, other than swingline loans, will bear interest at the Eurodollar rate

plus an applicable margin or, at the option of the Company, a base rate (defined as the highest of the
Wells Fargo prime rate, the Federal Funds rate plus 0.50% and the Eurodollar Base Rate plus 1.00%)
plus an applicable margin. Swingline loans accrue interest at the base rate plus the applicable margin
for base rate loans. The applicable margins for the Eurodollar rate loans range from 1.00% to 1.75%
and for base rate loans range from 0.00% to 0.75%, depending in each case, on the leverage ratio as
defined in the Credit Facility.

The Credit Facility contains various conditions, covenants and representations with which the
Company must be in compliance in order to borrow funds and to avoid an event of default, including
financial covenants that the Company must maintain a leverage ratio (funded debt/EBITDA) of no
more than 4.25 to 1, a secured leverage ratio of no more than 3.50 to 1, and a minimum interest
coverage ratio (EBITDA/interest payments) of no less than 2.50 to 1. As of December 28, 2019, the
Company was in compliance with all covenants of the Credit Facility. The Company’s obligations under
the Credit Facility are guaranteed by the Guarantors and are secured by a security interest in
substantially all assets of the Company and the Guarantors.

11. Leases

The Company leases certain facilities under operating lease agreements that expire at various dates

through 2027. Some of these arrangements contain renewal options and require the Company to pay
taxes, insurance and maintenance costs.

The Company adopted ASC Topic 842, Leases, on December 30, 2018, the first day of its fiscal

2019. Lease costs for operating leases were $5.8 million during fiscal 2019. The Company elected the
practical expedient to not provide comparable presentation for periods prior to adoption. Rent expense
for operating leases was $6.0 million and $5.5 million for fiscal 2018 and 2017, respectively.

Supplemental Lease Information

Balance Sheet Information (in thousands)

December 28,
2019

Operating lease right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$16,086
$17,894

Cash Flow Information (in thousands)

Year Ended
December 28,
2019

Cash paid for operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . .
Right-of-use assets obtained in exchange for operating lease obligations

$6,023
$2,631

Operating Lease Information

December 28,
2019

Weighted-average remaining lease term . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.5 years
5.26%

F-30

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 28, 2019 (Continued)

11. Leases (Continued)

The maturities of operating lease liabilities as of December 28, 2019 were as follows (in

thousands):

Fiscal Year

$ 5,604
4,410
3,713
3,061
2,524
1,272

Total lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less imputed interest

20,584
(2,690)

Total lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$17,894

12. Commitments and Contingencies

Investment Commitment

The Company has committed to invest up to $10.0 million in a limited partnership, of which

approximately $6.6 million was funded through December 28, 2019.

Legal Proceedings

The Company is involved in various legal proceedings that have arisen in the normal course of

business. While the ultimate results cannot be predicted with certainty, the Company does not expect
them to have a material adverse effect on its Consolidated Financial Statements.

13. Stockholders’ Equity

Common Stock

The Company issued 0.7 million shares of common stock during fiscal 2019.

Share Repurchase Programs

The Company’s existing share repurchase program has an authorization amount of $200 million
and a termination date of December 2020. This 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 repurchased 0.3 million shares and 0.4 million
shares of its common stock for $26.7 million and $39.3 million during fiscal 2019 and 2018, respectively.
The Company did not repurchase any shares of its common stock during fiscal 2017. These shares were
retired upon repurchase.

F-31

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 28, 2019 (Continued)

13. Stockholders’ Equity (Continued)

Reclassifications From Accumulated Other Comprehensive Income (Loss)

The following table summarizes the effect on net income from reclassifications out of accumulated

other comprehensive income (loss) (in thousands):

Reclassification

Gains (losses) on available-for-sales securities to:

Year ended

December 28,
2019

December 29,
2018

December 30,
2017

Interest income and other, net . . . . . . . . . . . . . . . . . . . . . .

$ 218

$ (49)

$ —

Gains (losses) on cash flow hedges to:

Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income tax (expense) benefit

. . . . . . . . . . . . . . . . . . . . . . .

(784)
—

(566)

119

(316)
—

(365)

—
1,808

1,808

(633)

Total reclassifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(447)

$(288)

$1,175

Income Tax Allocated to the Components of Other Comprehensive Income (Loss)

The income tax effects of the components of other comprehensive income (loss) were as follows

(in thousands):

Income tax (expense) benefit on:

Net changes to available-for-sale securities:

Year ended

December 28,
2019

December 29,
2018

December 30,
2017

Unrealized gains (losses) arising during the period . . . . . . . .
Reclassification for gains (losses) included in net income . . .

$(538)
46

Net changes to cash flow hedges:

Unrealized losses arising during the period . . . . . . . . . . . . .
Reclassification for gains (losses) included in net income . . .

68
(165)

$(589)

$ (79)
(10)

200
(66)

$ 45

$255
—

—
633

$888

F-32

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 28, 2019 (Continued)

14. Revenues

The Company groups its revenues into four categories, based on the markets and applications in

which its products may be used. The following disaggregates the Company’s revenue by product
category (in thousands):

Year Ended

December 28,
2019

December 29,
2018

December 30,
2017 (1)

Internet of Things . . . . . . . . . . . . . . . . . . . .
Infrastructure . . . . . . . . . . . . . . . . . . . . . . .
Broadcast . . . . . . . . . . . . . . . . . . . . . . . . . .
Access . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$488,156
183,189
114,899
51,310

$463,838
199,478
141,412
63,539

$395,012
152,158
152,980
68,717

$837,554

$868,267

$768,867

(1) Under the modified retrospective method, amounts prior to fiscal 2018 have not been

adjusted.

A portion of the Company’s sales are made to distributors under agreements allowing certain

rights of return and/or price protection related to the final selling price to the end customers. These
factors impact the timing and uncertainty of revenues and cash flows. The Company recognized
revenue of $17.6 million and $24.3 million during fiscal 2019 and 2018, respectively, from performance
obligations that were satisfied in previous reporting periods. The following disaggregates the Company’s
revenue by sales channel (in thousands):

Year Ended

December 28,
2019

December 29,
2018

December 30,
2017 (1)

Distributors . . . . . . . . . . . . . . . . . . . . . . . .
Direct customers . . . . . . . . . . . . . . . . . . . . .

$610,410
227,144

$618,989
249,278

$547,419
221,448

$837,554

$868,267

$768,867

(1) Under the modified retrospective method, amounts prior to fiscal 2018 have not been

adjusted.

15. 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’’). In fiscal 2017, the
stockholders of the Company approved amendments to both the 2009 Plan and the 2009 Purchase Plan.
These amendments authorized additional shares of common stock for issuance, to comply with changes
in applicable law, improve the Company’s corporate governance and to implement other best practices.

2009 Stock Incentive Plan

Under the 2009 Plan, the following may be granted: stock options, stock appreciation rights,

performance shares, performance stock units, restricted stock units (RSUs), restricted stock awards

F-33

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 28, 2019 (Continued)

15. Stock-Based Compensation (Continued)

(RSAs), performance-based awards and other awards (collectively, all such grants are referred to as
‘‘awards’’). The fiscal 2017 amendments to the 2009 Plan created a single share pool. All awards now
deduct one share 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 offered 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.

Stock Grants and Modifications

The Company granted to its employees 0.7 million, 0.6 million and 0.7 million shares of full value

awards and no stock options from the 2009 Plan during fiscal 2019, 2018 and 2017, respectively.

There were no significant modifications made to any stock grants during fiscal 2019, 2018 or 2017.

Included in the full value awards granted under the 2009 Plan in fiscal 2019, 2018 and 2017 were a

total of 93 thousand, 41 thousand and 54 thousand market-based stock awards, respectively. The
awards, also known as market stock units (MSUs), provide the rights to acquire a number of shares of
common stock for no cash consideration based upon achievement of specified levels of market
conditions. The requisite service period for these MSUs is also the vesting period, which is generally
three years. The performance criteria of the MSUs measure the difference between the total
stockholders’ return of the Company against that of the PHLX Semiconductor Sector Total Return
Index.

Also included in the full value awards granted under the 2009 Plan during fiscal 2018 and 2017

were 41 thousand and 54 thousand performance-based stock awards (PSUs), respectively. There were
no PSUs granted during fiscal 2019. PSUs provide for the rights to acquire a number of shares of
common stock for no cash consideration based upon the achievement of specified revenue objectives
during the year. The requisite service period for these PSUs is approximately three years from the date
of grant.

2009 Employee Stock 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 (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 (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. During fiscal 2019, 2018 and
2017, the Company issued 208 thousand, 223 thousand and 239 thousand shares, respectively, under the
2009 Purchase Plan to its employees. The weighted-average fair value for purchase rights granted in
fiscal 2019 under the 2009 Purchase Plan was $29.92 per share.

F-34

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 28, 2019 (Continued)

15. Stock-Based Compensation (Continued)

Accounting for Stock-Based Compensation

Stock-based compensation costs are based on the fair values on the date of grant for stock awards
and stock options and on the date of enrollment for the employee stock purchase plans. The fair values
of stock awards (such as RSUs, PSUs and RSAs) are estimated based on their intrinsic values. The fair
values of MSUs are estimated using a Monte Carlo simulation. The fair values of stock options and
employee stock purchase plans are estimated using the Black-Scholes option-pricing model.

The Black-Scholes valuation calculation requires the Company 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 Monte Carlo simulation used to calculate the fair value of the MSUs simulates the present

value of the potential outcomes of future stock prices of the Company and the Philadelphia
Semiconductor Sector Total Return Index over the requisite service period. The projection of stock
prices are based on the risk-free rate of return, the volatilities of the stock price of the Company and
the Index, and the correlation of the stock price of the Company with the Index.

The Company estimates potential forfeitures of stock grants and adjusts 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-based 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 RSAs are fully expensed in
the period of grant, when shares are immediately issued with no vesting restrictions. The fair values of
MSUs are amortized as compensation expense on a straight-line basis over the performance and service
periods of the grants. The fair values of PSUs are amortized as compensation expense on a straight-line
basis over the performance period when the performance is probable of achievement, and over the
remaining service periods thereafter. Compensation expense 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 for ESPP granted were

calculated using the following assumptions:

Employee Stock Purchase Plan

Year Ended

December 28,
2019

December 29,
2018

December 30,
2017

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

37%
1.6%
9
—

30%
2.4%
9
—

28%
1.1%
8
—

F-35

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 28, 2019 (Continued)

15. Stock-Based Compensation (Continued)

The fair values estimated from Monte Carlo simulation for MSUs were calculated using the

following assumptions:

MSUs

Year Ended

December 28,
2019

December 29,
2018

December 30,
2017

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

31%
2.4%
2.9
—

29%
2.4%
2.9
—

31%
1.6%
2.9
—

A summary of stock-based compensation activity with respect to fiscal 2019 follows:

Stock Options

Outstanding at December 29, 2018 . . . . . . . . . . . . . . . . .
Outstanding at December 28, 2019 . . . . . . . . . . . . . . . . .
Vested at December 28, 2019 and expected to vest . . . . .
Exercisable at December 28, 2019 . . . . . . . . . . . . . . . . .

RSAs and RSUs

Outstanding at December 29, 2018 . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested or issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled or forfeited . . . . . . . . . . . . . . . . . . . . . . . . . .

Outstanding at December 28, 2019 . . . . . . . . . . . . . . . .
Outstanding at December 28, 2019 and expected to vest .

PSUs and MSUs

Outstanding at December 29, 2018 . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earned or issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled or forfeited . . . . . . . . . . . . . . . . . . . . . . . . . .

Outstanding at December 28, 2019 . . . . . . . . . . . . . . . . .

Outstanding at December 28, 2019 and expected to vest .

Weighted-
Average
Exercise
Price

$39.47
$39.47
$40.39
$39.04

Weighted-Average
Remaining
Contractual
Term
(In Years)

6.13
6.12
6.13

Aggregate
Intrinsic
Value
(000s)

$10,515
$ 3,265
$ 7,224

Weighted- Weighted-Average
Average
Purchase
Price

Remaining
Vesting Term
(In Years)

Aggregate
Intrinsic
Value
(000s)

$—
$—
$—
$—

$—
$—

0.95
0.95

$126,259
$118,106

Weighted- Weighted-Average
Average
Purchase
Price

Remaining
Vesting Term
(In Years)

Aggregate
Intrinsic
Value
(000s)

$—
$—
$—
$—

$—

1.04

$30,583

$28,418

Shares
(000s)

137
137
43
93

Shares
(000s)

1,218
576
(639)
(71)

1,084
1,014

Shares
(000s)

282
93
(43)
(70)

262

244

F-36

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 28, 2019 (Continued)

15. Stock-Based Compensation (Continued)

The following summarizes the Company’s weighted average fair value at the date of grant:

Year Ended

December 28,
2019

December 29,
2018

December 30,
2017

Per grant of RSAs and RSUs . . . . . . . . . . .
Per grant of PSUs and MSUs . . . . . . . . . . .

$89.35
$85.79

$93.75
$97.53

$72.85
$78.40

The following summarizes the Company’s stock-based payment and stock option values (in

thousands):

Intrinsic value of stock options exercised . . .
Intrinsic value of RSUs that vested . . . . . . .
Grant date fair value of RSUs that vested . .
Intrinsic value of MSUs that vested . . . . . . .
Grant date fair value of PSUs and MSUs

Year Ended

December 28,
2019

December 29,
2018

December 30,
2017

$ —
$57,693
$40,434
$ 3,649

$ 1,952
$68,012
$37,720
$ 3,562

$ 2,174
$53,093
$32,449
687
$

that vested . . . . . . . . . . . . . . . . . . . . . . .

$ 1,461

$ 1,788

633

The Company received cash of $14.5 million for the issuance of common stock, and paid
$16.3 million for shares withheld for taxes, during fiscal 2019. The Company issues shares from the
shares reserved under its stock plans upon the exercise of stock options, vesting of RSUs, PSUs and
MSUs, and purchases through employee stock purchase plans. The Company does not currently expect
to repurchase shares from any source to satisfy such obligation.

The following table presents details of stock-based compensation costs recognized in the

Consolidated Statements of Income (in thousands):

Cost of revenues . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . .

Income tax benefit . . . . . . . . . . . . . . . . . . .

Year Ended

December 28,
2019

December 29,
2018

December 30,
2017

$ 1,316
26,187
27,296

54,799
2,476

$ 1,238
23,867
24,972

50,077
8,890

$ 1,090
21,771
21,891

44,752
11,073

$52,323

$41,187

$33,679

The decrease in income tax benefit in fiscal 2019 was primarily due to a change in the Company’s

position related to the treatment of stock-based compensation within its intercompany cost-sharing
arrangement. The decrease in income tax benefit in fiscal 2018 was due to the reduced current and
future deductibility of executive stock compensation as a result of the Tax Cuts and Jobs Act. See
Note 17, Income Taxes, to the Consolidated Financial Statements for additional information. The
Company had approximately $59.6 million of total unrecognized compensation costs related to granted

F-37

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 28, 2019 (Continued)

15. Stock-Based Compensation (Continued)

stock options and awards as of December 28, 2019 that are expected to be recognized over a weighted-
average period of approximately 2.0 years. There were no significant stock-based compensation costs
capitalized into assets in any of the periods presented.

As of December 28, 2019, the Company had reserved shares of common stock for future issuance

as follows (in thousands):

2009 Stock Incentive Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 Employee Stock Purchase Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,815
777

Total shares reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,592

16. 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 $3.9 million, $3.7 million and $3.5 million to the 401(k) Plan
during fiscal 2019, 2018 and 2017, respectively.

17. Income Taxes

Income before income taxes includes the following components (in thousands):

Domestic . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended

December 28,
2019

December 29,
2018

December 30,
2017

$ 2,025
47,624

$49,649

$19,777
52,384

$72,161

$ 9,700
67,203

$76,903

F-38

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 28, 2019 (Continued)

17. Income Taxes (Continued)

The provision (benefit) for income taxes consists of the following (in thousands):

Year Ended

December 28,
2019

December 29,
2018

December 30,
2017

Current:

Domestic . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . .

Total Current

. . . . . . . . . . . . . . . . . . . . .

(779)
8,157

7,378

$ (8,843)
5,888

$ 48,947
7,077

(2,955)

56,024

Deferred:

Domestic . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . .

33,624
(10,618)

Total Deferred . . . . . . . . . . . . . . . . . . . .

23,006

(8,978)
503

(8,475)

(25,760)
(453)

(26,213)

Provision (benefit) for income taxes . . . . . . .

$ 30,384

$(11,430)

$ 29,811

The reconciliation of the federal statutory tax rate to the Company’s effective tax rate is as follows:

Year Ended

December 28,
2019

December 29,
2018

December 30,
2017

Federal statutory rate . . . . . . . . . . . . . . . . .
Foreign tax rate benefit . . . . . . . . . . . . . . . .
Research and development tax credits . . . . .
GILTI and Subpart F income . . . . . . . . . . .
Nondeductible (nontaxable) foreign expenses
State tax expense . . . . . . . . . . . . . . . . . . . .
Release of prior year unrecognized tax

benefits . . . . . . . . . . . . . . . . . . . . . . . . . .
Nondeductible officer compensation . . . . . . .
Other tax effects of equity compensation . . .
Change in cost-sharing treatment of stock-

21.0%
(13.8)
(15.2)
5.8
3.9
1.0

(0.4)
4.3
0.8

based compensation . . . . . . . . . . . . . . . . .

54.8

Excess tax benefit of stock-based

compensation . . . . . . . . . . . . . . . . . . . . .
Change in prior period valuation allowance .
Transition tax on unremitted foreign

earnings . . . . . . . . . . . . . . . . . . . . . . . . .
Revaluation of deferred tax balances . . . . . .
Other deferred tax impacts of tax reform . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2.2)
1.3

—
—
(0.5)
0.4

21.0%
(12.9)
(9.8)
4.3
3.9
1.5

(2.7)
2.4
(0.4)

(2.2)

(5.9)
(2.5)

(8.4)
0.3
(3.1)
(1.3)

35.0%
(25.4)
(4.5)
1.4
1.1
0.9

(0.6)
1.5
(2.2)

5.2

(5.6)
(1.3)

70.8
28.2
(64.8)
(0.9)

Effective Tax Rate . . . . . . . . . . . . . . . . . . .

61.2%

(15.8)%

38.8%

F-39

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 28, 2019 (Continued)

17. Income Taxes (Continued)

The effective tax rate for fiscal 2019 increased from fiscal 2018 primarily due to a change in the
Company’s financial statement position related to the treatment of stock-based compensation within its
intercompany cost-sharing arrangement.

The effective tax rate for fiscal 2018 decreased from fiscal 2017 primarily due to the reduction in
the U.S. federal statutory rate as well as the inclusion of one-time tax impacts recorded in 2017 from
the enactment of the Tax Cuts and Jobs Act (‘‘the Act’’). This decrease in the effective tax rate was
offset by a decrease in the Company’s foreign tax rate benefit.

On July 27, 2015, the U.S. Tax Court issued an opinion in Altera Corp. v. Commissioner which

concluded that related parties in an intercompany cost-sharing arrangement are not required to share
costs related to stock-based compensation. In February 2016, the U.S. Internal Revenue Service
appealed the decision to the U.S Court of Appeals for the Ninth Circuit (the ‘‘Ninth Circuit’’). On
June 7, 2019, the Ninth Circuit reversed the 2015 decision of the U.S. Tax Court. As a result of this
decision, the Company no longer reflects a tax benefit related to the removal of stock-based
compensation from its intercompany cost-sharing arrangement within its financial statements. During
the three months ended June 29, 2019, the Company removed the deferred tax assets and a deferred
tax liability associated with this matter from its financial statements. This removal resulted in a full year
discrete income tax expense of $27.2 million. On November 12, 2019, the Ninth Circuit denied a
petition for rehearing the case en banc. The Company will continue to monitor ongoing developments
in this matter and potential impacts to its financial statements.

The Company’s operations in Singapore are subject to reduced tax rates through June 30, 2024, as

long as certain conditions are met. Without the impact of a one-time transition tax, the income tax
benefit from the reduced Singapore tax rate reflected in earnings was approximately $1.5 million
(representing $0.03 per diluted share) in fiscal 2019, $5.4 million (representing $0.12 per diluted share)
in fiscal 2018 and approximately $11.0 million (representing $0.25 per diluted share) in fiscal 2017.

The Act was enacted in the U.S. on December 22, 2017 and required companies to pay a one-time
transition tax on earnings of certain foreign subsidiaries that were previously deferred from U.S income
tax under U.S. tax law. The Company elected to pay the transition tax over the eight-year period
provided in the Act. As of December 28, 2019, the unpaid balance of its transition tax obligation is
$21.3 million, which is payable between April 2022 and April 2025.

F-40

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 28, 2019 (Continued)

17. Income Taxes (Continued)

Deferred Income Taxes

Deferred tax assets and liabilities are recorded for the estimated tax impact of temporary

differences between the tax basis and book basis of assets and liabilities. Significant components of the
Company’s deferred taxes as of December 28, 2019 and December 29, 2018 are as follows (in
thousands):

Deferred tax assets:

Net operating loss carryforwards . . . . . . . . . . . . . . . .
Research and development tax credit carryforwards . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . .
Capitalized research and development . . . . . . . . . . . .
Deferred income on shipments to distributors . . . . . .
Expected future cost-sharing adjustment . . . . . . . . . .
Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities and other . . . . . . . . . . . . . . . . . . .

Less: Valuation allowance . . . . . . . . . . . . . . . . . . . . .

Deferred tax liabilities:

Acquired intangible assets . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . .
Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other . . . . . . . . . . . . . . . . . . .

December 28,
2019

December 29,
2018

$ 7,912
14,755
2,619
7,424
1,735
4,018
—
3,446
7,374

49,283
(4,486)

44,797

16,621
4,969
3,166
5,741
2,424

32,921

$ 9,973
12,500
4,360
7,799
2,521
5,824
25,257
—
7,737

75,971
(4,975)

70,996

20,656
4,604
—
8,080
2,142

35,482

Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . .

$11,876

$35,514

As of December 28, 2019, the Company had federal net operating loss and research and

development tax credit carryforwards of approximately $27.9 million and $1.9 million, respectively, as a
result of the Silicon Clocks, Spectra Linear and Ember acquisitions. These carryforwards expire in fiscal
years 2020 through 2031. Recognition of these loss and credit carryforwards is subject to an annual
limit, which may cause them to expire before they are used. Additionally, as of December 28, 2019, the
Company had generated $3.3 million of federal research and development credit carryforwards. These
credits expire in 2039 and are not currently subject to an annual limitation.

The Company also had state loss, state tentative minimum tax credit, and state research and
development tax credit carryforwards of approximately $33.1 million, $0.1 million, and $12.6 million,
respectively. A portion of these loss and credit carryforwards was generated by the Company and a
portion was acquired through the Integration Associates, Silicon Clocks, Spectra Linear and Zentri
acquisitions. Certain of these carryforwards expire in fiscal years 2024 through 2036, and others do not

F-41

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 28, 2019 (Continued)

17. Income Taxes (Continued)

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.

A valuation allowance is established against a deferred tax asset when it is more likely than not
that the deferred tax asset will not be realized. The Company maintains a valuation allowance with
respect to certain deferred tax assets relating to state research and development tax credit and state net
operating loss carryforwards.

The following table summarizes the activity related to the valuation allowance for deferred tax

assets (in thousands):

Balance at
Beginning of
Period

Additions
Charged to
Expenses

Additions
Charged to
Other Accounts

Year ended December 28, 2019 . . . . .
Year ended December 29, 2018 . . . . .
Year ended December 30, 2017 . . . . .

$ 4,975
$ 6,518
$12,361

$1,044
$ 435
$2,110

$ —
$ —
$1,732

Deductions

$(1,533)
$(1,978)
$(9,685)

Balance at
End of Period

$4,486
$4,975
$6,518

At the end of fiscal 2019, undistributed earnings of certain of the Company’s foreign subsidiaries

of approximately $71.5 million are intended to be permanently reinvested outside the U.S. Accordingly,
no provision for foreign withholding tax and state income taxes associated with a distribution of these
earnings has been made. Determination of the amount of the unrecognized deferred tax liability on
these unremitted earnings is not practicable.

Uncertain Tax Positions

The following table summarizes the activity related to gross unrecognized tax benefits (in

thousands):

Beginning balance . . . . . . . . . . . . . . . . . . . .
Additions based on tax positions related to

current year . . . . . . . . . . . . . . . . . . . . . .

Additions based on tax positions related to

prior years . . . . . . . . . . . . . . . . . . . . . . .
Reductions based on tax positions related to
prior years . . . . . . . . . . . . . . . . . . . . . . .

Reductions for tax positions as a result of a

lapse of the applicable statute of
limitations . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended

December 28,
2019

December 29,
2018

December 30,
2017

$2,036

$ 3,187

$3,054

436

—

(196)

630

115

—

456

114

—

(1,896)

(437)

Ending balance . . . . . . . . . . . . . . . . . . . . . .

$2,276

$ 2,036

$3,187

As of December 28, 2019, December 29, 2018 and December 30, 2017, the Company had gross

unrecognized tax benefits, inclusive of interest, of $2.4 million, $2.1 million and $3.2 million,

F-42

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 28, 2019 (Continued)

17. Income Taxes (Continued)

respectively, of which $1.9 million, $2.1 million and $3.2 million, respectively, would affect the effective
tax rate if recognized.

The Company recognizes interest and penalties related to unrecognized tax benefits in the
provision for income taxes. These amounts were not material for any of the periods presented.

Following the completion of the Norwegian Tax Administration (‘‘NTA’’) examination of the
Company’s Norwegian subsidiary for income tax matters relating to fiscal years 2013, 2014, 2015 and
2016, the Company received an assessment from the NTA in December 2017 concerning an adjustment
to its 2013 taxable income related to the pricing of an intercompany transaction. The Company is
currently appealing the assessment. The adjustment to the pricing of the intercompany transaction
results in approximately $16.0 million additional Norwegian income tax. The Company disagrees with
the NTA’s assessment and believes the Company’s position on this matter is more likely than not to be
sustained. The Company plans to exhaust all available administrative remedies, and if unable to resolve
this matter through administrative remedies with the NTA, the Company plans to pursue judicial
remedies.

The Company believes that it has accrued adequate reserves related to all matters contained in tax

periods open to examination. Should the Company experience an unfavorable outcome in the NTA
matter, however, such an outcome could have a material impact on its financial statements.

Tax years 2015 through 2019 remain open to examination by the major taxing jurisdictions in which

the Company operates. The Company is not currently under audit in any major taxing jurisdiction.

The Company does not believe gross unrecognized tax benefits will decrease in the next

12 months.

18. Segment Information

The Company has one operating segment, mixed-signal analog intensive products, 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.

The Company groups its products into four categories, based on the markets and applications in
which the products may be used. See Note 14, Revenues, for a summary of the Company’s revenue by
product category.

Revenue is attributed to a geographic area based on the shipped-to location. The following

summarizes the Company’s revenue by geographic area (in thousands):

Year Ended

December 28,
2019

December 29,
2018

December 30,
2017

United States . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rest of world . . . . . . . . . . . . . . . . . . . . . . .

$110,451
354,855
372,248

$149,385
344,255
374,627

$112,574
307,748
348,545

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$837,554

$868,267

$768,867

F-43

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 28, 2019 (Continued)

18. Segment Information (Continued)

The following summarizes the Company’s property and equipment, net by geographic area (in

thousands):

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rest of world . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$126,572
9,367

$128,622
10,427

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$135,939

$139,049

December 28,
2019

December 29,
2018

F-44

Supplementary Financial Information (Unaudited)

Quarterly financial information for fiscal 2019 and 2018 is as follows. All quarterly periods

reported here had 13 weeks (in thousands, except per share amounts):

Fiscal 2019

Fourth
Quarter

Third
Quarter

Second
Quarter

First
Quarter

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$219,438
133,271
13,229
9,715

$223,294
134,090
23,820
$ 20,181

$206,709
127,049
14,556

$(16,029) (1) $

$188,113
115,874
5,092
5,398

Earnings (loss) per share:

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

$
$

0.22
0.22

$
$

0.47
0.45

$
$

(0.37) (1) $
(0.37) (1) $

0.12
0.12

Fiscal 2018

Fourth
Quarter

Third
Quarter

Second
Quarter

First
Quarter

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$215,534
130,243
18,362
$ 15,145

$230,243
135,627
25,130
$ 27,761

$217,106
131,292
18,001
$ 14,280

$205,384
124,237
23,715
$ 26,405

Earnings per share:

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

$
$

0.35
0.35

$
$

0.64
0.63

$
$

0.33
0.32

$
$

0.61
0.60

(1) Includes a discrete charge to the income tax provision of $28.1 million ($0.64 per share) related to

a net deferred tax asset previously recognized in connection with intercompany cost sharing
arrangements.

(This page has been left blank intentionally.)

Supplementary Financial Information
to the Annual Report

Appendix I. Reconciliation of GAAP
to Non-GAAP Financial Measures

Appendix I: Supplemental Financial Information (Unaudited)

The non-GAAP financial measurements provided below do not replace the presentation of Silicon
Laboratories’ GAAP financial results. These measurements merely provide supplemental information to
assist investors in analyzing Silicon Laboratories’ financial position and results of operations; however, these
measures are not in accordance with, or an alternative to, GAAP and may be different from non-GAAP
measures used by other companies. We are providing this information because it may enable investors to
perform meaningful comparisons of operating results, and more clearly highlight the results of core ongoing
operations.

Unaudited Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands, except per share data)

Year Ended
December 28, 2019

Non-GAAP Income
Statement Items

GAAP

Percent of Compensation

Measure Revenue

Expense*

GAAP

Stock

Intangible
Asset
Amortization*

Acquisition
Related
Items*

Restructuring
Charges*

Income
Non-cash
Interest
Tax
Expense* Adjustments Measure

Non-GAAP
Non-GAAP Percent of
Revenue

Revenues .

Gross profit

Operating income .

Net income .

Diluted shares

. $837,554

510,284

61%

$ 1,316

$ —

$511,655

56,697

19,265

54,799

39,529

2,253

3,638

—

156,916

11,717

11,591

142,792

61%

19%

17%

outstanding .

44,290

—

44,290

Diluted earnings per
.
.

share .

. $

0.43

3.22

Represents pre-tax amounts

Year Ended
December 29, 2018

Non-GAAP Income
Statement Items

GAAP

Percent of Compensation

Measure Revenue

Expense*

GAAP

Stock

Intangible
Asset
Amortization*

Acquisition
Related
Items*

Revenues .

. $868,267

Termination
Costs and
Fair Value

Non-cash
Interest

Income
Tax

Adjustments* Expense* Adjustments Measure

Non-GAAP
Non-GAAP Percent of
Revenue

Operating income .

Net income .

85,208

83,591

10%

$50,077

50,077

$37,737

$10,977

$ 256

$ —

—

$184,255

37,737

10,977

2,056

11,202

(32,081)

163,559

21%

19%

Diluted shares

outstanding .

44,044

—

44,044

Diluted earnings per
.
.

share .

. $

1.90

3.71

Represents pre-tax amounts

Silicon Labs is the leading provider of
silicon, software and solutions for a
smarter, more connected world.

Founded in 1996 and headquartered in Austin, Texas, Silicon Labs has more than 1,700 patents issued or pending.
The company’s common stock is traded on the NASDAQ exchange under the ticker symbol “SLAB.”

Board of Directors

Executive Officers

Corporate Information

Nav Sooch
Co-founder and Chairman

Bill Wood
Lead Independent Director

Bill Bock
Independent Director

Jack Lazar
Independent Director

Gregg Lowe
President and
Chief Executive Officer,
Cree

Nina Richardson
Independent Director

Sumit Sadana
Executive Vice President and
Chief Business Officer,
Micron Technology

Tyson Tuttle
President and
Chief Executive Officer,
Silicon Labs

Christy Wyatt
President and
Chief Executive Officer,
Absolute Software Corporation

Tyson Tuttle
President and
Chief Executive Officer

John Hollister
Senior Vice President and
Chief Financial Officer

Brandon Tolany
Senior Vice President of
Worldwide Sales and Marketing

Mark Thompson
Senior Vice President and
General Manager, Infrastructure
and Automotive

Matt Johnson
Senior Vice President and
General Manager, IoT

Alessandro Piovaccari, PhD
Senior Vice President and
Chief Technology Officer

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.

Annual Meeting
The Silicon Laboratories Inc.
annual meeting will be held on
Tuesday, April 21, 2020 at 9:00
a.m. Central Time at the Lady Bird
Johnson Wildflower Center,
4801 La Crosse Avenue,
Austin, Texas, 78739 USA.

Investor Relations
For more information about
Silicon Labs, please visit our
website at www.silabs.com,
or contact:

Investor Relations
Silicon Labs
400 West Cesar Chavez Street
Austin, Texas, 78701 USA
+1 512-416-8500
investor.relations@silabs.com

Legal Counsel
DLA Piper US LLP
401 Congress Avenue,
Suite 2500
Austin, Texas, 78701 USA

Independent Registered Public
Accounting Firm
Ernst & Young LLP
401 Congress Avenue,
Suite 3200
Austin, Texas, 78701 USA

Transfer Agent and Registrar
American Stock Transfer &
Trust Company
59 Maiden Lane
Plaza Level
New York, New York, 10038 USA
+1 800-937-5449

The leading provider of silicon, software and solutions for a smarter, more connected world.