Table of Contents

UNITED STATESSECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q(Mark One)

 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934
For the quarterly period ended April 3, 2010or

 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934
For the transition period fromtoCommission 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)

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

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

78701(Zip Code)(512) 416-8500(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.  Yes  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months(or for such shorter period that the registrant was required to submit and post such files).  Yes  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
As of April 21, 2010, 46,006,801 shares of common stock of Silicon Laboratories Inc. were outstanding.

Yes 

No

Table of Contents
Page
NumberPart I. Financial Information
Item 1.

Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets at April 3, 2010 and January 2, 20103

Condensed Consolidated Statements of Income for the three months ended April 3, 2010 and April 4, 20094

Condensed Consolidated Statements of Cash Flows for the three months ended April 3, 2010 and April 4, 20095Notes to Condensed Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29

Item 4.

Controls and Procedures

29

Part II. Other Information
Item 1.

Legal Proceedings

29

Item 1A.

Risk Factors

30

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

44

Item 3.

Defaults Upon Senior Securities

44

Item 5.

Other Information

44

Item 6.

Exhibits

44
Cautionary Statement

Except for the historical financial information contained herein, the matters discussed in this report on Form 10-Q (as well as documents
incorporated herein by reference) may be considered “forward-looking” statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include declarations
regarding the intent, belief or current expectations of Silicon Laboratories Inc. and its management and may be signified by the words“expects,” “anticipates,” “intends,” “believes” or similar language. You are cautioned that any such forward-looking statements are notguarantees of future performance and involve a number of risks and uncertainties. Actual results could differ materially from those indicated bysuch forward-looking statements. Factors that could cause or contribute to such differences include those discussed under “Risk Factors” andelsewhere 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.
2

Table of Contents
Part I. Financial Information
Item 1. Financial Statements
Silicon Laboratories Inc.
Condensed Consolidated Balance Sheets(In thousands, except per share data)(Unaudited)
April 3,2010

AssetsCurrent assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net of allowance for doubtful accounts of $575 at April 3, 2010 and $567 at
January 2, 2010
Inventories
Deferred income taxes
Prepaid expenses and other current assets
Total current assets
Long-term investments
Property and equipment, net
Goodwill
Other intangible assets, net
Other assets, net
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Accrued expenses
Deferred income on shipments to distributors
Income taxes
Total current liabilities
Long-term obligations and other liabilities
Total liabilities
Commitments and contingencies
Stockholders’ equity:
Preferred stock—$0.0001 par value; 10,000 shares authorized; no shares issued and outstanding
Common stock—$0.0001 par value; 250,000 shares authorized; 45,790 and 45,772 shares issued andoutstanding at April 3, 2010 and January 2, 2010, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity

$

$

$

January 2,
2010

152,200
268,332
56,932
27,652
7,908
21,161
534,185
25,991
26,654105,109
40,037
20,397752,373

28,491
24,44328,4201,056
82,41024,327
106,737

$

$

—

$

5
122,052
526,964(3,385)645,636752,373 $The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
3$

195,737
214,486
56,12831,512
7,620
18,515523,998
24,67627,785
105,10941,886
19,384
742,838

28,75925,39928,4706,011
88,63924,403113,042—5
128,262
505,885(4,356)
629,796
742,838

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Silicon Laboratories Inc.
Condensed Consolidated Statements of Income(In thousands, except per share data)(Unaudited)Three Months Ended
April 3,
April 4,2010
2009

Revenues
Cost of revenues
Gross margin
Operating expenses:
Research and development
Selling, general and administrative
Operating expenses
Operating income
Other income (expense):
Interest income
Interest expense
Other income (expense), net
Income before income taxes
Provision for income taxes$

Net income$

21,079$671

Earnings per share:
Basic
Diluted

$
$

0.46
0.44

$
$

0.02
0.01

Weighted-average common shares outstanding:
Basic
Diluted126,719
43,12983,59083,701
33,02350,67829,92228,00357,92525,665

26,06923,44249,511
1,167

666
(23)
(297)
26,011
4,932

882
(52)
(52)
1,945
1,274

45,81647,926

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
4$

44,63345,083

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Silicon Laboratories Inc.
Condensed Consolidated Statements of Cash Flows(In thousands)(Unaudited)Three Months Ended
April 3,
April 4,2010
2009

Operating Activities
Net income
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation of property and equipment
Loss (gain) on disposal of property and equipment
Amortization of other intangible assets and other assets
Stock compensation expense
Income tax benefit (detriment) from employee stock-based awards
Excess income tax benefit from employee stock-based awards
Deferred income taxes
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable
Accrued expenses
Deferred income on shipments to distributors
Income taxes
Net cash provided by operating activities
Investing Activities
Purchases of available-for-sale investments
Proceeds from sales and maturities of marketable securities
Purchases of property and equipment
Purchases of other assets
Net cash provided by (used in) investing activities
Financing Activities
Proceeds from issuance of common stock, net of shares withheld for taxes
Excess income tax benefit from employee stock-based awards
Repurchases of common stock
Net cash used in financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period$$

21,079

671

2,879
—
1,849
10,256
1,286
(800)
616

2,953
8
1,976
10,149
(118)
(50)
3,589

(804)
3,832
(973)
1,046
(1,110)(50)(7,991)
31,115(8,168)
4,781
2,237(2,105)(3,753)(445)(2,568)
9,157(121,357)
67,697(1,747)(3,436)(58,843)(16,458)
24,695(1,531)
(499)
6,207

7,483
800
(24,092)(15,809)(835)
50(5,023)(5,808)(43,537)
195,737
152,200 $

9,556
172,272
181,828

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
5$

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Silicon Laboratories Inc.
Notes to Condensed Consolidated Financial Statements(Unaudited)
1. Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The Condensed Consolidated Financial Statements included herein are unaudited; however, they contain all normal recurring accruals andadjustments which, in the opinion of management, are necessary to present fairly the condensed consolidated financial position of Silicon
Laboratories Inc. and its subsidiaries (collectively, the “Company”) at April 3, 2010 and January 2, 2010, the condensed consolidated results of
its operations for the three months ended April 3, 2010 and April 4, 2009, and the Condensed Consolidated Statements of Cash Flows for thethree months ended April 3, 2010 and April 4, 2009. All intercompany balances and transactions have been eliminated. The condensed
consolidated results of operations for the three months ended April 3, 2010 are not necessarily indicative of the results to be expected for the fullyear.
The accompanying unaudited Condensed Consolidated Financial Statements do not include certain footnotes and financial presentations
normally required under U.S. generally accepted accounting principles. Therefore, these Condensed Consolidated Financial Statements should
be read in conjunction with the audited Consolidated Financial Statements and notes thereto for the year ended January 2, 2010, included in the
Company’s Form 10-K filed with the Securities and Exchange Commission (SEC) on February 10, 2010.
The Company prepares financial statements on a 52-53 week year that ends on the Saturday closest to December 31. Fiscal 2010 will have
52 weeks and fiscal 2009 had 52 weeks. In a 52-week year, each fiscal quarter consists of 13 weeks.
Reclassifications
Certain reclassifications have been made to prior year financial statements to conform to current year presentation.
Revenue Recognition
Revenues are generated almost exclusively by sales of the Company’s integrated circuits (ICs). The Company recognizes revenue when all of
the following criteria are met: 1) there is persuasive evidence that an arrangement exists, 2) delivery of goods has occurred, 3) the sales price isfixed or determinable, and 4) collectibility is reasonably assured. Generally, revenue from product sales to direct customers and contract
manufacturers is recognized upon shipment.
A portion of the Company’s sales are made to distributors under agreements allowing certain rights of return and price protection related to
the final selling price to the end customers. Accordingly, the Company defers revenue and cost of revenue on such sales until the distributors sell
the product to the end customers. The net balance of deferred revenue less deferred cost of revenue associated with inventory shipped to a
distributor but not yet sold to an end customer is recorded in the “deferred income on shipments to distributors” liability on the Consolidated
Balance Sheet. Such net deferred income balance reflects the Company’s estimate of the impact of rights of return and price protection.
6

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Silicon Laboratories Inc.
Notes to Condensed Consolidated Financial Statements (Continued)(Unaudited)
Recent Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board (FASB) issued FASB Accounting Standards Update (ASU) No. 2010-06, Fair
Value Measurements and Disclosures (Topic 820)—Improving Disclosures about Fair Value Measurements . The ASU requires new disclosuresabout significant transfers in and out of Levels 1 and 2 fair value measurements and separate disclosures about purchases, sales, issuances andsettlements relating to Level 3 fair value measurements. The ASU also clarifies existing disclosure requirements regarding inputs and valuation
techniques, as well as the level of disaggregation for each class of assets and liabilities for which separate fair value measurements should be
disclosed. The Company adopted ASU 2010-06 at the beginning of fiscal 2010, except for the separate disclosures about purchases, sales,issuances and settlements relating to Level 3 measurements, which is effective for the Company at the beginning of fiscal 2011. The adoption ofthis ASU did not have a material impact, and the deferred provisions of this ASU are not expected to have a material impact, on the Company’s
financial statements.
2. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):
Three Months Ended
April 3,
April 4,
2010
2009

$

Net income

21,079$671

Shares used in computing basic earnings per share

45,81644,633

Effect of dilutive securities:
Stock options and awards
Shares used in computing diluted earnings per share

2,110
47,926450
45,083

Earnings per share:
Basic
Diluted

$
$

0.46
0.44

$
$

0.02
0.01

Approximately 0.6 million and 5.8 million weighted-average dilutive potential shares of common stock have been excluded from the earnings
per share calculation for the three months ended April 3, 2010 and April 4, 2009, respectively, as they were anti-dilutive.
7

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Silicon Laboratories Inc.
Notes to Condensed Consolidated Financial Statements (Continued)(Unaudited)
3. Cash, Cash Equivalents and Investments
The Company’s cash equivalents and short-term investments consist primarily of money market funds, U.S. government agency bonds anddiscount notes, corporate bonds, municipal bonds, U.S. Treasury bills, variable-rate demand notes, commercial paper, international government
bonds and auction-rate securities purchased through UBS (“UBS auction-rate securities”). The Company’s long-term investments consist of nonUBS auction-rate securities. Early in fiscal 2008, auctions for many of the Company’s auction-rate securities failed because sell orders exceeded
buy orders. As of April 3, 2010, the Company held $50.6 million par value auction-rate securities, all of which have experienced failed auctions.
The underlying assets of the securities consisted of student loans and municipal bonds, of which $46.6 million were guaranteed by the U.S.
government and the remaining $4.0 million were privately insured. As of April 3, 2010, $39.6 million of the auction-rate securities had credit
ratings of AAA, $2.0 million had a credit rating of AA, $2.0 million had a credit rating of A and $7.0 million had a credit rating of BBB. These
securities had contractual maturity dates ranging from 2025 to 2046 and with current yields of 0.42% to 3.28% per year at April 3, 2010. The
Company is receiving the underlying cash flows on all of its auction-rate securities. The principal amounts associated with failed auctions are notexpected to be accessible until a successful auction occurs, the issuer redeems the securities, a buyer is found outside of the auction process or
the underlying securities mature. The Company is unable to predict if these funds will become available before their maturity dates.
In November 2008, the Company entered into an agreement with UBS AG, which provides the Company certain rights to sell to UBS theauction-rate securities which were purchased through them. As of April 3, 2010, the Company held $23.5 million par value auction-rate
securities purchased from UBS. The Company has the option to sell these securities to UBS at par value from June 30, 2010 through July 2,
2012. UBS, at its discretion, may purchase or sell these securities on the Company’s behalf at any time provided the Company receives par value
for the securities sold. The issuers of the auction-rate securities continue to have the right to redeem the securities at their discretion. The
agreement allows for the continuation of the accrual and payment of interest due on the securities. The agreement also provides the Company
with access to loans of up to 75% of the market value of the unredeemed securities until June 30, 2010. These loans would carry interest rates
which would be consistent with the interest income on the related auction-rate securities. As of April 3, 2010, the Company had no loans
outstanding under this agreement.
The Company’s right to sell the auction-rate securities to UBS commencing June 30, 2010 represents a put option for a payment equal to thepar value of the auction-rate securities. As the put option is non-transferable and cannot be attached to the auction-rate securities if they are soldto another entity other than UBS, it represents a freestanding instrument between the Company and UBS. The Company elected to record the put
option at fair value. The Company has classified the UBS auction-rate securities as trading securities and, accordingly, recognizes changes in fairvalue in earnings. Adjustments to the fair values of the put option and the trading securities generally offset each other and are recorded in “otherincome (expense), net.” The Company intends to exercise its option to sell its UBS auction-rate securities to UBS on June 30, 2010 and has
therefore classified both the UBS auction-rate securities and the related put option as short-term investments as of April 3, 2010.
8

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Silicon Laboratories Inc.
Notes to Condensed Consolidated Financial Statements (Continued)(Unaudited)
The Company does not expect to need access to the capital represented by any of its auction-rate securities prior to their maturities. The
Company does not intend to sell, and believes it is not more likely than not that it will be required to sell, its non-UBS auction-rate securities
before their anticipated recovery in market value or final settlement at the underlying par value. The Company believes that the credit ratings andcredit support of the security issuers indicate that they have the ability to settle the securities at par value. As such, the Company has determinedthat no material other-than-temporary impairment losses existed as of April 3, 2010.
The Company’s cash, cash equivalents and investments consist of the following (in thousands):
April 3, 2010
Gross
Gross
Unrealized
Unrealized
LossesGains

Cost

Cash and Cash Equivalents:
Cash on hand
Available-for-sale securities:
Money market funds
U.S. Treasury bills
Commercial paper
Municipal bonds
U.S. government agency
Total available-for-sale securities
Total cash and cash equivalents
Short-term Investments:
Available-for-sale securities:
Corporate bonds
U.S. government agency
Municipal bonds
Variable-rate demand notes
U.S. Treasury bills
International government bonds
Commercial paper
Total available-for-sale securities
Trading securities:
Auction rate securities and put option
Total short-term investments
Long-term Investments:
Available-for-sale securities:
Auction rate securities
Total long-term investments$

Fair Value

18,711$

18,711

63,49849,99813,9994,000
2,000
133,495

$

— $
—
—
—
(6)
(6)

—
—
—
—
—
—

$

152,206

$

(6) $

—

$

152,200$

73,087
68,371
43,641
26,30021,496
9,044
2,697
244,636$(42) $
(91)
(27)
—
—
—
—
(160) $

312
25
43
—
2
28
—
410

$

73,35768,30543,65726,30021,4989,072
2,697
244,886$$$

27,17527,1759$$$(1,184) $(1,184) $——63,49849,99813,9994,000
1,994
133,489$

23,446
268,332$$

25,991
25,991

Table of Contents
Silicon Laboratories Inc.
Notes to Condensed Consolidated Financial Statements (Continued)(Unaudited)
January 2, 2010
Gross
Gross
Unrealized
Unrealized
LossesGains

Cost

Cash and Cash Equivalents:
Cash on hand
Available-for-sale securities:
Money market funds
U.S. Treasury bills
U.S. government agency
Total available-for-sale securities$

Total cash and cash equivalents
Short-term Investments:
Available-for-sale securities:
Corporate bonds
U.S. government agency
Municipal bonds
U.S. Treasury bills
International government bonds
Commercial paper
Total available-for-sale securities
Trading securities:
Auction rate securities and put option
Total short-term investments

21,622$

21,622

167,1395,000
2,000
174,139

$

— $
—
(24)
(24)

—
—
—
—

$

195,761$(24) $—$

195,737$

74,431
41,79037,401
21,48812,467
2,699
190,276$(133) $
(1)
(3)
—
(10)
—
(147) $

188
32
132
7
6
—
365

$

74,486
41,82137,53021,495
12,463
2,699
190,494$

Long-term Investments:
Available-for-sale securities:
Auction rate securities
Total long-term investments

Fair
Value

$
$

27,32527,325$$$(2,649) $(2,649) $——167,139
5,000
1,976
174,115$

23,992
214,486$$

24,676
24,676

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
Gross
Fair
Unrealized
Value
Losses

As of April 3, 2010

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

31,084—
18,552
14,85064,486$$(97) $—(27)(42)(166) $
10

12 Months or Greater
Gross
Fair
Unrealized
Value
Losses—25,991——
25,991$$— $(1,184)——(1,184) $

Total
Gross
Unrealized
LossesFair
Value

31,08425,991
18,552
14,85090,477$$(97)(1,184)(27)(42)(1,350)Table of Contents
Silicon Laboratories Inc.
Notes to Condensed Consolidated Financial Statements (Continued)(Unaudited)
Less Than 12 Months
Gross
Unrealized
Fair
LossesValue

As of January 2, 2010

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

39,513
—
5,213
4,978
1,643
51,347$$

12 Months or Greater
Gross
Unrealized
Fair
LossesValue(133) $
—
(10)
(25)
(3)
(171) $—
24,676———
24,676$— $(2,649)———(2,649) $

$

Total
Gross
Unrealized
LossesFair
Value

39,513
24,676
5,213
4,978
1,643
76,023$$(133)(2,649)
(10)
(25)
(3)
(2,820)

The gross unrealized losses as of April 3, 2010 and January 2, 2010 were due primarily to the illiquidity of the Company’s auction-rate
securities and, to a lesser extent, to changes in market interest rates.
The following summarizes the contractual underlying maturities of the Company’s available-for-sale investments at April 3, 2010 (inthousands):
Fair
Value

Cost

Due in one year or lessDue after one year through three years
Due after ten years$$

236,000
115,83153,475405,306$$

236,155
115,920
52,291
404,366

In addition, the Company has made equity investments in non-publicly traded companies that it accounts for under the cost method. The
Company periodically reviews these investments for other-than-temporary declines in fair value based on the specific identification method andwrites down investments to their fair values when it determines that an other-than-temporary decline has occurred.
4. Derivative Financial Instruments
The Company is exposed to interest rate fluctuations in the normal course of its business, including through its corporate headquarters leases.
The base rents for these leases are calculated using a variable interest rate based on the three-month LIBOR . The Company has entered into
interest rate swap agreements with notional values of $44.3 million and $50.1 million and, effectively, fixed the rent payment amounts on theseleases through March 2011 and March 2013, respectively. The Company’s objective is to offset increases and decreases in expenses resulting
from changes in interest rates with losses and gains on the derivative contracts, thereby reducing volatility of earnings. The Company does notuse derivative contracts for speculative purposes.
The interest rate swap agreements are designated and qualify as cash flow hedges. The effective portion of the gain or loss on interest rate
swaps is recorded in accumulated other comprehensive loss as a separate component of stockholders’ equity and is subsequently recognized inearnings when the hedged exposure affects earnings. Cash flows from derivatives are classified as cash flows from operating activities in theConsolidated Statement of Cash Flows.
The Company estimates the fair values of derivatives based on quoted prices and market observable data of similar instruments. If the leaseagreements or the interest rate swap agreements are terminated prior to maturity, the fair value of the interest rate swaps recorded in accumulated
other comprehensive loss may be recognized in the Consolidated Statement of Income based on an assessment of the agreements at the time oftermination. The Company did not discontinue any cash flow hedges in any of the periods presented.
11

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Silicon Laboratories Inc.
Notes to Condensed Consolidated Financial Statements (Continued)(Unaudited)
The Company measures the effectiveness of its cash flow hedges by comparing the change in fair value of the hedged item with the change infair value of the interest rate swap. The Company recognizes ineffective portions of the hedge, as well as amounts not included in the assessmentof effectiveness, in the Consolidated Statement of Income. As of April 3, 2010, no portions of the gains or losses from the hedging instruments
were excluded from the assessment of effectiveness. There was no hedge ineffectiveness for any of the periods presented.
The Company’s derivative financial instruments consisted of the following (in thousands):
April 3, 2010
Balance Sheet
LocationInterest rate swaps

Long-term obligations andother liabilities

Fair
Value

$

4,515

The before-tax effect of derivative instruments in cash flow hedging relationships was as follows (in thousands):
Loss Recognized in
OCI on Derivatives(Effective Portion)
during the Three Months
April 3,
April 4,
2010
2009

Interest rate swaps$(864) $

Loss Reclassified
from Accumulated
OCI into Income(Effective Portion)
during the Three Months
April 3,
April 4,2010
2009

Location of Loss
Reclassified into
Income(363)

Rent expense$(840) $

(553)

The Company expects to reclassify $3.1 million of its interest rate swap losses included in accumulated other comprehensive loss as ofApril 3, 2010 into earnings in the next 12 months, which is offset by lower rent payments.
The Company’s interest rate swap agreements contain provisions that require it to maintain unencumbered cash and highly-rated short-term
investments of at least $150 million. If the Company’s unencumbered cash and highly-rated short-term investments are less than $150 million, it
would be required to post collateral with the counterparty in the amount of the fair value of the interest rate swap agreements in net liability
positions. Both of the Company’s interest rate swaps were in a net liability position at April 3, 2010. No collateral has been posted with thecounterparties as of April 3, 2010.
5. Fair Value of Financial Instruments
The fair values of the Company’s financial instruments are recorded using a hierarchal disclosure framework based upon the level ofsubjectivity 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, whichmight include the Company’s own data.
12

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Silicon Laboratories Inc.
Notes to Condensed Consolidated Financial Statements (Continued)(Unaudited)
The following summarizes the valuation of the Company’s financial instruments (in thousands). The tables do not include either cash on handor assets and liabilities that are measured at historical cost or any basis other than fair value.

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

Description

Assets:Cash Equivalents:
Money market funds
U.S. Treasury bills
Commercial paper
Municipal bonds
U.S. government agency
Total cash equivalents

Fair Value Measurements
at April 3, 2010 Using
Significant Other
Significant
Observable
Unobservable
Inputs
Inputs(Level 2)(Level 3)

63,49849,99813,9994,000
1,994
133,489$$$

73,35768,30543,65726,30021,498
9,072
2,697
—
244,886

Long-term Investments:
Auction rate securities
Total long-term investments

$
$

Total
Liabilities:
Derivative instruments
Total

Short-term Investments:
Corporate bonds
U.S. government agency
Municipal bonds
Variable-rate demand notes
U.S. Treasury bills
International government bonds
Commercial paper
Auction rate securities and put option
Total short-term investments

$

—
—
—
—
—
—

$

$

$

—
—
—
—
—
—
—
—
—

—
—

$
$

$

378,375

$
$

—
—

$
$

13

Total

—
—
—
—
—
—

$

$

$

—
—
—
—
—
—
—
23,44623,446$73,35768,30543,65726,30021,4989,072
2,697
23,446
268,332——$$

25,991
25,991$$

25,991
25,991$—$49,437$

427,812

$
$

4,515
4,515

$
$

—
—

$
$

4,515
4,515

$

$

$

63,49849,99813,9994,000
1,994
133,489

Table of Contents
Silicon Laboratories Inc.
Notes to Condensed Consolidated Financial Statements (Continued)(Unaudited)
The Company’s cash equivalents and short-term investments (other than its UBS auction-rate securities and put option) are valued using
quoted prices and other relevant information generated by market transactions involving identical assets. The Company’s auction-rate securities
and put option are valued using a discounted cash flow model. The assumptions used in preparing the discounted cash flow model include
estimates for interest rates, amount of cash flows, expected holding periods of the securities, a discount to reflect the Company’s inability toliquidate the securities and counterparty risk. The Company’s derivative instruments are valued using a discounted cash flow model. The
assumptions used in preparing the discounted cash flow model include quoted interest swap rates and market observable data of similar
instruments.
The following summarizes the activity in Level 3 financial instruments for the three months ended April 3, 2010 (in thousands):
AuctionRate
Securities

Balance at January 2, 2010
Net purchases, sales, issuances and settlements
Unrealized gains
Net recognized gains (losses)
Balance at April 3, 2010$$

Gain (loss) for period included in earnings attributable to the Level 3 financial
instruments still held at April 3, 2010 related to:
Trading securities
Fair value of the put option

Put
OptionTotal

45,575 $
(700)
1,465
874
47,214 $3,093 $——
(870)
2,223 $

48,668
(700)
1,465
4
49,437

874
—
874

— $
(870)
(870) $

874
(870)
4

$
$

$
$

The Company’s other financial instruments, including cash, accounts receivable and accounts payable, are recorded at amounts thatapproximate their fair values due to their short maturities.
6. Balance Sheet Details
Balance sheet details consist of the following (in thousands):
Inventories
April 3,
2010

Work in progress
Finished goods$$
14

21,4586,194
27,652January 2,
2010

$
$

24,642
6,870
31,512

Table of Contents
Silicon Laboratories Inc.
Notes to Condensed Consolidated Financial Statements (Continued)(Unaudited)
7. Stockholders’ Equity
Common Stock
The Company issued 0.6 million shares of common stock during the three months ended April 3, 2010, net of 0.1 million shares withheld tosatisfy employee tax obligations for the vesting of certain stock grants made under the Company’s stock incentive plans.
Share Repurchase Program
In October 2009, the Company’s Board of Directors authorized a program to repurchase up to $150 million of the Company’s common stock
through 2010. The program allows for repurchases to be made in the open market or in private transactions, including structured or accelerated
transactions, subject to applicable legal requirements and market conditions. During the three months ended April 3, 2010, the Company
repurchased 0.6 million shares of its common stock for $25.3 million under its repurchase program. During the three months ended April 4,
2009, the Company repurchased 0.2 million shares for $5.3 million under its previous share repurchase program that was completed in
November 2009.
Comprehensive Income
The changes in the components of comprehensive income, net of taxes, were as follows (in thousands):
Three Months Ended
April 3,
April 4,2010
2009

Net income
Net unrealized gains (losses) on available-for-sale securities, net of tax
provision of $(531) and $59, respectively
Net unrealized gains (losses) on cash flow hedges, net of tax provision of $8
and $(66), respectively
Comprehensive income$

21,079

$

671

986
$

(15)
22,050

(110)
123
684

$

The components of accumulated other comprehensive loss, net of taxes, were as follows (in thousands):
Unrealized
Losses on Cash
Flow Hedges

Balance at January 2, 2010
Change associated with current period transactions, net of tax
Amount reclassified into earnings, net of tax
Balance at April 3, 2010

$

$
15

(2,919) $(562)
547(2,934) $Net Unrealized
Losses on
Available-For-Sale
Securities(1,437) $986—(451) $

Total

(4,356)424
547(3,385)

Table of Contents
Silicon Laboratories Inc.
Notes to Condensed Consolidated Financial Statements (Continued)(Unaudited)
8. Stock-Based Compensation
In fiscal 2009, the stockholders of the Company approved the 2009 Stock Incentive Plan (the “2009 Plan”) and the 2009 Employee Stock
Purchase Plan (the “2009 Purchase Plan”). The 2009 Plan is currently effective, and no further grants will be issued under the Company’s 2000
Stock Incentive Plan (the “2000 Plan”) as of the effective date of the 2009 Plan. The 2009 Purchase Plan will become effective upon thetermination of the existing Employee Stock Purchase Plan (the “Purchase Plan”), on April 30, 2010.
Stock-based compensation costs are generally based on the fair values on the date of grant for stock options and on the date of enrollment for
the employee stock purchase plans, estimated by using the Black-Scholes option-pricing model. The fair values of stock awards and restricted
stock units (RSUs) generally equal their intrinsic value on the date of grant. There were no stock options granted during the three months endedApril 3, 2010 or April 4, 2009.
The following are the stock-based compensation costs recognized in the Company’s Condensed Consolidated Statements of Income (inthousands):
Three Months Ended
April 3,
April 4,2010
2009

Cost of revenues
Research and development
Selling, general and administrative

$

356
4,164
5,736
10,256
1,487
8,769

Provision for income taxes
$

$

$

395
3,878
5,876
10,1491,508
8,641

The Company had approximately $65.6 million of total unrecognized compensation costs related to stock options and RSUs at April 3, 2010that are expected to be recognized over a weighted-average period of 1.8 years. There were no significant stock compensation costs capitalized
into assets in any of the periods presented.
16

Table of Contents
Silicon Laboratories Inc.
Notes to Condensed Consolidated Financial Statements (Continued)(Unaudited)
9. Commitments and Contingencies
Securities Litigation
On December 6, 2001, a class action complaint for violations of U.S. federal securities laws was filed in the United States District Court for
the Southern District of New York against the Company, four officers individually and the three investment banking firms who served as
representatives of the underwriters in connection with the Company’s initial public offering of common stock. The Consolidated Amended
Complaint alleges that the registration statement and prospectus for the Company’s initial public offering did not disclose that (1) theunderwriters solicited and received additional, excessive and undisclosed commissions from certain investors, and (2) the underwriters had
agreed to allocate shares of the offering in exchange for a commitment from the customers to purchase additional shares in the aftermarket at
pre-determined higher prices. The Complaint alleges violations of the Securities Act of 1933 and the Securities Exchange Act of 1934. The
action seeks damages in an unspecified amount and is being coordinated with approximately 300 other nearly identical actions filed against othercompanies. A court order dated October 9, 2002 dismissed without prejudice the four officers of the Company who had been named
individually. On December 5, 2006, the Second Circuit vacated a decision by the District Court granting class certification in six of thecoordinated cases, which are intended to serve as test, or “focus” cases. The plaintiffs selected these six cases, which do not include theCompany. On April 6, 2007, the Second Circuit denied a petition for rehearing filed by the plaintiffs, but noted that the plaintiffs could ask theDistrict Court to certify more narrow classes than those that were rejected.
The parties in the approximately 300 coordinated cases, including the parties in the case against the Company, reached a settlement. The
insurers for the issuer defendants in the coordinated cases will make the settlement payment on behalf of the issuers, including the Company. On
October 5, 2009, the Court granted final approval of the settlement. Six notices of appeal have been filed. Judgment was entered on January 13,
2010. The time to file additional notices of appeal has expired. A group of three objectors, who filed a notice of appeal, also filed a petition to
the Second Circuit seeking permission to appeal the District Court’s final approval of the settlement on the basis that the settlement class isbroader than the class previously rejected by the Second Circuit in its December 5, 2006 order vacating the District Court’s order certifying
classes in the focus cases. Plaintiffs filed an opposition to the petition.
As the litigation process is inherently uncertain, the Company is unable to predict the outcome of the above described matter if the settlement
does not survive the appeal. While the Company does maintain liability insurance, it could incur losses that are not covered by its liability
insurance or that exceed the limits of its liability insurance. Such losses could have a material impact on the Company’s business and its resultsof operations or financial position.
Other
The Company is involved in various other legal proceedings that have arisen in the normal course of business. While the ultimate results ofthese matters cannot be predicted with certainty, the Company does not expect them to have a material adverse effect on its consolidated
financial position or results of operations.
17

Table of Contents
Silicon Laboratories Inc.
Notes to Condensed Consolidated Financial Statements (Continued)(Unaudited)
Operating Leases
In March 2006, the Company entered into an operating lease agreement and a related participation agreement for a facility at 400 W. Cesar
Chavez (“400 WCC”) in Austin, Texas for its corporate headquarters. In March 2008, the Company entered into an operating lease agreement
and a related participation agreement for a facility at 200 W. Cesar Chavez (“200 WCC”) in Austin, Texas for the expansion of its corporate
headquarters. During the terms of the leases, the Company has on-going options to purchase the buildings for purchase prices of approximately$44.3 million for 400 WCC and $50.1 million for 200 WCC. Alternatively, the Company can cause each such property to be sold to third parties
provided it is not in default under that property’s lease. The Company is contingently liable on a first dollar loss basis for up to $35.3 million to
the extent that the 400 WCC sale proceeds are less than the $44.3 million purchase option and up to $40.0 million to the extent that the 200
WCC sale proceeds are less than the $50.1 million purchase option.
Discontinued Operations Indemnification
In fiscal 2007, the Company sold its Aero® transceiver, AeroFONE™ single-chip phone and power amplifier product lines (the “Aeroproduct lines”) to NXP B.V. and NXP Semiconductors France SAS (collectively “NXP”). In connection with the sale of the Aero product lines,
the Company agreed to indemnify NXP with respect to liabilities for certain tax matters. There is no contractual limit on exposure with respect tosuch matters. As of April 3, 2010, the Company had no material liabilities recorded with respect to this indemnification obligation.
10. Income Taxes
Provision for income taxes includes both domestic and foreign income taxes at the applicable statutory rates adjusted for non-deductible
expenses (including a portion of stock compensation), research and development tax credits and other permanent differences. Income tax
expense was $4.9 million and $1.3 million for the three months ended April 3, 2010 and April 4, 2009, respectively, resulting in effective tax
rates of 19.0% and 65.5%, respectively. The effective tax rate for the three months ended April 3, 2010 decreased from the prior period,
primarily due to a reduced accrual of unrecognized tax benefits and related interest, partially offset by the non-renewal of the federal researchand development tax credit.
At April 3, 2010, the Company had gross unrecognized tax benefits of $12.1 million, $11.9 million of which 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.
The tax years 2004 through 2010 remain open to examination by the major taxing jurisdictions to which the Company is subject. The
Company’s 2005 through 2008 federal income tax returns are under examination by the U.S. Internal Revenue Service. Although the outcome oftax audits is always uncertain, the Company believes that the results of the examination will not materially affect its financial position or resultsof operations.
11. Subsequent Events
On April 23, 2010, the Company acquired Silicon Clocks, Inc., a privately held company, for approximately $22.0 million in cash. Silicon
Clocks designs and develops microelectromechanical system (MEMS) technology to enable the manufacture of a wide range of silicon
resonators and sensors directly on standard CMOS wafers.
The Company will record the purchase of Silicon Clocks using the acquisition method of accounting and will recognize the assets acquired
and liabilities assumed at their fair values as of the date of the acquisition. The results of Silicon Clocks’ operations will be included in the
Company’s consolidated results of operations beginning with the date of the acquisition. The Company is currently in the process of evaluating
the fair values of the assets acquired and liabilities assumed.
18

Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation s
The following discussion and analysis of financial condition and results of operations should be read in conjunction with the Condensed
Consolidated Financial Statements and related notes thereto included elsewhere in this report. This discussion contains forward-looking
statements. Please see the “Cautionary Statement” above and “Risk Factors” below for discussions of the uncertainties, risks and assumptions
associated with these statements. Our fiscal year-end financial reporting periods are a 52- or 53- week year ending on the Saturday closest to
December 31st. Fiscal 2010 will have 52 weeks and fiscal 2009 had 52 weeks. Our first quarter of fiscal 2010 ended April 3, 2010. Our firstquarter of fiscal 2009 ended April 4, 2009.
Overview
We design and develop proprietary, analog-intensive, mixed-signal integrated circuits (ICs) for a broad range of applications. Mixed-signal
ICs are electronic components that convert real-world analog signals, such as sound and radio waves, into digital signals that electronic products
can process. Therefore, mixed-signal ICs are critical components in a broad range of applications in a variety of markets, including
communications, consumer, industrial, automotive, medical and power management. Our major customers include 2Wire, Apple, Huawei, LG
Electronics, Nokia, Pace (formerly Philips), Samsung, Sony Ericsson, Thomson and Varian Medical Systems.
As a “fabless” semiconductor company, we rely on third-party semiconductor fabricators in Asia, and to a lesser extent the United States andEurope, to manufacture the silicon wafers that reflect our IC designs. Each wafer contains numerous die, which are cut from the wafer to create achip 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), shorterproduction cycle times, lower inventory requirements, lower costs and increased flexibility of test capacity.
Our expertise in analog-intensive, high-performance, mixed-signal ICs enables us to develop highly differentiated solutions that address
multiple markets. We group our products into the following categories:•

Broadcast products, which include our broadcast radio receivers and transmitters, video tuners and demodulators, satellite set-top box
receivers and satellite radio tuners;•

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

Broad-based products, which include 8-bit microcontroller products, timing products (including clocks, precision clock & data
recovery ICs and oscillators), short-range wireless transceivers, isolators, current sensors and our QuickSense™ portfolio of touch,proximity and ambient light sensing devices ; and•Mature products, which include our silicon DAA for PC modems, DSL analog front end ICs, optical physical layer transceivers and RF
Synthesizers.

Through acquisitions and internal development efforts, we have continued to diversify our product portfolio and introduce next generation ICs
with added functionality and further integration. In the first three months of fiscal 2010, we introduced a family of ultra-low-power wirelessmicrocontrollers ideal for battery-powered systems and a highly integrated AM/FM receiver for analog tuned radios that reduces radio design
and manufacturing costs. We plan to continue to introduce products that increase the content we provide for existing applications, thereby
enabling us to serve markets we do not currently address and expanding our total available market opportunity.
19

Table of Contents
During the three months ended April 3, 2010, we had one customer, Samsung, whose purchases across a variety of product areas represented
more than 10% of our revenues. No other single end customer accounted for more than 10% of our revenues during the three months endedApril 3, 2010. In addition to direct sales to customers, some of our end customers purchase products indirectly from us through distributors andcontract 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 actuallysell the products to, and are paid by, the distributors and contract manufacturers, we refer to such end customer as our customer. Two of ourdistributors, Edom Technology and Avnet, represented 29% and 13% of our revenues during the three months ended April 3, 2010, respectively.
There were no other distributors or contract manufacturers that accounted for more than 10% of our revenues during the three months endedApril 3, 2010.
The percentage of our revenues derived from customers located outside of the United States was 87% during the three months ended April 3,
2010. All of our revenues to date have been denominated in U.S. dollars. We believe that a majority of our revenues will continue to be derived
from customers outside of the United States.
The sales cycle for our ICs can be as long as 12 months or more. An additional three to six months or more are usually required before acustomer 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 forthat quarter and, potentially, future quarters would be adversely affected. Moreover, the amount of time between initial research anddevelopment and commercialization of a product, if ever, can be substantially longer than the sales cycle for the product. Accordingly, if weincur substantial research and development costs without developing a commercially successful product, our operating results, as well as our
growth prospects, could be adversely affected.
Because many of our ICs are designed for use in consumer products such as televisions, personal video recorders, set-top boxes, portablenavigation devices and mobile handsets, we expect that the demand for our products will be typically subject to some degree of seasonal
demand. However, rapid changes in our markets and across our product areas make it difficult for us to accurately estimate the impact of
seasonal factors on our business.
Results of Operations
The following describes the line items set forth in our Condensed Consolidated Statements of Income:Revenues. Revenues are generated almost exclusively by sales of our ICs. We recognize revenue on sales when all of the following criteria are
met: 1) there is persuasive evidence that an arrangement exists, 2) delivery of goods has occurred, 3) the sales price is fixed or determinable, and4) collectibility is reasonably assured. Generally, we recognize revenue from product sales to direct customers and contract manufacturers upon
shipment. Certain of our sales are made to distributors under agreements allowing certain rights of return and price protection on products unsold
by distributors. Accordingly, we defer the revenue and cost of revenue on such sales until the distributors sell the product to the end customer.
Our products typically carry a one-year replacement warranty. Replacements have been insignificant to date. Our revenues are subject tovariation 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 forour products. The vast majority of our revenues were negotiated at prices that reflect a discount from the list prices for our products. These
discounts are made for a variety of reasons, including: 1) to establish a relationship with a new customer, 2) as an incentive for customers topurchase products in larger volumes, 3) to provide profit margin to our distributors who resell our products or 4) in response to competition. In
addition, as a product matures, we expect that the average selling price for such product will decline due to the greater availability of competingproducts. Our ability to increase revenues in the future is dependent on increased demand for our established products and our ability to shiplarger volumes of those products in response to such demand, as well as our ability to develop or acquire new products and subsequently achievecustomer acceptance of newly introduced products.
20

Table of Contents
Cost of Revenues. Cost of revenues includes the cost of purchasing finished silicon wafers processed by independent foundries; costs
associated with assembly, test and shipping of those products; costs of personnel and equipment associated with manufacturing support, logistics
and quality assurance; costs of software royalties and amortization of purchased software, other intellectual property license costs and certain
acquired intangible assets; an allocated portion of our occupancy costs; and allocable depreciation of testing equipment and leasehold
improvements.
Research and Development. Research and development expense consists primarily of personnel-related expenses, including stockcompensation, new product mask, wafer, packaging and test costs, external consulting and services costs, equipment tooling, equipment
depreciation, amortization of acquired intangible assets, as well as an allocated portion of our occupancy costs for such operations. Research anddevelopment activities include the design of new products, refinement of existing products and design of test methodologies to ensurecompliance with required specifications.
Selling, General and Administrative. Selling, general and administrative expense consists primarily of personnel-related expenses, including
stock compensation, related allocable portion of our occupancy costs, sales commissions to independent sales representatives, applications
engineering support, professional fees, patent litigation legal fees and promotional and marketing expenses.
Interest Income. Interest income reflects interest earned on our cash, cash equivalents and investment balances.
Interest Expense. Interest expense consists of interest on our short and long-term obligations.
Other Income (Expense), Net. Other income (expense), net reflects foreign currency remeasurement adjustments and gains and losses on thedisposal of fixed assets.
Provision for Income Taxes. Provision for income taxes includes both domestic and foreign income taxes at the applicable statutory rates
adjusted for non-deductible expenses (including a portion of our stock compensation), research and development tax credits and other permanentdifferences.
The following table sets forth our Condensed Consolidated Statements of Income data as a percentage of revenues for the periods indicated:
Three Months Ended
April 3,
April 4,2010
2009

Revenues
Cost of revenues
Gross margin

100.0%
34.0
66.0

100.0%
39.5
60.5

Operating expenses:
Research and development
Selling, general and administrative
Operating expenses

23.6
22.1
45.7

31.1
28.0
59.1

Operating income

20.3

1.4

Other income (expense):
Interest income
Interest expense
Other income (expense), net
Income before income taxes
Provision for income taxes
Net income

0.5
0.0
(0.3)
20.5
3.9
16.6%

1.1
(0.1)
(0.1)
2.3
1.5
0.8%

21

Table of Contents
Revenues
Three Months Ended
April 3,
April 4,2010
2009

(in millions)

Revenues

$

126.7

$

%
ChangeChange

83.7

$

43.0

51.4%

The growth in revenue in the recent three month period was due primarily to improvements in the health of our products’ end markets andincreases in market share. Increased unit volumes outpaced declines in average selling prices. Unit volumes of our products increased comparedto the three months ended April 4, 2009 by 62.2%. Average selling prices decreased during the same period by 6.1%. In general, as our products
become more mature, we expect to experience decreases in average selling prices. We anticipate that newly announced, higher priced, next
generation products and product derivatives will offset these decreases to some degree.
Gross Margin
Three Months Ended
April 3,
April 4,2010
2009

(in millions)

Gross margin
Percent of revenue$

83.6 $
66.0%%
ChangeChange50.7 $
60.5%

32.9

64.9%

The increase in the dollar amount of gross margin in the recent three month period was primarily due to our increased sales. The increase ingross margin as a percent of revenue in the recent three month period was primarily due to changes in product mix, improvements in ourinventory management and manufacturing cost reductions. We may continue to experience declines in the average selling prices of certain of our
products. This downward pressure on gross margin as a percentage of revenues may be offset to the extent we are able to: 1) introduce higher
margin new products and gain market share with our ICs; 2) achieve lower production costs from our wafer suppliers and third-party assembly
and test subcontractors; 3) achieve lower production costs per unit as a result of improved yields throughout the manufacturing process; or 4)
reduce logistics costs.
Research and Development
Three Months Ended
April 3,
April 4,2010
2009

(in millions)

Research and development
Percent of revenue$

29.9 $
23.6%%
ChangeChange26.1 $
31.1%

3.8

14.8%

The increase in research and development expense in the recent three month period was principally due to an increase of $2.6 million for
personnel-related expenses and $0.6 million for product introduction costs. The decrease in research and development expense as a percent ofrevenues is due to our increased sales. We expect that research and development expense will increase in absolute dollars, commensurate with
our revenue growth, but remain relatively stable as a percentage of revenues.
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Table of Contents
Significant recent development projects include a family of ultra-low-power wireless microcontrollers ideal for battery-powered systems, ahighly integrated AM/FM receiver for analog tuned radios that reduces radio design and manufacturing costs, a family of ultra-efficient
microcontrollers for power-sensitive and battery-powered embedded systems, a family of highly integrated, energy-efficient quad PoE PSE
controllers, a new line of automotive-qualified microcontrollers that enable a dramatic reduction in system cost and footprint in body electronics
applications, our QuickSense portfolio of highly accurate and fast-response touch, proximity and ambient light sensing devices, the expansion of
our Any-Rate Precision Clock family with both a low jitter clock generator for broadcast video applications and web-customizable 8-output
CMOS clock generators, a silicon hybrid TV tuner that supports both analog and digital broadcasts in a single device, a family of ProSLIC single
channel telephony ICs for broadband networking equipment, the expansion of our small form factor microcontrollers in a tiny 2x2 mm footprint
and a family of ISOpro™ high-performance, digital isolators.
Selling, General and Administrative
Three Months Ended
April 3,
April 4,2010
2009

(in millions)

Selling, general and administrative
Percent of revenue$

28.0 $
22.1%%
ChangeChange23.4 $
28.0%

4.6

19.5%

The increase in selling, general and administrative expense in the recent three month period was principally due to an increase of $3.2 million
for personnel-related expenses. The decrease in selling, general and administrative expense as a percent of revenues is due to our increased sales.
We expect that selling, general and administrative expense will increase in absolute dollars and decline slightly as a percentage of revenues.
Interest Income
Three Months Ended
April 3,
April 4,2010
2009

(in millions)Interest income

$

0.7

$

Change

0.9

$

(0.2

The decrease in interest income for the recent three month period was largely due to lower interest rates on the underlying instruments, andpartially offset by a higher average investment balance.
Interest Expense
Interest expense for the three months ended April 3, 2010 was $23 thousand compared to $52 thousand for the three months ended April 4,
2009.
Other Income (Expense), Net
Other income (expense), net for the three months ended April 3, 2010 was $(0.3) million compared to $(0.1) million for the three months
ended April 4, 2009.
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Table of Contents
Provision for Income Taxes
Three Months Ended
April 3,
April 4,2010
2009

(in millions)

Provision for income taxes
Effective tax rate

$

4.9 $
19.0%

Change

1.3 $
65.5%

3.6

The effective tax rate for the three months ended April 3, 2010 decreased from the prior period, primarily due to a reduced accrual of
unrecognized tax benefits and related interest, partially offset by the non-renewal of the federal research and development tax credit.
The effective tax rates for each of the periods presented differ from the federal statutory rate of 35% due to the amount of income earned inforeign jurisdictions where the tax rate may be lower than the federal statutory rate, the limited deductibility of stock compensation expense,
research and development tax credits and other permanent items including changes to the liability for unrecognized tax benefits.
Business Outlook
We expect revenues in the second quarter of fiscal 2010 to be in the range of $131 to $135 million. Furthermore, we expect our diluted
earnings per share to be in the range of $0.43 to $0.46.
Liquidity and Capital Resources
Our principal sources of liquidity as of April 3, 2010 consisted of $420.5 million in cash, cash equivalents and short-term investments. Our
short-term investments consist primarily of U.S. government agency bonds and discount notes, corporate bonds, municipal bonds, U.S. Treasury
bills, commercial paper, international government bonds, variable-rate demand notes and auction-rate securities purchased through UBS (“UBSauction-rate securities”).
Our long-term investments consist of non-UBS auction-rate securities. Early in fiscal 2008, auctions for many of our auction-rate securities
failed because sell orders exceeded buy orders. As of April 3, 2010, we held $50.6 million par value auction-rate securities, all of which haveexperienced failed auctions. The securities had previously been valued using quoted prices in active markets. When the auctions began to fail,quoted prices for the securities were no longer observable. As such, we changed our fair value measurement methodology for all auction-rate
securities from quoted prices in active markets to a cash flow model. The assumptions used in preparing the discounted cash flow model include
estimates for interest rates, amount of cash flows, expected holding periods of the securities and a discount to reflect our inability to liquidate thesecurities.
The underlying assets of our auction-rate securities consisted of student loans and municipal bonds, of which $46.6 million were guaranteedby the U.S. government and the remaining $4.0 million were privately insured. As of April 3, 2010, $39.6 million of the auction-rate securities
had credit ratings of AAA, $2.0 million had credit ratings of AA, $2.0 million had credit ratings of A and $7.0 million had a credit rating of
BBB. These securities had contractual maturity dates ranging from 2025 to 2046 and were yielding 0.42% to 3.28% per year at April 3, 2010.
We are receiving the underlying cash flows on all of our auction-rate securities. The principal amounts associated with failed auctions are notexpected to be accessible until a successful auction occurs, the issuer redeems the security, a buyer is found outside of the auction process or theunderlying securities mature. We are unable to predict if these funds will become available before their maturity dates.
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In November 2008, we entered into an agreement with UBS AG, which provides us certain rights to sell to UBS the auction-rate securities
which were purchased through them. As of April 3, 2010, we held $23.5 million par value auction-rate securities purchased from UBS. We havethe option to sell these securities to UBS at par value from June 30, 2010 through July 2, 2012. UBS, at its discretion, may purchase or sell thesesecurities on our behalf at any time provided we receive par value for the securities sold. The issuers of the auction-rate securities continue tohave the right to redeem the securities at their discretion. The agreement allows for the continuation of the accrual and payment of interest dueon the securities. The agreement also provides us with access to loans of up to 75% of the market value of the unredeemed securities until
June 30, 2010. These loans would carry interest rates which would be consistent with the interest income on the related auction-rate securities.
As of April 3, 2010, we had no loans outstanding under this agreement.
We do not expect to need access to the capital represented by any of our auction-rate securities prior to their maturities. We do not intend tosell, and we believe that it is not more likely than not that we will be required to sell, our non-UBS investments before their anticipated recovery
in market value or final settlement at the underlying par value. See Note 3, Cash, Cash Equivalents and Investments , to the Condensed
Consolidated Financial Statements for additional information.
Net cash provided by operating activities was $31.1 million during the three months ended April 3, 2010, compared to net cash provided of$9.2 million during the three months ended April 4, 2009. Operating cash flows during the three months ended April 3, 2010 reflect our net
income of $21.1 million, adjustments of $16.1 million for depreciation, amortization, stock compensation and deferred income taxes, and a net
cash outflow of $6.1 million due to changes in our operating assets and liabilities.
Accounts receivable increased to $56.9 million at April 3, 2010 from $56.1 million at January 2, 2010. Our average days sales outstanding(DSO) was 40 days at April 3, 2010 and January 2, 2010.
Inventory decreased to $27.7 million at April 3, 2010 from $31.5 million at January 2, 2010. Our inventory level is primarily impacted by ourneed to make purchase commitments to support forecasted demand and variations between forecasted and actual demand. Our average days of
inventory (DOI) was 58 days at April 3, 2010 and 65 days at January 2, 2010.
Net cash used in investing activities was $58.8 million during the three months ended April 3, 2010, compared to net cash provided of $6.2
million during the three months ended April 4, 2009. The decrease was principally due to an increase of $61.9 million in net outflows forpurchases of investments.
We anticipate capital expenditures of approximately $12 to $16 million for fiscal 2010. Additionally, as part of our growth strategy, we
expect to evaluate opportunities to invest in or acquire other businesses, intellectual property or technologies that would complement or expand
our current offerings, expand the breadth of our markets or enhance our technical capabilities. On April 23, 2010, we acquired Silicon
Clocks, Inc., a privately held company, for approximately $22.0 million in cash.
Net cash used in financing activities was $15.8 million during the three months ended April 3, 2010, compared to net cash used of $5.8
million during the three months ended April 4, 2009. The increase was principally due to an increase of $19.1 million for repurchases of ourcommon stock, offset by an increase of $8.3 million from proceeds from the issuance of common stock, net of shares withheld for taxes. In
October 2009, our Board of Directors authorized a program to repurchase up to $150 million of our common stock prior to the end of 2010.
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 andmarketing activities. We believe our existing cash and investment balances are sufficient to meet our capital requirements through at least thenext 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.
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Critical Accounting Policies and Estimates
The preparation of financial statements and accompanying notes in conformity with U.S. generally accepted accounting principles requiresthat we make estimates and assumptions that affect the amounts reported. Changes in facts and circumstances could have a significant impact on
the resulting estimated amounts included in the financial statements. We believe the following critical accounting policies affect our more
complex judgments and estimates. We also have other policies that we consider to be key accounting policies, such as our policies for revenue
recognition, including the deferral of revenues and cost of revenues on sales to distributors; however, these policies do not meet the definition ofcritical accounting estimates because they do not generally require us to make estimates or judgments that are difficult or subjective.
Inventory valuation — We assess the recoverability of inventories through the application of a set of methods, assumptions and estimates. In
determining net realizable value, we write down inventory that may be slow moving or have some form of obsolescence, including inventory
that has aged more than 12 months. We also adjust the valuation of inventory when its standard cost exceeds the estimated market value. We
assess the potential for any unusual customer returns based on known quality or business issues and write-off inventory losses for scrap or nonsaleable 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 theappropriateness 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 thanoriginally projected, additional inventory write-downs may be required.
Stock compensation — We recognize the fair-value of stock-based compensation transactions in the Consolidated Statement of Income. The fairvalue of our stock-based awards is estimated at the date of grant using the Black-Scholes option pricing model. The Black-Scholes valuation
calculation requires us to estimate key assumptions such as future stock price volatility, expected terms, risk-free rates and dividend yield.
Expected stock price volatility is based on implied volatility from traded options on our stock in the marketplace and historical volatility of ourstock. The expected term of options granted is derived from an analysis of historical exercises and remaining contractual life of stock options,and represents the period of time that options granted are expected to be outstanding. The risk-free rate is based on the U.S. Treasury yield curvein effect at the time of grant. We have never paid cash dividends, and do not currently intend to pay cash dividends, and thus have assumed a 0%
dividend yield. In addition, we are required to estimate the expected forfeiture rate of our stock grants and only recognize the expense for thoseshares 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. S ee Note 8, Stock-Based
Compensation , to the Condensed Consolidated Financial Statements for additional information.
Investments in auction-rate securities — We determine the fair value of our investments in auction-rate securities using a discounted cash flow
model. The assumptions used in preparing the discounted cash flow model include estimates for interest rates, amount of cash flows, expectedholding periods of the securities and a discount to reflect our inability to liquidate the securities. For available-for-sale auction-rate securities, if
the calculated value is below the carrying amount of the securities, we then determine if the decline in value is other-than-temporary. We
consider various factors in determining whether an impairment is other-than-temporary, including the severity and duration of the impairment,changes in underlying credit ratings, forecasted recovery, our intent to sell or the likelihood that we would be required to sell the investment
before its anticipated recovery in market value and the probability that the scheduled cash payments will continue to be made. When we
conclude that an other-than-temporary impairment has occurred, we assess whether we intend to sell the security or if it is more likely than notthat we will be required to sell the security before recovery. If either of these two conditions is met, we recognize a charge in earnings equal tothe entire difference between the security’s amortized cost basis and its fair value. If we do not intend to sell a security or it is not more likely
than not that we will be required to sell the security before recovery, the unrealized loss is separated into an amount representing the credit loss,
which is recognized in earnings, and the amount related to all other factors, which is recorded in accumulated other comprehensive loss.
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Impairment of goodwill and other long-lived assets — We review long-lived assets which are held and used, including fixed assets andpurchased intangible assets, for impairment whenever changes in circumstances indicate that the carrying amount of the assets may not berecoverable. Such evaluations compare the carrying amount of an asset to future undiscounted net cash flows expected to be generated by theasset 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 avalue 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 theimpairment analysis compares our fair value to our net book value. In determining fair value, the accounting guidance allows for the use of
several valuation methodologies, although it states quoted market prices are the best evidence of fair value. If the fair value is less than the net
book value, the second step of the analysis compares the implied fair value of our goodwill to its carrying amount. If the carrying amount of
goodwill exceeds its implied fair value, we recognize an impairment loss equal to that excess amount.
Income taxes — We are required to estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating theactual current tax liability together with assessing temporary differences in recognition of income (loss) for tax and accounting purposes. These
differences result in deferred tax assets and liabilities, which are included in our Consolidated Balance Sheet. We then assess the likelihood thatthe deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we establish avaluation allowance against the deferred tax asset.
We recognize liabilities for uncertain tax positions based on a two-step process. The first step requires us to determine if the weight ofavailable 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 tomeasure 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 suchamounts 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 additionalcharge 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 areassessed as a result of an audit or litigation, it could have a material effect on our income tax provision and net income in the period or periods
for which that determination is made. We operate within multiple taxing jurisdictions and are subject to audit in these jurisdictions. These audits
can involve complex issues which may require an extended period of time to resolve and could result in additional assessments of income tax.
We believe adequate provisions for income taxes have been made for all periods.
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Recent Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board (FASB) issued FASB Accounting Standards Update (ASU) No. 2010-06, Fair
Value Measurements and Disclosures (Topic 820)—Improving Disclosures about Fair Value Measurements . The ASU requires new disclosuresabout significant transfers in and out of Levels 1 and 2 fair value measurements and separate disclosures about purchases, sales, issuances andsettlements relating to Level 3 fair value measurements. The ASU also clarifies existing disclosure requirements regarding inputs and valuation
techniques, as well as the level of disaggregation for each class of assets and liabilities for which separate fair value measurements should be
disclosed. We adopted ASU 2010-06 at the beginning of fiscal 2010, except for the separate disclosures about purchases, sales, issuances andsettlements relating to Level 3 measurements, which is effective for us at the beginning of fiscal 2011. The adoption of this ASU did not have amaterial impact, and the deferred provisions of this ASU are not expected to have a material impact, on our financial statements.
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. Our investment portfolio holdings as of April 3, 2010 yielded less than 100 basis points. A
decline in yield to zero basis points on our investment portfolio holdings as of April 3, 2010 would decrease our annual interest income byapproximately $2.6 million. We believe that our investment policy is conservative, both in the duration of our investments and the credit qualityof the investments we hold.
Headquarters Lease Rent
We are exposed to interest rate fluctuations in the normal course of our business, including through our corporate headquarters leases. Thebase rents for these leases are calculated using a variable interest rate based on the three-month LIBOR. We have entered into interest rate swap
agreements with notional values of $44.3 million and $50.1 million and, effectively, fixed the rent payment amounts on these leases throughMarch 2011 and March 2013, respectively. The fair value of the interest rate swap agreements at April 3, 2010 was a $4.5 million obligation.
Investments in Auction-rate Securities
Beginning in fiscal 2008, auctions for many of our auction-rate securities failed because sell orders exceeded buy orders. As of April 3, 2010,
we held $50.6 million par value auction-rate securities, all of which have experienced failed auctions. The principal amounts associated withfailed auctions are not expected to be accessible until a successful auction occurs, the issuer redeems the securities, a buyer is found outside of
the auction process or the underlying securities mature. We are unable to predict if these funds will become available before their maturity dates.
Additionally, if we determine that an other-than-temporary decline in the fair value of any of our available-for-sale auction-rate securities has
occurred, we may be required to adjust the carrying value of the investments through an impairment charge. In November 2008, we entered into
an agreement with UBS, which provides us certain rights to sell to UBS the auction-rate securities which were purchased through them. As of
April 3, 2010, we held $23.5 million par value auction-rate securities purchased from UBS. We have the option to sell these securities to UBS atpar value from June 30, 2010 through July 2, 2012.
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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 andamendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available throughthe investor relations page of our internet website free of charge as soon as reasonably practicable after we electronically file such material with,or furnish it to, the Securities and Exchange Commission (SEC). Our website and the information contained therein or connected thereto are notintended to be incorporated into this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information related to quantitative and qualitative disclosures regarding market risk is set forth in Management’s Discussion and Analysis ofFinancial Condition and Results of Operations under Item 2 above. Such information is incorporated by reference herein.
Item 4. 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 thatour disclosure controls and procedures were effective as of April 3, 2010 to provide reasonable assurance that information required to bedisclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms. Such disclosure controls and procedures include controls and procedures designed to ensure that
information required to be disclosed is accumulated and communicated to our management, including our CEO and CFO, to allow timely
decisions regarding required disclosures. There was no change in our internal controls during the fiscal quarter ended April 3, 2010 thatmaterially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
Securities Litigation
On December 6, 2001, a class action complaint for violations of U.S. federal securities laws was filed in the United States District Court for
the Southern District of New York against us, four of our officers individually and the three investment banking firms who served as
representatives of the underwriters in connection with our initial public offering of common stock. The Consolidated Amended Complaint
alleges that the registration statement and prospectus for our initial public offering did not disclose that (1) the underwriters solicited andreceived additional, excessive and undisclosed commissions from certain investors, and (2) the underwriters had agreed to allocate shares of theoffering in exchange for a commitment from the customers to purchase additional shares in the aftermarket at pre-determined higher prices. The
Complaint alleges violations of the Securities Act of 1933 and the Securities Exchange Act of 1934. The action seeks damages in an unspecified
amount and is being coordinated with approximately 300 other nearly identical actions filed against other companies. A court order dated
October 9, 2002 dismissed without prejudice our four officers who had been named individually. On December 5, 2006, the Second Circuit
vacated a decision by the District Court granting class certification in six of the coordinated cases, which are intended to serve as test, or “focus”
cases. The plaintiffs selected these six cases, which do not include us. On April 6, 2007, the Second Circuit denied a petition for rehearing filedby the plaintiffs, but noted that the plaintiffs could ask the District Court to certify more narrow classes than those that were rejected.
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The parties in the approximately 300 coordinated cases, including the parties in the case against us, reached a settlement. The insurers for theissuer defendants in the coordinated cases will make the settlement payment on behalf of the issuers, including us. On October 5, 2009, the Court
granted final approval of the settlement. Six notices of appeal have been filed. Judgment was entered on January 13, 2010. The time to fileadditional notices of appeal has expired. A group of three objectors, who filed a notice of appeal, also filed a petition to the Second Circuit
seeking permission to appeal the District Court’s final approval of the settlement on the basis that the settlement class is broader than the classpreviously rejected by the Second Circuit in its December 5, 2006 order vacating the District Court’s order certifying classes in the focus cases.
Plaintiffs filed an opposition to the petition.
As the litigation process is inherently uncertain, we are unable to predict the outcome of the above described matter if the settlement does notsurvive the appeal. While we do maintain liability insurance, we could incur losses that are not covered by our liability insurance or that exceed
the limits of our liability insurance. Such losses could have a material impact on our business and our results of operations or financial position.
Other
We are involved in various other legal proceedings that have arisen in the normal course of business. While the ultimate results of thesematters cannot be predicted with certainty, we do not expect them to have a material adverse effect on our consolidated financial position or
results of operations.
Item 1A. Risk Factors
Risks Related to our BusinessWe may not be able to maintain our historical growth and may experience significant period-to-period fluctuations in our revenues andoperating 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 experiencesignificant 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:•

The timing and volume of orders received from our customers;•

The timeliness of our new product introductions and the rate at which our new products may cannibalize our older products;•

The rate of acceptance of our products by our customers, including the acceptance of new products we may develop for integration in
the products manufactured by such customers, which we refer to as “design wins”;•

The time lag and realization rate between “design wins” and production orders;•

The demand for, and life cycles of, the products incorporating our ICs;•

The rate of adoption of mixed-signal ICs in the markets we target;•

Deferrals or reductions of customer orders in anticipation of new products or product enhancements from us or our competitors or otherproviders of ICs;•

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The average selling prices for our products could drop suddenly due to competitive offerings or competitive predatory pricing,
especially with respect to our mobile handset and modem products;•

The average selling prices for our products generally decline over time;•

Changes in market standards;•

Impairment charges related to inventory, equipment or other long-lived assets;•

The software used in our products, including software provided by third-parties, may not meet the needs of our customers;•

Significant legal costs to defend our intellectual property rights or respond to claims against us; and•The rate at which new markets emerge for products we are currently developing or for which our design expertise can be utilized todevelop products for these new markets.

The markets for mobile handsets, consumer electronics, satellite set-top boxes and VoIP applications are characterized by rapid fluctuations indemand 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 toincorporate 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 asindicative of continued future growth. In addition, demand can quickly decline for a product when a new IC product is introduced and receives
market acceptance. Due to the various factors mentioned above, the results of any prior quarterly or annual periods should not be relied upon as
an indication of our future operating performance.
If we are unable to develop or acquire new and enhanced products that achieve market acceptance in a timely manner, our operating
results and competitive position could be harmed
Our future success will depend on our ability to reduce our dependence on a few products by developing or acquiring new ICs and productenhancements 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:•

Requirements of customers;•

Accurate prediction of market and technical requirements;•

Timely completion and introduction of new designs;•

Timely qualification and certification of our ICs for use in our customers’ products;•

Commercial acceptance and volume production of the products into which our ICs will be incorporated;•

Availability of foundry, assembly and test capacity;•

Achievement of high manufacturing yields;•

Quality, price, performance, power use and size of our products;
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Availability, quality, price and performance of competing products and technologies;•

Our customer service, application support capabilities and responsiveness;•

Successful development of our relationships with existing and potential customers;•

Technology, industry standards or end-user preferences; and•Cooperation of third-party software providers and our semiconductor vendors to support our chips within a system.

We cannot provide any assurance that products which we recently have developed or may develop in the future will achieve market
acceptance. We have introduced to market or are in development of many ICs. If our ICs fail to achieve market acceptance, or if we fail todevelop new products on a timely basis that achieve market acceptance, our growth prospects, operating results and competitive position could
be adversely affected.
Our research and development efforts are focused on a limited number of new technologies and products, and any delay in thedevelopment, or abandonment, of these technologies or products by industry participants, or their failure to achieve market acceptance,
could compromise our competitive position
Our ICs are used as components in electronic devices in various markets. As a result, we have devoted and expect to continue to devote alarge 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 the three months ended April 3, 2010 was $29.9 million, or 23.6% of revenues. A numberof large companies are actively involved in the development of these new technologies and standards. Should any of these companies delay or
abandon their efforts to develop commercially available products based on new technologies and standards, our research and development efforts
with respect to these technologies and standards likely would have no appreciable value. In addition, if we do not correctly anticipate newtechnologies 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 inlower sales of these products than we currently anticipate.
We depend on a limited number of customers for a substantial portion of our revenues, and the loss of, or a significant reduction inorders from, any key customer could significantly reduce our revenues
The loss of any of our key customers, or a significant reduction in sales to any one of them, would significantly reduce our revenues andadversely affect our business. During the three months ended April 3, 2010, our ten largest customers accounted for 39% of our revenues. Someof the markets for our products are dominated by a small number of potential customers. Therefore, our operating results in the foreseeable
future will continue to depend on our ability to sell to these dominant customers, as well as the ability of these customers to sell products thatincorporate our IC products. In the future, these customers may decide not to purchase our ICs at all, purchase fewer ICs than they did in the pastor alter their purchasing patterns, particularly because:•

We do not have material long-term purchase contracts with our customers;•

Substantially all of our sales to date have been made on a purchase order basis, which permits our customers to cancel, change or delay
product purchase commitments with little or no notice to us and without penalty;•

Some of our customers may have efforts underway to actively diversify their vendor base which could reduce purchases of our ICs;
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Some of our customers have developed or acquired products that compete directly with products these customers purchase from us,which could affect our customers’ purchasing decisions in the future.

While we have been a significant supplier of ICs used in many of our customers’ products, our customers regularly evaluate alternative
sources of supply in order to diversify their supplier base, which increases their negotiating leverage with us and protects their ability to securethese components. We believe that any expansion of our customers’ supplier bases could have an adverse effect on the prices we are able tocharge and volume of product that we are able to sell to our customers, which would negatively affect our revenues and operating results.
Significant litigation over intellectual property in our industry may cause us to become involved in costly and lengthy litigation which
could seriously harm our businessIn recent years, there has been significant litigation in the United States involving patents and other intellectual property rights. From time totime, we receive letters from various industry participants alleging infringement of patents, trademarks or misappropriation of trade secrets orfrom customers requesting indemnification for claims brought against them by third parties. The exploratory nature of these inquiries has
become relatively common in the semiconductor industry. We respond when we deem appropriate and as advised by legal counsel. We havebeen involved in litigation to protect our intellectual property rights in the past and may become involved in such litigation again in the future. In
the future, we may become involved in additional litigation to defend allegations of infringement asserted by others, both directly and indirectly
as a result of certain industry-standard indemnities we may offer to our customers. Legal proceedings could subject us to significant liability fordamages or invalidate our proprietary rights. Legal proceedings initiated by us to protect our intellectual property rights could also result incounterclaims or countersuits against us. Any litigation, regardless of its outcome, would likely be time-consuming and expensive to resolve andwould divert our management’s time and attention. Most intellectual property litigation also could force us to take specific actions, including:•Cease selling products that use the challenged intellectual property;•

Obtain from the owner of the infringed intellectual property a right to a license to sell or use the relevant technology, which license
may not be available on reasonable terms, or at all;•Redesign those products that use infringing intellectual property; or•Pursue legal remedies with third parties to enforce our indemnification rights, which may not adequately protect our interests.

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 beimportant 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 ourtechnology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States. We cannot becertain 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.
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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 andsales representatives, develop additional channels for the distribution and sale of our products and manage these relationships. As we execute ourindirect 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 involvethe use of price protection and inventory return rights. This often requires a significant amount of sales management’s time and system resources
to manage properly.
We are subject to increased inventory risks and costs because we build our products based on forecasts provided by customers before
receiving purchase orders for the products
In order to ensure availability of our products for some of our largest customers, we start the manufacturing of our products in advance ofreceiving purchase orders based on forecasts provided by these customers. However, these forecasts do not represent binding purchasecommitments and we do not recognize sales for these products until they are shipped to the customer. As a result, we incur inventory andmanufacturing 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 areexacerbated when our customers purchase indirectly through contract manufacturers or hold component inventory levels greater than theirconsumption rate because this causes us to have less visibility regarding the accumulated levels of inventory for such customers. A resulting
write-off of unusable or excess inventories would adversely affect our operating results.
Our products are complex and may contain errors which could lead to product liability, an increase in our costs and/or a reduction in
our revenues
Our products are complex and may contain errors, particularly when first introduced or as new versions are released. Our new products are
increasingly being designed in more complex processes which further increases the risk of errors. We rely primarily on our in-house testing
personnel to design test operations and procedures to detect any errors prior to delivery of our products to our customers. Because our products
are manufactured by third parties, should problems occur in the operation or performance of our ICs, we may experience delays in meeting key
introduction dates or scheduled delivery dates to our customers. These errors also could cause us to incur significant re-engineering costs, divert
the attention of our engineering personnel from our product development efforts and cause significant customer relations and business reputation
problems. Any defects could require product replacement or recall or we could be obligated to accept product returns. Any of the foregoing
could impose substantial costs and harm our business.
Product liability claims may be asserted with respect to our products. Our products are typically sold at prices that are significantly lower thanthe cost of the end-products into which they are incorporated. A defect or failure in our product could cause failure in our customer’s endproduct, 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 riskof serious harm to users of these products. There can be no assurance that any insurance we maintain will sufficiently protect us from any suchclaims.
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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 businessand operating results, including:•

Problems integrating the acquired operations, technologies or products with our existing business and products;•

Diversion of management’s time and attention from our core business;•

Need for financial resources above our planned investment levels;•

Difficulties in retaining business relationships with suppliers and customers of the acquired company;•

Risks associated with entering markets in which we lack prior experience;•

Risks associated with the transfer of licenses of intellectual property;•

Increased operating costs due to acquired overhead;•Tax issues associated with acquisitions;•

Acquisition-related disputes, including disputes over earn-outs and escrows;•

Potential loss of key employees of the acquired company; and•Potential impairment of related goodwill and intangible assets.

Future acquisitions also could cause us to incur debt or contingent liabilities or cause us to issue equity securities that could negatively impact
the ownership percentages of existing shareholders.
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 testingof 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 qualificationand sales of a product to a customer, a subsequent revision to the IC or software, changes in the IC’s manufacturing process or the selection of a
new supplier by us may require a new qualification process, which may result in delays and in us holding excess or obsolete inventory. After our
products are qualified, it can take an additional six months or more before the customer commences volume production of components ordevices 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 inqualifying 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.
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We have increased our international activities significantly and plan to continue such efforts, which subjects us to additional businessrisks including increased logistical and financial complexity, political instability and currency fluctuations
We have established additional international subsidiaries and have opened additional offices in international markets to expand ourinternational activities in Europe and Asia. This has included the establishment of a headquarters in Singapore for non-U.S. operations. The
percentage of our revenues derived from customers located outside of the United States was 87% during the three months ended April 3, 2010.
We may not be able to maintain or increase international market demand for our products. Our international operations are subject to a numberof risks, including:•

Increased complexity and costs of managing international operations and related tax obligations, including our headquarters for nonU.S. operations in Singapore;•Protectionist laws and business practices that favor local competition in some countries;•

Difficulties related to the protection of our intellectual property rights in some countries;•

Multiple, conflicting and changing tax and other laws and regulations that may impact both our international and domestic tax andother liabilities and result in increased complexity and costs;•

Longer sales cycles;•Greater difficulty in accounts receivable collection and longer collection periods;•

High levels of distributor inventory subject to price protection and rights of return to us;•

Political and economic instability;•

Greater difficulty in hiring and retaining qualified technical sales and applications engineers and administrative personnel; and•The need to have business and operations systems that can meet the needs of our international business and operating structure.

To date, all of our sales to international customers and purchases of components from international suppliers have been denominated in
U.S. dollars. As a result, an increase in the value of the U.S. dollar relative to foreign currencies could make our products more expensive for ourinternational customers to purchase, thus rendering our products less competitive.
We rely on third parties to manufacture, assemble and test our products and the failure to successfully manage our relationships with
our manufacturers and subcontractors would negatively impact our ability to sell our products
We do not have our own wafer fab manufacturing facilities. Therefore, we rely on third-party vendors to manufacture the ICs we design. We
also currently rely on Asian third-party assembly subcontractors to assemble and package the silicon chips provided by the wafers for use in final
products. Additionally, we rely on these offshore subcontractors for a substantial portion of the testing requirements of our products prior toshipping. 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 havebeen 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 tomeet our customers’ delivery requirements even if we adequately forecast customer demand.
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There are significant risks associated with relying on these third-party foundries and subcontractors, including:•

Failure by us, our customers or their end customers to qualify a selected supplier;•Potential insolvency of the third-party subcontractors;•

Reduced control over delivery schedules and quality;•

Limited warranties on wafers or products supplied to us;•

Potential increases in prices or payments in advance for capacity;•

Increased need for international-based supply, logistics and financial management;•

Their inability to supply or support new or changing packaging technologies; and•Low test yields.

We typically do not have long-term supply contracts with our third-party vendors which obligate the vendor to perform services and supply
products to us for a specific period, in specific quantities, and at specific prices. Our third-party foundry, assembly and test subcontractors
typically do not guarantee that adequate capacity will be available to us within the time required to meet demand for our products. In the eventthat these vendors fail to meet our demand for whatever reason, we expect that it would take up to 12 months to transition performance of these
services to new providers. Such a transition may also require qualification of the new providers by our customers or their end customers.
Since our inception, most of the silicon wafers for the products that we have shipped were manufactured either by Taiwan Semiconductor
Manufacturing Co. (TSMC) or its affiliates. Our customers typically complete their own qualification process. If we fail to properly balancecustomer demand across the existing semiconductor fabrication facilities that we utilize or are required by our foundry partners to increase, orotherwise change the number of fab lines that we utilize for our production, we might not be able to fulfill demand for our products and mayneed to divert our engineering resources away from new product development initiatives to support the fab line transition, which would
adversely affect our operating results.
Our products incorporate technology licensed from third parties
We incorporate technology (including software) licensed from third parties in our products. We could be subjected to claims of infringement
regardless of our lack of involvement in the development of the licensed technology. Although a third party licensor is typically obligated toindemnify us if the licensed technology infringes on another party’s intellectual property rights, such indemnification is typically limited inamount 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.
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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 enterprisewide systems, information technology infrastructure, procedures and controls, including the improvement of our accounting and other internalmanagement 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 areunable to effectively manage our expanding global operations, including our international headquarters in Singapore, our business could bematerially and adversely affected.
We are subject to risks relating to product concentration
We derive a substantial portion of our revenues from a limited number of products, and we expect these products to continue to account for alarge 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 perunit of our products. Our business, operating results, financial condition and cash flows could therefore be adversely affected by:•

A decline in demand for any of our more significant products, including our modem products, FM tuners or ProSLIC;•

Failure of our products to achieve continued market acceptance;•

Competitive products;•

New technological standards or changes to existing standards that we are unable to address with our products;•

A failure to release new products or enhanced versions of our existing products on a timely basis; and•The failure of our new products to achieve market acceptance.

We are subject to credit risks related to our accounts receivable
We do not generally obtain letters of credit or other security for payment from customers, distributors or contract manufacturers. Accordingly,
we are not protected against accounts receivable default or bankruptcy by these entities. The current economic situation could increase thelikelihood of such defaults and bankruptcies. Our ten largest customers or distributors represent a substantial majority of our accounts receivable.
If any such customer or distributor, or a material portion of our smaller customers or distributors, were to become insolvent or otherwise notsatisfy their obligations to us, we could be materially harmed.
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We depend on our key personnel to manage our business effectively in a rapidly changing market, and if we are unable to retain ourcurrent 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 andmarketing personnel. We believe that our future success will be dependent on retaining the services of our key personnel, developing theirsuccessors and certain internal processes to reduce our reliance on specific individuals, and on properly managing the transition of key roles
when they occur. There is currently a shortage of qualified personnel with significant experience in the design, development, manufacturing,marketing and sales of analog and mixed-signal ICs. In particular, there is a shortage of engineers who are familiar with the intricacies of thedesign and manufacturability of analog elements, and competition for such personnel is intense. Our key technical personnel represent asignificant asset and serve as the primary source for our technological and product innovations. We may not be successful in attracting andretaining sufficient numbers of technical personnel to support our anticipated growth. The loss of any of our key employees or the inability to
attract or retain qualified personnel both in the United States and internationally, including engineers, sales, applications and marketing
personnel, could delay the development and introduction of, and negatively impact our ability to sell, our products.
Any dispositions we make could harm our financial condition
In connection with our sale of the Aero product lines, we incurred various risks. This disposition and any disposition that we may make in the
future entail a number of risks that could materially and adversely affect our business and operating results, including:•Diversion of management’s time and attention from our core business;•

Difficulties separating the divested business;•

Risks to relations with customers who previously purchased products from our disposed product lines;•

Reduced leverage with suppliers due to reduced aggregate volume;•

Risks related to employee relations;•Risks associated with the transfer and licensing of intellectual property;•

Security risks and other liabilities related to the transition services provided in connection with the disposition;•

Tax issues associated with dispositions; and•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:•

Actual or anticipated fluctuations in our operating results;•

Changes in financial estimates by securities analysts or our failure to perform in line with such estimates;•

Changes in market valuations of other technology companies, particularly semiconductor companies;
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Announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures orcapital commitments;•

Introduction of technologies or product enhancements that reduce the need for our products;•

The loss of, or decrease in sales to, one or more key customers;•

A large sale of stock by a significant shareholder;•

Dilution from the issuance of our stock in connection with acquisitions;•

The addition or removal of our stock to or from a stock index fund;•Departures of key personnel; and•The required expensing of stock awards.

The stock market has experienced extreme volatility that often has been unrelated to the performance of particular companies. These market
fluctuations may cause our stock price to fall regardless of our performance.
Most of our current manufacturers, assemblers, test service providers, distributors and customers are concentrated in the samegeographic region, which increases the risk that a natural disaster, epidemic, labor strike, war or political unrest could disrupt ouroperations or sales
Most of TSMC’s foundries and several of our assembly and test subcontractors’ sites are located in Taiwan and our other assembly and test
subcontractors are located in the Pacific Rim region. In addition, many of our customers are located in the Pacific Rim region. The risk ofearthquakes in Taiwan and the Pacific Rim region is significant due to the proximity of major earthquake fault lines in the area. Earthquakes,
fire, flooding, lack of water or other natural disasters, an epidemic, political unrest, war, labor strikes or work stoppages in countries where oursemiconductor 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 tosuch customers. North Korea’s geopolitical maneuverings have created unrest. Such unrest could create economic uncertainty or instability,
could escalate to war or otherwise adversely affect South Korea and our South Korean customers and reduce our sales to such customers, which
would materially and adversely affect our operating results. In addition, a significant portion of the assembly and testing of our products occurs
in South Korea. Any disruption resulting from these events could also cause significant delays in shipments of our products until we are able toshift 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 grossmargins 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 anticipatedmanufacturing yields. Changes in manufacturing processes or the inadvertent use of defective or contaminated materials could result in lower
than anticipated manufacturing yields or unacceptable performance deficiencies, which could lower our gross margins. If our foundries fail todeliver fabricated silicon wafers of satisfactory quality in a timely manner, we will be unable to meet our customers’ demand for our products ina timely manner, which would adversely affect our operating results and damage our customer relationships.
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We depend on our customers to support our products, and some of our customers offer competing products
Our products are currently used by our customers to produce modems, telephony equipment, mobile handsets, networking equipment and abroad range of other devices. We rely on our customers to provide hardware, software, intellectual property indemnification and other technicalsupport 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 bematerially 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 theirown offerings in the marketplace in lieu of promoting our products.
We could seek to raise additional capital in the future through the issuance of equity or debt securities, but additional capital may not be
available on terms acceptable to us, or at all
We believe that our existing cash, cash equivalents and investments will be sufficient to meet our working capital needs, capital expenditures,investment requirements and commitments for at least the next 12 months. However, it is possible that we may need to raise additional funds tofinance our activities or to facilitate acquisitions of other businesses, products, intellectual property or technologies. We believe we could raisethese funds, if needed, by selling equity or debt securities to the public or to selected investors. In addition, even though we may not needadditional funds, we may still elect to sell additional equity or debt securities or obtain credit facilities for other reasons. However, we may not
be able to obtain additional funds on favorable terms, or at all. If we decide to raise additional funds by issuing equity or convertible debt
securities, the ownership percentages of existing shareholders would be reduced.
We are a relatively small company with limited resources compared to some of our current and potential competitors and we may not
be able to compete effectively and increase market share
Some of our current and potential competitors have longer operating histories, significantly greater resources and name recognition and alarger 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 theirproducts 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. Ourcompetitors may also offer bundled chipset kit arrangements offering a more complete product despite the technical merits or advantages of our
products. These competitors may elect not to support our products which could complicate our sales efforts. These and other competitive
pressures may prevent us from competing successfully against current or future competitors, and may materially harm our business. Competition
could decrease our prices, reduce our sales, lower our gross margins and/or decrease our market share.
Provisions in our charter documents and Delaware law could prevent, delay or impede a change in control of us and may reduce themarket price of our common stock
Provisions of our certificate of incorporation and bylaws could have the effect of discouraging, delaying or preventing a merger or acquisition
that a stockholder may consider favorable. For example, our certificate of incorporation and bylaws provide for:•The division of our Board of Directors into three classes to be elected on a staggered basis, one class each year;•

The ability of our Board of Directors to issue shares of our preferred stock in one or more series without further authorization of ourstockholders;41

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A prohibition on stockholder action by written consent;•

Elimination of the right of stockholders to call a special meeting of stockholders;•

A requirement that stockholders provide advance notice of any stockholder nominations of directors or any proposal of new business tobe considered at any meeting of stockholders; and•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 withus, 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 obsolescenceand 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 ourcustomers, our vendors, and us to accurately forecast and plan future business activities and could cause U.S. and foreign businesses to slow
spending on our products. We cannot predict the timing, strength, or duration of any economic slowdown or economic recovery. If the economy
or markets in which we operate deteriorate, our business, financial condition, and results of operations would likely be materially and adversely
affected.
Downturns have been characterized by diminished product demand, production overcapacity, high inventory levels and accelerated erosion of
average selling prices. We believe the semiconductor industry has suffered a downturn due in large part to adverse conditions in the global credit
and financial markets, including diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth,
increased unemployment rates and general uncertainty regarding the economy. Such downturns may have a material adverse effect on ourbusiness and operating results.
Upturns have been characterized by increased product demand and production capacity constraints created by increased competition foraccess to third-party foundry, assembly and test capacity. We are dependent on the availability of such capacity to manufacture, assemble andtest our ICs. None of our third-party foundry, assembly or test subcontractors have provided assurances that adequate capacity will be available
to us.
The average selling prices of our products could decrease rapidly which may negatively impact our revenues and gross margins
We may experience substantial period-to-period fluctuations in future operating results due to the erosion of our average selling prices. We
have reduced the average unit price of our products in anticipation of or in response to competitive pricing pressures, new product introductions
by us or our competitors and other factors. If we are unable to offset any such reductions in our average selling prices by increasing our sales
volumes, increasing our sales content per application or reducing production costs, our gross margins and revenues will suffer. To maintain our
gross margin percentage, we will need to develop and introduce new products and product enhancements on a timely basis and continually
reduce our costs. Our failure to do so could cause our revenues and gross margin percentage to decline.
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Competition within the numerous markets we target may reduce sales of our products and reduce our market share
The markets for semiconductors in general, and for mixed-signal ICs in particular, are intensely competitive. We expect that the market forour products will continually evolve and will be subject to rapid technological change. In addition, as we target and supply products to numerous
markets and applications, we face competition from a relatively large number of competitors. We compete with Analog Devices, Atmel,
Broadcom, Conexant, Cypress, Epson, Freescale, IDT, Lantiq, LSI, Maxim Integrated Products, Microchip, NXP Semiconductors, Renesas,
Sony Semiconductor, ST-Ericsson, STMicroelectronics, Texas Instruments, Vectron International, Zarlink Semiconductor and others. We expect
to face competition in the future from our current competitors, other manufacturers and designers of semiconductors, and start-up semiconductor
design companies. As the markets for communications products grow, we also may face competition from traditional communications devicecompanies. These companies may enter the mixed-signal semiconductor market by introducing their own ICs or by entering into strategic
relationships with or acquiring other existing providers of semiconductor products. In addition, large companies may restructure their operations
to create separate companies or may acquire new businesses that are focused on providing the types of products we produce or acquire ourcustomers.
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 inorder 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 ofour 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 andeffort and to incur significant expense to redesign our products to ensure compliance with relevant standards. If our products are not incompliance with prevailing industry standards for a significant period of time, we could miss opportunities to achieve crucial design wins.
Our pursuit of necessary technological advances may require substantial time and expense. We may not be successful in developing or using
new technologies or in developing new products or product enhancements that achieve market acceptance. If our ICs fail to achieve market
acceptance, our growth prospects, operating results and competitive position could be adversely affected.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Our registration statement (Registration No. 333-94853) under the Securities Act of 1933, as amended, relating to our initial public offeringof our common stock became effective on March 23, 2000.
The following table summarizes repurchases of our common stock during the three months ended April 3, 2010:

Average Price
Paid per
Share

Total Number of
Shares Purchased

PeriodTotal 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

January 3, 2010 – January 30, 2010

65,922$44.67

65,922$

139,203,297

January 31, 2010 – February 27, 2010

277,918$44.93

277,918$

126,715,307

February 28, 2010 – April 3, 2010
Total

209,300
553,140

$
$

47.23
45.77

209,300
553,140$

116,829,955

In October 2009, our Board of Directors authorized a program to repurchase up to $150 million of our common stock through 2010. The
program allows for repurchases to be made in the open market or in private transactions, including structured or accelerated transactions, subject
to applicable legal requirements and market conditions.
Item 3. Defaults Upon Senior Securities
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits
The following exhibits are filed as part of this report:
Exhibit
Number2.1*

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

3.1*

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

3.2*

Second Amended and Restated Bylaws of Silicon Laboratories Inc (filed as Exhibit 3.2 to the Registrant’s Annual Report on
Form 10-K for the fiscal year ended January 3, 2004).
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4.1*

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

31.1

Certification of the Principal Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of the Principal Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certification as required by Section 906 of the Sarbanes-Oxley Act of 2002.

* Incorporated herein by reference to the indicated filing.
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SIGNATURES
Pursuant to the requirements 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.
SILICON LABORATORIES INC.
April 29, 2010/s/ Necip Sayiner

Date

Necip Sayiner
President and Chief Executive Officer(Principal Executive Officer)

April 29, 2010/s/ William G. Bock

Date

William G. Bock
Senior Vice President and Chief Financial Officer(Principal Financial Officer)
46

Exhibit 31.1
Certification to the Securities and Exchange Commission
by Registrant’s Chief Executive Officer, as required by Section 302
of the Sarbanes-Oxley Act of 2002
I, Necip Sayiner, certify that:1.

I have reviewed this report on Form 10-Q of Silicon Laboratories Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to theperiod covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

5.

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period in which this report is being prepared;b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally accepted accounting principles;c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based onsuch evaluation; andd)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during theregistrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materiallyaffected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; andThe registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons fulfilling the equivalentfunctions):a)

All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reportingwhich are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; andb)

Any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant’s internal controls over financial reporting.

Date: April 29, 2010/s/ Necip Sayiner
Necip Sayiner
President andChief Executive Officer(Principal Executive Officer)

Exhibit 31.2
Certification to the Securities and Exchange Commission
by Registrant’s Chief Financial Officer, as required by Section 302
of the Sarbanes-Oxley Act of 2002
I, William G. Bock, certify that:1.

I have reviewed this report on Form 10-Q of Silicon Laboratories Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to theperiod covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

5.

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period in which this report is being prepared;b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally accepted accounting principles;c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based onsuch evaluation; andd)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during theregistrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materiallyaffected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; andThe registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons fulfilling the equivalentfunctions):a)

All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reportingwhich are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; andb)

Any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant’s internal controls over financial reporting.

Date: April 29, 2010/s/ William G. Bock
William G. Bock
Senior Vice President andChief Financial Officer(Principal Financial Officer)

Exhibit 32.1
Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of Silicon
Laboratories Inc. (the “Company”) hereby certify that:(i) the accompanying Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended April 3, 2010 as filed with the Securities
and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities
Exchange Act of 1934; and(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company andfurnished to the Securities Exchange Commission or its staff upon request.
Date: April 29, 2010/s/ Necip Sayiner
Necip Sayiner
President andChief Executive Officer/s/ William G. Bock
William G. Bock
Senior Vice President andChief Financial Officer