SLAB

Silicon Laboratories, Inc. (SLAB)

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Silicon Laboratories Inc. (SLAB)

Q4 2009 Earnings Call Transcript

February 3, 2010 8:30 am ET

Executives

Shannon Pleasant – Director, Corporate Communications

Bill Bock – SVP, Finance & Administration and CFO

Necip Sayiner – President and CEO

Analysts

Craig Ellis – Caris & Company

Ian Ing – Broadpoint AmTech

Adam Benjamin – Jefferies

Romit Shah – Barclays Capital

Srini Pajjuri – CLSA

Craig Berger – FBR Capital Markets

Tore Svanberg – Thomas Weisel Partners

Alex Gauna – JMP Securities

Gus Richard – Piper Jaffray

Arnab Chanda – Roth Capital

Anil Doradla – William Blair

Presentation

Operator

Welcome to the Silicon Laboratories earnings conference call. At this time, all participants are in a listen-only mode. (Operator instructions) Today’s conference is being recorded. If you have any objections, you may disconnect. I’d like to turn the call over to your host today, Ms. Shannon Pleasant. Ma'am, you may begin.

Shannon Pleasant

Good morning. This is Shannon Pleasant, Director of Corporate Communications for Silicon Laboratories. Thank you for joining us today to discuss the company's financial results. The financial press release, reconciliation of GAAP to non-GAAP financial measures, and other financial measurement tables are now available on the Investor page of our website at www.silabs.com. This call is being simulcast and will be archived on our website. There will also be a replay available approximately one hour after the completion of the call at 888-662-6658.

I’m joined today by Necip Sayiner, President and Chief Executive Officer; Bill Bock, Chief Financial Officer; and Paul Walsh, Chief Accounting Officer. We will discuss our financial results and review our business activities for the quarter. We will have a question-and-answer session following the presentation.

Before we begin, let me comment regarding the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. Our comments and presentation today will include forward-looking statements or projections that involve substantial risks and uncertainties. We base these forward-looking statements on information available to us as of the date of this conference call. This information will likely change over time.

By discussing our current perception of our market and the future performance of Silicon Laboratories and our products review today, we are not undertaking an obligation to provide updates in the future. There are a variety of factors that we may not be able to accurately predict or control that could have a material adverse effect on our business, operating results, and financial condition.

We encourage you to review our SEC filings, including the Form 10-K that we anticipate will be filed within the next week, but identify important factors that could cause actual results to differ materially from those contained in any forward-looking statements. Also, the non-GAAP financial measurements, which are discussed today, are not intended to replace the presentation of Silicon Lab’s GAAP financial results. We are providing this information because it may enable investors to perform meaningful comparisons of operating results and more clearly highlight the results of core ongoing operations.

I would now like to turn the call over to Silicon Laboratories' Chief Financial Officer, Bill Bock.

Bill Bock

I'm very pleased to report another quarter with revenues of $127.2 million, a 28% increase over the same period last year. Revenue for the year totaled $441 million, a 6% increase over 2008 and a very strong result compared to the decline in the overall industry during the same period. Even more notable than the standout revenue performance is the combination we achieved of revenue growth, gross margin improvement, and earnings expansion. We intend to maintain these gains and we will today announce an upward revision to our long-term corporate financial model suggesting increased earnings potential for the future.

Let me start with the current quarter GAAP results, which include approximately $11.8 million in non-cash stock compensation charges. Our GAAP results showed significant improvement over the course of 2009, and we are anticipating further improvements in 2010. Fourth quarter GAAP gross margin increased considerably to 65.5% and 63.4% for the full year.

R&D investment for the fourth quarter was $26.6 million. SG&A increased to $30.6 million. Other income, principally interest income on invested cash, was under $1 million. GAAP operating income was over 20% in the fourth quarter, up from 7% the same period in 2008. Fully diluted earnings per share was $0.84 for the fourth quarter and $1.57 for the full year, up dramatically from $0.14 and $0.67 respectively in 2008.

These earnings results reflect a substantial tax benefit of $0.40. During the fourth quarter, we entered into an advanced pricing agreement with the internal revenue service. We operate in multiple tax jurisdictions, and this agreement resolves uncertainty regarding the allocation of income among these jurisdictions with respect to the United States. The agreement covers historical tax years from 2005 through 2009, allowing for the immediate reversal of tax reserves established for each of these periods.

In addition, this agreement with the IRS provides more certainty into our future effective tax rate. As a result, our new non-GAAP effective tax rate is expected to be approximately 17% if Congress renews the Federal research and development tax credit as expected, or about 18% if not. This is down from the approximately 20% tax rate we have historically been guiding.

Turning to our non-GAAP results, revenue of $127.2 million was an all-time record. We further exceeded gross margin expectations achieving 65.7% gross margin in the fourth quarter. Margin improvements continue to be driven primarily by cost reductions and improved yields, but certainly reflect the superior value our products are delivering to our customers across the board. All product lines performed very well, and margins increased for the year in each of our three product categories.

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