Silicon Laboratories (NASDAQ:SLAB)
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The Company designs and develops proprietary, analog-intensive, mixed-signal integrated circuits for a broad range of applications.
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The Company designs and develops proprietary, analog-intensive, mixed-signal integrated circuits for a broad range of applications.
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Silicon Laboratories designs and develops analog-intensive, mixed-signal integrated circuits for a broad range of applications. Silicon Laboratories' diverse portfolio of highly integrated, patented solutions is developed by a world-class engineering team with decades of cumulative expertise in mixed-signal technology. Founded in 1996 on the principles of constant innovation and solid execution Silicon Laboratories' strong business fundamentals and proven track record have resulted in sustained growth throughout the company's history.
Silicon Laboratories has evolved over the years with much priority given to improve and diversify the broad-based mixed signal business. With more stress on its microcontroller (MCU) technology unit, the company seems to be well on the path to garner improved market share and entering growth-oriented markets. Much focus has been on the automotive market, as one in every $3 spent on 8-bit MCU going for entry into automobile markets.
Revenues from wireless business accounting for 42% of the total sales dropped sequentially attributed to excess inventory in China and the overall weakness from original design manufacturers. However AeroFONE single chip, which integrates the digital and analog base band and a major component of Cell phone instruments is expected to be the major growth driver for 2007 in the wireless space.
The outlook for the FM tuner segment remains positive as it seeks to address demand for low cost, highly integrated Global System for Mobile Communications (GSM) handsets in emerging economies. The transition to EDGE tans-receiver is gaining momentum in the wireless industry and Samsung has chosen its Aero IIe for it handset platforms
Silicon Laboratories has its own areas of concern ranging from pricing pressures, slump in PC modem sales and gross margins decreasing sequentially mainly due to start up costs associated with the AeroFONE. However the financial position looks excellent with positive cash flows since inception with margins averaging over 50% and is heading for a bull run.
The decision to sell Aero product lines to NXP for $285 million of sale seems to be a strategic inflection point for the company, as it gives opportunities for gross margins to widen. Proceeds from the deal would be used to fund acquisitions that are aligned with strategy to improve the mixed signal strategy. Head count has declined by 195 to 545 employees accomplished through selective reduction and transfer of additional support head count to NXP, which marks the successful structural changes undergone and proper alignment of operating expenses. Mixed signal business account for 85% of the revenues with exposure in product lines across broadcast, embedded modes, voice over broadband, microcontrollers and timing. Broadcast remains a bright spot with the launch of 60 new FM tuner design wins and a dozen FM transmitter wins. Embedded modems prove to be margin rich products that are expected to deliver modest growth. Though, there seems to be a weakness in the Voice over broadband due to short-term nuances, the long-term outlook looks solid and the order win from Europe is really a source of encouragement. Driving force would be the penetration in residential gateways and the sampling of next generation ProSLIC form the residential market, which would improve the competitive position and cost structure. Management hopes to maintain the research and development expenses flat at current levels and remains open to acquisitions that would be accretive complementing with strong technology teams and products that would augment the current portfolio. Summarizing the above mentioned facts, the future cash flows of SLAB looks safe and worth a buy for the coming year.