10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 29, 2012

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                 

Commission file number:  000-29823

SILICON LABORATORIES INC.

(Exact name of registrant as specified in its charter)

Delaware	74-2793174
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

400 West Cesar Chavez, Austin, Texas	78701
(Address of principal executive offices)	(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.  x Yes  o 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).  x Yes  o 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 x	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).  ¨ Yes  x No

As of October 17, 2012, 41,599,066 shares of common stock of Silicon Laboratories Inc. were outstanding.

Table of Contents

			Page Number
Part I.   Financial Information
	Item 1.	Financial Statements (Unaudited):
		Condensed Consolidated Balance Sheets at September 29, 2012 and December 31, 2011	3
		Condensed Consolidated Statements of Income for the three and nine months ended September 29, 2012 and October 1, 2011	4
		Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 29, 2012 and October 1, 2011	5
		Condensed Consolidated Statements of Cash Flows for the nine months ended September 29, 2012 and October 1, 2011	6
		Notes to Condensed Consolidated Financial Statements	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
	Item 4.	Controls and Procedures	35
Part II.   Other Information
	Item 1.	Legal Proceedings	36
	Item 1A.	Risk Factors	36
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
	Item 3.	Defaults Upon Senior Securities	51
	Item 4.	Mine Safety Disclosures	51
	Item 5.	Other Information	51
	Item 6.	Exhibits	51

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 “believe,” “estimate,” “expect,” “intend,” “anticipate,” “plan,” “project,” “will” or similar language. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties. Actual results could differ materially from those indicated by such forward-looking statements. Factors that could cause or contribute to such differences include those discussed under “Risk Factors” and elsewhere in this report. Silicon Laboratories disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

2

Part I.  Financial Information

Item 1.  Financial Statements

Silicon Laboratories Inc.

Condensed Consolidated Balance Sheets

(In thousands, except per share data)

(Unaudited)

	September 29, 2012			December 31, 2011
Assets
Current assets:
Cash and cash equivalents	$	125,505		$	94,964
Short-term investments	148,573			212,526
Accounts receivable, net of allowances for doubtful accounts of $789 at September 29, 2012 and $725 at December 31, 2011	75,749			55,351
Inventories	42,523			34,778
Deferred income taxes	15,870			11,563
Prepaid expenses and other current assets	36,735			43,867
Total current assets	444,955			453,049
Long-term investments	11,418			17,477
Property and equipment, net	136,321			25,141
Goodwill	130,069			115,489
Other intangible assets, net	94,611			60,005
Other assets, net	37,669			34,830
Total assets	$	855,043		$	705,991
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	35,476		$	26,354
Current portion of long-term debt	5,000			—
Accrued expenses	41,441			30,857
Deferred income on shipments to distributors	30,903			24,962
Income taxes	3,339			665
Total current liabilities	116,159			82,838
Long-term debt	95,000			—
Other non-current liabilities	22,663			24,214
Total liabilities	233,822			107,052
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; 41,706 and 42,068 shares issued and outstanding at September 29, 2012 and December 31, 2011, respectively	4			4
Additional paid-in capital	—			14,749
Retained earnings	622,098			586,653
Accumulated other comprehensive loss	(881		)	(2,467		)
Total stockholders’ equity	621,221			598,939
Total liabilities and stockholders’ equity	$	855,043		$	705,991

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

3

Silicon Laboratories Inc.

Condensed Consolidated Statements of Income

(In thousands, except per share data)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 29, 2012			October 1, 2011			September 29, 2012			October 1, 2011
Revenues	$	149,461		$	119,100		$	410,833		$	364,933
Cost of revenues	62,968			46,203			166,442			143,666
Gross margin	86,493			72,897			244,391			221,267
Operating expenses:
Research and development	34,768			31,715			101,943			101,248
Selling, general and administrative	24,495			27,254			82,075			85,168
Operating expenses	59,263			58,969			184,018			186,416
Operating income	27,230			13,928			60,373			34,851
Other income (expense):
Interest income	243			388			1,103			1,432
Interest expense	(234		)	(4		)	(299		)	(14		)
Other income (expense), net	(161		)	(81		)	807			292
Income before income taxes	27,078			14,231			61,984			36,561
Provision for income taxes	17,054			2,976			17,131			13,894
Net income	$	10,024		$	11,255		$	44,853		$	22,667
Earnings per share:
Basic	$	0.24		$	0.26		$	1.06		$	0.52
Diluted	$	0.24		$	0.26		$	1.04		$	0.50
Weighted-average common shares outstanding:
Basic	41,735			42,834			42,279			43,902
Diluted	42,520			43,919			43,261			45,305

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

4

Silicon Laboratories Inc.

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 29, 2012			October 1, 2011			September 29, 2012			October 1, 2011
Net income	$	10,024		$	11,255		$	44,853		$	22,667
Other comprehensive income, before tax
Net changes to available-for-sale securities
Unrealized gains arising during the period	621			296			1,138			436
Net changes to cash flow hedges
Unrealized losses arising during the period	(760		)	(66		)	(898		)	(492		)
Reclassification for losses included in net income	1,317			481			2,197			1,777
Other comprehensive income, before tax	1,178			711			2,437			1,721
Provision for income taxes	412			249			853			603
Other comprehensive income	766			462			1,584			1,118
Comprehensive income	$	10,790		$	11,717		$	46,437		$	23,785

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

5

Silicon Laboratories Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Nine Months Ended
	September 29, 2012			October 1, 2011
Operating Activities
Net income	$	44,853		$	22,667
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation of property and equipment	10,247			10,119
Net gain on the purchase of property and equipment	(8,457		)	—
Amortization of other intangible assets and other assets	11,001			8,570
Stock-based compensation expense	23,796			27,224
Income tax benefit from employee stock-based awards	2,301			2,301
Excess income tax benefit from employee stock-based awards	(2,470		)	(2,111		)
Deferred income taxes	5,024			2,011
Changes in operating assets and liabilities:
Accounts receivable	(18,470		)	(11,581		)
Inventories	(5,994		)	1,670
Prepaid expenses and other assets	13,283			227
Accounts payable	9,113			871
Accrued expenses	(797		)	819
Deferred income on shipments to distributors	5,267			1,495
Income taxes	(4,378		)	1,287
Net cash provided by operating activities	84,319			65,569
Investing Activities
Purchases of available-for-sale investments	(138,822		)	(113,784		)
Proceeds from sales and maturities of marketable securities	209,972			166,262
Purchases of property and equipment	(99,720		)	(7,472		)
Purchases of other assets	(6,146		)	(891		)
Acquisition of businesses, net of cash acquired	(71,852		)	(27,262		)
Net cash provided by (used in) investing activities	(106,568		)	16,853
Financing Activities
Proceeds from issuance of common stock, net of shares withheld for taxes	3,035			2,320
Excess income tax benefit from employee stock-based awards	2,470			2,111
Repurchases of common stock	(51,040		)	(110,063		)
Proceeds from issuance of long-term debt, net	98,325			—
Payments on debt	—			(7,174		)
Net cash provided by (used in) financing activities	52,790			(112,806		)
Increase (decrease) in cash and cash equivalents	30,541			(30,384		)
Cash and cash equivalents at beginning of period	94,964			138,567
Cash and cash equivalents at end of period	$	125,505		$	108,183

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

6

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 and adjustments 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 September 29, 2012 and December 31, 2011, the condensed consolidated results of its operations for the three and nine months ended September 29, 2012 and October 1, 2011, the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 29, 2012 and October 1, 2011, and the Condensed Consolidated Statements of Cash Flows for the nine months ended September 29, 2012 and October 1, 2011.  All intercompany balances and transactions have been eliminated in consolidation.  The condensed consolidated results of operations for the three and nine months ended September 29, 2012 are not necessarily indicative of the results to be expected for the full year.

The accompanying unaudited Condensed Consolidated Financial Statements do not include certain footnotes and financial presentations normally required under U.S. generally accepted accounting principles (GAAP). Therefore, these Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto for the year ended December 31, 2011, included in the Company’s Form 10-K filed with the Securities and Exchange Commission (SEC) on February 15, 2012.

The Company prepares financial statements on a 52-53 week year that ends on the Saturday closest to December 31.  Fiscal 2012 will have 52 weeks and fiscal 2011 had 52 weeks.  In a 52-week year, each fiscal quarter consists of 13 weeks.

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 is fixed 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.

7

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Recent Accounting Pronouncements

In July 2012, the Financial Accounting Standards Board (FASB) issued FASB Accounting Standards Update (ASU) No. 2012-02, Intangibles—Goodwill and Other (Topic 350) — Testing Indefinite-Lived Intangible Assets for Impairment. ASU 2012-02 permits an entity to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30. If an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then no further action is required. If an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The adoption of this ASU is not expected to have a material impact on the Company’s financial statements.

In December 2011, the FASB issued FASB ASU No. 2011-11, Balance Sheet (Topic 210) — Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. Entities are required to disclose both gross and net information about these instruments. ASU 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The adoption of this ASU is 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				Nine Months Ended
	September 29, 2012		October 1, 2011		September 29, 2012		October 1, 2011
Net income	$	10,024	$	11,255	$	44,853	$	22,667
Shares used in computing basic earnings per share	41,735		42,834		42,279		43,902
Effect of dilutive securities:
Stock options and other stock-based awards	785		1,085		982		1,403
Shares used in computing diluted earnings per share	42,520		43,919		43,261		45,305
Earnings per share:
Basic	$	0.24	$	0.26	$	1.06	$	0.52
Diluted	$	0.24	$	0.26	$	1.04	$	0.50

For the three months ended September 29, 2012 and October 1, 2011 and the nine months ended September 29, 2012 and October 1, 2011, approximately 0.8 million, 1.4 million, 0.9 million and 0.5 million shares, respectively, were not included in the diluted earnings per share calculation since the shares were anti-dilutive.

8

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 as of September 29, 2012 consisted of corporate bonds, money market funds, municipal bonds, U.S. Treasury bills, variable-rate demand notes, U.S. government bonds, asset-backed securities and international government bonds. The Company’s long-term investments consist of 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 September 29, 2012, the Company held $12.5 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 $10.5 million were guaranteed by the U.S. government and the remaining $2.0 million were privately insured. As of September 29, 2012, $4.5 million of the auction-rate securities had credit ratings of AAA, $6.0 million had credit ratings of AA and $2.0 million had a credit rating of A. These securities have contractual maturity dates ranging from 2033 to 2046 and with current yields of 0.3% to 1.7% per year at September 29, 2012. The Company is receiving the underlying cash flows on all of its auction-rate securities. The principal amounts associated with failed 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. The Company is unable to predict if these funds will become available before their maturity dates.

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 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 and credit support of the security issuers indicate that they have the ability to settle the securities at par value. As such, the Company has determined that no other-than-temporary impairment losses existed as of September 29, 2012.

9

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

The Company’s cash, cash equivalents and investments consist of the following (in thousands):

	September 29, 2012
	Cost		Gross Unrealized Losses			Gross Unrealized Gains		Fair Value
Cash and Cash Equivalents:
Cash on hand	$	54,887	$	—		$	—	$	54,887
Available-for-sale securities:
Money market funds	54,619		—			—		54,619
U.S. Treasury bills	15,999		—			—		15,999
Total available-for-sale securities	70,618		—			—		70,618
Total cash and cash equivalents	$	125,505	$	—		$	—	$	125,505
Short-term Investments:
Available-for-sale securities:
Corporate bonds	$	62,824	$	(1	)	$	326	$	63,149
Municipal bonds	29,952		(2		)	60		30,010
Variable-rate demand notes	19,280		—			1		19,281
U.S. government bonds	12,642		—			28		12,670
Asset-backed securities	11,978		—			19		11,997
U.S. Treasury bills	8,499		—			—		8,499
International government bonds	2,950		—			17		2,967
Total short-term investments	$	148,125	$	(3	)	$	451	$	148,573
Long-term Investments:
Available-for-sale securities:
Auction rate securities	$	12,525	$	(1,107	)	$	—	$	11,418
Total long-term investments	$	12,525	$	(1,107	)	$	—	$	11,418

10

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

	December 31, 2011
	Cost		Gross Unrealized Losses			Gross Unrealized Gains		Fair Value
Cash and Cash Equivalents:
Cash on hand	$	44,113	$	—		$	—	$	44,113
Available-for-sale securities:
Money market funds	50,851		—			—		50,851
Total cash and cash equivalents	$	94,964	$	—		$	—	$	94,964
Short-term Investments:
Available-for-sale securities:
Corporate bonds	$	75,189	$	(363	)	$	234	$	75,060
Municipal bonds	56,915		(12		)	81		56,984
Variable-rate demand notes	41,280		—			—		41,280
U.S. government agency	19,820		(12		)	28		19,836
U.S. Treasury bills	8,600		—			—		8,600
Asset-backed securities	5,743		(5		)	1		5,739
U.S. government bonds	2,507		—			—		2,507
Certificates of deposit	1,570		—			—		1,570
International government bonds	950		—			—		950
Total short-term investments	$	212,574	$	(392	)	$	344	$	212,526
Long-term Investments:
Available-for-sale securities:
Auction rate securities	$	19,225	$	(1,748	)	$	—	$	17,477
Total long-term investments	$	19,225	$	(1,748	)	$	—	$	17,477

The available-for-sale investments that were in a continuous unrealized loss position, aggregated by length of time that individual securities have been in a continuous loss position, were as follows (in thousands):

	Less Than 12 Months					12 Months or Greater					Total
As of September 29, 2012	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Auction rate securities	$	—	$	—		$	11,418	$	(1,107	)	$	11,418	$	(1,107	)
Municipal bonds	5,217		(2		)	—		—			5,217		(2		)
Corporate bonds	1,119		(1		)	—		—			1,119		(1		)
	$	6,336	$	(3	)	$	11,418	$	(1,107	)	$	17,754	$	(1,110	)

11

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

	Less Than 12 Months					12 Months or Greater					Total
As of December 31, 2011	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Corporate bonds	$	25,438	$	(363	)	$	—	$	—		$	25,438	$	(363	)
Auction rate securities	—		—			17,477		(1,748		)	17,477		(1,748		)
Municipal bonds	10,437		(12		)	—		—			10,437		(12		)
U.S. government agency	5,772		(12		)	—		—			5,772		(12		)
Asset-backed securities	4,539		(5		)	—		—			4,539		(5		)
	$	46,186	$	(392	)	$	17,477	$	(1,748	)	$	63,663	$	(2,140	)

The gross unrealized losses as of September 29, 2012 and December 31, 2011 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 September 29, 2012 (in thousands):

	Cost		Fair Value
Due in one year or less	$	115,773	$	115,842
Due after one year through ten years	85,140		85,519
Due after ten years	30,355		29,248
	$	231,268	$	230,609

4. Derivative Financial Instruments

The Company is exposed to interest rate fluctuations in the normal course of its business, including through its Credit Facilities. The interest payments on the facility are calculated using a variable-rate of interest. The Company has entered into an interest rate swap agreement with a notional value of $100 million (equal to the full amount borrowed under the Term Loan Facility) and, effectively, converted the LIBOR portion of the variable-rate interest payments to fixed-rate interest payments through July 2017 (the maturity date of the Term Loan Facility). The Company’s objective is to offset increases and decreases in expenses resulting from changes in interest rates with gains and losses on the derivative contract, thereby reducing volatility of earnings. The Company does not use derivative contracts for speculative purposes.

The Company’s previous swap agreement with a notional value of $50.1 million was terminated on September 28, 2012 in connection with the Company’s purchase of its corporate headquarters facilities. See Note 8, Acquisitions, for additional information.

The Company’s interest rate swap agreement is designated and qualifies as a cash flow hedge. The effective portion of the gain or loss on the interest rate swap is recorded in accumulated other comprehensive loss as a separate component of stockholders’ equity and is subsequently recognized in earnings when the hedged exposure affects earnings. Cash flows from derivatives are classified according to the nature of the cash receipt or payment in the Consolidated Statement of Cash Flows.

12

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

The Company estimates the fair values of derivatives based on quoted prices and market observable data of similar instruments. If the Term Loan Facility or the interest rate swap agreements is terminated prior to maturity, the fair value of the interest rate swap 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 of termination. The termination of the Company’s swap agreement with a notional value of $50.1 million resulted in its remaining fair value of $0.9 million that was previously recorded in accumulated other comprehensive loss to be reclassified into earnings during the three months ended September 29, 2012.

The Company measures the effectiveness of its cash flow hedge by comparing the change in fair value of the hedged item with the change in fair value of the interest rate swap. The Company recognizes ineffective portions of the hedge, as well as amounts not included in the assessment of effectiveness, in the Consolidated Statement of Income. As of September 29, 2012, no portion of the gains or losses from the Company’s hedging instrument was 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):

		Fair Value
	Balance Sheet Location	September 29,2012		December 31,2011
Interest rate swaps	Other non-current liabilities	$	699	$	1,998

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:						Location of Loss Reclassified into Income	Loss Reclassified from Accumulated OCI into Income (Effective Portion) during the:
	Three Months Ended							Three Months Ended
	September 29,2012			October 1,2011				September 29,2012			October 1,2011
Interest rate swaps	$	(760	)	$	(66	)	Rent expense	$	(1,317	)	$	(481	)

	Nine Months Ended							Nine Months Ended
	September 29,2012			October 1,2011				September 29,2012			October 1,2011
Interest rate swaps	$	(898	)	$	(492	)	Rent expense	$	(2,197	)	$	(1,777	)

The Company expects to reclassify $0.5 million of its interest rate swap losses included in accumulated other comprehensive loss as of September 29, 2012 into earnings in the next 12 months, which is offset by lower interest payments.

13

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

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 of subjectivity of the inputs used in measuring assets and liabilities. The three levels are described below:

Level 1 - Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2 - Inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 - Inputs are unobservable for the asset or liability and are developed based on the best information available in the circumstances, which might include the Company’s own data.

The following summarizes the valuation of the Company’s financial instruments (in thousands). The tables do not include either cash on hand or assets and liabilities that are measured at historical cost or any basis other than fair value.

	Fair Value Measurements at September 29, 2012 Using
Description	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Cash Equivalents:
Money market funds	$	54,619	$	—	$	—	$	54,619
U.S. Treasury bills	15,999		—		—		15,999
Total cash equivalents	$	70,618	$	—	$	—	$	70,618
Short-term Investments:
Corporate bonds	$	—	$	63,149	$	—	$	63,149
Municipal bonds	—		30,010		—		30,010
U.S. government bonds	12,670		—		—		12,670
Asset-backed securities	—		11,997		—		11,997
Variable-rate demand notes	—		19,281		—		19,281
U.S. Treasury bills	8,499		—		—		8,499
International government bonds	—		2,967		—		2,967
Total short-term investments	$	21,169	$	127,404	$	—	$	148,573
Long-term Investments:
Auction rate securities	$	—	$	—	$	11,418	$	11,418
Total long-term investments	$	—	$	—	$	11,418	$	11,418
Total	$	91,787	$	127,404	$	11,418	$	230,609
Liabilities:
Derivative instruments	$	—	$	699	$	—	$	699
Contingent consideration	—		—		4,004		4,004
Total	$	—	$	699	$	4,004	$	4,703

14

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

	Fair Value Measurements at December 31, 2011 Using
Description	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Cash Equivalents:
Money market funds	$	50,851	$	—	$	—	$	50,851
Total cash equivalents	$	50,851	$	—	$	—	$	50,851
Short-term Investments:
Corporate bonds	$	—	$	75,060	$	—	$	75,060
Municipal bonds	—		56,984		—		56,984
Variable-rate demand notes	—		41,280		—		41,280
U.S. government agency	—		19,836		—		19,836
U.S. Treasury bills	8,600		—		—		8,600
Asset-backed securities	—		5,739		—		5,739
U.S. government bonds	2,507		—		—		2,507
Certificates of deposit	—		1,570		—		1,570
International government bonds	—		950		—		950
Total short-term investments	$	11,107	$	201,419	$	—	$	212,526
Long-term Investments:
Auction rate securities	$	—	$	—	$	17,477	$	17,477
Total long-term investments	$	—	$	—	$	17,477	$	17,477
Total	$	61,958	$	201,419	$	17,477	$	280,854
Liabilities:
Derivative instruments	$	—	$	1,998	$	—	$	1,998
Contingent consideration	—		—		876		876
Total	$	—	$	1,998	$	876	$	2,874

The Company’s cash equivalents and short-term investments that are classified as Level 1 are valued using quoted prices and other relevant information generated by market transactions involving identical assets. Cash equivalents and short-term investments classified as Level 2 are valued using non-binding market consensus prices that are corroborated with observable market data; quoted market prices for similar instruments in active markets; or pricing models, such as a discounted cash flow model, with all significant inputs derived from or corroborated with observable market data. Investments classified as Level 3 are valued using a discounted cash flow model. The assumptions used in preparing the discounted cash flow model include estimates for interest rates, amount of cash flows, expected holding periods of the securities and a discount to reflect the Company’s inability to liquidate the securities.

15

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

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 Company’s contingent consideration is valued using a probability weighted discounted cash flow model. The assumptions used in preparing the discounted cash flow model include estimates for outcomes if milestone goals are achieved, the probability of achieving each outcome and discount rates.

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

Auction rate securities

Fair Value at September 29, 2012 (000s)		Valuation Technique	Unobservable Input	Weighted Average
$	11,418	Discounted cash flow	Estimated yield	1.25%
			Expected holding period	10 years
			Estimated discount rate	2.74%

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

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

Contingent consideration

Fair Value at September 29, 2012 (000s)		Valuation Technique	Unobservable Input	Weighted- Average	Range
$	4,004	Probability weighted discounted cash flow	Estimated outcomes if milestone goals are achieved	$4.2 million	$0.1 million - $7.6 million
			Estimated probability of achieving each outcome	15%	3% - 33%
			Estimated discount rate	5.15%	n/a

16

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

The Company has followed an established internal control procedure used in valuing contingent consideration. The valuation of contingent consideration is based on a weighted-average discounted cash flows model. The model relies primarily on estimates of outcomes if milestones are achieved, the probability of achieving each outcome and discount rates. The fair value of this valuation is estimated on a quarterly basis through a collaborative effort by the Company’s sales, marketing and finance departments.

Significant changes in any of the unobservable inputs used in the fair value measurement of contingent consideration in isolation could result in a significantly lower or higher fair value. A change in projected outcomes if milestone goals are achieved would be accompanied by a directionally similar change in fair value. A change in discount rate would be accompanied by a directionally opposite change in fair value.

The following summarizes the activity in Level 3 financial instruments for the three and nine months ended September 29, 2012 (in thousands):

Assets

Auction Rate Securities	Three Months Ended		Nine Months Ended
Beginning balance	$	11,028	$	17,477
Settlements	—		(6,700		)
Gains included in other comprehensive income	390		641
Balance at September 29, 2012	$	11,418	$	11,418

Liabilities

Contingent Consideration (1)	Three Months Ended		Nine Months Ended
Beginning balance	$	—	$	876
Issuances	4,004		4,004
Gain recognized in earnings (2)	—		(876		)
Balance at September 29, 2012	$	4,004	$	4,004

(1)In connection with the acquisition of Ember and ChipSensors, the Company recorded contingent consideration based upon the achievement of certain milestone goals. Changes to the fair value of contingent consideration due to changes in assumptions used in preparing the discounted cash flow model are recorded in selling, general and administrative expenses in the Consolidated Statement of Income.

(2)The Company reduced the estimated fair value of contingent consideration because certain milestone goals were not achieved.

17

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Fair values of other financial instruments

The fair value of the Company’s Term Loan Facility approximates its carrying values due to the variable interest rate feature of this instrument. The Company’s other financial instruments, including cash, accounts receivable and accounts payable, are recorded at amounts that approximate their fair values due to their short maturities.

6. Balance Sheet Details

The following shows the details of selected Condensed Consolidated Balance Sheet items (in thousands):

Inventories

	September 29,2012		December 31, 2011
Work in progress	$	35,986	$	28,023
Finished goods	6,537		6,755
	$	42,523	$	34,778

7. Separation Agreement

On March 1, 2012, the Company entered into a separation agreement with its former Chief Executive Officer (CEO), Necip Sayiner. Pursuant to the agreement, Mr. Sayiner agreed to continue to serve as CEO through April 18, 2012 and as a non-executive advisor through July 19, 2012. Upon his separation from the Company and execution of a release of claims, Mr. Sayiner received a severance package consisting of (a) accelerated vesting of certain restricted stock units (RSUs) and market stock units (MSUs) and the extension of the exercise period of certain stock options, (b) cash payments and (c) other benefits. The separation agreement resulted in a total expense of approximately $3.2 million, which was recognized over the service period in selling, general and administrative expenses.

8. Acquisitions

Ember

On July 3, 2012, the Company acquired Ember Corporation, a privately held company. Ember’s products integrate high-performance, low-power 2.4 GHz wireless ICs with reliable and scalable software into a flexible and robust networking platform.

The Company acquired Ember for approximately $79.0 million, including contingent consideration with an estimated fair value of $4.0 million at the date of acquisition. The contingent consideration is payable on a dollar for dollar basis to the extent that revenue of the acquired products exceeds $27.0 million over a one-year period from the beginning of the third fiscal quarter of 2012 through the end of the second fiscal quarter of 2013.

The Company recorded the purchase of Ember using the acquisition method of accounting and accordingly, recognized the assets acquired and liabilities assumed at their fair values as of the date of the acquisition. The results of Ember’s operations will be included in the Company’s consolidated results of operations beginning on the date of the acquisition. Pro forma information related to this acquisition has not been presented because it would not be materially different from amounts reported.

18

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

The Company believes that this strategic acquisition provides it with the technology and software expertise required to enable the low-power mesh sensor networks being deployed today in a wide range of residential, commercial and industrial applications. These factors contributed to a purchase price that was in excess of the fair value of the net assets acquired and, as a result, the Company recorded goodwill. The goodwill was allocated to the Company’s operating segment and is not deductible for tax purposes. The purchase price was allocated as follows (in thousands):

	Amount			Weighted-Average Amortization Period (Years)
Intangible assets:
In-process research and development	$	14,810		Not amortized
Developed technology	17,800			11
Customer relationships	5,620			9
Trademarks	910			12
	39,140
Cash and cash equivalents	3,115
Accounts receivable	1,928
Inventories	4,749
Other current assets	324
Goodwill	14,580
Non-current deferred tax assets, net	16,530
Other non-current assets	1,776
Current liabilities	(3,171		)
Total purchase price	$	78,971

The allocation of the purchase price is preliminary and subject to change, primarily for income tax matters. Accordingly, adjustments may be made to the values of the assets acquired and liabilities assumed as additional information is obtained about the facts and circumstances that existed at the valuation date.

In-process research and development (IPR&D) represents acquired technology that had not achieved technological feasibility as of the acquisition date and had no alternative future use. The IPR&D recorded in connection with the acquisition of Ember consisted of a low-power RF transceiver. The fair value of this technology was determined using the income approach. The discount rate applicable to the cash flows was 12.5%. The remaining research and development efforts include additional design, integration and testing. The estimated cost to complete the IPR&D as of the acquisition date was approximately $11.2 million. Such costs have been consistent with the Company’s assumptions at the time of the acquisition. The Company does not expect the products derived from this technology to begin to contribute to revenues prior to fiscal 2013.

19

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Corporate Headquarters Buildings

The Company leased facilities at 400 W. Cesar Chavez (“400 WCC”) and 200 W. Cesar Chavez (“200 WCC”) in Austin, Texas for its corporate headquarters. During the terms of the leases, the Company had options to purchase the buildings for approximately $44.3 million for 400 WCC and $50.1 million for 200 WCC. On September 28, 2012, the Company exercised such options and purchased the facilities.

The buildings are located on land which is leased through 2099 from a third party. The rents for these ground leases were prepaid for the term of the leases by the previous lessee. The first floor of each building was leased to the same third party for the term of the ground leases. The base rents for the first floor leases were prepaid to the previous owner of the buildings. Portions of the remaining floors were also leased to other tenants.

The Company determined that the purchase of the facilities represented a business combination. Under the acquisition method of accounting, the assets acquired and liabilities assumed were recorded at their fair values as of the date of the acquisition. The purchase price was allocated as follows (in thousands):

	Amount
Buildings	$	90,900
Leasehold interest in ground leases	23,840
Acquired unfavorable leases	(11,925		)
Lease-related charges	(8		)
Net gain on purchase	(8,457		)
Total purchase price	$	94,350

The buildings and leasehold interest in ground leases will be depreciated on a straight-line basis over their estimated useful lives of 40 years and 86 years, respectively. Acquired unfavorable leases represent the difference between contractual minimum rental payments due under previously-existing leases in each building and the market rates of those same leases. This amount was recorded in other non-current liabilities in the Condensed Consolidated Balance Sheet and will be amortized to rental income over the estimated terms of the leases.

The purchase of the facilities resulted in a net gain of approximately $8.5 million, which was recorded in selling, general and administrative expenses in the Condensed Consolidated Statement of Income. The gain resulted primarily because the assets acquired and liabilities assumed were recorded at their fair values as of the date of the acquisition, which was substantially higher than the purchase prices of the facilities. The purchase prices were fixed at the beginning of the two leases in March 2006 and March 2008. While market prices for such facilities increased over the terms of the leases, the purchase prices remained the same.

9. Stockholders’ Equity

Common Stock

The Company issued 1.1 million shares of common stock during the nine months ended September 29, 2012, net of 0.3 million shares withheld to satisfy employee tax obligations for the vesting of certain stock grants made under the Company’s stock incentive plans.

20

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Share Repurchase Programs

In April 2012, the Board of Directors authorized a share repurchase program to repurchase up to $100 million of the Company’s common stock through January 2013. In October 2011, the Board of Directors adopted a share repurchase program to repurchase up to $50 million of the Company’s common stock through April 2012. The Company’s repurchase program announced in July 2010, authorized the repurchase of up to $150 million of the Company’s common stock through 2011, and was completed in August 2011. These programs allow for repurchases to be made in the open market or in private transactions, including structured or accelerated transactions, subject to applicable legal requirements and market conditions. The Company repurchased 1.5 million shares of its common stock for $53.1 million during the nine months ended September 29, 2012. The Company repurchased 3.2 million shares of its common stock for $110.0 million during the nine months ended October 1, 2011.

10. 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 has a term of 10 years from the shareholders’ approval date. The 2009 Purchase Plan became effective upon the termination of the previous Employee Stock Purchase Plan, on April 30, 2010.

Stock-based compensation costs are 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 RSUs equal their intrinsic value on the date of grant. The fair values of market-based performance awards generally are estimated using a Monte Carlo simulation based on the date of grant.

The following table presents details of stock-based compensation costs recognized in the Condensed Consolidated Statements of Income (in thousands):

	Three Months Ended				Nine Months Ended
	September 29,2012		October 1,2011		September 29,2012		October 1,2011
Cost of revenues	$	261	$	335	$	938	$	1,015
Research and development	3,039		3,581		9,595		11,284
Selling, general and administrative	4,631		5,234		13,263		14,925
	7,931		9,150		23,796		27,224
Income tax benefit	988		880		4,199		2,695
	$	6,943	$	8,270	$	19,597	$	24,529

The Company recorded $0.5 million and $1.9 million in selling, general and administrative expense during the three and nine months ended September 29, 2012, respectively, in connection with modifications to certain stock awards. The Company accelerated the vesting of certain RSUs and MSUs and extended the exercise period of stock options pursuant to a separation agreement between the Company and its former CEO. Stock compensation for the nine months ended September 29, 2012 included the reversal of previously recognized stock compensation for the modified awards.

The Company had approximately $47.6 million of total unrecognized compensation costs related to stock options and stock awards at September 29, 2012 that are expected to be recognized over a weighted-average period of 2.1 years. There were no significant stock-based compensation costs capitalized into assets in any of the periods presented.

21

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

11.  Debt

On July 31, 2012, the Company and certain of its domestic subsidiaries (the “Guarantors”) entered into a $230 million five-year Credit Agreement (the “Agreement”). The Agreement consists of a $100 million Term Loan Facility and a $130 million Revolving Credit Facility (collectively, the “Credit Facilities”).

The Term Loan Facility provides for quarterly principal amortization (equal to 5% of the principal in each of the first two years and 10% of the principal in each of the next three years) with the remaining balance payable upon the maturity date. The Revolving Credit Facility includes a $25 million letter of credit sublimit and a $10 million swingline loan sublimit. The Company has an option to increase the size of the Revolving Credit Facility by up to an aggregate of $50 million in additional commitments, subject to certain conditions. On September 27, 2012, the Company borrowed $100 million under the Term Loan Facility. To date, the Company has not borrowed under the Revolving Credit Facility.

The Term Loan Facility and Revolving Credit Facility, other than swingline loans, will bear interest at LIBOR plus an applicable margin or, at the option of the Company, a base rate (defined as the highest of the Bank of America prime rate, the Federal Funds rate plus 0.50% and a daily rate equal to one-month LIBOR plus 1.00%) plus an applicable margin. Swingline loans accrue interest at a per annum rate based on the base rate plus the applicable margin for base rate loans. The applicable margins for the LIBOR rate loans range from 1.50% to 2.50% and for base rate loans range from 0.50% to 1.50%, depending in each case, on the leverage ratio as defined in the Agreement. The Company also pays a commitment fee on the unused amount of commitments.

In connection with the closing of the Credit Agreement, the Company entered into a security and pledge agreement. Under the security and pledge agreement, the Company pledged equity securities of certain of its subsidiaries, subject to exceptions and limitations. The Credit Facilities contain various conditions, covenants and representations with which the Company must be in compliance in order to borrow funds and to avoid an event of default, including financial covenants that the Company must maintain a leverage ratio (funded debt/EBITDA) of no more than 2.5 to 1 and a minimum fixed charge coverage ratio (EBITDA/debt payments, income taxes and capital expenditures) of no less than 1.50 to 1. As of September 29, 2012, the Company was in compliance with all covenants of the Credit Facilities.

The contractual fiscal year maturities of the Term Loan Facility are as follows (in thousands):

Fiscal Year
2013	$	5,000
2014	7,500
2015	10,000
2016	10,000
2017	67,500
Total	$	100,000

Interest Rate Swap Agreement

In connection with the $100 million borrowed under the Term Loan Facility, the Company entered into an interest rate swap agreement as a hedge against the LIBOR portion of such variable interest payments. Under the terms of the swap agreement, the Company effectively converted the LIBOR portion of the interest on the Term Loan Facility to a fixed interest rate of 0.764% through the maturity date. As of September 29, 2012, the combined interest rate on the Term Loan Facility (which includes an applicable margin) was 2.514%. See Note 4, Derivative Financial Instruments, for additional information.

22

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

12.  Commitments and Contingencies

Patent Litigation

On May 13, 2012, MaxLinear, Inc., a Delaware corporation, filed a lawsuit against the Company in the United States District Court in the Southern District of California, San Diego Division, seeking a declaratory judgment that MaxLinear products do not infringe 19 Silicon Laboratories’ patents and that such patents are invalid. The Company responded and filed claims accusing MaxLinear of infringing 6 Silicon Laboratories’ patents, including 5 of the named 19 Company patents and an additional patent.  On September 14, 2012, a preliminary injunction motion was filed by the Company seeking to enjoin MaxLinear from infringing U.S. Patent 7,200,364 by making, using, offering to sell, selling or importing the MxL601 Hybrid Tuner in the U.S. or inducing others to make, use, offer to sell, sell, or import the MxL601 or devices incorporating the MxL601 in the U.S.  The Company also has asked the Court for a permanent injunction stopping the sale of all allegedly infringing MaxLinear products.

On July 30, 2012, the Company further filed a complaint for declaratory judgment against MaxLinear in United States District Court for the Western District of Texas, Austin Division. The Company is seeking an order that MaxLinear’s United States Patent Nos. 7,362,178, 7,778,613 and 8,198,940 are invalid, and that the Company’s products do not infringe such patents.

On July 17, 2012, the Company additionally filed a lawsuit against MaxLinear in the United States District Court in the Southern District of California, San Diego Division, alleging infringement of an additional Company patent, U.S. Patent 7,035,607 related to RF design.  On August 6, 2012, MaxLinear counterclaimed alleging infringement of the three patents in the Texas litigation by a variety of the Company’s RF and mixed signal products.

At this time, the Company cannot predict the outcome of these matters or the resulting financial impact to it, if any.

Other

The Company is involved in various other legal proceedings that have arisen in the normal course of business. While the ultimate results of these matters cannot be predicted with certainty, the Company does not expect them to have a material adverse effect on its consolidated financial statements.

13. Income Taxes

Provision for income taxes includes both domestic and foreign income taxes at the applicable statutory rates adjusted for non-deductible expenses, research and development tax credits and other permanent differences. Income tax expense was $17.1 million and $3.0 million for the three months ended September 29, 2012 and October 1, 2011, respectively, resulting in effective tax rates of 63.0% and 20.9%, respectively. Income tax expense was $17.1 million and $13.9 million for the nine months ended September 29, 2012 and October 1, 2011, respectively, resulting in effective tax rates of 27.6% and 38.0%, respectively. The effective tax rate for the three months ended September 29, 2012 increased from the prior period, primarily due to the current period tax charge related to the intercompany license of certain technology associated with the acquisition of Ember, as well as the non-renewal of the federal research and development tax credit.  The effective tax rate for the nine months ended September 29, 2012 decreased from the prior period, primarily due to the release of prior year unrecognized tax benefits that were determined to be effectively settled during the current period along with one-time nondeductible costs associated with the acquisition of Spectra Linear in 2011.  The impact of these items was partially offset by the non-renewal of the federal research and development tax credit.

23

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

At September 29, 2012, the Company had gross unrecognized tax benefits of $4.3 million, $4.1 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 Company had a net decrease of $6.9 million during the nine months ended September 29, 2012, which was comprised of (a) a gross decrease of $8.4 million to its prior year unrecognized tax benefits related to an uncertain tax position that was determined to be effectively settled, a portion of which represented a foreign currency remeasurement adjustment and was recognized in other income (expense), net, and (b) a gross increase of $1.5 million to its current year unrecognized tax benefits.

The tax years 2005 through 2012 remain open to examination by the major taxing jurisdictions to which the Company is subject. The Company’s 2010 federal income tax return is under examination by the U.S. Internal Revenue Service. Although the outcome of tax audits is always uncertain, the Company believes that the results of the examination will not materially affect its financial position or results of operations.  The Company is not currently under audit in any other major taxing jurisdiction.

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of financial condition and results of operations should be read in conjunction with the 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 2012 will have 52 weeks and fiscal 2011 had 52 weeks. Our third quarter of fiscal 2012 ended September 29, 2012. Our third quarter of fiscal 2011 ended October 1, 2011.

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 and automotive. Our major customers include Cisco, Huawei, LG Electronics, Pace, Panasonic, Samsung, Sony, Technicolor, Varian Medical Systems and ZTE.

As a fabless semiconductor company, we rely on third-party semiconductor fabricators in Asia, and to a lesser extent the United States and Europe, to manufacture the silicon wafers that reflect our IC designs. Each wafer contains numerous die, which are cut from the wafer to create a chip for an IC. We rely on third parties in Asia to assemble, package, and, in most cases, test these devices and ship these units to our customers. Testing performed by such third parties facilitates faster delivery of products to our customers (particularly those located in Asia), shorter production cycle times, lower inventory requirements, lower costs and increased flexibility of test capacity.

Our expertise in analog-intensive, high-performance, mixed-signal ICs enables us to develop highly differentiated solutions that address multiple markets. We group our products into the following categories:

·Broad-based products, which include our microcontrollers, wireless transceivers and System-on-Chips (SoCs), timing products (clocks and oscillators), power and isolation devices, and touch controllers;

·Broadcast products, which include our broadcast audio and video products;

·Access products, which include our Voice over IP (VoIP) products, embedded modems and our Power over Ethernet (PoE) devices; and

24

·Mature products, which include certain devices that are at the end of their respective life cycles and therefore receive minimal or no continued research and development investment, including our DSL analog front end ICs and IRDA devices.

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. On July 3, 2012, we acquired Ember Corporation, a privately held company. Ember’s products integrate high-performance, low-power 2.4 GHz wireless ICs with reliable and scalable software into a flexible and robust networking platform. We believe that this strategic acquisition provides us with the technology and software expertise required to enable the low-power mesh sensor networks being deployed today in a wide range of residential, commercial and industrial applications.

In the first nine months of fiscal 2012, we introduced the Precision32™ 32-bit mixed-signal microcontroller family, based on a patented architecture that provides customers with flexibility, performance and low power. We also introduced a family of digital isolators that are drop-in replacements for optocouplers, high-performance 8-bit microcontrollers featuring an integrated temperature sensor with best-in-class accuracy, two next-generation EZRadio® wireless ICs designed to simplify the addition of high-performance wireless connectivity to cost-sensitive embedded applications, advanced AM/FM receivers tuned for the high-end consumer and professional audio equipment market, a family of TV tuners offering both best-in-class RF performance and support for all worldwide TV standards, a multimedia demodulator that merges all digital video broadcast (DVB) standards into a single-chip solution, isolated analog-to-digital (ADC) converters designed specifically for the demands of mains line monitoring, a single-port PoE controller that brings “plug-and-play” simplicity to embedded power sourcing equipment (PSE) designs, high performance, low power sub-GHz transceivers designed to maximize range and battery life for wireless systems, ultra-small and low power customizable clock generators ideal for space-limited, cost-sensitive embedded and consumer electronics and the expansion of our clocking solutions to address the stringent specifications of the PCI Express (PCIe) Generation 1/2/3 standards. 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.

During the nine months ended September 29, 2012, we had one customer, Samsung, whose purchases across a variety of product areas represented more than 10% of our revenues. In addition to direct sales to customers, some of our end customers purchase products indirectly from us through distributors and contract manufacturers. An end customer purchasing through a contract manufacturer typically instructs such contract manufacturer to obtain our products and incorporate such products with other components for sale by such contract manufacturer to the end customer. Although we actually sell the products to, and are paid by, the distributors and contract manufacturers, we refer to such end customer as our customer. Two of our distributors, Edom Technology and Avnet, represented more than 10% of our revenues during the nine months ended September 29, 2012. There were no other distributors or contract manufacturers that accounted for more than 10% of our revenues during the nine months ended September 29, 2012.

The percentage of our revenues derived from outside of the United States was 89% during the nine months ended September 29, 2012.  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 a customer ships a significant volume of devices that incorporate our ICs. Due to this lengthy sales cycle, we typically experience a significant delay between incurring research and development and selling, general and administrative expenses, and the corresponding sales. Consequently, if sales in any quarter do not occur when expected, expenses and inventory levels could be disproportionately high, and our operating results for that quarter and, potentially, future quarters would be adversely affected. Moreover, the amount of time between initial research and development and commercialization of a product, if ever, can be substantially longer than the sales cycle for the product. Accordingly, if we incur substantial research and development costs without developing a commercially successful product, our operating results, as well as our growth prospects, could be adversely affected.

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Because many of our ICs are designed for use in consumer products such as televisions, set-top boxes, radios 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, and 4) 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 to variation from period to period due to the volume of shipments made within a period, the mix of products we sell and the prices we charge for our products. 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 to purchase 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 competing products. Our ability to increase revenues in the future is dependent on increased demand for our established products and our ability to ship larger volumes of those products in response to such demand, as well as our ability to develop or acquire new products and subsequently achieve customer acceptance of newly introduced products.

Cost of Revenues.  Cost of revenues includes the cost of purchasing finished silicon wafers processed by independent foundries; costs associated with assembly, test and shipping of those products; costs of personnel and equipment associated with manufacturing support, logistics and quality assurance; costs of software royalties, other intellectual property license costs and certain acquired intangible assets; and an allocated portion of our occupancy costs.

Research and Development.  Research and development expense consists primarily of personnel-related expenses, including stock-based compensation, as well as new product mask, external consulting and services costs, equipment tooling, equipment depreciation, amortization of intangible assets, and an allocated portion of our occupancy costs. Research and development activities include the design of new products, refinement of existing products and design of test methodologies to ensure compliance with required specifications.

Selling, General and Administrative.  Selling, general and administrative expense consists primarily of personnel-related expenses, including stock-based compensation, as well as an allocated portion of our occupancy costs, sales commissions to independent sales representatives, applications engineering support, professional fees, 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, including our Credit Facilities.

Other Income (Expense), Net.  Other income (expense), net consists primarily of foreign currency remeasurement adjustments as well as other non-operating income and expenses.

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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, research and development tax credits and other permanent differences.

The following table sets forth our Condensed Consolidated Statements of Income data as a percentage of revenues for the periods indicated:

	Three Months Ended				Nine Months Ended
	September 29,2012		October 1,2011		September 29,2012		October 1,2011
Revenues	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenues	42.1		38.8		40.5		39.4
Gross margin	57.9		61.2		59.5		60.6
Operating expenses:
Research and development	23.3		26.6		24.8		27.7
Selling, general and administrative	16.4		22.9		20.0		23.4
Operating expenses	39.7		49.5		44.8		51.1
Operating income	18.2		11.7		14.7		9.5
Other income (expense):
Interest income	0.2		0.4		0.3		0.4
Interest expense	(0.2	)	0.0		(0.1	)	0.0
Other income (expense), net	(0.1	)	(0.1	)	0.2		0.1
Income before income taxes	18.1		12.0		15.1		10.0
Provision for income taxes	11.4		2.5		4.2		3.8
Net income	6.7	%	9.5	%	10.9	%	6.2	%

Revenues

	Three Months Ended								Nine Months Ended
(in millions)	September 29,2012		October 1,2011		Change		%Change		September 29,2012		October 1,2011		Change		%Change
Revenues	$	149.5	$	119.1	$	30.4	25.5	%	$	410.8	$	364.9	$	45.9	12.6	%

The growth in revenues in the recent three and nine month periods was due primarily to increases in market share and product revenues from the acquisition of Ember in July 2012. Unit volumes of our products increased compared to the three and nine months ended October 1, 2011 by 20.2% and 15.6%, respectively. Average selling prices increased compared to the three months ended October 1, 2011 by 4.3%. Average selling prices decreased compared to the nine months ended October 1, 2011 by 2.7%. The average selling prices of our products may fluctuate significantly from period to period.  In general, as our products become more mature, we expect to experience decreases in average selling prices. We anticipate that newly announced, higher priced, next generation products and product derivatives will offset some of these decreases.

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Gross Margin

	Three Months Ended										Nine Months Ended
(in millions)	September 29,2012			October 1,2011			Change		%Change		September 29,2012			October 1,2011			Change		%Change
Gross margin	$	86.5		$	72.9		$	13.6	18.7	%	$	244.4		$	221.3		$	23.1	10.5	%
Percent of revenues	57.9		%	61.2		%					59.5		%	60.6		%

The increase in the dollar amount of gross margin in the recent three and nine month periods was primarily due to our increased sales, offset in part by increases in acquisition-related charges. The decrease in gross margin as a percent of revenue in the recent three month period was primarily due to charges related to the acquisition of Ember.

We may experience declines in the average selling prices of certain of our products. This creates downward pressure on gross margin as a percentage of revenues and 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										Nine Months Ended
(in millions)	September 29,2012			October 1,2011			Change		%Change		September 29,2012			October 1,2011			Change		%Change
Research and development	$	34.8		$	31.7		$	3.1	9.6	%	$	101.9		$	101.2		$	0.7	0.7	%
Percent of revenues	23.3		%	26.6		%					24.8		%	27.7		%

The increase in research and development expense in the recent three and nine month periods was principally due to increases of $2.3 million and $1.1 million for personnel-related expenses, respectively, including personnel costs associated with the acquisition of Ember. The decrease in research and development expense as a percent of revenues in the recent periods is due to our increased revenues. We expect that research and development expense will increase in absolute dollars in the fourth quarter of 2012.

Recent development projects include a family of digital isolators that are drop-in replacements for optocouplers, high-performance 8-bit microcontrollers featuring an integrated temperature sensor with best-in-class accuracy, two next-generation EZRadio wireless ICs designed to simplify the addition of high-performance wireless connectivity to cost-sensitive embedded applications, advanced AM/FM receivers tuned for the high-end consumer and professional audio equipment market, a family of TV tuners offering both best-in-class RF performance and support for all worldwide TV standards, a multimedia demodulator that merges all DVB standards into a single-chip solution, isolated ADC converters designed specifically for the demands of mains line monitoring, a single-port PoE controller that brings “plug-and-play” simplicity to embedded PSE designs, the Precision32 32-bit mixed-signal microcontroller family, high performance, low power sub-GHz transceivers designed to maximize range and battery life for wireless systems, ultra-small and low power customizable clock generators ideal for space-limited, cost-sensitive embedded and consumer electronics, the expansion of our clocking solutions to address the stringent specifications of the PCIe Generation 1/2/3 standards, energy-efficient microcontroller and wireless microcontroller solutions for power-sensitive embedded applications and high-performance receivers ideal for multi-tuner car radio systems with HD Radio technology.

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Selling, General and Administrative

	Three Months Ended											Nine Months Ended
(in millions)	September 29,2012			October 1,2011			Change			%Change		September 29,2012			October 1,2011			Change			%Change
Selling, general and administrative	$	24.5		$	27.3		$	(2.8	)	(10.1	)%	$	82.1		$	85.2		$	(3.1	)	(3.6	)%
Percent of revenues	16.4		%	22.9		%						20.0		%	23.4		%

The decrease in selling, general and administrative expense in the recent three and nine month periods was principally due to a net gain of $8.5 million from the purchase of our headquarters in September 2012. The decrease in the recent three month period was offset in part by increases of (a) $3.5 million for personnel-related expenses, including personnel costs associated with the acquisition of Ember and severance related to a separation agreement between us and our former CEO, with no such costs in the prior period, and (b) $0.5 million for legal fees, primarily related to litigation and acquisition-related costs. The decrease in the recent nine month period was offset in part by increases of (a) $2.5 million for personnel-related expenses, including severance for our former CEO in the recent period offset in part by one-time personnel-related expenses associated with the acquisition of Spectra Linear in the prior period, and (b) $1.1 million for legal fees. The decrease in selling, general and administrative expense as a percent of revenues in the recent periods also reflects our increased revenues. Excluding the net gain of $8.5 million that resulted from the purchase of our headquarters in the third quarter of 2012, we expect that selling, general and administrative expense will remain stable in absolute dollars in the fourth quarter of 2012.

Interest Income

Interest income for the three and nine months ended September 29, 2012 was $0.2 million and $1.1 million, respectively, compared to $0.4 million and $1.4 million for the three and nine months ended October 1, 2011, respectively.

Interest Expense

Interest expense for the three and nine months ended September 29, 2012 was $0.2 million and $0.3 million, respectively, compared to $4 thousand and $14 thousand for the three and nine months ended October 1, 2011, respectively.  The increase in the recent periods is principally due to interest on our Term Loan Facility.

Other Income (Expense), Net

Other income (expense), net for the three and nine months ended September 29, 2012 was $(0.2) million and $0.8 million, respectively, compared to $(0.1) million and $0.3 million for the three and nine months ended October 1, 2011, respectively. The increase in other income (expense), net in the recent nine month period was primarily due to the reversal of unrealized foreign currency losses in connection with the release of prior year unrecognized tax benefits.

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Provision for Income Taxes

	Three Months Ended								Nine Months Ended
(in millions)	September 29,2012			October 1,2011			Change		September 29,2012			October 1,2011			Change
Provision for income taxes	$	17.1		$	3.0		$	14.1	$	17.1		$	13.9		$	3.2
Effective tax rate	63.0		%	20.9		%			27.6		%	38.0		%

The effective tax rate for the three months ended September 29, 2012 increased from the prior period, primarily due to the current period tax charge related to the intercompany license of certain technology associated with the acquisition of Ember, as well as the non-renewal of the federal research and development tax credit.  The effective tax rate for the nine months ended September 29, 2012 decreased from the prior period, primarily due to the release of prior year unrecognized tax benefits that were determined to be effectively settled during the current period along with one-time nondeductible costs associated with the acquisition of Spectra Linear in 2011.  The impact of these items was 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 in foreign jurisdictions where the tax rate may be lower than the federal statutory rate, 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 fourth quarter of fiscal 2012 to be in the range of $145 to $150 million. Furthermore, we expect our diluted earnings per share to be in the range of $0.38 to $0.43.

Liquidity and Capital Resources

Our principal sources of liquidity as of September 29, 2012 consisted of $274.1 million in cash, cash equivalents and short-term investments, of which approximately $94.1 million was held by our U.S. entities. The remaining balance was held by our foreign subsidiaries. Our cash equivalents and short-term investments consist of corporate bonds, money market funds, municipal bonds, U.S. Treasury bills, variable-rate demand notes, U.S. government bonds, asset-backed securities and international government bonds.

Our long-term investments consist of auction-rate securities. Early in fiscal 2008, auctions for many of our auction-rate securities failed because sell orders exceeded buy orders. As of September 29, 2012, we held $12.5 million par value auction-rate securities, all of which have experienced failed auctions. These securities have contractual maturity dates ranging from 2033 to 2046. We are receiving the underlying cash flows on all of our auction-rate securities. The principal amounts associated with failed auctions are not expected to be accessible until a successful auction occurs, the issuer redeems the security, 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. We do not expect to need access to the capital represented by any of our auction-rate securities prior to their maturities.

Net cash provided by operating activities was $84.3 million during the nine months ended September 29, 2012, compared to net cash provided of $65.6 million during the nine months ended October 1, 2011. Operating cash flows during the nine months ended September 29, 2012 reflect our net income of $44.9 million, adjustments of $41.4 million for depreciation, gains on the purchase of property and equipment, amortization, stock-based compensation and deferred income taxes, and a net cash outflow of $2.0 million due to changes in our operating assets and liabilities.

Accounts receivable increased to $75.7 million at September 29, 2012 from $55.4 million at December 31, 2011. The increase in accounts receivable resulted primarily from an increase in shipments during the quarter ended September 29, 2012 compared to the last quarter of fiscal 2011. Our average days sales outstanding (DSO) was 46 days at September 29, 2012 and 39 days at December 31, 2011.

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Inventory increased to $42.5 million at September 29, 2012 from $34.8 million at December 31, 2011. Our inventory level is primarily impacted by our need to make purchase commitments to support forecasted demand and variations between forecasted and actual demand. Our average days of inventory (DOI) was 61 days at September 29, 2012 and 63 days at December 31, 2011.

Net cash used in investing activities was $106.6 million during the nine months ended September 29, 2012, compared to net cash provided of $16.9 million during the nine months ended October 1, 2011. The increase in cash outflows was principally due to increases of $92.2 million for purchases of property and equipment and $44.6 million in net payments for the acquisition of businesses, offset by an increase of $18.7 million from net proceeds from sales and maturities of marketable securities. On July 3, 2012, we acquired Ember, a privately held company, for approximately $79.0 million, including contingent consideration with an estimated fair value of $4.0 million at the date of acquisition. On September 28, 2012, we purchased our corporate headquarters facilities. See Note 8, Acquisitions, for additional information.

We anticipate capital expenditures of approximately $10 to $14 million for fiscal 2012 (excluding the amount we paid to purchase our headquarters facilities). 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.

Net cash provided by financing activities was $52.8 million during the nine months ended September 29, 2012, compared to net cash used of $112.8 million during the nine months ended October 1, 2011. The increase in cash inflows was principally due from net proceeds of $98.3 million from the issuance of long-term debt and outflows declining $59.0 million for repurchases of our common stock. In April 2012, our Board of Directors authorized a program to repurchase up to $100 million of our common stock through January 2013.

Debt

On July 31, 2012, we entered into a $230 million five-year Credit Agreement (the “Agreement”). The Agreement consists of a $100 million Term Loan Facility and a $130 million Revolving Credit Facility.

The Term Loan Facility provides for quarterly principal amortization (equal to 5% of the principal in each of the first two years and 10% of the principal in each of the next three years) with the remaining balance payable upon the maturity date. The Revolving Credit Facility includes a $25 million letter of credit sublimit and a $10 million swingline loan sublimit. We have an option to increase the size of the Revolving Credit Facility by up to an aggregate of $50 million in additional commitments, subject to certain conditions. On September 27, 2012, we borrowed $100 million under the Term Loan Facility. To date, we have not borrowed under the Revolving Credit Facility.

The Term Loan Facility and Revolving Credit Facility, other than swingline loans, will bear interest at LIBOR plus an applicable margin or, at our option, a base rate (defined as the highest of the Bank of America prime rate, the Federal Funds rate plus 0.50% and a daily rate equal to one-month LIBOR plus 1.00%) plus an applicable margin. Swingline loans accrue interest at a per annum rate based on the base rate plus the applicable margin for base rate loans. The applicable margins for the LIBOR rate loans range from 1.50% to 2.50% and for base rate loans range from 0.50% to 1.50%, depending in each case, on the leverage ratio as defined in the Agreement. We also pay a commitment fee on the unused amount of commitments.

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In connection with the closing of the Credit Agreement, we entered into a security and pledge agreement. Under the security and pledge agreement, we pledged equity securities of certain of our subsidiaries, subject to exceptions and limitations. The Credit Facilities contain various conditions, covenants and representations with which we must be in compliance in order to borrow funds and to avoid an event of default, including financial covenants that we must maintain a leverage ratio (funded debt/EBITDA) of no more than 2.5 to 1 and a minimum fixed charge coverage ratio (EBITDA/debt payments, income taxes and capital expenditures) of no less than 1.50 to 1. As of September 29, 2012, the Company was in compliance with all covenants of the Credit Facilities. See Note 11, Debt, to the Condensed Consolidated Financial Statements for additional information.

Our future capital requirements will depend on many factors, including the rate of sales growth, market acceptance of our products, the timing and extent of research and development projects, potential acquisitions of companies or technologies and the expansion of our sales and marketing activities. We believe our existing cash, cash equivalents, investments and credit under our Credit Facilities are sufficient to meet our capital requirements through at least the next 12 months, although we could be required, or could elect, to seek additional funding prior to that time. We may enter into acquisitions or strategic arrangements in the future which also could require us to seek additional equity or debt financing.

Critical Accounting Policies and Estimates

The preparation of financial statements and accompanying notes in conformity with U.S. generally accepted accounting principles requires that we make estimates and assumptions that affect the amounts reported. Changes in facts and circumstances could have a significant impact on the resulting estimated amounts included in the financial statements. We believe the following critical accounting policies affect our more complex judgments and estimates. 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 of critical 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 less selling costs. We assess the potential for any unusual customer returns based on known quality or business issues and write-off inventory losses for scrap or non-saleable material. Inventory not otherwise identified to be written down is compared to an assessment of our 12-month forecasted demand. The result of this methodology is compared against the product life cycle and competitive situations in the marketplace to determine the appropriateness of the resulting inventory levels. Demand for our products may fluctuate significantly over time, and actual demand and market conditions may be more or less favorable than those that we project. In the event that actual demand is lower or market conditions are worse than originally projected, additional inventory write-downs may be required.

Stock-based compensation — We recognize the fair-value of stock-based compensation transactions in the Consolidated Statement of Income. The fair value of our full-value stock awards (with the exception of market-based performance awards) equals the fair market value of our stock on the date of grant. The fair value of our market-based performance award grants is estimated at the date of grant using a Monte-Carlo simulation. The fair value of our stock option and Employee Stock Purchase Plan grants is estimated at the date of grant using the Black-Scholes option pricing model. In addition, we are required to estimate the expected forfeiture rate of our stock grants and only recognize the expense for those shares expected to vest. If our actual experience differs significantly from the assumptions used to compute our stock-based compensation cost, or if different assumptions had been used, we may have recorded too much or too little stock-based compensation cost. See Note 10, Stock-Based Compensation, to the Condensed Consolidated Financial Statements for additional information.

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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, expected holding 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 not that 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 to the entire difference between the security’s amortized cost basis and its fair value. If we do not intend to sell a security and 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.

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

Impairment of goodwill and other long-lived assets — We review long-lived assets which are held and used, including fixed assets and purchased intangible assets, for impairment whenever changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Such evaluations compare the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset over its expected useful life and are significantly impacted by estimates of future prices and volumes for our products, capital needs, economic trends and other factors which are inherently difficult to forecast. If the asset is considered to be impaired, we record an impairment charge equal to the amount by which the carrying value of the asset exceeds its fair value determined by either a quoted market price, if any, or a value determined by utilizing a discounted cash flow technique.

We test our goodwill for impairment annually as of the first day of our fourth fiscal quarter and in interim periods if certain events occur indicating that the carrying value of goodwill may be impaired. The goodwill impairment test is a two-step process. The first step of the impairment analysis compares our fair value to our net book value. In determining fair value, the accounting guidance allows for the use of several valuation methodologies, although it states quoted market prices are the best evidence of fair value. If the fair value is less than the net book value, the second step of the analysis compares the implied fair value of our goodwill to its carrying amount. If the carrying amount of goodwill exceeds its implied fair value, we recognize an impairment loss equal to that excess amount.

Income taxes — We are required to calculate income taxes in each of the jurisdictions in which we operate. This process involves calculating the actual current tax liability together with assessing temporary differences in recognition of income (loss) for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in our Consolidated Balance Sheet. We then assess the likelihood that the deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we establish a valuation allowance against the deferred tax asset.

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We recognize liabilities for uncertain tax positions based on a two-step process. The first step requires us to determine if the weight of available evidence indicates that the tax position has met the threshold for recognition; therefore, we must evaluate whether it is more likely than not that the position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step requires us to measure the tax benefit of the tax position taken, or expected to be taken, in an income tax return as the largest amount that is more than 50% likely of being realized upon ultimate settlement. This measurement step is inherently complex and requires subjective estimations of such amounts to determine the probability of various possible outcomes. We re-evaluate the uncertain tax positions each quarter based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, expirations of statutes of limitation, effectively settled issues under audit, and new audit activity. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision in the period.

Although we believe the measurement of our liabilities for uncertain tax positions is reasonable, no assurance can be given that the final outcome of these matters will not be different than what is reflected in the historical income tax provisions and accruals. If additional taxes are assessed as a result of an audit or litigation, 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.

Recent Accounting Pronouncements

In July 2012, the Financial Accounting Standards Board (FASB) issued FASB Accounting Standards Update (ASU) No. 2012-02, Intangibles—Goodwill and Other (Topic 350) — Testing Indefinite-Lived Intangible Assets for Impairment. ASU 2012-02 permits an entity to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30. If an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then no further action is required. If an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The adoption of this ASU is not expected to have a material impact on our financial statements.

In December 2011, the FASB issued FASB ASU No. 2011-11, Balance Sheet (Topic 210) — Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. Entities are required to disclose both gross and net information about these instruments. ASU 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The adoption of this ASU is 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 September 29, 2012 yielded less than 100 basis points. A decline in yield to zero basis points on our investment portfolio holdings as of September 29, 2012 would decrease our annual interest income by approximately $1.2 million. We believe that our investment policy, which defines the duration, concentration, and minimum credit quality of the allowable investments, meets our investment objectives.

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Interest Expense

We are exposed to interest rate fluctuations in the normal course of our business, including through our Credit Facilities. The interest payments on the facility are calculated using a variable-rate of interest. We have entered into an interest rate swap agreement with a notional value of $100 million (equal to the full amount borrowed under the Term Loan Facility) and, effectively, converted the variable-rate interest payments on the Term Loan Facility to fixed-rate interest payments through July 2017.

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 September 29, 2012, we held $12.5 million par value auction-rate securities, all of which have experienced failed auctions. The principal amounts associated with failed 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.

Available Information

Our website address is www.silabs.com. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available through the investor relations page of our website free of charge as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (SEC). Our website and the information contained therein or connected thereto are not intended to be incorporated into this 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 of Financial 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 that our disclosure controls and procedures were effective as of September 29, 2012 to provide reasonable assurance that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Such disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed is accumulated and communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosures. There was no change in our internal controls during the fiscal quarter ended September 29, 2012 that materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

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Part II.  Other Information

Item 1.  Legal Proceedings

Patent Litigation

On May 13, 2012, MaxLinear, Inc., a Delaware corporation, filed a lawsuit against us in the United States District Court in the Southern District of California, San Diego Division, seeking a declaratory judgment that MaxLinear products do not infringe 19 Silicon Laboratories’ patents and that such patents are invalid.  We responded and filed claims accusing MaxLinear of infringing 6 Silicon Laboratories’ patents, including 5 of our named 19 patents and an additional patent.  On September 14, 2012, a preliminary injunction motion was filed by us seeking to enjoin MaxLinear from infringing U.S. Patent 7,200,364 by making, using, offering to sell, selling or importing the MxL601 Hybrid Tuner in the U.S. or inducing others to make, use, offer to sell, sell, or import the MxL601 or devices incorporating the MxL601 in the U.S.  We also have asked the Court for a permanent injunction stopping the sale of all allegedly infringing MaxLinear products.

On July 30, 2012, we further filed a complaint for declaratory judgment against MaxLinear in United States District Court for the Western District of Texas, Austin Division. We are seeking an order that MaxLinear’s United States Patent Nos. 7,362,178, 7,778,613 and 8,198,940 are invalid, and that our products do not infringe such patents.

On July 17, 2012, we additionally filed a lawsuit against MaxLinear in the United States District Court in the Southern District of California, San Diego Division, alleging infringement of an additional Silicon Laboratories’ patent, U.S. Patent 7,035,607 related to RF design. On August 6, 2012, MaxLinear counterclaimed alleging infringement of the three patents in the Texas litigation by a variety of our RF and mixed signal products.

At this time, we cannot predict the outcome of these matters or the resulting financial impact to us, if any.

Other

We are involved in various other legal proceedings that have arisen in the normal course of business. While the ultimate results of these matters cannot be predicted with certainty, we do not expect them to have a material adverse effect on our consolidated financial statements.

Item 1A.  Risk Factors

Risks Related to our Business

We may not be able to maintain our historical growth and may experience significant period-to-period fluctuations in our revenues and operating results, which may result in volatility in our stock price

Although we have generally experienced revenue growth in our history, we may not be able to sustain this growth. We may also experience significant period-to-period fluctuations in our revenues and operating results in the future due to a number of factors, and any such variations may cause our stock price to fluctuate. In some future period our revenues or operating results may be below the expectations of public market analysts or investors. If this occurs, our stock price may drop, perhaps significantly.

A number of factors, in addition to those cited in other risk factors applicable to our business, may contribute to fluctuations in our revenues and operating results, including:

·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;

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·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 other providers of ICs;

·Changes in product mix;

·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 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 to develop products for these new markets.

The markets for consumer electronics, for example, are characterized by rapid fluctuations in demand and seasonality that result in corresponding fluctuations in the demand for our products that are incorporated in such devices. Additionally, the rate of technology acceptance by our customers results in fluctuating demand for our products as customers are reluctant to incorporate a new IC into their products until the new IC has achieved market acceptance. Once a new IC achieves market acceptance, demand for the new IC can quickly accelerate to a point and then level off such that rapid historical growth in sales of a product should not be viewed as indicative of continued future growth. In addition, demand can quickly decline for a product when a new IC product is introduced and receives market acceptance. Due to the various factors mentioned above, the results of any prior quarterly or annual periods should not be relied upon as an indication of our future operating performance.

If we are unable to develop or acquire new and enhanced products that achieve market acceptance in a timely manner, our operating results and competitive position could be harmed

Our future success will depend on our ability to develop or acquire new ICs and product enhancements that achieve market acceptance in a timely and cost-effective manner. The development of mixed-signal ICs is highly complex, and we have at times experienced delays in completing the development and introduction of new products and product enhancements. Successful product development and market acceptance of our products depend on a number of factors, including:

·Requirements of customers;

·Accurate prediction of market and technical requirements;

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·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;

·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 to develop 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 the development, or abandonment, of these technologies or products by industry participants, or their failure to achieve market acceptance, could compromise our competitive position

Our ICs are used as components in electronic devices in various markets. As a result, we have devoted and expect to continue to devote a large amount of resources to develop products based on new and emerging technologies and standards that will be commercially introduced in the future. Research and development expense during the nine months ended September 29, 2012 was $101.9 million, or 24.8% of revenues. A number of 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 new technologies and standards, or if the products that we develop based on these new technologies and standards fail to achieve market acceptance, our competitors may be better able to address market demand than we would. Furthermore, if markets for these new technologies and standards develop later than we anticipate, or do not develop at all, demand for our products that are currently in development would suffer, resulting in lower sales of these products than we currently anticipate.

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We depend on a limited number of customers for a substantial portion of our revenues, and the loss of, or a significant reduction in orders 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 and adversely affect our business. During the nine months ended September 29, 2012, our ten largest customers accounted for 43% of our revenues. Some of 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 that incorporate 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 past or 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; and

·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 secure these components. We believe that any expansion of our customers’ supplier bases could have an adverse effect on the prices we are able to charge and volume of product that we are able to sell to our customers, which would negatively affect our revenues and operating results.

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

In recent years, there has been significant litigation in the United States involving patents and other intellectual property rights. From time to time, we receive letters from various industry participants alleging infringement of patents, trademarks or misappropriation of trade secrets or from customers or suppliers 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 have been involved in litigation to protect our intellectual property rights in the past and may become involved in such litigation again in the future. 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 or suppliers. Legal proceedings could subject us to significant liability for damages or invalidate our proprietary rights. Legal proceedings initiated by us to protect our intellectual property rights could also result in counterclaims or countersuits against us. Any litigation, regardless of its outcome, would likely be time-consuming and expensive to resolve and would divert our management’s time and attention. Most intellectual property litigation also could force us to take specific actions, including:

·Cease selling or manufacturing 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

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·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 be important to the success of our business. We rely on a combination of patent, copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights. We also enter into confidentiality or license agreements with our employees, consultants, intellectual property providers and business partners, and control access to and distribution of our documentation and other proprietary information. Despite these efforts, unauthorized parties may attempt to copy or otherwise obtain and use our proprietary technology. Monitoring unauthorized use of our technology is difficult, and we cannot be certain that the steps we have taken will prevent unauthorized use of our technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States. We cannot be certain that patents will be issued as a result of our pending applications nor can we be certain that any issued patents would protect or benefit us or give us adequate protection from competing products. For example, issued patents may be circumvented or challenged and declared invalid or unenforceable. We also cannot be certain that others will not develop effective competing technologies on their own.

Failure to manage our distribution channel relationships could impede our future growth

The future growth of our business will depend in large part on our ability to manage our relationships with current and future distributors and sales representatives, develop additional channels for the distribution and sale of our products and manage these relationships. As we execute our indirect sales strategy, we must manage the potential conflicts that may arise with our direct sales efforts. For example, conflicts with a distributor may arise when a customer begins purchasing directly from us rather than through the distributor. The inability to successfully execute or manage a multi-channel sales strategy could impede our future growth. In addition, relationships with our distributors often involve the use of price protection and inventory return rights. This often requires a significant amount of sales management’s time and system resources to manage properly.

We are subject to increased inventory risks and costs because we build our products based on forecasts provided by customers before receiving purchase orders for the products

In order to ensure availability of our products for some of our largest customers, we start the manufacturing of our products in advance of receiving purchase orders based on forecasts provided by these customers. However, these forecasts do not represent binding purchase commitments and we do not recognize sales for these products until they are shipped to the customer. As a result, we incur inventory and manufacturing costs in advance of anticipated sales. Because demand for our products may not materialize, manufacturing based on forecasts subjects us to increased risks of high inventory carrying costs, increased obsolescence and increased operating costs. These inventory risks are exacerbated when our customers purchase indirectly through contract manufacturers or hold component inventory levels greater than their consumption rate because this causes us to have less visibility regarding the accumulated levels of inventory for such customers. A resulting write-off of unusable or excess inventories would adversely affect our operating results.

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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 than the cost of the end-products into which they are incorporated. A defect or failure in our product could cause failure in our customer’s end-product, so we could face claims for damages that are disproportionately higher than the revenues and profits we receive from the products involved. Furthermore, product liability risks are particularly significant with respect to medical and automotive applications because of the risk of serious harm to users of these products. There can be no assurance that any insurance we maintain will sufficiently protect us from any such claims.

Any acquisitions we make could disrupt our business and harm our financial condition

As part of our growth and product diversification strategy, we continue to evaluate opportunities to acquire other businesses, intellectual property or technologies that would complement our current offerings, expand the breadth of our markets or enhance our technical capabilities. The acquisitions that we have made and may make in the future entail a number of risks that could materially and adversely affect our business and operating results, including:

·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.

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Our customers require our products to undergo a lengthy and expensive qualification process without any assurance of product sales

Prior to purchasing our products, our customers require that our products undergo an extensive qualification process, which involves testing of the products in the customer’s system as well as rigorous reliability testing. This qualification process may continue for six months or longer. However, qualification of a product by a customer does not ensure any sales of the product to that customer. Even after successful qualification and sales of a product to a customer, a subsequent revision to the 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 or devices that incorporate our products. Despite these uncertainties, we devote substantial resources, including design, engineering, sales, marketing and management efforts, toward qualifying our products with customers in anticipation of sales. If we are unsuccessful or delayed in qualifying any of our products with a customer, such failure or delay would preclude or delay sales of such product to the customer, which may impede our growth and cause our business to suffer.

We have substantial international activities, which subjects us to additional business risks including logistical and financial complexity, political instability and currency fluctuations

We have established international subsidiaries and have opened offices in international markets to support our activities in 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 outside of the United States was 89% during the nine months ended September 29, 2012. We may not be able to maintain or increase international market demand for our products. Our international operations are subject to a number of risks, including:

·Complexity and costs of managing international operations and related tax obligations, including our headquarters for non-U.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 and other 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 our international customers to purchase, thus rendering our products less competitive. Similarly, a decrease in the value of the U.S. dollar could reduce our buying power with respect to international suppliers.

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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 to shipping. We expect utilization of third-party subcontractors to continue in the future.

The cyclical nature of the semiconductor industry drives wide fluctuations in available capacity at third-party vendors. On occasion, we have been unable to adequately respond to unexpected increases in customer demand due to capacity constraints and, therefore, were unable to benefit from this incremental demand. We may be unable to obtain adequate foundry, assembly or test capacity from our third-party subcontractors to meet our customers’ delivery requirements even if we adequately forecast customer demand.

There are significant risks associated with relying on these third-party foundries and subcontractors, including:

·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 event that these vendors fail to meet our demand for whatever reason, we expect that it would take up to 12 months to transition performance of these services to new providers. Such a transition may also require qualification of the new providers by our customers or their end customers.

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 balance customer demand across the existing semiconductor fabrication facilities that we utilize or are required by our foundry partners to increase, or otherwise change the number of fab lines that we utilize for our production, we might not be able to fulfill demand for our products and may need to divert our engineering resources away from new product development initiatives to support the fab line transition, which would adversely affect our operating results.

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Our products incorporate technology licensed from third parties

We incorporate technology (including software) licensed from third parties in our products. We could be subjected to claims of infringement regardless of our lack of involvement in the development of the licensed technology. Although a third party licensor is typically obligated to indemnify us if the licensed technology infringes on another party’s intellectual property rights, such indemnification is typically limited in amount and may be worthless if the licensor becomes insolvent. See Significant litigation over intellectual property in our industry may cause us to become involved in costly and lengthy litigation which could seriously harm our business. Furthermore, any failure of third party technology to perform properly would adversely affect sales of our products incorporating such technology.

Our inability to manage growth could materially and adversely affect our business

Our past growth has placed, and any future growth of our operations will continue to place, a significant strain on our management personnel, systems and resources. We anticipate that we will need to implement a variety of new and upgraded sales, operational and financial enterprise-wide systems, information technology infrastructure, procedures and controls, including the improvement of our accounting and other internal management systems to manage this growth and maintain compliance with regulatory guidelines, including Sarbanes-Oxley Act requirements. To the extent our business grows, our internal management systems and processes will need to improve to ensure that we remain in compliance. We also expect that we will need to continue to expand, train, manage and motivate our workforce. All of these endeavors will require substantial management effort, and we anticipate that we will require additional management personnel and internal processes to manage these efforts and to plan for the succession from time to time of certain persons who have been key management and technical personnel. If we are unable to effectively manage our expanding global operations, including our international headquarters in Singapore, our business could be materially and adversely affected.

We are subject to risks relating to product concentration

We derive a substantial portion of our revenues from a limited number of products, and we expect these products to continue to account for a large percentage of our revenues in the near term. Continued market acceptance of these products, is therefore, critical to our future success. In addition, substantially all of our products that we have sold include technology related to one or more of our issued U.S. patents. If these patents are found to be invalid or unenforceable, our competitors could introduce competitive products that could reduce both the volume and price per unit of our products. Our business, operating results, financial condition and cash flows could therefore be adversely affected by:

·A decline in demand for any of our more significant products;

·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.

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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 the likelihood 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 not satisfy their obligations to us, we could be materially harmed.

We depend on our key personnel to manage our business effectively in a rapidly changing market, and if we are unable to retain our current personnel and hire additional personnel, our ability to develop and successfully market our products could be harmed

We believe our future success will depend in large part upon our ability to attract and retain highly skilled managerial, engineering, sales and marketing personnel. We believe that our future success will be dependent on retaining the services of our key personnel, developing their successors and certain internal processes to reduce our reliance on specific individuals, and on properly managing the transition of key roles when they occur. There is currently a shortage of qualified personnel with significant experience in the design, development, manufacturing, marketing and sales of analog and mixed-signal ICs. In particular, there is a shortage of engineers who are familiar with the intricacies of the design and manufacturability of analog elements, and competition for such personnel is intense. Our key technical personnel represent a significant asset and serve as the primary source for our technological and product innovations. We may not be successful in attracting and retaining sufficient numbers of technical personnel to support our anticipated growth. The loss of any of our key employees or the inability to attract or retain qualified personnel both in the United States and internationally, including engineers, sales, applications and marketing personnel, could delay the development and introduction of, and negatively impact our ability to sell, our products.

Any dispositions could harm our financial condition

Any disposition of a product line would entail a number of risks that could materially and adversely affect our business and operating results, including:

·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 line;

·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.

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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;

·Announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures or capital 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 same geographic region, which increases the risk that a natural disaster, epidemic, labor strike, war or political unrest could disrupt our operations or sales

Most of TSMC’s foundries and several of our assembly and test subcontractors’ sites are located in Taiwan and most of our other foundry, assembly and test subcontractors are located in the Pacific Rim region. In addition, many of our customers are located in the Pacific Rim region. The risk of earthquakes in Taiwan and the Pacific Rim region is significant due to the proximity of major earthquake fault lines in the area. Earthquakes, tsunamis, fire, flooding, lack of water or other natural disasters, an epidemic, political unrest, war, labor strikes or work stoppages in countries where our semiconductor manufacturers, assemblers and test subcontractors are located, likely would result in the disruption of our foundry, assembly or test capacity. There can be no assurance that alternate capacity could be obtained on favorable terms, if at all.

A natural disaster, epidemic, labor strike, war or political unrest where our customers’ facilities are located would likely reduce our sales to such customers. North Korea’s 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 to shift our manufacturing, assembling or testing from the affected subcontractor to another third-party vendor.

46

The semiconductor manufacturing process is highly complex and, from time to time, manufacturing yields may fall below our expectations, which could result in our inability to satisfy demand for our products in a timely manner and may decrease our gross margins due to higher unit costs

The manufacturing of our products is a highly complex and technologically demanding process. Although we work closely with our foundries and assemblers to minimize the likelihood of reduced manufacturing yields, we have from time to time experienced lower than anticipated manufacturing yields. Changes in manufacturing processes or the inadvertent use of defective or contaminated materials could result in lower than anticipated manufacturing yields or unacceptable performance deficiencies, which could lower our gross margins. If our foundries fail to deliver fabricated silicon wafers of satisfactory quality in a timely manner, we will be unable to meet our customers’ demand for our products in a timely manner, which would adversely affect our operating results and damage our customer relationships.

We depend on our customers to support our products, and some of our customers offer competing products

We rely on our customers to provide hardware, software, intellectual property indemnification and other technical support for the products supplied by our customers. If our customers do not provide the required functionality or if our customers do not provide satisfactory support for their products, the demand for these devices that incorporate our products may diminish or we may otherwise be materially adversely affected. Any reduction in the demand for these devices would significantly reduce our revenues.

In certain products, some of our customers offer their own competitive products. These customers may find it advantageous to support their own offerings in the marketplace in lieu of promoting our products.

Our debt could adversely affect our operations and financial condition

We believe we have the ability to service our debt under our credit facilities, but our ability to make the required payments thereunder when due depends upon our future performance, which will be subject to general economic conditions, industry cycles and other factors affecting our operations, including risk factors described under this Item 1A, many of which are beyond our control. Our credit facilities also contain covenants, including financial covenants. If we breach any of the covenants under our credit facilities and do not obtain appropriate waivers, then, subject to any applicable cure periods, our outstanding indebtedness thereunder could be declared immediately due and payable.

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

We believe that our existing cash, cash equivalents, investments and credit under our credit facilities will be sufficient to meet our working capital needs, capital expenditures, investment requirements and commitments for at least the next 12 months. However, our ability to borrow further under the credit facilities is dependent upon our ability to satisfy various conditions, covenants and representations. It is possible that we may need to raise additional funds to finance our activities or to facilitate acquisitions of other businesses, products, intellectual property or technologies. We believe we could raise these funds, if needed, by selling equity or debt securities to the public or to selected investors. In addition, even though we may not need additional funds, we may still elect to sell additional equity or debt securities or obtain credit facilities for other reasons. However, we may not be able to obtain additional funds on favorable terms, or at all. If we decide to raise additional funds by issuing equity or convertible debt securities, the ownership percentages of existing shareholders would be reduced.

47

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 a larger base of customers than we have. As a result, these competitors may have greater credibility with our existing and potential customers. They also may be able to adopt more aggressive pricing policies and devote greater resources to the development, promotion and sale of their products than we can to ours. In addition, some of our current and potential competitors have already established supplier or joint development relationships with the decision makers at our current or potential customers. These competitors may be able to leverage their existing relationships to discourage their customers from purchasing products from us or persuade them to replace our products with their products. Our competitors may also offer bundled solutions offering a more complete product despite the technical merits or advantages of our products. These competitors may elect not to support our products which could complicate our sales efforts. 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 the market price of our common stock

Provisions of our certificate of incorporation and bylaws could have the effect of discouraging, delaying or preventing a merger or acquisition that a stockholder may consider favorable. For example, our certificate of incorporation and bylaws provide for:

·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 our stockholders;

·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 to be 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 with us, which may adversely affect the market price of our common stock.

48

Risks related to our industry

We are subject to the cyclical nature of the semiconductor industry, which has been subject to significant fluctuations

The semiconductor industry is highly cyclical and is characterized by constant and rapid technological change, rapid product obsolescence and price erosion, evolving standards, short product life cycles and wide fluctuations in product supply and demand. The industry has experienced significant fluctuations, often connected with, or in anticipation of, maturing product cycles and new product introductions of both semiconductor companies’ and their customers’ products and fluctuations in general economic conditions. Deteriorating general worldwide economic conditions, including reduced economic activity, concerns about credit and inflation, increased energy costs, decreased consumer confidence, reduced corporate profits, decreased spending and similar adverse business conditions, would make it very difficult for our customers, our vendors, and us to accurately forecast and plan future business activities and could cause U.S. and foreign businesses to slow spending on our products. We cannot predict the timing, strength, or duration of any economic slowdown or economic recovery. If the economy or markets in which we operate deteriorate, our business, financial condition, and results of operations would likely be materially and adversely affected.

Downturns have been characterized by diminished product demand, production overcapacity, high inventory levels and accelerated erosion of average selling prices. In the recent past, we believe the semiconductor industry 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 our business and operating results.

Upturns have been characterized by increased product demand and production capacity constraints created by increased competition for access to third-party foundry, assembly and test capacity. We are dependent on the availability of such capacity to manufacture, assemble and test our 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.

49

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 for our products will continually evolve and will be subject to rapid technological change. In addition, as we target and supply products to numerous markets and applications, we face competition from a relatively large number of competitors. We compete with Analog Devices, Atmel, Broadcom, Conexant, Cypress, Epson, Freescale, IDT, Lantiq, Maxim Integrated Products, Microchip, Microsemi, NXP Semiconductors, Renesas, Sony Semiconductor, ST-Ericsson, STMicroelectronics, Texas Instruments, Vectron International and others. We expect to face competition in the future from our current competitors, other manufacturers and designers of semiconductors, and start-up semiconductor design companies. As the markets for communications products grow, we also may face competition from traditional communications device companies. These companies may enter the mixed-signal semiconductor market by introducing their own 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 our customers.

Our products must conform to industry standards and technology in order to be accepted by end users in our markets

Generally, our products comprise only a part of a device. All components of such devices must uniformly comply with industry standards in order to operate efficiently together. We depend on companies that provide other components of the devices to support prevailing industry standards. Many of these companies are significantly larger and more influential in affecting industry standards than we are. Some industry standards may not be widely adopted or implemented uniformly, and competing standards may emerge that may be preferred by our customers or end users. If larger companies do not support the same industry standards that we do, or if competing standards emerge, market acceptance of our products could be adversely affected which would harm our business.

Products for certain applications are based on industry standards that are continually evolving. Our ability to compete in the future will depend on our ability to identify and ensure compliance with these evolving industry standards. The emergence of new industry standards could render our products incompatible with products developed by other suppliers. As a result, we could be required to invest significant time and effort and to incur significant expense to redesign our products to ensure compliance with relevant standards. If our products are not in compliance with prevailing industry standards for a significant period of time, we could miss opportunities to achieve crucial design wins.

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.

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

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

50

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 offering of our common stock became effective on March 23, 2000.

The following table summarizes repurchases of our common stock during the three months ended September 29, 2012 (in thousands, except per share amounts):

Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
July 1, 2012 — July 28, 2012	308	$	36.54	308	$	50,000
July 29, 2012 — August 25, 2012	27	$	36.56	27	$	48,989
August 26, 2012 — September 29, 2012	59	$	36.25	59	$	46,860
Total	394	$	36.50	394

In April 2012, our Board of Directors authorized a program to repurchase up to $100 million of our common stock through January 2013. 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 4.  Mine Safety Disclosures

Not applicable

Item 5.  Other Information

Not applicable

Item 6.  Exhibits

The following exhibits are filed as part of this report:

Exhibit Number
2.1*	Agreement and Plan of Merger, dated May 16, 2012, by and among Silicon Laboratories Inc., El Dorado Merger Sub, Inc., Ember Corporation and Todd Hixon, as Stakeholder Representative (filed as Exhibit 2.1 to the Form 8-K filed May 21, 2012).
3.1*	Form of Fourth Amended and Restated Certificate of Incorporation of Silicon Laboratories Inc. (filed as Exhibit 3.1 to the Registrant’s Registration Statement on Form S-1 (Securities and Exchange Commission File No. 333-94853) (the “IPO Registration Statement”)).

51

Exhibit Number
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).
4.1*	Specimen certificate for shares of common stock (filed as Exhibit 4.1 to the IPO Registration Statement).
10.1*	Credit Agreement, dated July 31, 2012, by and among Silicon Laboratories Inc., the subsidiaries of the borrower identified therein, Bank of America, N.A., Wells Fargo Bank, National Association, and Regions Bank (filed as Exhibit 10.1 to the Form 8-K filed August 1, 2012).
10.2*	Security and Pledge Agreement, dated July 31, 2012, by and among Silicon Laboratories Inc., with the other parties identified as “Obligors” (as defined therein) and such other parties that may become Obligors thereunder after the date thereof, and Bank of America, N.A (filed as Exhibit 10.2 to the Form 8-K filed August 1, 2012).
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.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

*  Incorporated herein by reference to the indicated filing.

52

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.
October 24, 2012	/s/ G. Tyson Tuttle
Date	G. Tyson Tuttle
	President and
	Chief Executive Officer
	(Principal Executive Officer)
October 24, 2012	/s/ Paul V. Walsh, Jr.
Date	Paul V. Walsh, Jr.
	Senior Vice President and
	Chief Financial Officer
	(Principal Financial Officer)

53

EX-31.1

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, G. Tyson Tuttle, 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 the period 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 (as defined 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:

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 made known 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 of financial 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 on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The 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 equivalent functions):

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

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

Date: October 24, 2012

/s/ G. Tyson Tuttle

G. Tyson Tuttle

President and

Chief Executive Officer

(Principal Executive Officer)

EX-31.2

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, Paul V. Walsh, Jr., 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 the period 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 (as defined 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:

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 made known 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 of financial 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 on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The 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 equivalent functions):

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

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

Date: October 24, 2012

/s/ Paul V. Walsh, Jr.

Paul V. Walsh, Jr.

Senior Vice President and

Chief Financial Officer

(Principal Financial Officer)

EX-32.1

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 September 29, 2012 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 the Company.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities Exchange Commission or its staff upon request.

Date: October 24, 2012

/s/ G. Tyson Tuttle

G. Tyson Tuttle

President and

Chief Executive Officer

/s/ Paul V. Walsh, Jr.

Paul V. Walsh, Jr.

Senior Vice President and

Chief Financial Officer

XML

Fair Value of Financial Instruments (Details 5) (Assets and liabilities measured at fair value on recurring basis, Contingent consideration, USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 29, 2012	Sep. 29, 2012
Assets and liabilities measured at fair value on recurring basis | Contingent consideration
Fair value liabilities reconciliation of changes
Balance at the beginning of the period		$ 876
Issuances	4,004	4,004
Gain recognized in earnings		(876)
Balance at the end of the period	$ 4,004	$ 4,004

XML

Commitments and Contingencies (Details) (MaxLinear)	0 Months Ended
	May 13, 2012 item	Aug. 06, 2012 item
MaxLinear
Patent Litigation
Number of patents which plaintiff is seeking a declaratory judgment of no infringement	19
Number of patents for which the entity filed claims	6
Number of patents included in plaintiff's declaratory judgment of no infringement	5
Number of patents which plaintiff is seeking a declaratory judgment of infringement		3

XML

Derivative Financial Instruments (Details) (USD $)	9 Months Ended
	Sep. 29, 2012	Sep. 29, 2012 Long-term obligations and other liabilities	Dec. 31, 2011 Long-term obligations and other liabilities
Derivative Financial Instruments
Description of variable rate	LIBOR
Notional value of interest rate swap agreement hedging headquarters lease through July 2017	$ 100,000,000
Notional value of interest rate swap agreement hedging headquarters lease	50,100,000
Derivative financial instrument
Fair value of interest rate swap		$ 699,000	$ 1,998,000

XML

Balance Sheet Details (Tables)

9 Months Ended

Sep. 29, 2012

Balance Sheet Details

Inventories

	September 29,2012		December 31, 2011
Work in progress	$	35,986	$	28,023
Finished goods	6,537		6,755
	$	42,523	$	34,778

XML

Acquisitions (Details) (USD $)	9 Months Ended			1 Months Ended		1 Months Ended		1 Months Ended		1 Months Ended	9 Months Ended		1 Months Ended
	Sep. 29, 2012	Sep. 29, 2012 Ember Corporation	Jul. 03, 2012 Ember Corporation	Jul. 31, 2012 Ember Corporation Developed technology	Jul. 03, 2012 Ember Corporation Developed technology	Jul. 31, 2012 Ember Corporation Customer relationships	Jul. 03, 2012 Ember Corporation Customer relationships	Jul. 31, 2012 Ember Corporation Trademarks	Jul. 03, 2012 Ember Corporation Trademarks	Jul. 31, 2012 Ember Corporation In Process research and development	Sep. 29, 2012 Ember Corporation In Process research and development	Jul. 03, 2012 Ember Corporation In Process research and development	Sep. 30, 2012 Headquarters leases item	Sep. 28, 2012 Headquarters leases	Sep. 28, 2012 400 WCC	Sep. 28, 2012 200 WCC
Business acquisition
Purchase price of acquisition			$ 79,000,000
Estimated fair value of contingent consideration			4,000,000
Minimum revenue of acquired products		27,000,000
Number of years over which minimum revenue generate		1 year
Purchase price allocation
Indefinite intangible assets												14,810,000
Finite intangible assets					17,800,000		5,620,000		910,000
Intangible assets			39,140,000
Cash and cash equivalents			3,115,000
Accounts receivable			1,928,000
Inventories			4,749,000
Other current assets			324,000
Goodwill			14,580,000
Non-current deferred tax assets, net			16,530,000
Other non-current assets			1,776,000
Current liabilities			(3,171,000)
Total purchase price			78,971,000
Weighted-Average Amortization Period				11 years		9 years		12 years
Discount rate applicable to the cash flows (as a percent)											12.50%
Estimated costs										11,200,000
Purchase option price for buildings															44,300,000	50,100,000
Buildings														90,900,000
Leasehold interest in ground leases														23,840,000
Acquired unfavorable leases														(11,925,000)
Lease-related charges														(8,000)
Net gain on purchase	(8,457,000)												(8,457,000)
Total purchase price														$ 94,350,000
Useful life of building													40 years
Useful life of leasehold interest in ground leases													86 years
Number of leases purchase price fixed													2

XML

Fair Value of Financial Instruments (Details 3) (Contingent consideration, USD $)	9 Months Ended
	Sep. 29, 2012
Quantitative information for Level 3 Fair Value Measurements Liability
Label Fair value Liabilities	$ 4,004,000
Probability weighted discounted cash flow | Weighted Average
Quantitative information for Level 3 Fair Value Measurements Liability
Estimated outcomes if milestone goals are achieved	4,200,000
Estimated probability of achieving each outcome (as a percent)	15.00%
Estimated discount rate (as a percent)	5.15%
Probability weighted discounted cash flow | Minimum
Quantitative information for Level 3 Fair Value Measurements Liability
Estimated outcomes if milestone goals are achieved	100,000
Estimated probability of achieving each outcome (as a percent)	3.00%
Probability weighted discounted cash flow | Maximum
Quantitative information for Level 3 Fair Value Measurements Liability
Estimated outcomes if milestone goals are achieved	$ 7,600,000
Estimated probability of achieving each outcome (as a percent)	33.00%

XML

Income Taxes (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 29, 2012	Oct. 01, 2011	Sep. 29, 2012	Oct. 01, 2011
Income Taxes
Income tax expense	$ 17,054,000	$ 2,976,000	$ 17,131,000	$ 13,894,000
Income tax rate (as a percent)	63.00%	20.90%	27.60%	38.00%
Gross unrecognized tax benefits	4,300,000		4,300,000
Gross unrecognized tax benefits which would affect the effective tax rate if recognized	4,100,000		4,100,000
Net decrease in uncertain tax positions			6,900,000
Reductions for uncertain tax positions that was determined to be effectively settled			8,400,000
Increase in uncertain tax positions in current year			$ 1,500,000

XML

Cash, Cash Equivalents and Investments

9 Months Ended

Sep. 29, 2012

Cash, Cash Equivalents and Investments

Cash, Cash Equivalents and Investments

3. Cash, Cash Equivalents and Investments

The Company’s cash equivalents and short-term investments as of September 29, 2012 consisted of corporate bonds, money market funds, municipal bonds, U.S. Treasury bills, variable-rate demand notes, U.S. government bonds, asset-backed securities and international government bonds. The Company’s long-term investments consist of 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 September 29, 2012, the Company held $12.5 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 $10.5 million were guaranteed by the U.S. government and the remaining $2.0 million were privately insured. As of September 29, 2012, $4.5 million of the auction-rate securities had credit ratings of AAA, $6.0 million had credit ratings of AA and $2.0 million had a credit rating of A. These securities have contractual maturity dates ranging from 2033 to 2046 and with current yields of 0.3% to 1.7% per year at September 29, 2012. The Company is receiving the underlying cash flows on all of its auction-rate securities. The principal amounts associated with failed 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. The Company is unable to predict if these funds will become available before their maturity dates.

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 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 and credit support of the security issuers indicate that they have the ability to settle the securities at par value. As such, the Company has determined that no other-than-temporary impairment losses existed as of September 29, 2012.

The Company’s cash, cash equivalents and investments consist of the following (in thousands):

	September 29, 2012
	Cost		Gross Unrealized Losses			Gross Unrealized Gains		Fair Value
Cash and Cash Equivalents:
Cash on hand	$	54,887	$	—		$	—	$	54,887
Available-for-sale securities:
Money market funds	54,619		—			—		54,619
U.S. Treasury bills	15,999		—			—		15,999
Total available-for-sale securities	70,618		—			—		70,618
Total cash and cash equivalents	$	125,505	$	—		$	—	$	125,505
Short-term Investments:
Available-for-sale securities:
Corporate bonds	$	62,824	$	(1	)	$	326	$	63,149
Municipal bonds	29,952		(2		)	60		30,010
Variable-rate demand notes	19,280		—			1		19,281
U.S. government bonds	12,642		—			28		12,670
Asset-backed securities	11,978		—			19		11,997
U.S. Treasury bills	8,499		—			—		8,499
International government bonds	2,950		—			17		2,967
Total short-term investments	$	148,125	$	(3	)	$	451	$	148,573
Long-term Investments:
Available-for-sale securities:
Auction rate securities	$	12,525	$	(1,107	)	$	—	$	11,418
Total long-term investments	$	12,525	$	(1,107	)	$	—	$	11,418

	December 31, 2011
	Cost		Gross Unrealized Losses			Gross Unrealized Gains		Fair Value
Cash and Cash Equivalents:
Cash on hand	$	44,113	$	—		$	—	$	44,113
Available-for-sale securities:
Money market funds	50,851		—			—		50,851
Total cash and cash equivalents	$	94,964	$	—		$	—	$	94,964
Short-term Investments:
Available-for-sale securities:
Corporate bonds	$	75,189	$	(363	)	$	234	$	75,060
Municipal bonds	56,915		(12		)	81		56,984
Variable-rate demand notes	41,280		—			—		41,280
U.S. government agency	19,820		(12		)	28		19,836
U.S. Treasury bills	8,600		—			—		8,600
Asset-backed securities	5,743		(5		)	1		5,739
U.S. government bonds	2,507		—			—		2,507
Certificates of deposit	1,570		—			—		1,570
International government bonds	950		—			—		950
Total short-term investments	$	212,574	$	(392	)	$	344	$	212,526
Long-term Investments:
Available-for-sale securities:
Auction rate securities	$	19,225	$	(1,748	)	$	—	$	17,477
Total long-term investments	$	19,225	$	(1,748	)	$	—	$	17,477

The available-for-sale investments that were in a continuous unrealized loss position, aggregated by length of time that individual securities have been in a continuous loss position, were as follows (in thousands):

	Less Than 12 Months					12 Months or Greater					Total
As of September 29, 2012	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Auction rate securities	$	—	$	—		$	11,418	$	(1,107	)	$	11,418	$	(1,107	)
Municipal bonds	5,217		(2		)	—		—			5,217		(2		)
Corporate bonds	1,119		(1		)	—		—			1,119		(1		)
	$	6,336	$	(3	)	$	11,418	$	(1,107	)	$	17,754	$	(1,110	)

	Less Than 12 Months					12 Months or Greater					Total
As of December 31, 2011	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Corporate bonds	$	25,438	$	(363	)	$	—	$	—		$	25,438	$	(363	)
Auction rate securities	—		—			17,477		(1,748		)	17,477		(1,748		)
Municipal bonds	10,437		(12		)	—		—			10,437		(12		)
U.S. government agency	5,772		(12		)	—		—			5,772		(12		)
Asset-backed securities	4,539		(5		)	—		—			4,539		(5		)
	$	46,186	$	(392	)	$	17,477	$	(1,748	)	$	63,663	$	(2,140	)

The gross unrealized losses as of September 29, 2012 and December 31, 2011 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 September 29, 2012 (in thousands):

	Cost		Fair Value
Due in one year or less	$	115,773	$	115,842
Due after one year through ten years	85,140		85,519
Due after ten years	30,355		29,248
	$	231,268	$	230,609

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Stockholders' Equity (Details) (USD $) In Millions, unless otherwise specified	1 Months Ended			9 Months Ended
	Apr. 30, 2012	Oct. 31, 2011	Jul. 31, 2010	Sep. 29, 2012	Oct. 01, 2011
Stockholders' Equity
Stock issuances under employee plans, net of shares withheld for taxes (in shares)				1.1
Shares withheld to satisfy employee tax obligation				0.3
Value of common stock board of directors authorized to repurchase (in USD)	$ 100	$ 50	$ 150
Common stock repurchased (in shares)				1.5	3.2
Repurchases of common stock (in USD)				$ 53.1	$ 110.0

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Significant Accounting Policies (Details)	9 Months Ended	12 Months Ended
	Sep. 29, 2012	Dec. 29, 2012	Dec. 31, 2011
Basis of Presentation and Principles of Consolidation
Length of fiscal year		364 days	364 days
Number of days in each fiscal quarter for 52-week fiscal year	91 days
Minimum
Basis of Presentation and Principles of Consolidation
Length of fiscal year	364 days
Maximum
Basis of Presentation and Principles of Consolidation
Length of fiscal year	371 days

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Debt (Tables)

9 Months Ended

Sep. 29, 2012

Debt

Schedule of fiscal year maturities of the Term Loan Facility

Fiscal Year
2013	$	5,000
2014	7,500
2015	10,000
2016	10,000
2017	67,500
Total	$	100,000

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Stock-Based Compensation (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 29, 2012	Oct. 01, 2011	Sep. 29, 2012	Oct. 01, 2011
Stock-based compensation costs
Share based compensation cost before tax	$ 7,931,000	$ 9,150,000	$ 23,796,000	$ 27,224,000
Income tax benefit	988,000	880,000	4,199,000	2,695,000
Share based compensation cost after tax	6,943,000	8,270,000	19,597,000	24,529,000
Net reduction in selling, general and administrative expense	500,000		1,900,000
Total unrecognized compensation costs related to awards	47,600,000		47,600,000
Weighted-average period of recognition of unrecognized compensation costs			2 years 1 month 6 days
2009 Employee Stock Purchase Plan
Stock-based compensation costs
Term of plan			10 years
Cost of revenues
Stock-based compensation costs
Share based compensation cost before tax	261,000	335,000	938,000	1,015,000
Research and development
Stock-based compensation costs
Share based compensation cost before tax	3,039,000	3,581,000	9,595,000	11,284,000
Selling, general and administrative
Stock-based compensation costs
Share based compensation cost before tax	$ 4,631,000	$ 5,234,000	$ 13,263,000	$ 14,925,000

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Earnings Per Share (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 29, 2012	Oct. 01, 2011	Sep. 29, 2012	Oct. 01, 2011
Earnings Per Share
Net income	$ 10,024	$ 11,255	$ 44,853	$ 22,667
Shares used in computing basic earnings per share	41,735,000	42,834,000	42,279,000	43,902,000
Effect of dilutive securities:
Stock options and other stock-based awards (in shares)	785,000	1,085,000	982,000	1,403,000
Shares used in computing diluted earnings per share	42,520,000	43,919,000	43,261,000	45,305,000
Earnings per share:
Basic (in dollars per share)	$ 0.24	$ 0.26	$ 1.06	$ 0.52
Diluted (in dollars per share)	$ 0.24	$ 0.26	$ 1.04	$ 0.50
Shares excluded from computation of diluted earning per share	800,000	1,400,000	900,000	500,000

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Cash, Cash Equivalents and Investments (Details) (USD $)																												9 Months Ended
	Sep. 29, 2012	Dec. 31, 2011	Sep. 29, 2012 Cash Equivalents:	Sep. 29, 2012 Short-term Investments:	Dec. 31, 2011 Short-term Investments:	Sep. 29, 2012 Long-term Investments:	Dec. 31, 2011 Long-term Investments:	Sep. 29, 2012 Money market funds Cash Equivalents:	Dec. 31, 2011 Money market funds Cash Equivalents:	Sep. 29, 2012 U.S. Treasury bills Cash Equivalents:	Sep. 29, 2012 U.S. Treasury bills Short-term Investments:	Dec. 31, 2011 U.S. Treasury bills Short-term Investments:	Sep. 29, 2012 Corporate bonds Short-term Investments:	Dec. 31, 2011 Corporate bonds Short-term Investments:	Sep. 29, 2012 Municipal bonds Short-term Investments:	Dec. 31, 2011 Municipal bonds Short-term Investments:	Sep. 29, 2012 Variable-rate demand notes Short-term Investments:	Dec. 31, 2011 Variable-rate demand notes Short-term Investments:	Sep. 29, 2012 U.S. government bonds Short-term Investments:	Dec. 31, 2011 U.S. government bonds Short-term Investments:	Sep. 29, 2012 Asset-backed securities Short-term Investments:	Dec. 31, 2011 Asset-backed securities Short-term Investments:	Dec. 31, 2011 U.S. government agency Short-term Investments:	Sep. 29, 2012 International government bonds Short-term Investments:	Dec. 31, 2011 International government bonds Short-term Investments:	Sep. 29, 2012 Auction rate securities Long-term Investments:	Dec. 31, 2011 Auction rate securities Long-term Investments:	Sep. 29, 2012 Auction rate securities Long-term Investments: Low end of range	Sep. 29, 2012 Auction rate securities Long-term Investments: High end of range	Dec. 31, 2011 Certificates of deposit Short-term Investments:
Cash, Cash Equivalents and Investments
Auction-rate securities guaranteed by the U.S. government	$ 10,500,000
Auction-rate securities privately insured	2,000,000
Auction-rate securities having credit rating 'AAA'	4,500,000
Auction-rate securities having credit rating 'AA'	6,000,000
Auction-rate securities having credit rating 'A'	2,000,000
Cash on hand, Cost	54,887,000	44,113,000
Cash on hand, Fair Value	54,887,000	44,113,000
Cash and cash equivalents, Cost	125,505,000	94,964,000
Cash and cash equivalents, Fair Value	125,505,000	94,964,000
Available-for-sale securities
Long-term investment interest (as a percent)																												0.30%	1.70%
Available-for-sale securities, Cost			70,618,000	148,125,000	212,574,000	12,525,000	19,225,000	54,619,000	50,851,000	15,999,000	8,499,000	8,600,000	62,824,000	75,189,000	29,952,000	56,915,000	19,280,000	41,280,000	12,642,000	2,507,000	11,978,000	5,743,000	19,820,000	2,950,000	950,000	12,525,000	19,225,000			1,570,000
Available-for-sale securities, Gross Unrealized Losses				(3,000)	(392,000)	(1,107,000)	(1,748,000)						(1,000)	(363,000)	(2,000)	(12,000)						(5,000)	(12,000)			(1,107,000)	(1,748,000)
Available-for-sale securities, Gross Unrealized Gains				451,000	344,000								326,000	234,000	60,000	81,000	1,000		28,000		19,000	1,000	28,000	17,000
Available-for-sale securities, Fair Value			$ 70,618,000	$ 148,573,000	$ 212,526,000	$ 11,418,000	$ 17,477,000	$ 54,619,000	$ 50,851,000	$ 15,999,000	$ 8,499,000	$ 8,600,000	$ 63,149,000	$ 75,060,000	$ 30,010,000	$ 56,984,000	$ 19,281,000	$ 41,280,000	$ 12,670,000	$ 2,507,000	$ 11,997,000	$ 5,739,000	$ 19,836,000	$ 2,967,000	$ 950,000	$ 11,418,000	$ 17,477,000			$ 1,570,000

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Earnings Per Share

9 Months Ended

Sep. 29, 2012

Earnings Per Share

Earnings Per Share

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				Nine Months Ended
	September 29, 2012		October 1, 2011		September 29, 2012		October 1, 2011
Net income	$	10,024	$	11,255	$	44,853	$	22,667
Shares used in computing basic earnings per share	41,735		42,834		42,279		43,902
Effect of dilutive securities:
Stock options and other stock-based awards	785		1,085		982		1,403
Shares used in computing diluted earnings per share	42,520		43,919		43,261		45,305
Earnings per share:
Basic	$	0.24	$	0.26	$	1.06	$	0.52
Diluted	$	0.24	$	0.26	$	1.04	$	0.50

For the three months ended September 29, 2012 and October 1, 2011 and the nine months ended September 29, 2012 and October 1, 2011, approximately 0.8 million, 1.4 million, 0.9 million and 0.5 million shares, respectively, were not included in the diluted earnings per share calculation since the shares were anti-dilutive.

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Cash, Cash Equivalents and Investments (Details 2) (USD $) In Thousands, unless otherwise specified	Sep. 29, 2012	Dec. 31, 2011
Continuous unrealized loss position, Fair Value
Fair value of available-for-sale securities, continuous loss position for less than twelve months	$ 6,336	$ 46,186
Fair value of available-for-sale securities, continuous loss position for twelve month or longer	11,418	17,477
Total fair value of available-for-sale securities, continuous loss position	17,754	63,663
Continuous unrealized loss position, Gross Unrealized Losses
Available-for-sale securities, continuous loss position for less than 12 months, gross unrealized losses	(3)	(392)
Available-for-sale securities, continuous loss position for 12 months or greater, gross unrealized losses	(1,107)	(1,748)
Available-for-sale securities, total gross unrealized losses	(1,110)	(2,140)
Cost
Due in one year or less, Cost	115,773
Due after one year through ten years, Cost	85,140
Due after ten years, Cost	30,355
Total Cost	231,268
Fair Value
Due in one year or less, Fair Value	115,842
Due after one year through ten years, Fair Value	85,519
Due after ten years, Fair Value	29,248
Total Fair Value	230,609
Corporate bonds
Continuous unrealized loss position, Fair Value
Fair value of available-for-sale securities, continuous loss position for less than twelve months	1,119	25,438
Total fair value of available-for-sale securities, continuous loss position	1,119	25,438
Continuous unrealized loss position, Gross Unrealized Losses
Available-for-sale securities, continuous loss position for less than 12 months, gross unrealized losses	(1)	(363)
Available-for-sale securities, total gross unrealized losses	(1)	(363)
Auction rate securities
Continuous unrealized loss position, Fair Value
Fair value of available-for-sale securities, continuous loss position for twelve month or longer	11,418	17,477
Total fair value of available-for-sale securities, continuous loss position	11,418	17,477
Continuous unrealized loss position, Gross Unrealized Losses
Available-for-sale securities, continuous loss position for 12 months or greater, gross unrealized losses	(1,107)	(1,748)
Available-for-sale securities, total gross unrealized losses	(1,107)	(1,748)
Municipal bonds
Continuous unrealized loss position, Fair Value
Fair value of available-for-sale securities, continuous loss position for less than twelve months	5,217	10,437
Total fair value of available-for-sale securities, continuous loss position	5,217	10,437
Continuous unrealized loss position, Gross Unrealized Losses
Available-for-sale securities, continuous loss position for less than 12 months, gross unrealized losses	(2)	(12)
Available-for-sale securities, total gross unrealized losses	(2)	(12)
U.S. government agency
Continuous unrealized loss position, Fair Value
Fair value of available-for-sale securities, continuous loss position for less than twelve months		5,772
Total fair value of available-for-sale securities, continuous loss position		5,772
Continuous unrealized loss position, Gross Unrealized Losses
Available-for-sale securities, continuous loss position for less than 12 months, gross unrealized losses		(12)
Available-for-sale securities, total gross unrealized losses		(12)
Asset-backed securities
Continuous unrealized loss position, Fair Value
Fair value of available-for-sale securities, continuous loss position for less than twelve months		4,539
Total fair value of available-for-sale securities, continuous loss position		4,539
Continuous unrealized loss position, Gross Unrealized Losses
Available-for-sale securities, continuous loss position for less than 12 months, gross unrealized losses		(5)
Available-for-sale securities, total gross unrealized losses		$ (5)

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Balance Sheet Details (Details) (USD $) In Thousands, unless otherwise specified	Sep. 29, 2012	Dec. 31, 2011
Inventories
Work in progress	$ 35,986	$ 28,023
Finished goods	6,537	6,755
Total inventories	$ 42,523	$ 34,778

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Condensed Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Sep. 29, 2012	Dec. 31, 2011
Current assets:
Cash and cash equivalents	$ 125,505	$ 94,964
Short-term investments	148,573	212,526
Accounts receivable, net of allowances for doubtful accounts of $789 at September 29, 2012 and $725 at December 31, 2011	75,749	55,351
Inventories	42,523	34,778
Deferred income taxes	15,870	11,563
Prepaid expenses and other current assets	36,735	43,867
Total current assets	444,955	453,049
Long-term investments	11,418	17,477
Property and equipment, net	136,321	25,141
Goodwill	130,069	115,489
Other intangible assets, net	94,611	60,005
Other assets, net	37,669	34,830
Total assets	855,043	705,991
Current liabilities:
Accounts payable	35,476	26,354
Current portion of long-term debt	5,000
Accrued expenses	41,441	30,857
Deferred income on shipments to distributors	30,903	24,962
Income taxes	3,339	665
Total current liabilities	116,159	82,838
Long-term debt	95,000
Other non-current liabilities	22,663	24,214
Total liabilities	233,822	107,052
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; 41,706 and 42,068 shares issued and outstanding at September 29, 2012 and December 31, 2011, respectively	4	4
Additional paid-in capital		14,749
Retained earnings	622,098	586,653
Accumulated other comprehensive loss	(881)	(2,467)
Total stockholders' equity	621,221	598,939
Total liabilities and stockholders' equity	$ 855,043	$ 705,991

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Debt (Details) (USD $)	1 Months Ended	9 Months Ended				9 Months Ended			9 Months Ended			9 Months Ended
	Jul. 31, 2012 Agreement	Sep. 29, 2012 Agreement	Sep. 29, 2012 Term Loan Facility	Sep. 27, 2012 Term Loan Facility	Jul. 31, 2012 Term Loan Facility	Sep. 29, 2012 Term Loan Facility LIBOR	Sep. 29, 2012 Revolving Credit Facility	Jul. 31, 2012 Revolving Credit Facility	Sep. 29, 2012 Term loan facility and revolving credit facility, other than swingline loans LIBOR	Sep. 29, 2012 Term loan facility and revolving credit facility, other than swingline loans LIBOR Low end of range	Sep. 29, 2012 Term loan facility and revolving credit facility, other than swingline loans LIBOR High end of range	Sep. 29, 2012 Term loan facility and revolving credit facility, other than swingline loans Federal Funds	Sep. 29, 2012 Term loan facility and revolving credit facility, other than swingline loans Base rate	Sep. 29, 2012 Term loan facility and revolving credit facility, other than swingline loans one-month LIBOR	Sep. 29, 2012 Term loan facility, revolving credit facility, swingline and other loans Base rate	Sep. 29, 2012 Term loan facility, revolving credit facility, swingline and other loans Base rate Low end of range	Sep. 29, 2012 Term loan facility, revolving credit facility, swingline and other loans Base rate High end of range
Debt
Maximum borrowing capacity	$ 230,000,000				$ 100,000,000			$ 130,000,000
Term of debt instrument	5 years
Percentage of principal amortization in each of the first two years			5.00%
Number of years for which the percentage of principal amortization is five percent			2 years
Percentage of principal amortization in each of the next three years			10.00%
Number of years for which the percentage of principal amortization is ten percent			3 years
Sublimit on letters of credit							25,000,000
Sublimit on swingline loan							10,000,000
Additional increase in borrowing capacity of the line of credit available at the entity's option							50,000,000
Amount borrowed under the term loan facility				100,000,000
Debt Instrument Base rate						LIBOR			LIBOR			Federal Funds rate	base rate	one-month LIBOR	base rate
Interest rate added to the base rate (as a percent)										1.50%	2.50%	0.50%		1.00%		0.50%	1.50%
Maximum leverage ratio		2.5
Minimum fixed charge coverage ratio		1.50
Term Loan Facility
2013			5,000,000
2014			7,500,000
2015			10,000,000
2016			10,000,000
2017			67,500,000
Total			$ 100,000,000
Fixed interest rate percentage			0.764%
Combined interest rate percentage			2.514%

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Condensed Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 29, 2012	Oct. 01, 2011
Operating Activities
Net income	$ 44,853	$ 22,667
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation of property and equipment	10,247	10,119
Net gain on the purchase of property and equipment	(8,457)
Amortization of other intangible assets and other assets	11,001	8,570
Stock-based compensation expense	23,796	27,224
Income tax benefit from employee stock-based awards	2,301	2,301
Excess income tax benefit from employee stock-based awards	(2,470)	(2,111)
Deferred income taxes	5,024	2,011
Changes in operating assets and liabilities:
Accounts receivable	(18,470)	(11,581)
Inventories	(5,994)	1,670
Prepaid expenses and other assets	13,283	227
Accounts payable	9,113	871
Accrued expenses	(797)	819
Deferred income on shipments to distributors	5,267	1,495
Income taxes	(4,378)	1,287
Net cash provided by operating activities	84,319	65,569
Investing Activities
Purchases of available-for-sale investments	(138,822)	(113,784)
Proceeds from sales and maturities of marketable securities	209,972	166,262
Purchases of property and equipment	(99,720)	(7,472)
Purchases of other assets	(6,146)	(891)
Acquisition of businesses, net of cash acquired	(71,852)	(27,262)
Net cash provided by (used in) investing activities	(106,568)	16,853
Financing Activities
Proceeds from issuance of common stock, net of shares withheld for taxes	3,035	2,320
Excess income tax benefit from employee stock-based awards	2,470	2,111
Repurchases of common stock	(51,040)	(110,063)
Proceeds from issuance of long-term debt, net	98,325
Payments on debt		(7,174)
Net cash provided by (used in) financing activities	52,790	(112,806)
Increase (decrease) in cash and cash equivalents	30,541	(30,384)
Cash and cash equivalents at beginning of period	94,964	138,567
Cash and cash equivalents at end of period	$ 125,505	$ 108,183

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Fair Value of Financial Instruments (Details) (USD $) In Thousands, unless otherwise specified	Sep. 29, 2012	Dec. 31, 2011
Financial assets and liabilities measured at fair value on a recurring basis
Total cash equivalents	$ 125,505	$ 94,964
Total short-term investments	148,573	212,526
Total long-term investments	11,418	17,477
Assets and liabilities measured at fair value on recurring basis | U.S. Treasury bills
Financial assets and liabilities measured at fair value on a recurring basis
Total cash equivalents	15,999
Assets and liabilities measured at fair value on recurring basis | Quoted Prices in Active Markets for Identical Assets (Level 1)
Financial assets and liabilities measured at fair value on a recurring basis
Total cash equivalents	70,618	50,851
Total short-term investments	21,169	11,107
Total assets at fair value	91,787	61,958
Assets and liabilities measured at fair value on recurring basis | Quoted Prices in Active Markets for Identical Assets (Level 1) | Money market funds
Financial assets and liabilities measured at fair value on a recurring basis
Total cash equivalents	54,619	50,851
Assets and liabilities measured at fair value on recurring basis | Quoted Prices in Active Markets for Identical Assets (Level 1) | U.S. Treasury bills
Financial assets and liabilities measured at fair value on a recurring basis
Total cash equivalents	15,999
Total short-term investments	8,499	8,600
Assets and liabilities measured at fair value on recurring basis | Quoted Prices in Active Markets for Identical Assets (Level 1) | U.S. government bonds
Financial assets and liabilities measured at fair value on a recurring basis
Total short-term investments	12,670	2,507
Assets and liabilities measured at fair value on recurring basis | Significant Other Observable Inputs (Level 2)
Financial assets and liabilities measured at fair value on a recurring basis
Total short-term investments	127,404	201,419
Total assets at fair value	127,404	201,419
Derivative instruments	699	1,998
Total liabilities at fair value	699	1,998
Assets and liabilities measured at fair value on recurring basis | Significant Other Observable Inputs (Level 2) | Corporate bonds
Financial assets and liabilities measured at fair value on a recurring basis
Total short-term investments	63,149	75,060
Assets and liabilities measured at fair value on recurring basis | Significant Other Observable Inputs (Level 2) | Municipal bonds
Financial assets and liabilities measured at fair value on a recurring basis
Total short-term investments	30,010	56,984
Assets and liabilities measured at fair value on recurring basis | Significant Other Observable Inputs (Level 2) | Variable-rate demand notes
Financial assets and liabilities measured at fair value on a recurring basis
Total short-term investments	19,281	41,280
Assets and liabilities measured at fair value on recurring basis | Significant Other Observable Inputs (Level 2) | U.S. government agency
Financial assets and liabilities measured at fair value on a recurring basis
Total short-term investments		19,836
Assets and liabilities measured at fair value on recurring basis | Significant Other Observable Inputs (Level 2) | Asset-backed securities
Financial assets and liabilities measured at fair value on a recurring basis
Total short-term investments	11,997	5,739
Assets and liabilities measured at fair value on recurring basis | Significant Other Observable Inputs (Level 2) | Certificates of deposit
Financial assets and liabilities measured at fair value on a recurring basis
Total short-term investments		1,570
Assets and liabilities measured at fair value on recurring basis | Significant Other Observable Inputs (Level 2) | International government bonds
Financial assets and liabilities measured at fair value on a recurring basis
Total short-term investments	2,967	950
Assets and liabilities measured at fair value on recurring basis | Significant Unobservable Inputs (Level 3)
Financial assets and liabilities measured at fair value on a recurring basis
Total long-term investments	11,418	17,477
Total assets at fair value	11,418	17,477
Contingent consideration	4,004	876
Total liabilities at fair value	4,004	876
Assets and liabilities measured at fair value on recurring basis | Significant Unobservable Inputs (Level 3) | Auction rate securities
Financial assets and liabilities measured at fair value on a recurring basis
Total long-term investments	11,418	17,477
Assets and liabilities measured at fair value on recurring basis | Fair Value
Financial assets and liabilities measured at fair value on a recurring basis
Total cash equivalents	70,618	50,851
Total short-term investments	148,573	212,526
Total long-term investments	11,418	17,477
Total assets at fair value	230,609	280,854
Derivative instruments	699	1,998
Contingent consideration	4,004	876
Total liabilities at fair value	4,703	2,874
Assets and liabilities measured at fair value on recurring basis | Fair Value | Money market funds
Financial assets and liabilities measured at fair value on a recurring basis
Total cash equivalents	54,619	50,851
Assets and liabilities measured at fair value on recurring basis | Fair Value | Corporate bonds
Financial assets and liabilities measured at fair value on a recurring basis
Total short-term investments	63,149	75,060
Assets and liabilities measured at fair value on recurring basis | Fair Value | Municipal bonds
Financial assets and liabilities measured at fair value on a recurring basis
Total short-term investments	30,010	56,984
Assets and liabilities measured at fair value on recurring basis | Fair Value | Variable-rate demand notes
Financial assets and liabilities measured at fair value on a recurring basis
Total short-term investments	19,281	41,280
Assets and liabilities measured at fair value on recurring basis | Fair Value | U.S. government agency
Financial assets and liabilities measured at fair value on a recurring basis
Total short-term investments		19,836
Assets and liabilities measured at fair value on recurring basis | Fair Value | U.S. Treasury bills
Financial assets and liabilities measured at fair value on a recurring basis
Total short-term investments	8,499	8,600
Assets and liabilities measured at fair value on recurring basis | Fair Value | Asset-backed securities
Financial assets and liabilities measured at fair value on a recurring basis
Total short-term investments	11,997	5,739
Assets and liabilities measured at fair value on recurring basis | Fair Value | U.S. government bonds
Financial assets and liabilities measured at fair value on a recurring basis
Total short-term investments	12,670	2,507
Assets and liabilities measured at fair value on recurring basis | Fair Value | Certificates of deposit
Financial assets and liabilities measured at fair value on a recurring basis
Total short-term investments		1,570
Assets and liabilities measured at fair value on recurring basis | Fair Value | International government bonds
Financial assets and liabilities measured at fair value on a recurring basis
Total short-term investments	2,967	950
Assets and liabilities measured at fair value on recurring basis | Fair Value | Auction rate securities
Financial assets and liabilities measured at fair value on a recurring basis
Total long-term investments	$ 11,418	$ 17,477

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Cash, Cash Equivalents and Investments (Tables)

9 Months Ended

Sep. 29, 2012

Cash, Cash Equivalents and Investments

Schedule of cash, cash equivalents, and investments

	September 29, 2012
	Cost		Gross Unrealized Losses			Gross Unrealized Gains		Fair Value
Cash and Cash Equivalents:
Cash on hand	$	54,887	$	—		$	—	$	54,887
Available-for-sale securities:
Money market funds	54,619		—			—		54,619
U.S. Treasury bills	15,999		—			—		15,999
Total available-for-sale securities	70,618		—			—		70,618
Total cash and cash equivalents	$	125,505	$	—		$	—	$	125,505
Short-term Investments:
Available-for-sale securities:
Corporate bonds	$	62,824	$	(1	)	$	326	$	63,149
Municipal bonds	29,952		(2		)	60		30,010
Variable-rate demand notes	19,280		—			1		19,281
U.S. government bonds	12,642		—			28		12,670
Asset-backed securities	11,978		—			19		11,997
U.S. Treasury bills	8,499		—			—		8,499
International government bonds	2,950		—			17		2,967
Total short-term investments	$	148,125	$	(3	)	$	451	$	148,573
Long-term Investments:
Available-for-sale securities:
Auction rate securities	$	12,525	$	(1,107	)	$	—	$	11,418
Total long-term investments	$	12,525	$	(1,107	)	$	—	$	11,418

	December 31, 2011
	Cost		Gross Unrealized Losses			Gross Unrealized Gains		Fair Value
Cash and Cash Equivalents:
Cash on hand	$	44,113	$	—		$	—	$	44,113
Available-for-sale securities:
Money market funds	50,851		—			—		50,851
Total cash and cash equivalents	$	94,964	$	—		$	—	$	94,964
Short-term Investments:
Available-for-sale securities:
Corporate bonds	$	75,189	$	(363	)	$	234	$	75,060
Municipal bonds	56,915		(12		)	81		56,984
Variable-rate demand notes	41,280		—			—		41,280
U.S. government agency	19,820		(12		)	28		19,836
U.S. Treasury bills	8,600		—			—		8,600
Asset-backed securities	5,743		(5		)	1		5,739
U.S. government bonds	2,507		—			—		2,507
Certificates of deposit	1,570		—			—		1,570
International government bonds	950		—			—		950
Total short-term investments	$	212,574	$	(392	)	$	344	$	212,526
Long-term Investments:
Available-for-sale securities:
Auction rate securities	$	19,225	$	(1,748	)	$	—	$	17,477
Total long-term investments	$	19,225	$	(1,748	)	$	—	$	17,477

Schedule of available-for-sale investments in continuous unrealized loss position by length of time

	Less Than 12 Months					12 Months or Greater					Total
As of September 29, 2012	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Auction rate securities	$	—	$	—		$	11,418	$	(1,107	)	$	11,418	$	(1,107	)
Municipal bonds	5,217		(2		)	—		—			5,217		(2		)
Corporate bonds	1,119		(1		)	—		—			1,119		(1		)
	$	6,336	$	(3	)	$	11,418	$	(1,107	)	$	17,754	$	(1,110	)

	Less Than 12 Months					12 Months or Greater					Total
As of December 31, 2011	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Corporate bonds	$	25,438	$	(363	)	$	—	$	—		$	25,438	$	(363	)
Auction rate securities	—		—			17,477		(1,748		)	17,477		(1,748		)
Municipal bonds	10,437		(12		)	—		—			10,437		(12		)
U.S. government agency	5,772		(12		)	—		—			5,772		(12		)
Asset-backed securities	4,539		(5		)	—		—			4,539		(5		)
	$	46,186	$	(392	)	$	17,477	$	(1,748	)	$	63,663	$	(2,140	)

Summarization of contractual underlying maturities of available-for-sale investments

	Cost		Fair Value
Due in one year or less	$	115,773	$	115,842
Due after one year through ten years	85,140		85,519
Due after ten years	30,355		29,248
	$	231,268	$	230,609

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Fair Value of Financial Instruments (Details 2) (Auction rate securities, USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 29, 2012
Quantitative information for Level 3 Fair Value Measurements Assets
Fair value Assets	11,418
Weighted Average | Discounted cash flow
Quantitative information for Level 3 Fair Value Measurements Assets
Estimated yield (as a percent)	1.25%
Expected holding period	10 years
Estimated discount rate (as a percent)	2.74%

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Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 29, 2012

Fair Value of Financial Instruments

Financial assets and liabilities measured at fair value on a recurring basis

	Fair Value Measurements at September 29, 2012 Using
Description	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Cash Equivalents:
Money market funds	$	54,619	$	—	$	—	$	54,619
U.S. Treasury bills	15,999		—		—		15,999
Total cash equivalents	$	70,618	$	—	$	—	$	70,618
Short-term Investments:
Corporate bonds	$	—	$	63,149	$	—	$	63,149
Municipal bonds	—		30,010		—		30,010
U.S. government bonds	12,670		—		—		12,670
Asset-backed securities	—		11,997		—		11,997
Variable-rate demand notes	—		19,281		—		19,281
U.S. Treasury bills	8,499		—		—		8,499
International government bonds	—		2,967		—		2,967
Total short-term investments	$	21,169	$	127,404	$	—	$	148,573
Long-term Investments:
Auction rate securities	$	—	$	—	$	11,418	$	11,418
Total long-term investments	$	—	$	—	$	11,418	$	11,418
Total	$	91,787	$	127,404	$	11,418	$	230,609
Liabilities:
Derivative instruments	$	—	$	699	$	—	$	699
Contingent consideration	—		—		4,004		4,004
Total	$	—	$	699	$	4,004	$	4,703

	Fair Value Measurements at December 31, 2011 Using
Description	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Cash Equivalents:
Money market funds	$	50,851	$	—	$	—	$	50,851
Total cash equivalents	$	50,851	$	—	$	—	$	50,851
Short-term Investments:
Corporate bonds	$	—	$	75,060	$	—	$	75,060
Municipal bonds	—		56,984		—		56,984
Variable-rate demand notes	—		41,280		—		41,280
U.S. government agency	—		19,836		—		19,836
U.S. Treasury bills	8,600		—		—		8,600
Asset-backed securities	—		5,739		—		5,739
U.S. government bonds	2,507		—		—		2,507
Certificates of deposit	—		1,570		—		1,570
International government bonds	—		950		—		950
Total short-term investments	$	11,107	$	201,419	$	—	$	212,526
Long-term Investments:
Auction rate securities	$	—	$	—	$	17,477	$	17,477
Total long-term investments	$	—	$	—	$	17,477	$	17,477
Total	$	61,958	$	201,419	$	17,477	$	280,854
Liabilities:
Derivative instruments	$	—	$	1,998	$	—	$	1,998
Contingent consideration	—		—		876		876
Total	$	—	$	1,998	$	876	$	2,874

Summary of quantitative information about level 3 asset fair value measurements

Auction rate securities

Fair Value at September 29, 2012 (000s)		Valuation Technique	Unobservable Input	Weighted Average
$	11,418	Discounted cash flow	Estimated yield	1.25%
			Expected holding period	10 years
			Estimated discount rate	2.74%

Summary of quantitative information about level 3 liability fair value measurements

Contingent consideration

Fair Value at September 29, 2012 (000s)		Valuation Technique	Unobservable Input	Weighted- Average	Range
$	4,004	Probability weighted discounted cash flow	Estimated outcomes if milestone goals are achieved	$4.2 million	$0.1 million - $7.6 million
			Estimated probability of achieving each outcome	15%	3% - 33%
			Estimated discount rate	5.15%	n/a

Summary of activity in Level 3 financial instruments

Assets

Auction Rate Securities	Three Months Ended		Nine Months Ended
Beginning balance	$	11,028	$	17,477
Settlements	—		(6,700		)
Gains included in other comprehensive income	390		641
Balance at September 29, 2012	$	11,418	$	11,418

Liabilities

Contingent Consideration (1)	Three Months Ended		Nine Months Ended
Beginning balance	$	—	$	876
Issuances	4,004		4,004
Gain recognized in earnings (2)	—		(876		)
Balance at September 29, 2012	$	4,004	$	4,004

(1)In connection with the acquisition of Ember and ChipSensors, the Company recorded contingent consideration based upon the achievement of certain milestone goals. Changes to the fair value of contingent consideration due to changes in assumptions used in preparing the discounted cash flow model are recorded in selling, general and administrative expenses in the Consolidated Statement of Income.

(2)The Company reduced the estimated fair value of contingent consideration because certain milestone goals were not achieved.

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Significant Accounting Policies

9 Months Ended

Sep. 29, 2012

Significant Accounting Policies

Significant Accounting Policies

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 and adjustments 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 September 29, 2012 and December 31, 2011, the condensed consolidated results of its operations for the three and nine months ended September 29, 2012 and October 1, 2011, the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 29, 2012 and October 1, 2011, and the Condensed Consolidated Statements of Cash Flows for the nine months ended September 29, 2012 and October 1, 2011.  All intercompany balances and transactions have been eliminated in consolidation.  The condensed consolidated results of operations for the three and nine months ended September 29, 2012 are not necessarily indicative of the results to be expected for the full year.

The accompanying unaudited Condensed Consolidated Financial Statements do not include certain footnotes and financial presentations normally required under U.S. generally accepted accounting principles (GAAP). Therefore, these Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto for the year ended December 31, 2011, included in the Company’s Form 10-K filed with the Securities and Exchange Commission (SEC) on February 15, 2012.

The Company prepares financial statements on a 52-53 week year that ends on the Saturday closest to December 31.  Fiscal 2012 will have 52 weeks and fiscal 2011 had 52 weeks.  In a 52-week year, each fiscal quarter consists of 13 weeks.

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 is fixed 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.

Recent Accounting Pronouncements

In July 2012, the Financial Accounting Standards Board (FASB) issued FASB Accounting Standards Update (ASU) No. 2012-02, Intangibles—Goodwill and Other (Topic 350) — Testing Indefinite-Lived Intangible Assets for Impairment. ASU 2012-02 permits an entity to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30. If an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then no further action is required. If an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The adoption of this ASU is not expected to have a material impact on the Company’s financial statements.

In December 2011, the FASB issued FASB ASU No. 2011-11, Balance Sheet (Topic 210) — Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. Entities are required to disclose both gross and net information about these instruments. ASU 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The adoption of this ASU is not expected to have a material impact on the Company’s financial statements.

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Per Share data, unless otherwise specified	Sep. 29, 2012	Dec. 31, 2011
Condensed Consolidated Balance Sheets
Accounts receivable, allowances for doubtful accounts (in dollars)	$ 789	$ 725
Preferred stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Preferred stock, shares authorized	10,000	10,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized	250,000	250,000
Common stock, shares issued	41,706	42,068
Common stock, shares outstanding	41,706	42,068

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Debt

9 Months Ended

Sep. 29, 2012

Debt

Debt

11.  Debt

On July 31, 2012, the Company and certain of its domestic subsidiaries (the “Guarantors”) entered into a $230 million five-year Credit Agreement (the “Agreement”). The Agreement consists of a $100 million Term Loan Facility and a $130 million Revolving Credit Facility (collectively, the “Credit Facilities”).

The Term Loan Facility provides for quarterly principal amortization (equal to 5% of the principal in each of the first two years and 10% of the principal in each of the next three years) with the remaining balance payable upon the maturity date. The Revolving Credit Facility includes a $25 million letter of credit sublimit and a $10 million swingline loan sublimit. The Company has an option to increase the size of the Revolving Credit Facility by up to an aggregate of $50 million in additional commitments, subject to certain conditions. On September 27, 2012, the Company borrowed $100 million under the Term Loan Facility. To date, the Company has not borrowed under the Revolving Credit Facility.

The Term Loan Facility and Revolving Credit Facility, other than swingline loans, will bear interest at LIBOR plus an applicable margin or, at the option of the Company, a base rate (defined as the highest of the Bank of America prime rate, the Federal Funds rate plus 0.50% and a daily rate equal to one-month LIBOR plus 1.00%) plus an applicable margin. Swingline loans accrue interest at a per annum rate based on the base rate plus the applicable margin for base rate loans. The applicable margins for the LIBOR rate loans range from 1.50% to 2.50% and for base rate loans range from 0.50% to 1.50%, depending in each case, on the leverage ratio as defined in the Agreement. The Company also pays a commitment fee on the unused amount of commitments.

In connection with the closing of the Credit Agreement, the Company entered into a security and pledge agreement. Under the security and pledge agreement, the Company pledged equity securities of certain of its subsidiaries, subject to exceptions and limitations. The Credit Facilities contain various conditions, covenants and representations with which the Company must be in compliance in order to borrow funds and to avoid an event of default, including financial covenants that the Company must maintain a leverage ratio (funded debt/EBITDA) of no more than 2.5 to 1 and a minimum fixed charge coverage ratio (EBITDA/debt payments, income taxes and capital expenditures) of no less than 1.50 to 1. As of September 29, 2012, the Company was in compliance with all covenants of the Credit Facilities.

The contractual fiscal year maturities of the Term Loan Facility are as follows (in thousands):

Fiscal Year
2013	$	5,000
2014	7,500
2015	10,000
2016	10,000
2017	67,500
Total	$	100,000

Interest Rate Swap Agreement

In connection with the $100 million borrowed under the Term Loan Facility, the Company entered into an interest rate swap agreement as a hedge against the LIBOR portion of such variable interest payments. Under the terms of the swap agreement, the Company effectively converted the LIBOR portion of the interest on the Term Loan Facility to a fixed interest rate of 0.764% through the maturity date. As of September 29, 2012, the combined interest rate on the Term Loan Facility (which includes an applicable margin) was 2.514%. See Note 4, Derivative Financial Instruments, for additional information.

XML

Document and Entity Information	9 Months Ended
	Sep. 29, 2012	Oct. 17, 2012
Document and Entity Information
Entity Registrant Name	SILICON LABORATORIES INC
Entity Central Index Key	0001038074
Document Type	10-Q
Document Period End Date	Sep. 29, 2012
Amendment Flag	false
Current Fiscal Year End Date	--12-29
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		41,599,066
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3

XML

Commitments and Contingencies

9 Months Ended

Sep. 29, 2012

Commitments and Contingencies

Commitments and Contingencies

12.  Commitments and Contingencies

Patent Litigation

On May 13, 2012, MaxLinear, Inc., a Delaware corporation, filed a lawsuit against the Company in the United States District Court in the Southern District of California, San Diego Division, seeking a declaratory judgment that MaxLinear products do not infringe 19 Silicon Laboratories’ patents and that such patents are invalid. The Company responded and filed claims accusing MaxLinear of infringing 6 Silicon Laboratories’ patents, including 5 of the named 19 Company patents and an additional patent.  On September 14, 2012, a preliminary injunction motion was filed by the Company seeking to enjoin MaxLinear from infringing U.S. Patent 7,200,364 by making, using, offering to sell, selling or importing the MxL601 Hybrid Tuner in the U.S. or inducing others to make, use, offer to sell, sell, or import the MxL601 or devices incorporating the MxL601 in the U.S.  The Company also has asked the Court for a permanent injunction stopping the sale of all allegedly infringing MaxLinear products.

On July 30, 2012, the Company further filed a complaint for declaratory judgment against MaxLinear in United States District Court for the Western District of Texas, Austin Division. The Company is seeking an order that MaxLinear’s United States Patent Nos. 7,362,178, 7,778,613 and 8,198,940 are invalid, and that the Company’s products do not infringe such patents.

On July 17, 2012, the Company additionally filed a lawsuit against MaxLinear in the United States District Court in the Southern District of California, San Diego Division, alleging infringement of an additional Company patent, U.S. Patent 7,035,607 related to RF design.  On August 6, 2012, MaxLinear counterclaimed alleging infringement of the three patents in the Texas litigation by a variety of the Company’s RF and mixed signal products.

At this time, the Company cannot predict the outcome of these matters or the resulting financial impact to it, if any.

Other

The Company is involved in various other legal proceedings that have arisen in the normal course of business. While the ultimate results of these matters cannot be predicted with certainty, the Company does not expect them to have a material adverse effect on its consolidated financial statements.

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Condensed Consolidated Statements of Income (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 29, 2012	Oct. 01, 2011	Sep. 29, 2012	Oct. 01, 2011
Revenues	$ 149,461	$ 119,100	$ 410,833	$ 364,933
Cost of revenues	62,968	46,203	166,442	143,666
Gross margin	86,493	72,897	244,391	221,267
Operating expenses:
Research and development	34,768	31,715	101,943	101,248
Selling, general and administrative	24,495	27,254	82,075	85,168
Operating expenses	59,263	58,969	184,018	186,416
Operating income	27,230	13,928	60,373	34,851
Other income (expense):
Interest income	243	388	1,103	1,432
Interest expense	(234)	(4)	(299)	(14)
Other income (expense), net	(161)	(81)	807	292
Income before income taxes	27,078	14,231	61,984	36,561
Provision for income taxes	17,054	2,976	17,131	13,894
Net income	$ 10,024	$ 11,255	$ 44,853	$ 22,667
Earnings per share:
Basic (in dollars per share)	$ 0.24	$ 0.26	$ 1.06	$ 0.52
Diluted (in dollars per share)	$ 0.24	$ 0.26	$ 1.04	$ 0.50
Weighted-average common shares outstanding:
Basic (in shares)	41,735	42,834	42,279	43,902
Diluted (in shares)	42,520	43,919	43,261	45,305

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Balance Sheet Details

9 Months Ended

Sep. 29, 2012

Balance Sheet Details

Balance Sheet Details

6. Balance Sheet Details

The following shows the details of selected Condensed Consolidated Balance Sheet items (in thousands):

Inventories

	September 29,2012		December 31, 2011
Work in progress	$	35,986	$	28,023
Finished goods	6,537		6,755
	$	42,523	$	34,778

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Fair Value of Financial Instruments

9 Months Ended

Sep. 29, 2012

Fair Value of Financial Instruments

Fair Value of Financial Instruments

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 of subjectivity of the inputs used in measuring assets and liabilities. The three levels are described below:

Level 1 - Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2 - Inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 - Inputs are unobservable for the asset or liability and are developed based on the best information available in the circumstances, which might include the Company’s own data.

The following summarizes the valuation of the Company’s financial instruments (in thousands). The tables do not include either cash on hand or assets and liabilities that are measured at historical cost or any basis other than fair value.

	Fair Value Measurements at September 29, 2012 Using
Description	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Cash Equivalents:
Money market funds	$	54,619	$	—	$	—	$	54,619
U.S. Treasury bills	15,999		—		—		15,999
Total cash equivalents	$	70,618	$	—	$	—	$	70,618
Short-term Investments:
Corporate bonds	$	—	$	63,149	$	—	$	63,149
Municipal bonds	—		30,010		—		30,010
U.S. government bonds	12,670		—		—		12,670
Asset-backed securities	—		11,997		—		11,997
Variable-rate demand notes	—		19,281		—		19,281
U.S. Treasury bills	8,499		—		—		8,499
International government bonds	—		2,967		—		2,967
Total short-term investments	$	21,169	$	127,404	$	—	$	148,573
Long-term Investments:
Auction rate securities	$	—	$	—	$	11,418	$	11,418
Total long-term investments	$	—	$	—	$	11,418	$	11,418
Total	$	91,787	$	127,404	$	11,418	$	230,609
Liabilities:
Derivative instruments	$	—	$	699	$	—	$	699
Contingent consideration	—		—		4,004		4,004
Total	$	—	$	699	$	4,004	$	4,703

	Fair Value Measurements at December 31, 2011 Using
Description	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Cash Equivalents:
Money market funds	$	50,851	$	—	$	—	$	50,851
Total cash equivalents	$	50,851	$	—	$	—	$	50,851
Short-term Investments:
Corporate bonds	$	—	$	75,060	$	—	$	75,060
Municipal bonds	—		56,984		—		56,984
Variable-rate demand notes	—		41,280		—		41,280
U.S. government agency	—		19,836		—		19,836
U.S. Treasury bills	8,600		—		—		8,600
Asset-backed securities	—		5,739		—		5,739
U.S. government bonds	2,507		—		—		2,507
Certificates of deposit	—		1,570		—		1,570
International government bonds	—		950		—		950
Total short-term investments	$	11,107	$	201,419	$	—	$	212,526
Long-term Investments:
Auction rate securities	$	—	$	—	$	17,477	$	17,477
Total long-term investments	$	—	$	—	$	17,477	$	17,477
Total	$	61,958	$	201,419	$	17,477	$	280,854
Liabilities:
Derivative instruments	$	—	$	1,998	$	—	$	1,998
Contingent consideration	—		—		876		876
Total	$	—	$	1,998	$	876	$	2,874

The Company’s cash equivalents and short-term investments that are classified as Level 1 are valued using quoted prices and other relevant information generated by market transactions involving identical assets. Cash equivalents and short-term investments classified as Level 2 are valued using non-binding market consensus prices that are corroborated with observable market data; quoted market prices for similar instruments in active markets; or pricing models, such as a discounted cash flow model, with all significant inputs derived from or corroborated with observable market data. Investments classified as Level 3 are valued using a discounted cash flow model. The assumptions used in preparing the discounted cash flow model include estimates for interest rates, amount of cash flows, expected holding periods of the securities and a discount to reflect the Company’s inability to liquidate the securities.

The Company’s derivative instruments are valued using 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 Company’s contingent consideration is valued using a probability weighted discounted cash flow model. The assumptions used in preparing the discounted cash flow model include estimates for outcomes if milestone goals are achieved, the probability of achieving each outcome and discount rates.

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

Auction rate securities

Fair Value at September 29, 2012 (000s)		Valuation Technique	Unobservable Input	Weighted Average
$	11,418	Discounted cash flow	Estimated yield	1.25%
			Expected holding period	10 years
			Estimated discount rate	2.74%

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

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

Contingent consideration

Fair Value at September 29, 2012 (000s)		Valuation Technique	Unobservable Input	Weighted- Average	Range
$	4,004	Probability weighted discounted cash flow	Estimated outcomes if milestone goals are achieved	$4.2 million	$0.1 million - $7.6 million
			Estimated probability of achieving each outcome	15%	3% - 33%
			Estimated discount rate	5.15%	n/a

The Company has followed an established internal control procedure used in valuing contingent consideration. The valuation of contingent consideration is based on a weighted-average discounted cash flows model. The model relies primarily on estimates of outcomes if milestones are achieved, the probability of achieving each outcome and discount rates. The fair value of this valuation is estimated on a quarterly basis through a collaborative effort by the Company’s sales, marketing and finance departments.

Significant changes in any of the unobservable inputs used in the fair value measurement of contingent consideration in isolation could result in a significantly lower or higher fair value. A change in projected outcomes if milestone goals are achieved would be accompanied by a directionally similar change in fair value. A change in discount rate would be accompanied by a directionally opposite change in fair value.

The following summarizes the activity in Level 3 financial instruments for the three and nine months ended September 29, 2012 (in thousands):

Assets

Auction Rate Securities	Three Months Ended		Nine Months Ended
Beginning balance	$	11,028	$	17,477
Settlements	—		(6,700		)
Gains included in other comprehensive income	390		641
Balance at September 29, 2012	$	11,418	$	11,418

Liabilities

Contingent Consideration (1)	Three Months Ended		Nine Months Ended
Beginning balance	$	—	$	876
Issuances	4,004		4,004
Gain recognized in earnings (2)	—		(876		)
Balance at September 29, 2012	$	4,004	$	4,004

(1)In connection with the acquisition of Ember and ChipSensors, the Company recorded contingent consideration based upon the achievement of certain milestone goals. Changes to the fair value of contingent consideration due to changes in assumptions used in preparing the discounted cash flow model are recorded in selling, general and administrative expenses in the Consolidated Statement of Income.

(2)The Company reduced the estimated fair value of contingent consideration because certain milestone goals were not achieved.

Fair values of other financial instruments

The fair value of the Company’s Term Loan Facility approximates its carrying values due to the variable interest rate feature of this instrument. The Company’s other financial instruments, including cash, accounts receivable and accounts payable, are recorded at amounts that approximate their fair values due to their short maturities.

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Derivative Financial Instruments (Tables)

9 Months Ended

Sep. 29, 2012

Derivative Financial Instruments

Schedule of derivative financial instrument

		Fair Value
	Balance Sheet Location	September 29,2012		December 31,2011
Interest rate swaps	Other non-current liabilities	$	699	$	1,998

Schedule of before-tax effect of derivative instruments in cash flow hedging relationships

	Loss Recognized in OCI on Derivatives (Effective Portion) during the:						Location of Loss Reclassified into Income	Loss Reclassified from Accumulated OCI into Income (Effective Portion) during the:
	Three Months Ended							Three Months Ended
	September 29,2012			October 1,2011				September 29,2012			October 1,2011
Interest rate swaps	$	(760	)	$	(66	)	Rent expense	$	(1,317	)	$	(481	)

	Nine Months Ended							Nine Months Ended
	September 29,2012			October 1,2011				September 29,2012			October 1,2011
Interest rate swaps	$	(898	)	$	(492	)	Rent expense	$	(2,197	)	$	(1,777	)

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Income Taxes

9 Months Ended

Sep. 29, 2012

Income Taxes

Income Taxes

13. Income Taxes

Provision for income taxes includes both domestic and foreign income taxes at the applicable statutory rates adjusted for non-deductible expenses, research and development tax credits and other permanent differences. Income tax expense was $17.1 million and $3.0 million for the three months ended September 29, 2012 and October 1, 2011, respectively, resulting in effective tax rates of 63.0% and 20.9%, respectively. Income tax expense was $17.1 million and $13.9 million for the nine months ended September 29, 2012 and October 1, 2011, respectively, resulting in effective tax rates of 27.6% and 38.0%, respectively. The effective tax rate for the three months ended September 29, 2012 increased from the prior period, primarily due to the current period tax charge related to the intercompany license of certain technology associated with the acquisition of Ember, as well as the non-renewal of the federal research and development tax credit.  The effective tax rate for the nine months ended September 29, 2012 decreased from the prior period, primarily due to the release of prior year unrecognized tax benefits that were determined to be effectively settled during the current period along with one-time nondeductible costs associated with the acquisition of Spectra Linear in 2011.  The impact of these items was partially offset by the non-renewal of the federal research and development tax credit.

At September 29, 2012, the Company had gross unrecognized tax benefits of $4.3 million, $4.1 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 Company had a net decrease of $6.9 million during the nine months ended September 29, 2012, which was comprised of (a) a gross decrease of $8.4 million to its prior year unrecognized tax benefits related to an uncertain tax position that was determined to be effectively settled, a portion of which represented a foreign currency remeasurement adjustment and was recognized in other income (expense), net, and (b) a gross increase of $1.5 million to its current year unrecognized tax benefits.

The tax years 2005 through 2012 remain open to examination by the major taxing jurisdictions to which the Company is subject. The Company’s 2010 federal income tax return is under examination by the U.S. Internal Revenue Service. Although the outcome of tax audits is always uncertain, the Company believes that the results of the examination will not materially affect its financial position or results of operations.  The Company is not currently under audit in any other major taxing jurisdiction.

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Stockholders' Equity

9 Months Ended

Sep. 29, 2012

Stockholders' Equity

Stockholders' Equity

9. Stockholders’ Equity

Common Stock

The Company issued 1.1 million shares of common stock during the nine months ended September 29, 2012, net of 0.3 million shares withheld to satisfy employee tax obligations for the vesting of certain stock grants made under the Company’s stock incentive plans.

Share Repurchase Programs

In April 2012, the Board of Directors authorized a share repurchase program to repurchase up to $100 million of the Company’s common stock through January 2013. In October 2011, the Board of Directors adopted a share repurchase program to repurchase up to $50 million of the Company’s common stock through April 2012. The Company’s repurchase program announced in July 2010, authorized the repurchase of up to $150 million of the Company’s common stock through 2011, and was completed in August 2011. These programs allow for repurchases to be made in the open market or in private transactions, including structured or accelerated transactions, subject to applicable legal requirements and market conditions. The Company repurchased 1.5 million shares of its common stock for $53.1 million during the nine months ended September 29, 2012. The Company repurchased 3.2 million shares of its common stock for $110.0 million during the nine months ended October 1, 2011.

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Separation Agreement

9 Months Ended

Sep. 29, 2012

Separation Agreement

Separation Agreement

7. Separation Agreement

On March 1, 2012, the Company entered into a separation agreement with its former Chief Executive Officer (CEO), Necip Sayiner. Pursuant to the agreement, Mr. Sayiner agreed to continue to serve as CEO through April 18, 2012 and as a non-executive advisor through July 19, 2012. Upon his separation from the Company and execution of a release of claims, Mr. Sayiner received a severance package consisting of (a) accelerated vesting of certain restricted stock units (RSUs) and market stock units (MSUs) and the extension of the exercise period of certain stock options, (b) cash payments and (c) other benefits. The separation agreement resulted in a total expense of approximately $3.2 million, which was recognized over the service period in selling, general and administrative expenses.

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Acquisitions

9 Months Ended

Sep. 29, 2012

Acquisitions

Acquisitions

8. Acquisitions

Ember

On July 3, 2012, the Company acquired Ember Corporation, a privately held company. Ember’s products integrate high-performance, low-power 2.4 GHz wireless ICs with reliable and scalable software into a flexible and robust networking platform.

The Company acquired Ember for approximately $79.0 million, including contingent consideration with an estimated fair value of $4.0 million at the date of acquisition. The contingent consideration is payable on a dollar for dollar basis to the extent that revenue of the acquired products exceeds $27.0 million over a one-year period from the beginning of the third fiscal quarter of 2012 through the end of the second fiscal quarter of 2013.

The Company recorded the purchase of Ember using the acquisition method of accounting and accordingly, recognized the assets acquired and liabilities assumed at their fair values as of the date of the acquisition. The results of Ember’s operations will be included in the Company’s consolidated results of operations beginning on the date of the acquisition. Pro forma information related to this acquisition has not been presented because it would not be materially different from amounts reported.

The Company believes that this strategic acquisition provides it with the technology and software expertise required to enable the low-power mesh sensor networks being deployed today in a wide range of residential, commercial and industrial applications. These factors contributed to a purchase price that was in excess of the fair value of the net assets acquired and, as a result, the Company recorded goodwill. The goodwill was allocated to the Company’s operating segment and is not deductible for tax purposes. The purchase price was allocated as follows (in thousands):

	Amount			Weighted-Average Amortization Period (Years)
Intangible assets:
In-process research and development	$	14,810		Not amortized
Developed technology	17,800			11
Customer relationships	5,620			9
Trademarks	910			12
	39,140
Cash and cash equivalents	3,115
Accounts receivable	1,928
Inventories	4,749
Other current assets	324
Goodwill	14,580
Non-current deferred tax assets, net	16,530
Other non-current assets	1,776
Current liabilities	(3,171		)
Total purchase price	$	78,971

The allocation of the purchase price is preliminary and subject to change, primarily for income tax matters. Accordingly, adjustments may be made to the values of the assets acquired and liabilities assumed as additional information is obtained about the facts and circumstances that existed at the valuation date.

In-process research and development (IPR&D) represents acquired technology that had not achieved technological feasibility as of the acquisition date and had no alternative future use. The IPR&D recorded in connection with the acquisition of Ember consisted of a low-power RF transceiver. The fair value of this technology was determined using the income approach. The discount rate applicable to the cash flows was 12.5%. The remaining research and development efforts include additional design, integration and testing. The estimated cost to complete the IPR&D as of the acquisition date was approximately $11.2 million. Such costs have been consistent with the Company’s assumptions at the time of the acquisition. The Company does not expect the products derived from this technology to begin to contribute to revenues prior to fiscal 2013.

Corporate Headquarters Buildings

The Company leased facilities at 400 W. Cesar Chavez (“400 WCC”) and 200 W. Cesar Chavez (“200 WCC”) in Austin, Texas for its corporate headquarters. During the terms of the leases, the Company had options to purchase the buildings for approximately $44.3 million for 400 WCC and $50.1 million for 200 WCC. On September 28, 2012, the Company exercised such options and purchased the facilities.

The buildings are located on land which is leased through 2099 from a third party. The rents for these ground leases were prepaid for the term of the leases by the previous lessee. The first floor of each building was leased to the same third party for the term of the ground leases. The base rents for the first floor leases were prepaid to the previous owner of the buildings. Portions of the remaining floors were also leased to other tenants.

The Company determined that the purchase of the facilities represented a business combination. Under the acquisition method of accounting, the assets acquired and liabilities assumed were recorded at their fair values as of the date of the acquisition. The purchase price was allocated as follows (in thousands):

	Amount
Buildings	$	90,900
Leasehold interest in ground leases	23,840
Acquired unfavorable leases	(11,925		)
Lease-related charges	(8		)
Net gain on purchase	(8,457		)
Total purchase price	$	94,350

The buildings and leasehold interest in ground leases will be depreciated on a straight-line basis over their estimated useful lives of 40 years and 86 years, respectively. Acquired unfavorable leases represent the difference between contractual minimum rental payments due under previously-existing leases in each building and the market rates of those same leases. This amount was recorded in other non-current liabilities in the Condensed Consolidated Balance Sheet and will be amortized to rental income over the estimated terms of the leases.

The purchase of the facilities resulted in a net gain of approximately $8.5 million, which was recorded in selling, general and administrative expenses in the Condensed Consolidated Statement of Income. The gain resulted primarily because the assets acquired and liabilities assumed were recorded at their fair values as of the date of the acquisition, which was substantially higher than the purchase prices of the facilities. The purchase prices were fixed at the beginning of the two leases in March 2006 and March 2008. While market prices for such facilities increased over the terms of the leases, the purchase prices remained the same.

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Stock-Based Compensation

9 Months Ended

Sep. 29, 2012

Stock-Based Compensation

Stock-Based Compensation

10. 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 has a term of 10 years from the shareholders’ approval date. The 2009 Purchase Plan became effective upon the termination of the previous Employee Stock Purchase Plan, on April 30, 2010.

Stock-based compensation costs are 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 RSUs equal their intrinsic value on the date of grant. The fair values of market-based performance awards generally are estimated using a Monte Carlo simulation based on the date of grant.

The following table presents details of stock-based compensation costs recognized in the Condensed Consolidated Statements of Income (in thousands):

	Three Months Ended				Nine Months Ended
	September 29,2012		October 1,2011		September 29,2012		October 1,2011
Cost of revenues	$	261	$	335	$	938	$	1,015
Research and development	3,039		3,581		9,595		11,284
Selling, general and administrative	4,631		5,234		13,263		14,925
	7,931		9,150		23,796		27,224
Income tax benefit	988		880		4,199		2,695
	$	6,943	$	8,270	$	19,597	$	24,529

The Company recorded $0.5 million and $1.9 million in selling, general and administrative expense during the three and nine months ended September 29, 2012, respectively, in connection with modifications to certain stock awards. The Company accelerated the vesting of certain RSUs and MSUs and extended the exercise period of stock options pursuant to a separation agreement between the Company and its former CEO. Stock compensation for the nine months ended September 29, 2012 included the reversal of previously recognized stock compensation for the modified awards.

The Company had approximately $47.6 million of total unrecognized compensation costs related to stock options and stock awards at September 29, 2012 that are expected to be recognized over a weighted-average period of 2.1 years. There were no significant stock-based compensation costs capitalized into assets in any of the periods presented.

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Derivative Financial Instruments (Details 2) (USD $)	3 Months Ended		9 Months Ended
	Sep. 29, 2012	Oct. 01, 2011	Sep. 29, 2012	Oct. 01, 2011
Derivative Instruments, Gain (Loss)
Loss Reclassified from Accumulated OCI into Income (Effective Portion), included in rent expense during period	$ (900,000)
Reclassification of interest rate swap losses included in accumulated other comprehensive loss into earnings in the next 12 months	500,000		500,000
Cash flow hedges | Interest rate swap
Derivative Instruments, Gain (Loss)
Loss Recognized in OCI on Derivatives (Effective Portion) during period	(760,000)	(66,000)	(898,000)	(492,000)
Loss Reclassified from Accumulated OCI into Income (Effective Portion), included in rent expense during period	$ (1,317,000)	$ (481,000)	$ (2,197,000)	$ (1,777,000)

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Earnings Per Share (Tables)

9 Months Ended

Sep. 29, 2012

Earnings Per Share

Schedule of computation of basic and diluted earnings per share

	Three Months Ended				Nine Months Ended
	September 29, 2012		October 1, 2011		September 29, 2012		October 1, 2011
Net income	$	10,024	$	11,255	$	44,853	$	22,667
Shares used in computing basic earnings per share	41,735		42,834		42,279		43,902
Effect of dilutive securities:
Stock options and other stock-based awards	785		1,085		982		1,403
Shares used in computing diluted earnings per share	42,520		43,919		43,261		45,305
Earnings per share:
Basic	$	0.24	$	0.26	$	1.06	$	0.52
Diluted	$	0.24	$	0.26	$	1.04	$	0.50

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Acquisitions (Tables)

9 Months Ended

Sep. 29, 2012

Ember Corporation

Business acquisition

Schedule of purchase price allocation

	Amount			Weighted-Average Amortization Period (Years)
Intangible assets:
In-process research and development	$	14,810		Not amortized
Developed technology	17,800			11
Customer relationships	5,620			9
Trademarks	910			12
	39,140
Cash and cash equivalents	3,115
Accounts receivable	1,928
Inventories	4,749
Other current assets	324
Goodwill	14,580
Non-current deferred tax assets, net	16,530
Other non-current assets	1,776
Current liabilities	(3,171		)
Total purchase price	$	78,971

Headquarters leases

Business acquisition

Schedule of purchase price allocation

	Amount
Buildings	$	90,900
Leasehold interest in ground leases	23,840
Acquired unfavorable leases	(11,925		)
Lease-related charges	(8		)
Net gain on purchase	(8,457		)
Total purchase price	$	94,350

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Separation Agreement (Details) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 29, 2012
Separation Agreement
Total expense which was recognized over the service period in selling, general and administrative expenses	$ 3.2

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Condensed Consolidated Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 29, 2012	Oct. 01, 2011	Sep. 29, 2012	Oct. 01, 2011
Net income	$ 10,024	$ 11,255	$ 44,853	$ 22,667
Net changes to available-for-sale securities
Unrealized gains arising during the period	621	296	1,138	436
Net changes to cash flow hedges
Unrealized losses arising during the period	(760)	(66)	(898)	(492)
Reclassification for losses included in net income	1,317	481	2,197	1,777
Other comprehensive income, before tax	1,178	711	2,437	1,721
Provision for income taxes	412	249	853	603
Other comprehensive income	766	462	1,584	1,118
Comprehensive income	$ 10,790	$ 11,717	$ 46,437	$ 23,785

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Derivative Financial Instruments

9 Months Ended

Sep. 29, 2012

Derivative Financial Instruments

Derivative Financial Instruments

4. Derivative Financial Instruments

The Company is exposed to interest rate fluctuations in the normal course of its business, including through its Credit Facilities. The interest payments on the facility are calculated using a variable-rate of interest. The Company has entered into an interest rate swap agreement with a notional value of $100 million (equal to the full amount borrowed under the Term Loan Facility) and, effectively, converted the LIBOR portion of the variable-rate interest payments to fixed-rate interest payments through July 2017 (the maturity date of the Term Loan Facility). The Company’s objective is to offset increases and decreases in expenses resulting from changes in interest rates with gains and losses on the derivative contract, thereby reducing volatility of earnings. The Company does not use derivative contracts for speculative purposes.

The Company’s previous swap agreement with a notional value of $50.1 million was terminated on September 28, 2012 in connection with the Company’s purchase of its corporate headquarters facilities. See Note 8, Acquisitions, for additional information.

The Company’s interest rate swap agreement is designated and qualifies as a cash flow hedge. The effective portion of the gain or loss on the interest rate swap is recorded in accumulated other comprehensive loss as a separate component of stockholders’ equity and is subsequently recognized in earnings when the hedged exposure affects earnings. Cash flows from derivatives are classified according to the nature of the cash receipt or payment in the Consolidated 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 Term Loan Facility or the interest rate swap agreements is terminated prior to maturity, the fair value of the interest rate swap 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 of termination. The termination of the Company’s swap agreement with a notional value of $50.1 million resulted in its remaining fair value of $0.9 million that was previously recorded in accumulated other comprehensive loss to be reclassified into earnings during the three months ended September 29, 2012.

The Company measures the effectiveness of its cash flow hedge by comparing the change in fair value of the hedged item with the change in fair value of the interest rate swap. The Company recognizes ineffective portions of the hedge, as well as amounts not included in the assessment of effectiveness, in the Consolidated Statement of Income. As of September 29, 2012, no portion of the gains or losses from the Company’s hedging instrument was 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):

		Fair Value
	Balance Sheet Location	September 29,2012		December 31,2011
Interest rate swaps	Other non-current liabilities	$	699	$	1,998

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:						Location of Loss Reclassified into Income	Loss Reclassified from Accumulated OCI into Income (Effective Portion) during the:
	Three Months Ended							Three Months Ended
	September 29,2012			October 1,2011				September 29,2012			October 1,2011
Interest rate swaps	$	(760	)	$	(66	)	Rent expense	$	(1,317	)	$	(481	)

	Nine Months Ended							Nine Months Ended
	September 29,2012			October 1,2011				September 29,2012			October 1,2011
Interest rate swaps	$	(898	)	$	(492	)	Rent expense	$	(2,197	)	$	(1,777	)

The Company expects to reclassify $0.5 million of its interest rate swap losses included in accumulated other comprehensive loss as of September 29, 2012 into earnings in the next 12 months, which is offset by lower interest payments.

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Stock-Based Compensation (Tables)

9 Months Ended

Sep. 29, 2012

Stock-Based Compensation

Schedule of stock-based compensation costs recognized in Condensed Consolidated Statements of Operations

	Three Months Ended				Nine Months Ended
	September 29,2012		October 1,2011		September 29,2012		October 1,2011
Cost of revenues	$	261	$	335	$	938	$	1,015
Research and development	3,039		3,581		9,595		11,284
Selling, general and administrative	4,631		5,234		13,263		14,925
	7,931		9,150		23,796		27,224
Income tax benefit	988		880		4,199		2,695
	$	6,943	$	8,270	$	19,597	$	24,529

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Fair Value of Financial Instruments (Details 4) (Assets and liabilities measured at fair value on recurring basis, Auction rate securities, USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 29, 2012	Sep. 29, 2012
Assets and liabilities measured at fair value on recurring basis | Auction rate securities
Fair value assets reconciliation of changes
Balance at the beginning of the period	$ 11,028	$ 17,477
Settlements		(6,700)
Gains included in other comprehensive income	390	641
Balance at the end of the period	$ 11,418	$ 11,418

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Significant Accounting Policies (Policies)

9 Months Ended

Sep. 29, 2012

Significant Accounting Policies

Revenue Recognition

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 is fixed 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.