SLAB: Silicon Labs Disappoints Investors

By William Trent, CFA of Stock Market Beat

Silicon Laboratories (SLAB), which designs semiconductors used in wireless handsets and other devices, reported earnings this morning that came in below analyst estimates. Guidance was also weaker than expected. Of course, given the trend of disappointing results from companies in the semiconductor industry and the wireless handset food chain one wonders why the expectations were high to begin with.

According to the company:

During the fourth quarter, the company experienced strong demand for its Broadcast products, in particular FM tuners and satellite receivers. The broad-based mixed-signal business experienced a slight decline on a sequential basis due to lower modem shipments.

The mobile handset business performed within the company’s guidance for the fourth quarter. Silicon Laboratories experienced a decline in the total GSM/GPRS transceiver shipments, which was largely offset by the increase in EDGE transceiver shipments, initial AeroFONE(TM) revenue and FM tuner growth.

We highlighted the FM tuner line, as well as the transition in mobile handsets, in earlier posts. What concerns us now, however, is the very high expense related to stock option compensation, and concern over whether investors will still be inclined to ignore them now that they have been included on the income statement for a full year and year/year comparisons can be made based on GAAP earnings. (Side note: given that GAAP stands for Generally Accepted Accounting Principles, why is it that non-GAAP – presumably not accepted – numbers are those most commonly quoted?) The company says:

GAAP net income for the fourth quarter was $5.2 million, or $0.09 per fully diluted share. Non-GAAP net income, excluding certain charges, was $13.5 million, or $0.24 per fully diluted share.

The only difference between GAAP and non-GAAP is stock-based compensation, and for the full year the difference was more than 50% – GAAP earnings were only $0.56, while non-GAAP came in at $1.14. Even after this morning’s selloff that places the company’s valuation at a hefty 27x non-GAAP numbers, and an outrageous 55x GAAP earnings for a company that just guided for a year/year sales decline in the first quarter.

Caveat emptor.

The author may hold a position in the securities discussed. The author’s current holdings are as follows: Long: Union Pacific (UNP) put options; Air Products (APD) put options; Nasdaq 100 (QQQQ) put options; Bookham (BKHM; Ballard Power (BLDP); Syntax Brillian (BRLC); CMGI (CMGI); Genentech (DNA); Ion Media Networks (ION); Three Five Systems (TFS); IShares Japan (EWJ); StreetTracks Gold (GLD); Starbucks (SBUX); U.S. Oil Fund (USO); Plantronics (PLT) call options; Short: Starbucks (SBUX) call options; Landstar (LSTR) put options; Plantronics (PLT) put options

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