Silicon Laboratories: Good News Mixed in With Some Bad

Silicon Laboratories (SLAB) put out a Press Release after the market close on December 18, noting that one of their latest mobile handset chips has been adopted by Samsung.

Silicon Laboratories Inc., a leader in high-performance, analog-intensive, mixed-signal ICs, today announced Samsung has selected the Aero[R] IIe EDGE transceiver for multiple handset platforms. The Aero IIe transceiver is the industry’s easiest-to-use, highest performance RF transceiver for GSM/GPRS/EDGE handsets, smart phones and data modems. Based on Silicon Laboratories’ proven Aero transceiver architecture, the Aero IIe transceiver offers a high level of integration, small footprint and industry-leading performance to enable lower total system costs for handset makers.

Samsung is Silicon Labs’ largest customer, having accounted for as much as 20% of the Company’s sales in some years. However, the contribution from Samsung was declining, and practically single-handedly accounted for the slowdown in the Company’s growth rate over the last couple of years.

Silicon Laboratories’ particular area of expertise is using standard complementary metal oxide semiconductor [CMOS] technology, as analog and mixed-signal components typically require more exotic materials. By designing on CMOS, Silicon Laboratories can improve the performance and dramatically reduce the cost, size and system power requirements of devices their customers sell to end-users.

By designing directly on CMOS, Silicon Laboratories creates products that are far cheaper and less power-consuming than competitive products designed using more exotic materials. However, since designing on CMOS is more difficult their products tend to be later to market. While the cost advantages of silicon components typically allow them to gain share later in the product life cycle, the Company can be left out during the early stages of new product categories, as happened when cellular carriers using the world-dominant GSM standard began upgrading to the technology known as EDGE.

With their largest customer now having adopted their next key innovation, the Company could soon get back on the growth track.

However before the market could digest the good news too quickly, there was some negative news keeping the stock in check.

ADI Sues Silicon Labs

Analog Devices Inc. (ADI) filed a patent infringement suit against Silicon Laboratories over signal isolators, including a quad-channel digital isolator, which transmit signals across barriers. The suit, filed in U.S. District Court for the District of Massachusetts, claims that Silicon Labs published documents about quad channel isolators last March, two years after ADI. The complaint says that based upon “content, layout, presentation, style, word choice,” it’s clear that the technical data sheets are derived from ADI’s. A total of five patents are at issue, and ADI is seeking a jury trial, a permanent injunction and damages.

Semiconductor companies likely view patent infringement suits as a normal part of doing business. According to its 2005 10K, Silicon Labs was already involved in at least two: one as defendant and another as plaintiff.

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