Silicon Labs: Underpromise, Overdeliver

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The Swine Flew
Confidence is king
Banks' balance sheets are just fine
Oh look, pigs can fly

-- Fellow Fool Matt Koppenheffer on financial surprises

When you plan for the worst, your surprises will probably be of the positive ilk. That's why Silicon Laboratories (Nasdaq: SLAB) is shooting through the roof today -- the goals set by its own management turned out to be lowball cakewalks, despite a trashed global economy.

Here's what Silicon Labs promised, and what the results actually delivered:

Metric	Result	Change From Q1	Target
Revenue	$83.7 million	(16%)	(20%) to (25%)
EPS	$0.01	(93%)	($0.06) to ($0.10)
Gross Margin	60.5%	Flat	60% to 62%
Operating Expenses	$49.5 million	(6.6%)	"Flat to down"
Free Cash Flow	$10.3 million	(70%)	"Strong positive cash flow"

It seems like this company's motto should be "underpromise and overdeliver." Every goal was met or exceeded, if you're willing to accept that $10 million of free cash flow is strong for a company with only $84 million in sales. And the easy-to-digest revenue and earnings numbers that so many investors like to focus on, well, they blew their targets to smithereens.

"We see Q1 as the cyclical bottom in terms of revenue and expect to benefit from strong product cycles and share gains going forward," said Silicon Labs' CEO Necip Sayiner. That's one more high-tech vote for the market getting ready to bounce, putting the company on the same page as luminaries like storage specialist EMC (NYSE: EMC), chip foundry Taiwan Semiconductor Manufacturing (NYSE: TSM), online retailer Amazon.com (Nasdaq: AMZN), and enterprise-everything maven Oracle (Nasdaq: ORCL).

This company's financial strength is especially surprising, given that its customers are mostly consumer-electronics specialists such as Motorola (NYSE: MOT), Samsung, and Koninklijke Philips Electronics NV (NYSE: PHG). That sector is groaning under the strain of thinning consumer wallets and the restrained demand for fancy electronics that follows. Yet Silicon Labs is still making money. Very impressive.

Sayiner notes that Silicon Labs' margin strength, sustained profits, and cash-generation prowess "puts us in a select group of companies well equipped to outperform this year." Well put, Necip. I agree completely.

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