Shares of Motley Fool Stock Advisor recommendation Silicon Labs (NASDAQ:SLAB) tripped over a rocky earnings release yesterday, stumbled, and fell a good 9% over the course of the trading day. By the time markets closed, they were at a level not seen since Dec. 1 of last year. At the risk of punning, investors in this analog mixed-signal integrated circuit maker might now ask themselves, "What's the frequency, Kenneth?" Was the quarter really that bad?

Well, yes and no. It's not exactly surprising to see a hi-tech stock punished when it reports just a 1% rise in sales -- or when, so soon after observing that it's "at the beginning of several strong potential product cycles in both our mobile handset and broad-based mixed-signal businesses," it warns that next quarter's earnings will come in at $111 million -- a 3% to 7% year-over-year decline in sales. But what am I doing talking about next quarter already? We'll have plenty of time for that in the Q1 Foolish Forecast. For now, let's review the highlights of Q4 2006:

  • Sales, as already mentioned, were up an even 1%.
  • Profits, both firmwide and per-diluted-share, dropped two-thirds year over year. On a per-share basis, the firm netted $0.09 in Q4.
  • Cash levels dropped from last quarter's $391.9 million to $386.3 million this quarter.

It's actually that last point I want to focus on today. One of the few beefs I have with Silicon Labs' earnings reporting is management's continued refusal to include a cash flow statement in its press releases. Making investors wait for the 10-Q (or 10-K, in this case) to come out to see the cash flow isn't just rude to shareholders -- it's darn inconsiderate to us financial writers, too.

Even without seeing the cash flow statement, though, I think it's safe to say that Silabs remains free cash flow-positive for at least the year. In fact, it generated $48.1 million in free cash flow through the first three quarters of 2006. Based on this, the fact that cash on hand dropped only $5.6 million over the last three months, and the fact that $15 million spent on stock buybacks likely caused this decline, I'd bet good money that the company made good money this year.

And why is that significant? Because it means that, for all the carping on Wall Street about how Silabs "missed" earnings in one isolated quarter, the firm nonetheless generated real cash profits in 2006 and promises to "drive double digit growth in 2007." While management's sales guidance for next quarter tells us the growth may take a bit longer than expected to arrive, the assertion that annual 2007 results will grow in the double digits tells this Fool that Silabs feels confident it will arrive in the end.

For even more insight into Silicon Labs and its prospects, take a free trial subscription to Stock Advisor and read the full investment thesis by Fool co-founder Tom Gardner.

Fool contributor Rich Smith does not own shares of any company named above.