Agreeing to Disagree About Silicon Labs

The recent introduction of Silicon Lab's AeroFONE chip for mobile handsets seems to have gotten Wall Street up in a tizzy. According to Silicon Labs, "the new chip saves handset manufacturers money and space because it combines certain functions. It also offers handset makers more flexibility in the software that they can choose to install in the phones."

Smartmoney.com: reports on the run up in Silicon Labs stock and gets differing analyst opinions on the cause. Sandy Harrison at Pacific Growth Equities thought the rise was attributed to short sellers scrambling to cover their positions. Harrison said, "I think it's a short squeeze. If you look at the handset market, in general, it's been positive, but you had a disappointment from Skyworks Solutions (SWKS) a few weeks ago and TriQuent Semiconductor (TQNT) was just about in lin. Sometimes people get it in their minds that when a stock trades down it will be a disappointment, and when it wasn't they had to buy; hence, the short squeeze."

Satya Chillara at American Technology Research thought it was due to the AeroFONE announcement. He commented, "The announcement about the new single-chip AeroFONE is why people are getting excited today. The earnings are history, and the fourth-quarter guidance is so-so."

Edward Snyder at Charter Equity Research disagreed. He opined, "I don't think the new [AeroFONE] chip has much to do with it. I think people are getting ahead of themselves. Silicon Labs is a profitable company, generating a lot of cash with a solid business model. But, I think the Street is getting too enthusiastic and not looking at the math driving all this. And analysts may not understand the handset market as well as the computer market. The idea that Silicon Labs will take share back in handsets is possible, but not as probable as the Street is giving it credit for now. We bumped it up to Buy because I don't think anything will slow the stock down this quarter. I think revenue growth may slow in 2006, but I think investors will view the positive and keep it going up for the coming quarter."