Prepared by R.R. Donnelley Financial -- Form 10-Q for Quarter End March 31,2002

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) had been subject to such filing requirements for the past 90 days. Yes x No ¨

	March 31, 2002			December 31, 2001
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	14,696		$	15,208
Short-term investments		16,984			27,118
Accounts receivable, net		1,621			1,158
Inventories		2,013			1,894
Other current assets		622			1,062

Total current assets		35,936			46,440
Property and equipment, net		6,744			7,285
Long-term investments		12,000			9,058
Investment in GCS		7,500			—
Other assets		200			1,260

Total assets	$	62,380		$	64,043

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	1,502		$	1,464
Accrued expenses		1,412			1,745
Deferred margin on distributor inventory		3,062			3,631
Accrued restructuring		1,980			2,155
Capital lease obligations, current portion		563			634

Total current liabilities		8,519			9,629
Capital lease obligations and other long-term liabilities		253			401
Stockholders’ equity
Common Stock		30			30
Additional paid-in capital		128,534			128,426
Deferred stock compensation		(1,548	)		(1,787	)
Accumulated deficit		(73,408	)		(72,656	)

Total stockholders’ equity		53,608			54,013

Total liabilities and stockholders’ equity	$	62,380		$	64,043

	Three Months Ended
	March 31, 2002			March 31, 2001
Net revenues	$	4,870		$	7,800
Cost of revenues (exclusive of amortization of deferred stock compensation of $31 and $37 for the three months ended March 31, 2002 and three months ended March 31, 2001, respectively)		1,680			3,900

Gross profit		3,190			3,900
Operating expenses:
Research and development (exclusive of amortization of deferred stock compensation of $48 and $75 for the three months ended March 31, 2002 and three months ended March 31, 2001, respectively)		1,662			2,531
Sales and marketing (exclusive of amortization of deferred stock compensation of $60 and $76 for the three months ended March 31, 2002 and three months ended March 31, 2001, respectively)		1,133			1,636
General and administrative (exclusive of amortization of deferred stock compensation of $100 and $153 for the three months ended March 31, 2002 and three months ended March 31, 2001, respectively)		1,155			1,054
Amortization of deferred stock compensation		239			341

Total operating expenses		4,189			5,562

Loss from operations		(999	)		(1,662	)
Interest expense		20			42
Interest income and other, net		267			875

Loss before taxes		(752	)		(829	)
Provision for (benefit from) income taxes		—			(249	)

Net loss applicable to common stockholders	$	(752	)	$	(580	)

Net loss per share applicable to common stockholders:
Basic	$	(0.03	)	$	(0.02	)

Diluted	$	(0.03	)	$	(0.02	)

Shares used to compute net loss per share applicable to common stockholders
Basic		29,780			28,271

Diluted		29,780			28,271

	Three Months Ended
	March 31, 2002			March 31, 2001
	(unaudited)
Operating Activities
Net loss	$	(752	)	$	(580	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		684			634
Amortization of deferred stock compensation		239			341
Changes in operating assets and liabilities:
Accounts receivable		(463	)		2,309
Inventories		(119	)		(1,183	)
Other assets		126			309
Accounts payable		38			632
Accrued expenses		(354	)		(1,252	)
Accrued restructuring		(175	)		—
Deferred margin on distributor inventory		(569	)		(1,248	)

Net cash used in operating activities		(1,345	)		(38	)
Investing Activities
Sales/maturities (purchases) of available-for-sale securities, net		7,192			18,597
Purchases of property and equipment		(143	)		(1,198	)
Investment in GCS		(6,126	)		—

Net cash provided by investing activities		923			17,399
Financing Activities
Principal payments on capital lease obligations		(198	)		(215	)
Proceeds from employee stock plans		108			2,068

Net cash provided by (used in) financing activities		(90	)		1,853
Increase (decrease) in cash		(512	)		19,214
Cash at beginning of period		15,208			37,683
Cash at end of period	$	14,696		$	56,897

Supplemental disclosures of noncash investing and financing activities
Conversion of GCS loan receivable	$	1,374		$	—

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2002 are not necessarily indicative of the results that may be expected for any later period.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements of Sirenza Microdevices, Inc. (the Company) for the fiscal year ended December 31, 2001, which are included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 27, 2002.

The Company operates on thirteen week fiscal quarters ending on the Sunday closest to the end of the calendar quarter, with the exception of the fourth quarter, which ends on December 31. The Company’s first quarter of fiscal year 2002 ended on March 31, 2002. The Company’s first quarter of fiscal year 2001 ended on April 1, 2001. For presentation purposes, the accompanying unaudited condensed consolidated financial statements refer to the quarter’s calendar month end for convenience.

dependent on the Company’s assessment of current and expected orders from its customers, including consideration that orders are subject to cancellation with limited advance notice prior to shipment. Because the Company’s markets are volatile, and are subject to technological risks and price changes as well as inventory reduction programs by the Company’s customers and distributors, there is a risk that the Company will forecast incorrectly and produce excess inventories of particular products. This inventory risk is compounded because many of the Company’s customers place orders with short lead times. As a result, actual demand will differ from forecasts, and such a difference has in the past and may in the future have a material adverse effect on actual results of operations. For example, in the third quarter of 2001, the Company recorded a provision for excess inventories totaling $4.5 million. This additional excess inventory charge was due to a significant decrease in forecasted demand for the Company’s products and was calculated in accordance with the Company’s policy, which is based on inventory levels in excess of demand for each specific product.

In the first quarter of 2002, the Company sold inventory products that were previously reserved and accordingly, reduced its provision for excess inventories by approximately $563,000. The Company may sell previously reserved inventory products in future periods, which would have a similarly positive impact on the Company’s results of operations.

In the first quarter of 2002, the Company converted an outstanding loan receivable of approximately $1.4 million and invested cash of approximately $6.1 million in Global Communication Semiconductors, Inc. (GCS), a privately held semiconductor foundry partner of the Company, in exchange for 12.5 million shares of GCS Series D-1 preferred stock valued at $0.60 per share. The Company’s total investment of $7.5 million represented approximately 14% of the outstanding voting shares of GCS at the time of the investment. The investment in GCS was within the Company’s strategic focus and intended to strengthen the Company’s supply chain for Indium Gallium Phosphide (InGaP) and Indium Phosphide (InP) process technologies. In connection with the investment, the Company’s President and CEO joined GCS’ seven-member board of directors.

The Company accounts for its investment in GCS under the cost method of accounting in accordance with accounting principles generally accepted in the United States, as the Company’s investment is less than 20% of the voting stock of GCS and the Company cannot exercise significant influence over GCS. The investment in GCS is classified as a non-current asset on the Company’s consolidated balance sheet.

On a quarterly basis, the Company evaluates its investment in GCS to determine if an other than temporary decline in value has occurred. Factors that may cause an other than temporary decline in the value of the Company’s investment in GCS would include, but not be limited to, a degradation of the general business environment in which GCS operates, the failure of GCS to achieve certain milestones or a series of operating losses in excess of GCS’ current business plan, or the inability of GCS to continue as a going concern. If it has been determined that an other than temporary decline in value has occurred, the Company will need to write-down its investment in GCS to fair value. Such a write-down could have a material adverse impact on the Company’s consolidated results of operations. As of March 31, 2002 the Company’s investment in GCS had not experienced an other than temporary decline in value.

The realizability of the Company’s $7.5 million investment in GCS is ultimately dependent on the Company’s ability to sell its GCS shares, for which there is currently no public market. Even if the Company is able to sell its GCS shares, the sale price may be less than the price paid by the Company, which could have a material adverse effect on the Company’s consolidated results of operations.

In 2001, companies throughout the worldwide telecommunication industry announced slowdowns or delays in the build out of new wireless and wireline infrastructure. This resulted in lower equipment production volumes by the Company’s customers and efforts to lower their component inventory levels. These actions by the Company’s customers resulted in a slowdown in shipments and a reduction in visibility regarding future sales and caused the Company to revise its cost structure given the then current revenue levels. As a result, in the fourth quarter of 2001, the Company incurred a restructuring charge of $2.7 million related to a worldwide workforce reduction and consolidation of excess facilities. Consequently, the Company realigned its organizational structure to focus on strategic account sales and marketing efforts, centralized engineering and customer and solution business area management. Prior to the date of the financial statements, management with the appropriate level of authority approved and committed the Company to a plan of termination and consolidation of excess facilities which included the benefits terminated employees would receive. In addition, prior to the date of the financial statements, the termination benefits were communicated to employees in detail sufficient to enable them to determine the nature and amounts of their individual severance benefits.

In the fourth quarter of 2001, the Company recorded a charge of $481,000 primarily related to severance and fringe benefits associated with the reduction of 27 employees. Of the 27 terminations, 12 were engaged in manufacturing activities, seven were engaged in research and development activities, five were engaged in sales and marketing activities and three were engaged in general and administrative activities. In addition, of the 27 terminations, 23 were from sites located in the United States, three were from our Canadian design center and one was from our European sales office.

In the fourth quarter of 2001, the Company recorded a charge of approximately $2.2 million for excess facilities primarily relating to noncancelable lease costs. The Company estimated the cost for excess facilities based on the contractual terms of its noncancelable lease agreements. Given the current and expected real estate market conditions, the Company assumed none of the excess facilities would be subleased. However, to the extent the Company does sublease any of its excess facilities, the proceeds received from subleasing will be credited to restructuring charges, the same statement of operations line item originally charged for such excess facilities.

	Accrued Restructuring Balance at December, 31 2001		Cash Payments			Non-cash Charges		Accrued Restructuring Balance at March 31, 2002
Worldwide workforce reduction	$	24	$	(5	)	$	—	$	19
Lease commitments		2,131		(170	)		—		1,961

	$	2,155	$	(175	)	$	—	$	1,980

The Company computes net income (loss) per share in accordance with Statement of Financial Accounting Standards No. 128, “Earnings per Share” (FAS 128) and SEC Staff Accounting Bulletin No. 98 (SAB 98). Under the provisions of FAS 128 and SAB 98, basic net income (loss) per share is computed by dividing the net income (loss) applicable to common stockholders for the period by the weighted average number of shares of Common Stock outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) applicable to common stockholders for the period by the weighted average number of shares of Common Stock and potential Common Stock equivalents outstanding during the period, if dilutive. Potential Common Stock equivalents include incremental shares of Common Stock issuable upon the exercise of stock options.

FAS 130 requires that all items required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The Company’s comprehensive net loss was the same as its net loss for the three months ended March 31, 2002 and 2001.

The Company has adopted Statement of Financial Accounting Standards No. 131, “Disclosure about Segments of an Enterprise and Related Information” (FAS 131). FAS 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. FAS 131 also establishes standards for related disclosures about products and services, geographic areas, and major customers.

From 2000 to 2001, the Company operated under two business segments: (1) the Standard Products segment and (2) the Wireless Infrastructure Products segment. At the beginning of 2002, in response to the changes in the market place, the Company reorganized to focus on end markets. As a result of this reorganization, the Company now operates in three business segments. First is the Wireless Applications business area. This business area is responsible for all wireless infrastructure activity, both standard and specialized. Second is the Wireline Applications business area. This business area is responsible for the development and marketing of wireline components to both CATV and fiber optics markets. Last is the Terminals business area. This business area focuses on customers who use the Company’s products for applications outside of the Company’s core markets of wireless and wireline infrastructure, such as cable television set-top boxes and wireless video transmitters. The Company’s reportable segments are organized as separate functional units with separate management teams and separate performance assessment and resource allocation processes.

The accounting policies of each segment are the same as those described in Note 1: Organization and Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements as reflected in the Company’s Annual Report on Form 10-K, filed with the SEC on March 27, 2002. The Company’s chief operating decision maker (CODM) evaluates performance and allocates resources based on segment reporting operating income (loss). There are no intersegment sales. Non-segment items include certain corporate manufacturing expenses, advanced research and development expenses, certain sales expenses, general and administrative expenses, amortization of deferred stock compensation, interest income and other, net, interest expense, and the provision for (benefit from) income taxes, as the aforementioned items are not allocated

	Wireless Applications	Wireline Applications	Terminals Applications	Total Segments	Non-Segment Items	Total Company
For the three months ended March 31, 2002

Net revenues from external customers	4,338	83	553	4,974	(104)	4,870
Operating income (loss)	1,362	(373)	81	1,070	(2,069)	(999)

For the three months ended March 31, 2001
Net revenues from external customers	4,667	33	3,314	8,014	(214)	7,800
Operating income (loss)	1,521	(462)	1,789	2,848	(4,510)	(1,662)

In November 2001, the Company, various of its officers and certain underwriters of its initial public offering of securities were named in a purported class action lawsuit filed in the United States District Court for the Southern District of New York. The suit, Van Ryen v. Sirenza Microdevices, Inc., et al., Case No. 01-CV-10596, alleges that various underwriters engaged in improper and undisclosed activities related to the allocation of shares in the Company’s initial public offering, including obtaining commitments from investors to purchase shares in the aftermarket at pre-arranged prices. The Plaintiffs, who filed an amended complaint on or about April 19, 2002, bring claims for violation of several provisions of the federal securities laws and seek an unspecified amount of damages. Similar lawsuits concerning more than 300 other companies’ initial public offerings were filed during 2001. The Company believes that the allegations against it are without merit and intends to defend the litigation vigorously. However, there can be no assurance as to the ultimate outcome of this lawsuit and an adverse outcome to this litigation could have a material adverse effect on the Company’s consolidated balance sheet, statement of operations or cash flows.

Certain statements contained in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report are forward-looking statements that involve risks and uncertainties. These statements relate to future events or our future financial performance. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “potential,” or “continue,” the negative of these terms or other comparable terminology. These statements involve a number of risks and uncertainties. Actual events or results may differ materially from any forward-looking statement as a result of various factors, including those described below under “Risk Factors.”

The discussion and analysis below of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. The preparation of these financial statements requires us to make estimates and

judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate these estimates on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions.

Excess and Obsolete Inventories: We record provisions for excess inventories based on the cost of inventory levels exceeding the forecasted demand of such products. We forecast demand for specific products based on the number of products we expect to sell, with such assumptions dependent on our assessment of market conditions and current and expected orders from our customers, considering that orders are subject to cancellation with limited advance notice prior to shipment. If forecasted demand decreases based on our estimates or if inventory levels increase disproportionately to forecasted demand, additional inventory write-downs may be required, as was the case in 2001 when we recorded additional provisions for excess inventories of $7.8 million. Likewise, if we ultimately sell inventories that were previously reserved, we would reduce the previously recorded excess inventory provisions which would have a positive impact on our cost of revenues, gross margin and operating results, as was the case in the first quarter of 2002 when we sold $563,000 of previously reserved inventory products.

Investments: In the first quarter of 2002, we made an investment in a privately held foundry partner (GCS) having strategic technology that is recorded under the cost method of accounting. If management believes the value of its investment has experienced a decline that is other than temporary, we would write-down the cost of our investment to fair value, which could have a material adverse effect on our consolidated results of operations. Factors that may cause an other than temporary decline in the value of the our investment in GCS would include, but not be limited to, a degradation of the general business environment in which GCS operates, the failure of GCS to achieve certain milestones, a series of operating losses in excess of GCS’ current business plan, or the inability of GCS to continue as a going concern.

Valuation of Deferred Tax Assets: We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized based on our ability to generate future taxable income. While we have considered future taxable income in assessing the need for the valuation allowance, in the event that we were to determine that we would be able to realize our deferred tax assets in the future in excess of our net recorded amount, based on our ability to generate future taxable income, an adjustment to the deferred tax asset would increase income in the period such determination was made. Although we have provided for a full valuation allowance against our deferred tax assets at March 31, 2002, if we have net deferred tax assets

recorded in the future and we determine that we would not be able to realize all or part of our net deferred tax assets at such time, an adjustment to the deferred tax asset would be charged to income in the period such a determination was made, as was the case in the third quarter of 2001 when we incurred charges of $2.3 million to increase our deferred tax asset valuation allowance.

Long-lived Asset Impairment: We record long-lived asset impairment charges when impairment indicators exist and the related undiscounted future cash flows and fair value of long-lived assets are less than the carrying value of such assets, as was the case in 2001 when we recorded $315,000 of impairment charges. Future adverse changes in market conditions or changes in the estimated useful life of our long-lived assets could result in new impairment indicators, thereby possibly resulting in impairment charges in the future.

Allowance for Doubtful Accounts: We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowance may be required. To date, we have not experienced material losses as a result of our customers’ inability to pay us.

Sales Returns: We record estimated reductions to revenues for sales returns, primarily related to quality issues, at the time revenue is recognized. While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our foundry and packaging partners, our sales return obligations are effected by failure rates. Should actual product failure rates and the resulting return of failed products differ from our estimates, revisions to our sales return reserves may be required.

Restructuring Charges: We recorded restructuring charges of $2.7 million in the fourth quarter of 2001 with the assumption that we would not sublease any of our excess facilities through the end of the respective lease term. In the event that we sublease any of these excess facilities, an adjustment to our restructuring accrual would be charged to income in the period such a sublease occurred. As of March 31, 2002, we have not subleased any of our excess facilities.

Distributor Revenue Accounting: We recognize revenues on sales to our distributors at the time our products at sold by our distributors to their third party customers. The recognition of sales to our distributors and the related gross profit on the products held by our distributors is deferred until the sale to the third party customer. The deferred gross profit is included as “deferred margin on distributor inventory” on our balance sheet. On a monthly basis, we reconcile the value of inventory being held by our distributors, as reported by our distributors, to our estimate of the value of ending inventory, considering in-transit inventory to and from our distributors and pricing adjustments.

We are a leading designer and supplier of high performance RF components for communications equipment manufacturers. Our products are used primarily in wireless communications equipment to enable and enhance the transmission and reception of voice and data signals. Historically, our products meeting standard specifications widely adopted by communications equipment manufactures have constituted a majority of our revenues and we expect this trend to continue in the near term. Our products are also utilized in broadband wireline and terminal applications.

As a result of the telecommunication industry downturn in 2001 and changing market conditions, effective in 2002, we reorganized our business to focus on end markets instead of product type. We established three business areas. The first business area focuses on the wireless infrastructure markets. The second business area focuses on the cable and fiber optic wireline infrastructure markets. Third, we established what we label the terminals business area. This business area focuses on customers who use our products for applications outside of our core markets of wireless and wireline infrastructure, such as cable television set-top boxes and wireless video transmitters.

We sell our products worldwide through U.S.-based distributors, through a private label reseller who sells our products under its brand and through our direct sales force. Our products are also sold through a worldwide network of independent sales representatives whose orders are fulfilled either by our distributors or us. Significant portions of our distributors’ end sales are made to their customers overseas. Sales to customers located in the United States represented approximately 56% of net revenues in the three months ended March 31, 2002. Sales customers located outside of the United States represented 44% of net revenues in the three months ended March 31, 2002. Sales to one customer located in the Sweden represented 19% of net revenues in the three months ended March 31, 2002. Substantially all of our total assets reside in the United States.

For our direct sales and private label sales, we recognize revenues when the product has been shipped, title has transferred, and no further obligations remain. Although we have never experienced a delay in customer acceptance of our products, should a customer delay acceptance in the future, our policy is to delay revenue recognition until the products are accepted by a customer. Revenues from our distributors are deferred until the distributors resell the products to their customers.

Two distributors, Richardson Electronics Laboratories and Avnet Electronics Marketing, and Ericsson, a direct customer, accounted for a substantial portion of our net revenues in the three months ended March 31, 2002. Sales to Ericsson represented 19% of net revenues in the three months ended March 31, 2002. Sales to Richardson Electronics Laboratories represented 38% of net revenues in the three months ended March 31, 2002. Sales to Avnet Electronics Marketing represented 15% of net revenues in the three months ended March 31, 2002. Two distributors, Richardson Electronics Laboratories and Avnet Electronics Marketing and a private label reseller of our products, Minicircuits Laboratories, accounted for a substantial portion of our net revenues in the three months ended March 31, 2001. Sales to Minicircuits Laboratories represented 29% of net revenues in the three months ended March 31, 2001. There were no sales to Minicircuits Laboratories in the three months ended March 31, 2002. Sales to Richardson Electronics Laboratories represented 31% of net revenues in the three months ended March 31, 2001. Sales to Avnet Electronics Marketing represented 21% of net revenues in the three months ended March 31, 2001. Richardson Electronics Laboratories and Avnet Electronics Marketing distribute our products to a large number of end customers. We anticipate that sales through our distributors and to Ericsson will continue to account for a substantial portion of our net revenues in the near term.

Sales of our products using two of our process technologies accounted for a significant portion of our net revenues in the three months ended March 31, 2002 and 2001. Sales of our gallium arsenide heterojunction bipolar transistor (GaAs HBT) products accounted for 47% of our net revenues in the three months ended March 31, 2002 and 63% of our net revenues in the three months ended March 31, 2001. Sales of our silicon germanium (SiGe) heterojunction bipolar transistor products accounted for 28% of our net revenues in the three months ended March 31, 2002 and 16% of our net revenues in the three months ended March 31, 2001.

Cost of revenues consists primarily of the costs of wafers from our third-party wafer fabs, costs of packaging performed by third-party vendors, costs of testing, costs associated with procurement, production control, quality assurance, manufacturing engineering, and provisions for excess inventories. We subcontract our wafer manufacturing and packaging and do only final testing and tape and reel assembly at our facilities. In late 2001, we made the decision to outsource a major portion of our production testing operations. We are currently in the process of selecting a subcontractor to test our products and expect to begin the outsourcing of our production testing operations in the second half of 2002 or early 2003.

sales affects our gross margin. Also, the gross margin on sales of our newer products are typically higher than the gross margin on sales of some of our older products. As a result, the relative mix of new product sales compared to older product sales affects our gross margin. In addition, we offer a broad range of products in multiple technologies that have historically had different gross margins. As a result, the relative mix of product sales by process technology and within each technology affects our gross margins.

In addition, our gross margins are negatively influenced by provisions for excess inventories, as was the case in the third quarter of 2001 when we recorded provisions for excess inventories of $4.5 million, and positively influenced by the sale of previously reserved inventory products, as was the case in the first quarter of 2002 when we sold $563,000 of previously reserved inventory products.

Also, our gross margin is traditionally lower in periods with less volume and higher in periods with high volume. We value inventories at the lower of standard cost, which approximates actual on a first-in, first-out basis, or market. In periods in which volumes are low, our manufacturing overhead costs are allocated to fewer units, thereby decreasing our gross margin. Likewise, in periods in which volumes are high, our manufacturing overhead costs are allocated to more units, thereby increasing our gross margin.

The gross margin on sales to our private label reseller is traditionally lower than that on our distributor or direct sales. We generally charge lower prices to our private label reseller due to its commitment to higher volumes on particular parts, its absorption of the risk of inventory obsolescence and its agreement to incur the sales and marketing costs for the parts.

In the three months ended March 31, 2002, three packaging firms packaged substantially all of our products. Relatives of our founding stockholders own one of these packaging firms, MPI Corporation in Manila, Philippines. Although we utilized four additional packaging subcontractors in the three months ended March 31, 2002, we anticipate that MPI will continue to account for a significant amount of our packaging in the near future.

Research and development expenses consist primarily of salaries and related expenses for personnel engaged in research and development, material costs for prototype and test units and other expenses related to the design, development and testing of our products and, to a lesser extent, fees paid to consultants and outside service providers. We expense all of our research and development costs as they are incurred.

Sales and marketing expenses consist primarily of salaries, commissions and related expenses for personnel engaged in marketing, sales and customer support functions, as well as costs associated with trade shows, promotional activities, advertising and public relations. We pay and expense commissions to our independent sales representatives when revenues from the associated sale are recognized.

Net revenues decreased to $4.9 million for the three months ended March 31, 2002 from $7.8 million for the three months ended March 31, 2001. This decrease was the result of the general economic slowdown, the resulting softness in the wireless infrastructure markets, changes in buying patterns by equipment manufacturers worldwide and delays in the next generation wireless infrastructure build-out. Sales through our distributors were 53% of net revenues for the three months ended March 31, 2002 and 52% of net revenues for the three months ended March 31, 2001. Sales to our direct customers comprised 47% of net revenues for the three months ended March 31, 2002, none of which was to our private label reseller. Sales to our direct customers comprised 48% of net revenues for the three months ended March 31, 2001, of which 29% of net revenues was to our private label reseller and 19% of net revenues was to our factory direct customers. Sales of our newer SiGe and InGaP products were approximately 40% of our total net revenues for the three months ended March 31, 2002 compared to 22% for the three months ended March 31, 2001.

Cost of revenues decreased to $1.7 million for the three months ended March 31, 2002 from $3.9 million for the three months ended March 31, 2001, primarily as a result of lower variable costs as a result of our decrease in unit shipments in the three months ended March 31, 2002 compared to the three months ended March 31, 2001 and lower manufacturing spending as a result of cost reduction actions implemented in the second half of 2001. In addition, in the three months ended March 31, 2002, we sold inventory products that were previously reserved, which reduced our cost of revenues by approximately $563,000. We may sell previously reserved inventory products in future periods, which would again reduce our cost of revenues. Operations personnel decreased to 29 at March 31, 2002 from 43 at March 31, 2001.

Gross profit decreased to $3.2 million in the three months ended March 31, 2002 from $3.9 million in the three months ended March 31, 2001. However, our gross margin increased to approximately 66% in the three months ended March 31, 2002 from 50% in the three months ended March 31, 2001. The increase in gross margin is primarily attributable to the sale of previously reserved inventory products and lower manufacturing spending as a result of cost reduction actions implemented in the second half of 2001.

Research and Development. Research and development expenses decreased to $1.7 million for the three months ended March 31, 2002 from $2.5 million for the three months ended March 31, 2001. This decrease is primarily the result of lower salaries and salary related expenses, which reduced costs by $566,000 and lower expenses for engineering materials, which reduced costs by $257,000. Research and development personnel decreased to 30 at March 31, 2002 from 46 at March 31, 2001.

Sales and Marketing. Sales and marketing expenses decreased to $1.1 million for the three months ended March 31, 2002 from $1.6 million for the three months ended March 31, 2001. This decrease is primarily the result of lower salaries and salary related expenses, which reduced costs by $141,000, lower commissions to outside sales representatives, which reduced costs by 161,000 and lower advertising expenses, which reduced costs by $113,000. Sales and marketing personnel decreased to 20 at March 31, 2002 from 22 at March 31, 2001.

General and Administrative. General and administrative expenses increased to $1.2 million for the three months ended March 31, 2002 from $1.1 million for the three months ended March 31, 2001. This increase is primarily the result of higher professional fees, which added costs of approximately $212,000, partially offset by lower salaries and salary related expenses. General and administrative personnel decreased to 15 at March 31, 2002 from 19 at March 31, 2001.

Amortization of Deferred Stock Compensation. In connection with the grant of stock options to employees prior to our initial public offering, we recorded deferred stock compensation within stockholders’ equity of approximately $681,000 in 2000 and $4.5 million in 1999, representing the difference between the deemed fair value of the common stock for accounting purposes and the exercise price of these options at the date of grant. During the three months ended March 31, 2002 and 2001, we amortized $239,000 and $341,000, respectively, of this deferred stock compensation. We will amortize the remaining deferred stock compensation over the vesting period of the related options, generally four years. The amount of deferred stock compensation expense to be recorded in future periods could decrease if options for which accrued but unvested compensation has been recorded are forfeited, as was the case in 2001 when we reduced the amount of deferred stock compensation expense to be recorded in future periods by $434,000.

Interest and other income (expense), net includes income from our cash and cash equivalents and available-for-sale securities, interest expense from capital lease financing obligations and other miscellaneous items. We had net interest and other income of $247,000 for the three months ended March 31, 2002 and $833,000 for the three months ended March 31, 2001. The decrease in net interest and other income for the three months ended March 31, 2002 compared to March 31, 2001 is primarily attributable to a reduction in our cash and cash equivalents and available for sale securities and lower interest rates.

Our provision for income taxes was zero for the three months ended March 31, 2002 and our benefit from income taxes was $249,000 for the three months ended March 31, 2001. Our provision for income taxes for the three months ended March 31, 2002 and our benefit from income taxes for the three months ended March 31, 2001 were based on our estimated tax rate for the year.

Our operating activities used cash of $1.3 million in the three months ended March 31, 2002 and used cash of $38,000 in the three months ended March 31, 2001. In the three months ended March 31, 2002, cash used in operating activities was primarily attributable to our net loss of $752,000, decreases in deferred margin on distributor inventory of $569,000 and accrued expenses of $354,000 and increases in accounts receivable of $463,000. These were partially offset by depreciation and amortization of $684,000 and amortization of deferred stock compensation of $239,000. In the three months ended March 31, 2001, cash used in operating activities was primarily attributable to our net loss of $580,000, an increase in inventory of $1.2 million and decreases in accrued expenses of $1.3 million and deferred margin on distributor inventory of $1.2 million. These were partially offset by depreciation and amortization of $634,000 and a decrease in accounts receivable of $2.3 million.

Our financing activities used cash of $90,000 in the three months ended March 31, 2002 and provided cash of $1.9 million in the three months ended March 31, 2001. In the three months ended March 31, 2002, cash used in financing activities was the result of principal payments on capital lease obligations partially offset by proceeds from employee stock plans. In the three months ended March 31, 2001, cash provided by financing activities was the result of proceeds from employee stock plans partially offset by principal payments on capital lease obligations.

We currently anticipate that our current available cash and cash equivalents and short-term investments will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months, although no assurance can be given in this regard. If we require additional capital resources to grow our business, execute our operating plans, or acquire complimentary technologies or businesses at any time in the future, we may seek to sell additional equity or debt securities or secure lines of credit, which may result in additional dilution to our stockholders.

In the first quarter of 2002, we began to see some signs of improvement in demand for our products by our distributors and by certain of our Asian customers. As a result, our net revenues increased to $4.9 million for the three months ended March 31, 2002 from $3.5 million for the three months ended December 31, 2001. However, in 2001 and the first three months of 2002, companies throughout the worldwide telecommunication industry announced slowdowns or delays in the build out of new wireless and wireline infrastructure. This resulted in lower equipment production volumes by our customers and efforts to lower their component inventory levels. These actions by our customers have reduced our visibility regarding future sales and resulted in a slowdown in our shipments in 2001. These trends contributed to us taking action that resulted in a worldwide workforce reduction and consolidation of excess facilities in the fourth quarter of 2001, which resulted in our recording of $2.7 million in restructuring charges. In addition, in the second half of 2001, these trends contributed to us recording provisions for excess inventories of $4.7 million, charges reducing the value of certain equipment of $1.6 million and recording a valuation allowance of $2.3 million against our net deferred tax assets.

If the economic trends described above were to continue or worsen it would likely result in lower sales for our products. Significantly lower sales would likely lead to further provisions for excess inventories and further actions by us to reduce our operating expenses. These actions could include, but would not be limited to, further reduction of our equipment value, further consolidation of facilities, and a further workforce reduction. Any or all of these actions could have a material adverse effect on the results of our operations and the market price of common stock.

In addition, in recent years, the stock market in general, and the Nasdaq National Market and the securities of technology companies in particular, have experienced extreme price and volume fluctuations. These fluctuations have often been unrelated or disproportionate to the operating performance of individual companies. These broad market fluctuations have in the past and may in the future materially adversely affect our stock price, regardless of our operating results.

Our quarterly operating results have varied significantly in the past and are likely to vary significantly in the future based upon a number of factors related to our industry and the markets for our products, over many of which we have little or no control. We operate in a highly dynamic industry and future results could be subject to significant fluctuations, particularly on a quarterly basis. These fluctuations could cause us to fail to meet quarterly financial expectations, which could cause our stock price to decline rapidly and significantly. For example, on October 9, 2001 and March 12, 2001, we publicly announced our revised expectations of financial results for the quarters ending September 30, 2001 and March 31, 2001, respectively and the fiscal year ending December 31, 2001. Subsequently, the trading price of our common stock declined

Our success will depend in large part on the growth of the telecommunications industry in general and, in particular, the market for wireless and wireline infrastructure components. We cannot assure you that the market for these infrastructure products will grow at all. We have recently observed continued softness of the wireless and wireline infrastructure markets related to a general economic slowdown, which has impacted our entire segment. There have been announcements throughout the worldwide telecommunications industry of current and planned reductions in component inventory

levels and equipment production volumes, and of delays in the build-out of new wireless and wireline infrastructure. These trends have had an adverse effect on our operations and caused us on October 9, 2001 and March 12, 2001 to lower our previously announced expectations for our financial results in the quarters ending September 30, 2001 and March 31, 2001, respectively, and for the fiscal year ending December 31, 2001. Subsequently, the market price of our common stock decreased.

If the economic trends described above were to continue or worsen it would likely result in lower sales for our products. Significantly lower sales would likely lead to further provisions for excess inventories and further actions by us to reduce our operating expenses. These actions could include, but would not be limited to, further abandonment or obsolescence of equipment, further consolidation of facilities and a further workforce reduction. Any or all of these actions could have a material adverse effect on the results of our operations and the market price of our common stock.

The semiconductor industry has historically been characterized by wide fluctuations in supply and demand for semiconductor products. From time to time, demand for semiconductor products has decreased, often in connection with, or in anticipation of, major additions of wafer fabrication capacity or maturing product cycles or due to general economic conditions, as is the case currently.

If the economic trends described above were to continue or worsen it would likely result in lower sales for our products. Significantly lower sales would likely lead to further provisions for excess inventories and further actions by us to reduce our operating expenses. These actions could include, but would not be limited to, further abandonment or obsolescence of equipment, further consolidation of facilities and a further workforce reduction. Any or all of these actions could have a material adverse effect on the results of our operations and the market price of our common stock.

The markets in which we and our customers compete are characterized by rapidly changing technology, evolving industry standards and continuous improvements in products and services. If technologies or standards supported by us or our customers’ products, such as 2.5G and 3G, fail to gain widespread commercial acceptance, our business will be significantly impacted. For example, in 2001 the installation of 2.5G and 3G equipment occurred at a much slower rate than was initially expected. In addition, while historically the demand for wireless and wireline communications has exerted pressure on standards bodies worldwide to adopt new standards for these products, such adoption generally only occurs following extensive investigation of, and deliberation over, competing technologies. The delays inherent in the standards approval process have in the past and may in the future cause the cancellation, postponement or rescheduling of the installation of communications systems by our customers. For example, in 2001 the delay in agreement over certain 3G standards contributed to the delay of the installation of 3G equipment worldwide.

These trends contributed to our decision in the fourth quarter of 2001 to implement a worldwide workforce reduction and consolidation of excess facilities. This resulted in our recording of $2.7 million in restructuring charges in the fourth quarter of 2001. These same trends contributed to our decision in the second half of 2001 to record provisions for excess inventories of $4.7 million, charges reducing the value of certain equipment of $1.6 million and recording a valuation allowance of $2.3 million against our net deferred tax assets. If the economic trends described above were to continue or worsen it would likely result in lower sales for our products. Significantly lower sales would likely lead to further provisions for excess inventories and further actions by us to reduce our operating expenses. These actions could include, but would not be limited to, further abandonment or obsolescence of equipment, further consolidation of facilities and a further workforce reduction. Any or all of these actions could have a material adverse effect on the results of our operations and the market price of our common stock.

We do not own or operate a semiconductor fabrication facility. We currently rely on four third-party wafer fabs to manufacture substantially all of our semiconductor wafers. These fabs are TRW for GaAs, Atmel for SiGe, Nortel Networks for InGaP and TriQuint Semiconductors for our discrete devices. A majority of our products sold in the first three months of 2002 and the year ended December 31, 2001 were manufactured in GaAs by TRW and SiGe by Atmel. Atmel is currently our sole source supplier for SiGe wafers. The supply agreement with TRW provides us with a commitment for a supply of wafers through December 31, 2003. The loss of one of our third-party wafer fabs, in particular TRW or Atmel, or any delay or reduction in wafer supply, will impact our ability to fulfill customer orders, perhaps materially, and could damage our relationships with our

customers, either of which would significantly harm our business and operating results. Because there are limited numbers of third-party wafer fabs that use the particular process technologies we select for our products and that have sufficient capacity to meet our needs, using alternative or additional third-party wafer fabs would require an extensive qualification process that could prevent or delay product shipments, adversely effecting our results of operations.

Nortel Networks has notified us that they are changing their fabrication process. As a result, Nortel Networks will no longer be able to support our products beyond the near term. We are currently in discussion with them regarding the termination of our contract. In addition, we are transferring the fabrication of the products made at Nortel Networks to GCS who has a comparable fabrication process. These products will require minor design changes as we transition to the GCS fabrication process and we have not purchased significant quantities of wafers from GCS to date. The unsuccessful or delayed transfer of our products to GCS could result in us having an insufficient supply of InGaP HBT wafers that meet our specifications in a timely manner. This would impact our ability to fulfill customer orders, perhaps materially, and could damage our relationships with our customers, either of which would significantly harm our business and operating results.

We have recently begun introducing products that are fabricated at RFMD. The unsuccessful fabrication of these products by RFMD, or our inability to obtain a sufficient supply of these products in a timely manner would impact our ability to fulfill customer orders, perhaps materially, and could damage our relationships with our customers, either of which would significantly harm our business and operating results.

Our reliance on these third-party wafer fabs involves several additional risks, including reduced control over the manufacturing costs, delivery times, reliability and quality of our components produced from these wafers. The fabrication of semiconductor wafers is a highly complex and precise process. Minute impurities, difficulties in the fabrication process, defects in the masks used to print circuits on a wafer, wafer breakage or other factors can cause a substantial percentage of wafers to be rejected or numerous die on each wafer to be nonfunctional. We expect that our customers will continue to establish demanding specifications for quality, performance and reliability that must be met by our products. Our third-party wafer fabs may not be able to achieve and maintain acceptable production yields in the future. These risks are heightened with respect to our newer third-party wafer fabs, particularly GCS and RF Micro Devices, which have not yet produced wafers in volume for us. To the extent our third-party wafer fabs suffer failures or defects, we could experience lost revenues, increased costs, and delays in, cancellations or rescheduling of orders or shipments, any of which would harm our business.

Our customers demand that our products meet stringent quality, performance and reliability standards. RF components such as those we produce may contain undetected defects or flaws when first introduced or after commencement of commercial shipments. We have from time to time experienced product quality, performance or reliability problems. In addition, some of our products are manufactured using process technologies that are relatively new and for which long-term field performance data are not available. As a result, defects or failures have in the past, and may in the future occur relating to our product quality, performance and reliability. If these failures or defects occur or become significant, we could experience lost revenues, increased costs, including inventory write-offs, warranty expense and costs associated with customer support, delays in or cancellations or rescheduling of orders or shipments and product returns or discounts, any of which would harm our business.

In the first quarter of 2002, we converted an outstanding loan receivable of approximately $1.4 million and invested cash of approximately $6.1 million in GCS, a privately held semiconductor foundry partner, in exchange for 12.5 million shares of Series D-1 preferred stock valued at $0.60 per share. Our total investment of $7.5 million represented approximately 14% of the outstanding voting shares of GCS at that time. Although there was no formal supply agreement associated with the investment in GCS, it was strategic in nature and was intended to strengthen our supply chain for InGaP and Indium Phosphide (InP) process technologies. In connection with the investment, our President and CEO joined GCS’ seven-member board of directors.

We accounted for our investment in GCS under the cost method of accounting in accordance with accounting principles generally accepted in the United States, as our investment represents less than 20% of the voting stock of GCS and we cannot exercise significant influence over GCS. The investment in GCS has been classified as a non-current asset on our consolidated balance sheet.

On a quarterly basis, we will examine our investment in GCS to determine if an other than temporary decrease in value has occurred. Factors that may cause an other than temporary decrease in the value of our investment in GCS would include, but not be limited to, a degradation of the general business environment in which GCS operates, the failure of GCS to achieve certain milestones, a series of operating losses in excess of GCS’ current business plan, or the inability of GCS to continue as a going concern. If it has been determined that an other than temporary decrease in value has occurred, we will write-down our investment in GCS to fair value. Such a write-down could have a material adverse impact on our results of operations.

In late 2001, we made the decision to outsource a significant portion of our RF testing function. We are currently in the process of selecting a subcontractor to test our products and expect to begin the outsourcing of our production testing operations in the second half of 2002 or early 2003. The selection and ultimate qualification of a subcontractor to test our RF components could be costly and increase our cost of revenues. In the second half of 2001, we recorded an impairment charge of $315,000 on some of our existing test equipment as a result of a reduction in demand for our products and the decision to outsource our testing operations. As a result of the impairment charge, our existing test equipment was recorded at our estimate of fair market value as of March 31, 2002. To the extent that the proceeds, if any, from the ultimate disposition of our test equipment are less than the recorded value of such equipment, we would incur a charge to cost of revenues. Such a charge could have a material adverse effect of our gross margin and results of operations.

We do not know if we will be able to negotiate a long-term contract with a subcontractor to production test our RF components at acceptable prices or volumes. Therefore, in the future, we may be unable to obtain sufficient high quality or timely RF production testing of our products. In addition, the negotiated pricing may be more expensive than production testing our RF components internally, which could have a material adverse effect on our gross margin and results of operations. The loss or reduction in production testing capacity at this RF testing subcontractor would significantly damage our business.

Our components require sophisticated testing techniques. If our potential subcontractor to test RF components is not successful in adopting such techniques, we could experience increased costs, including warranty expense and costs associated with customer support, delays in or cancellations or rescheduling of orders or shipments, product returns or discounts and lost revenues, any of which would harm our business.

We do not package the RF components that we sell but rather rely on subcontractors to package our products. Packaging is the procedure of electrically bonding and encapsulating the integrated circuit into its final protective plastic or ceramic casing. We provide the wafers containing the integrated circuits and, in some cases, packaging materials to third-party packagers. Although we currently work with five

packagers, substantially all of our net revenues in 2001 were attributable to products packaged by three subcontractors. Relatives of our founding stockholders own one of these packaging firms, MPI Corporation in Manila, Philippines. We do not have long-term contracts with our third-party packagers stipulating fixed prices or packaging volumes. Therefore, in the future we may be unable to obtain sufficient high quality or timely packaging of our products. The loss or reduction in packaging capacity of any of our current packagers, particularly MPI, would significantly damage our business. In addition, increased packaging costs will adversely affect our profitability.

The fragile nature of the semiconductor wafers that we use in our components requires sophisticated packaging techniques and can result in low packaging yields. If our packaging subcontractors fail to achieve and maintain acceptable production yields in the future, we could experience increased costs, including warranty expense and costs associated with customer support, delays in or cancellations or rescheduling of orders or shipments, product returns or discounts and lost revenues, any of which would harm our business.

Historically, two distributors, Avnet Electronics Marketing and Richardson Electronics Laboratories, have accounted for a significant portion of our sales. In the three months ended March 31, 2002, sales through Richardson Electronics Laboratories represented 38% of our net revenues and sales through Avnet Electronics Marketing represented 15% of our net revenues. Our contracts with these distributors do not require them to purchase our products and may be terminated by them at any time without penalty. If our distributors fail to successfully market and sell our products, our revenues could be materially adversely affected. The loss of either of our current distributors and our failure to develop new and viable distribution relationships would limit our ability to sustain and grow our revenues.

Sales to Minicircuits Laboratories, a private label reseller of our products, have historically accounted for a significant portion of our revenues. For example, 29% of our net revenues in the three months ended March 31, 2001 and 19% of our net revenues in 2001 were attributable to sales to Minicircuits. However, in the first quarter of 2002 and the fourth quarter of 2001, 0% of our net revenues were attributable to sales to Minicircuits and in the third quarter of 2001 only 7% of our net revenues were attributable to sales to Minicircuits. If sales to Minicircuits continue at this reduced level, or if we lose Minicircuits as a customer, our business and operating results could be adversely affected. In addition to reselling products of Sirenza Microdevices and other RF component suppliers, Minicircuits also designs and supplies its own RF components. Our current contract with Minicircuits does not require Minicircuits to purchase our products in the future.

Sales to Ericsson, primarily a direct customer, have recently accounted for a significant portion of our revenues. For example, 19% of our net revenues in the three months ended March 31, 2002 were attributable to direct sales to Ericsson. We expect that we will rely on sales to Ericsson for a significant portion of our future revenues. If we were to lose Ericsson as a customer, or if Ericsson substantially reduced its purchases from us, our business and operating results could be materially and adversely affected.

Sales to Pace Micro Technology PLC, a direct customer, have accounted for a significant portion of our revenues. For example, 10% of our net revenues in 2001 were attributable to sales to Pace Micro Technology PLC. We expect that we will rely on sales to Pace Micro Technology PLC for a significant portion of our future revenues. If we were to lose Pace Micro Technology PLC as a customer, or if Pace Micro Technology PLC substantially reduced its purchases from us, as was the case in the first quarter of 2002, our business and operating results could be adversely affected. In March 2002, Pace Micro Technology PLC announced a significant downturn in its business due to credit issues at its two main United Kingdom customers.

Anadigics, Conexant, Infineon, M/A-COM, Minicircuits Laboratories, NEC, RF Micro Devices, TriQuint Semiconductor and WJ Communications. We also compete with communications equipment manufacturers who manufacture RF components internally such as Ericsson, Lucent, Motorola and Nortel Networks. We expect increased competition both from existing competitors and from a number of companies that may enter the RF component market, as well as future competition from companies that may offer new or emerging technologies. In addition, many of our current and potential competitors have significantly greater financial, technical, manufacturing and marketing resources than we have. As a result, communications equipment manufacturers may decide not to buy from us due to their concerns about our size, financial stability or ability to interact with their logistics systems. Our failure to successfully compete in our markets would have a material adverse effect on our business, financial condition and results of operations.

We estimate that the development cycles of our products from concept to production could last more than 12 months. We have in the past experienced delays in the release of new products. We may not be able to introduce new products in a timely and cost-effective manner, which would impair our ability to sustain and increase our revenues.

The semiconductor industry from time to time is affected by limited supplies of certain key components and materials. For example, we rely on limited sources for certain packaging materials. If we, or our packaging subcontractors, are unable to obtain these or other materials in the required quantity and quality, we could experience delays or reductions in product shipments, which would materially and adversely affect our profitability. Although we have not experienced any significant difficulty to date in

Currently, communications equipment manufacturers obtain their RF components by either developing them internally or by buying RF components from third-party distributors or merchant suppliers. We have historically generated a majority of our revenues through sales of standard components to these manufacturers through our distributors and direct sales force. If communications equipment manufacturers increase their internal production of RF components and reduce purchases of RF components from third parties, our revenues would decrease and our business would be harmed.

As a result of the telecommunication industry downturn in 2001 and changing market conditions, effective in 2002 we reorganized our business to focus on end markets. We established three business areas. The first business area focuses on the wireless infrastructure markets. The second business area focuses on the cable and fiber optic wireline infrastructure markets. Third, we established what we label the terminals business area. This business area was in response to a market trend where our products could be used by customers in applications such as cable television boxes and wireless video transmitters. Each of these three reorganized business areas will require significant management attention and additional resources. Even with management’s attention and additional resources, we may be unsuccessful in operating these business areas.

Several third-party wafer fabs independently produce and sell RF components directly to communications equipment manufacturers. We currently rely on certain of these third-party wafer fabs to produce the semiconductor wafers for our products. These third-party wafer fabs possess confidential information concerning our products and product release schedules. We cannot guarantee that they would not use our confidential information to compete with us. Competition from these third-party wafer fabs may result in reduced demand for our products and could damage our relationships with these third-party wafer fabs, thereby harming our business.

We may adopt new process technologies in the future to manufacture our products. Prospective customers of these products may be reluctant to purchase these products based on perceived risks of these new technologies. These risks could include concerns related to manufacturing costs and yields and uncertainties about the relative cost-effectiveness of products produced using these new technologies. If our products fail to achieve market acceptance, our business, financial condition and results of operations would be materially adversely affected.

In November 2001, we, certain of our officers and certain underwriters of our initial public offering of securities were named in a purported class action lawsuit filed in the United States District Court for the Southern District of New York. The suit, Van Ryen v. Sirenza Microdevices, Inc., et al., Case No. 01-CV-10596, alleges that various underwriters engaged in improper and undisclosed activities related to the allocation of shares in our initial public offering, including obtaining commitments from investors to purchase shares in the aftermarket at pre-arranged prices. The Plaintiffs, who filed an amended complaint on or about April 19, 2002, bring claims for violation of several provisions of the federal securities laws and seek an unspecified amount of damages. Similar lawsuits concerning more than 300 other companies’ initial public offerings were filed during 2001. We believe that the allegations against us are without merit and intend to defend the litigation vigorously. However, there can be no assurance as to the ultimate outcome of this lawsuit and an adverse outcome to this litigation could have a material adverse effect on our consolidated balance sheet, statement of operations or cash flows. Even if we are entirely successful in defending this lawsuit, we may incur significant legal expenses and our management may expend significant time in the defense.

We are currently experiencing a slowdown in the economy and in the telecommunications industry in particular. Our net revenues decreased from $34.6 million in 2000 to $19.8 million in 2001 and from $7.8 million in the three months ended March 31, 2001 to $4.9 million in the three months ended March 31, 2002. As a result of this downturn, we incurred restructuring charges of $2.7 million related to a worldwide workforce reduction and consolidation of excess facilities in the fourth quarter of 2001. These same trends contributed to our second half of 2001 decision to record provisions for excess inventories of $4.7 million, charges reducing the value of certain equipment of $1.6 million and recording a valuation allowance of $2.3 million against our net deferred tax assets. If the current economic conditions continue or worsen, we may experience difficulties maintaining employee morale, retaining employees, completing research and development initiatives, maintaining relationships with our customers and vendors and obtaining financing on favorable terms or at all. In addition, we may have to take further actions to restructure our operations, including, but not limited to, further workforce reductions, further consolidation of facilities, eliminating product lines or disposing of

We believe that our future success will depend in large part upon our continued ability to recruit, hire, retain and motivate highly skilled technical, marketing and managerial personnel, who are in great demand. Competition for these employees, particularly RF integrated circuit design engineers, is intense. Our failure to hire additional qualified personnel in a timely manner and on reasonable terms could adversely affect our business and profitability. In addition, from time to time we may recruit and hire employees from our customers, suppliers and distributors, which could damage our business relationship with these parties. Our success also depends on the continuing contributions of our senior management and technical personnel, all of whom would be difficult to replace. The loss of key personnel could adversely affect our ability to execute our business strategy, which could cause our results of operations and financial condition to suffer. We may not be successful in retaining these key personnel.

Our future success and ability to compete is dependent in part upon our proprietary information and technology. Although we have patented technology and current patent applications pending, we primarily rely on a combination of contractual rights and copyright, trademark and trade secret laws and practices to establish and protect our proprietary technology. We generally enter into confidentiality agreements with our employees, consultants, resellers, wafer suppliers, customers and potential customers, and strictly limit the disclosure and use of other proprietary information. The steps taken by us in this regard may not be adequate to prevent misappropriation of our technology. Additionally, our competitors may independently develop technologies that are substantially equivalent or superior to our technology. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain or use our products or technology. In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the United States.

The semiconductor industry is characterized by the existence of a large number of patents and frequent litigation based on allegations of patent infringement and the violation of intellectual property rights. Although we attempt to avoid infringing known proprietary rights of third parties in our product development efforts, we expect that we may be subject to legal proceedings and claims for alleged infringement by us or our licensees of third-party proprietary rights, such as patents, trade secrets, trademarks or copyrights, from time to time in the ordinary course of business. Any claims relating to

the infringement of third-party proprietary rights, even if not meritorious, could result in costly litigation, divert management’s attention and resources, or require us to enter into royalty or license agreements which are not advantageous to us. In addition, parties making these claims may be able to obtain an injunction, which could prevent us from selling our products in the United States or abroad. We may increasingly be subject to infringement claims as the number of our products grows.

Independent third parties in other countries package all of our products and supply some of our wafers and substantially all of the packaging materials used in the production of our components. Due to our reliance on foreign suppliers and packagers, we are subject to the risks of conducting business outside the United States. These risks include:

In addition, we currently transact business with our foreign suppliers and packagers in U.S. dollars. Consequently, if the currencies of our suppliers’ countries were to increase in value against the U.S. dollar, our suppliers may attempt to raise the cost of our wafers, packaging materials, and packaging services, which could have an adverse effect on our profitability.

A significant portion of our direct sales and sales through our distributors were to foreign purchasers, particularly in countries located in Asia and Europe. International direct sales approximated 94% of our total direct sales in the three months ended March 31, 2002, representing approximately 44% of our net revenues. Based on information available from our distributors, products representing approximately 54% of our total distribution revenues, representing approximately 29% of our net revenues, were sold by our distributors to international customers in the three months ended March 31, 2002. Demand for our products in foreign markets could decrease, which could have a

We may acquire or make investments in complementary businesses, technologies, services or products if appropriate opportunities arise. From time to time, we may engage in discussions and negotiations with companies regarding our acquiring or investing in their businesses, products, services or technologies. We may not be able to identify suitable acquisition or investment candidates in the future, or if we do identify suitable candidates, we may not be able to make such acquisitions or investments on commercially acceptable terms or at all. If we acquire or invest in another company, we could have difficulty assimilating that company’s personnel, operations, technology or products and service offerings. In addition, the key personnel of the acquired company may decide not to work for us. These difficulties could disrupt our ongoing business, distract our management and employees, increase our expenses and adversely affect our results of operations. Furthermore, we may incur indebtedness or issue equity securities to pay for any future acquisitions. The issuance of equity securities could be dilutive to our existing stockholders. In addition, the accounting treatment for any acquisition transaction may result in significant goodwill, which, if impaired, will negatively affect our net income.

From time to time we may publicly disseminate forward-looking information or guidance in compliance with Regulation FD promulgated by the SEC. This information or guidance represents our outlook only as of the date that we disseminated it, and we undertake no obligation to provide updates to this information or guidance in our filings with the SEC or otherwise.

As of February 15, 2002, our officers, directors and principal stockholders (greater than 5% stockholders) together controlled approximately 61% of our outstanding common stock and our two founding stockholders controlled approximately 46% of our outstanding common stock. As a result, these stockholders, if they act together, and our founding stockholders acting alone, will be able to exert a significant degree of influence over our management and affairs and control matters requiring stockholder approval, including the election of all of our directors and approval of significant corporate transactions. In addition, this concentration of ownership may delay or prevent a change in control of Sirenza Microdevices and might affect the market price of our common stock. In addition, the interests of these stockholders may not always coincide with the interests of Sirenza Microdevices or the interests of other stockholders.

Provisions of our charter and bylaws may have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of us. These provisions could limit the price that investors might be willing to pay in the future for shares of our common stock. These provisions include:

In addition, our board of directors has the authority to issue up to 5,000,000 shares of preferred stock and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by the stockholders. The issuance of preferred stock, while providing flexibility in connection with possible financings or acquisitions or other corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock. We are also subject to Section 203 of the Delaware General Corporation Law that, subject to exceptions, prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that this stockholder became an interested stockholder. The

Historically, our sales have been made to predominantly U.S.-based customers and distributors in U.S. dollars. As a result, we have not had any material exposure to factors such as changes in foreign currency exchange rates. However, we continue to and expect in future periods to expand selling into foreign markets, including Europe and Asia. Because our sales are denominated in U.S. dollars, a strengthening of the U.S. dollar could make our products less competitive in foreign markets.

At March 31, 2002, our cash and cash equivalents consisted primarily of bank deposits, commercial paper, federal agency and related securities and money market funds issued or managed by large financial institutions in the United States and Canada. We did not hold any derivative financial instruments. Our interest income and expense are sensitive to changes in the general level of interest rates. In this regard, changes in interest rates can affect the interest earned on our cash equivalents, short-term investments and long-term investments. For example, a 1% increase or decrease in interest rates would increase or decrease our annual interest income by approximately $288,000.

common stock was May 24, 2000. Public trading commenced on May 25, 2000. The offering closed on May 31, 2000. The managing underwriters of the public offering were Deutsche Banc Alex. Brown, Banc of America Securities LLC, CIBC World Markets and Robertson Stephens. In the offering (including the exercise of the underwriters’ overallotment option on June 16, 2000), we sold an aggregate of 4,600,000 shares of our common stock for an initial price of $12.00 per share.

The aggregate proceeds from the offering were $55.2 million. We paid expenses of approximately $5.4 million, of which approximately $3.9 million represented underwriting discounts and commissions and approximately $1.5 million represented expenses related to the offering. Net proceeds from the offering were approximately $49.8 million. As of March 31, 2002, approximately $14.7 million of the net proceeds have been used to purchase property and equipment, make capital lease payments and fund our operating activities and investment in GCS. The remaining $35.1 million of net proceeds have been invested in interest bearing cash equivalents, short-term investments and long-term investments.

		SIRENZA MICRODEVICES, INC.
DATE: May 15, 2002		/s/ ROBERT VAN BUSKIRK
		Robert Van Buskirk
		President, Chief Executive Officer and
		Director
DATE: May 15, 2002		/s/ THOMAS SCANNELL
		Thomas Scannell
		Vice President, Finance and
		Administration, Chief Financial
		Officer and Assistant Treasurer
DATE: May 15, 2002		/s/ GERALD HATLEY
		Gerald Hatley
		Vice President, Controller
		and Chief Accounting Officer

Delaware		77-0073042
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

522 Almanor Avenue, Sunnyvale, CA		94085
(Address of principal executive offices)		(Zip Code)

Part I. Financial Information		1
Item 1. Financial Statements		1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
Item 3. Quantitative and Qualitative Disclosures About Market Risk		36

Part II. Other Information		36
Item 1. Legal Proceedings		36
Item 2. Changes in Securities and Use of Proceeds		36
Item 3. Defaults Upon Senior Securities		37
Item 4. Submission of Matters to a Vote of Security Holders		37
Item 5. Other Information		37
Item 6. Exhibits and Reports on Form 8-K		37

Signatures		38

			Future Minimum Payments Due
	Total		< one year		1-3 years		4-5 years		> 5 years
Operating lease commitments	$	3,453	$	1,433	$	1,576	$	444	$
Capital lease commitments	$	902	$	609	$	293	$	—	$	—

	Amount Charged to Restructuring		Cash Payments			Non- cash Charges		Accrued Restructuring Balance at March 31, 2002
Worldwide workforce reduction	$	481	$	(462	)	$	—	$	19
Lease commitments		2,189		(228	)		—		1,961

	$	2,670	$	(690	)	$	—	$	1,980