**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM 10-K**

**x**                              ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

**or**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

**Forthe Fiscal Year Ended December 31, 2004**

**CommissionFile Number 0-22660**

**TRIQUINT SEMICONDUCTOR, INC.**

(Exact name of registrantas specified in its charter)
| **Delaware**                                                     | **95-3654013**                        |
|------------------------------------------------------------------|---------------------------------------|
| (State or other  jurisdiction  of incorporation or organization) | (I.R.S. Employer  Identification No.) |

 

**2300 N.E. BrookwoodParkway,Hillsboro, Oregon 97124(503) 615- 9000**

(Address, including zipcode, and telephone number, including area code, of principal executiveoffices)

**Securities registered pursuant toSection 12(b) of the Act:**None

**Securities registered pursuant toSection 12(g) of the Act:**

**Common Stock, $.001 par value pershare****(Title of class)

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

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-Kis not contained herein, and will not be contained, to the best of theregistrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K. x

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2of the Exchange Act). Yes  x   No  o

The aggregate market valueof the voting common stock held by non-affiliates of the registrant, based uponthe closing sale price of the common stock on July 2, 2004, the last dayof our second fiscal quarter reported on the Nasdaq Stock Market’s NationalMarket, was approximately $692,054,747. Shares of common stock held by eachexecutive officer and director and by each person who owns 5% or more of theoutstanding common stock have been excluded from this computation. Thedetermination of affiliate status for this purpose is not necessarily a conclusivedetermination for other purposes. The registrant does not have any non-votingcommon equities.

As of February 28,2005, there were 138,785,145 shares of the Registrant’s common stockoutstanding.

**DOCUMENTSINCORPORATED BY REFERENCE**

Part IIIincorporates certain information by reference from the Registrant’s DefinitiveProxy Statement to be filed with the Commission pursuant to Regulation 14Ain connection with the Registrant’s 2005 Annual Meeting of Stockholders, whichis scheduled to be held on May 12, 2005. Such Definitive Proxy Statementwill be filed with the Commission not later than 120 days after theconclusion of the Registrant’s fiscal year ended December 31, 2004.

 

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***Important Notice to Investors:***

*This Annual Reporton Form 10-K contains both historical information andforward-looking statements about TriQuint Semiconductor, Inc. (“TriQuint”,“we”, “us”, “our” or “our company”). A number of factors affect our operatingresults and could cause our actual future results to differ materially from anyforward-looking results, including, but not limited to, those related to ourproduct strategy; demand for wireless phones and our product offerings in thismarket; our competitive product offerings in the infrastructure networks marketand our outlook for this market; our revenue outlook for our defense business;our outlook for the optical networks market; our expectations regarding certaincustomer-specific products; our competitive advantages in design and process;our ability to manufacture and sell in international markets; our plans for ourmanufacturing facilities; risks associated with manufacturing yields, costs andsubcontractor services; risks associated with our production outside of theU.S.; our reliance on certain suppliers; risks associated with our backlog; ourexpectations regarding research and development expenses; our ability toimprove our products and processes and develop new products; our expectations regardingthe selling prices for our optoelectronic products; our expectations regardingour competitors and pricing levels; our goal to reduce production costs andimprove performance value for our products; risks associated in protecting ourintellectual property interests; impact of environmental regulations on ourbusiness; and other comments that involve risks and uncertainties. In somecases, you can identify forward-looking statements by terminology such as “anticipates”,“appears”, “believes”, “continue”, “estimates”, “expects”, “hope”, “intends”, “may”,“our future success depends”, “plans”, “potential”, “predicts”, “reasonably”, “seekto continue”, “should”, thinks”, “will” or the negative of these terms or othercomparable terminology. These statements are only predictions. Actual events orresults may differ materially. In addition, historical information should notbe considered an indicator of future performance. Factors that could cause orcontribute to these differences include, but are not limited to, the risksdiscussed in the section of this report titled “Factors that May Affect Future Results.” These factors maycause our actual results to differ materially from any forward-lookingstatement.*

*Although we believe that the expectations reflected in theforward-looking statements are reasonable, we cannot guarantee future results,levels of activity, performance or achievements. Moreover, neither we nor anyother person assumes responsibility for the accuracy and completeness of thesestatements. We are under no duty to update any of the forward-lookingstatements after the date of this Annual Report on Form 10-K toconform these statements to actual results. These forward-lookingstatements are made in reliance upon the safe harbor provision of The PrivateSecurities Litigation Reform Act of 1995.*

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**TRIQUINTSEMICONDUCTOR, INC.INDEX**
| **PART I**   |                                                                                                               |
|-------------------|--------------------------------------------------------------------------------------------------------------------|
| Item 1.           | Business                                                                                                           |   | 1 |   |
| Item 2.           | Properties                                                                                                         |   | 18 |   |
| Item 3.           | Legal Proceedings                                                                                                  |   | 19 |   |
| Item 4.           | Submission  of Matters to a Vote of Security Holders                                                               |   | 19 |   |
| **PART II**  |                                                                                                               |   |   |
| Item 5.           | Market for Registrant’s Common Equity, Related Shareholder  Matters and Issuer Purchases of Equity Securities |   | 20 |   |
| Item 6.           | Selected Financial Data                                                                                            |   | 20 |   |
| Item 7.           | Management’s Discussion and Analysis of Financial Condition and  Results  of Operations                       |   | 22 |   |
| Item 7A.          | Quantitative and Qualitative Disclosures About Market Risk                                                         |   | 63 |   |
| Item 8.           | Financial Statements and Supplementary Data                                                                        |   | 64 |   |
| Item 9.           | Changes in and Disagreements with Accountants on Accounting and  Financial Disclosure                              |   | 64 |   |
| Item 9A.          | Controls and Procedures                                                                                            |   | 64 |   |
| Item 9B.          | Other Information                                                                                                  |   | 67 |   |
| **PART III** |                                                                                                               |   |   |
| Item 10.          | Directors and Executive Officers of the Registrant                                                                 |   | 68 |   |
| Item 11.          | Executive Compensation                                                                                             |   | 68 |   |
| Item 12.          | Security Ownership of Certain Beneficial Owners and Management  and Related Stockholder Matters                    |   | 68 |   |
| Item 13.          | Certain Relationships and Related Transactions                                                                     |   | 68 |   |
| Item 14.          | Principal Accounting Fees and Services                                                                             |   | 68 |   |
| **PART IV**  |                                                                                                               |   |   |
| Item 15.          | Exhibits and Financial Statement Schedules                                                                         |   | 69 |   |
| **SIGNATURES**    |                                                                                                               |   |   |
|              | Signatures                                                                                                         |   | 73 |   |

 

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**PART I**

**Item 1**.                        *Business*

**Overview**

TriQuint Semiconductor, Inc. (“TriQuint,” “we,”us,” “our,” or “our company”) is a supplierof high performance components and modules for communications applications. Ourfocus is on the specialized expertise, materials and know-how for radiofrequency (“RF”), intermediate frequency (“IF”) and optical applications. Wewere  incorporated in California in1991 and reincorporated in Delaware on September 26, 1996. We have thefollowing wholly-owned operating subsidiaries, TriQuint Optoelectronics, Inc.,TriQuint Semiconductor GMBH, TriQuint Semiconductor Texas LP, Sawtek, Inc.and Sawtek SRL.

We provide customers withstandard and custom product solutions as well as foundry services in thewireless phones, wireless infrastructure networks, optical networks, anddefense markets. Our products are designed on various wafer substratesincluding compound semiconductor materials such as gallium arsenide (“GaAs”)and indium phosphate (“InP”), lithium niobate (“LiNbO3”), lithium tantalate (“LiTaO3”)and quartz, using a variety of device technologies, including pseudomorphichigh electron mobility transistor (“pHEMT”), metamorphic high electron mobilitytransistor (“mHEMT”), heterojunction bipolar transistor (“HBT”),heterostructure field effect transistor (“HFET”), metal semiconductor fieldeffect transistor (“MESFET”), surface acoustic wave (“SAW”) and bulk acousticwave (“BAW”). Using these materials, devices and our proprietary technology,our products can overcome the performance barriers of competing devices in avariety of applications and offer other key advantages such as steeperselectivity, lower distortion, reduced size and weight and more precisefrequency control. For example, GaAs has inherent physical properties thatallow its electrons to move up to five times faster than those of silicon. Thishigher electron mobility permits the manufacture of GaAs integrated circuitsthat operate at higher levels of performance than silicon devices. We sellour products to companies worldwidewith our top ten customers in 2004 as follows (in alphabetical order): CuritelCommunications, Inc., Ericsson, Kyocera Corporation, LG Group, Motorola, Inc.,Nokia Corporation, Nortel Networks Corporation, Northrop Grumman Corporation,Raytheon Company, and Samsung Electronics Company.

In the U.S., we have design andmanufacturing facilities in Oregon, Texas, Florida and Pennsylvania and designfacilities in New England. We also have production plants in Costa Rica andMexico, a design facility in Germany and application sales support offices inTaiwan, Korea and China. We own and operate our own wafer fabrication andproduct test facilities and use our proprietary processes to produce RF, analogand mixed-signal components, lasers, detectors, and modules cost-effectively inhigh volumes. We believe that control of these manufacturing processes providesus with a reliable source of supply and greater opportunities to enhancequality, reliability and manufacturing efficiency. In addition, control of ourmanufacturing process and our combined research and design capabilities assistsus in developing new processes and products and in being more responsive tocustomer requirements. We have also established a strategic foundry businessserving leading communications companies.

Ourprincipal executive offices are located at 2300 N.E. Brookwood Parkway,Hillsboro, Oregon 97124 and our telephone number at that location is (503) 615-9000.Information about our company is also available at our website at www.triquint.com,which includes links free of charge to reports and amendments to those reportswe have filed with the Securities and Exchange Commission (“SEC”). Thecontents of our website are not incorporated by reference in this Annual Reporton Form 10-K. The public may read and copy any materials that wefile with the SEC at the SEC’s Public Reference Room at 450 Fifth Street,NW, Washington, DC 20549. The public may obtain information on the operation ofthe Public Reference Room by calling the SEC at 1-800-SEC-0330.

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**Industry Background**

Market demands for higher levelsof performance with reduced cost in electronic communications systems haveproduced an increasing number of varied, complex applications. The increasedcapabilities of these new systems, in turn, are spawning new markets and afurther proliferation of new, sophisticated applications. Many of these newapplications have emerged in the wireless communications, telecommunications,data communications and microwave and millimeter wave communications industries.

The wireless communicationsindustry is constantly changing with the advent of new applications such asdigital wireless telephones, personal communication systems (“PCS”), handheldnavigation products based on the global positioning satellite (“GPS”) standard,satellite communications, wireless local area networks (“WLANs”) and wirelessinternet. Wireless communications systems can offer the functional advantagesof wired systems without the costly and time-consuming development of anextensive wired infrastructure, which is of particular importance in developingparts of the world. In addition, many of these new applications requirebattery-powered portability. The proliferation of some of these newapplications, combined with a demand for higher data rates, have led toincreased communication traffic resulting in congestion of the existingassigned frequency bands. As a consequence, wireless communications are movingto higher, less congested frequency bands and are implementing new, advanced communicationstandards. The advantages of wireless communications systems as well as theincreasing demand for wireless communications at higher frequencies continue todrive worldwide growth in existing systems and continue to drive the emergenceof new markets and applications.

The telecommunications and datacommunications industries are encountering increasing demand for highertransmission rates and increased capacity to accommodate traditional voicetraffic as well as higher levels of traffic arising from widely used internetservice applications. Today’s advanced telecommunications systems employ highspeed switching networks and fiber optic cable operating in accordance withhigh frequency standards such as synchronous optical network (“SONET”), synchronousdigital hierarchy (“SDH”), integrated services digital network (“ISDN”) andfiber to the premise (“FTTP”). For example, high performance SONETtelecommunications systems can operate at frequencies of 10 gigabits per second(“Gbits/sec”) per optical wavelength and can multiplex 80 wavelengths opticallyto provide data capacity to 800 Gbits/sec per individual fiber. The advent ofvideo communications and multimedia services, which combine voice, video anddata, are placing further demands on these systems for even higher datatransmission capacity. This is especially true in the local and end userarenas, which are often referred to as the metropolitan area networks (“MANs”)and last mile networks, respectively.

The microwave and millimeterwave communications industry utilizes advanced monolithic microwave integratedcircuits (“MMIC”) and SAW filter products for aerospace, defense and commercialapplications. Aerospace and defense applications include high power amplifiers,low noise amplifiers, switches, voltage controlled oscillators (“VCOs”) and attenuators for use in a variety of advancedsystems such as active array radar, missiles, electronic warfare and spacecommunications systems. Commercial applications for products and services inthis frequency range include wireless telephone applications, optical fiberlinks and switching networks, millimeter wave (“mmW”) radios for point-to-pointand point to multipoint systems, phased-array radar and satellite links both onthe orbiting payload and for earth station transmitters.

To address the market demandsfor higher levels of performance, electronic communications systemsmanufacturers have relied heavily on advances in high performance componentsand modules such as those we produce. Until recently, the predominantsemiconductor technologies used in advanced electronic systems have beensilicon based complementary metal oxide semiconductor (“CMOS”), bipolarcomplementary metal oxide semiconductor (“BiCMOS”) and emitter coupled logic (“ECL”)process 

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technologies.In addition, traditional signal processing technologies included lumped elementfilters, ceramic filters, crystal filters, resonators and oscillators. However,today’s high performance electronic systems require performance beyond thatachievable with these technologies.

One way to improve performanceis to combine analog and digital circuitry on the same device. Thiscombination, known as mixed signal technology, can provide higher levels ofintegration (smaller size and increased functionality), reduced powerconsumption and higher operating frequencies. Higher levels of integration canresult in smaller devices with increased functionality. Notwithstanding thebenefits of mixed signal technology, the performance requirements of certaincritical system functions generally cannot be achieved using silicon basedsemiconductors or filters, resonators and oscillators based on traditionaltechnologies. As a result, systems manufacturers are seeking components andmodules which can overcome these performance limitations. GaAs and InPsemiconductor technology has become an effective alternative or complement tosilicon solutions in many high performance applications. The higher electronmobility of GaAs permits GaAs integrated circuits to operate at higher speedsthan silicon devices or at the same speeds with lower power consumption. Inaddition, SAW technology offers a number of advantages over traditional filtertechnologies, including precise frequency control and selectivity, reduced sizeand weight, high reliability, environmental stability and the ability to passRF signals with minimal distortion.

In many new applications, GaAsintegrated circuits and SAW filters enable high performance systems to processsignals and information more quickly and more precisely. In addition, the useof these components in high performance communications systems can reducesystem power requirements and the physical size and weight of the system,important elements in battery powered or portable applications. These characteristics,combined with the systems requirements of the communications industry, have ledto the use of our components in high volumes to complement silicon devices in awide range of commercial and aerospace systems.

Electroniccommunications systems manufacturers, particularly wireless handsetmanufacturers, are also moving increasingly toward designing integrated radiomodules into their phones, rather than the individual components comprisingthese modules. By doing this, the handset manufacturers can continue to achievecost reductions, optimization of design and increasingly smaller size of theirphones while accelerating design cycles and improving time to market. Our highperformance GaAs integrated circuits and our SAW filters, duplexers and oscillatorscomprise some of the primary components in these radio modules. Further, duringthe first quarter of 2005 we completed the acquisition of TFR Technologies, Inc.(“TFR”), which provides us with BAW technology. We believe that BAW iscritical to developing higher frequency filters for next generation wirelesscommunication products and is a natural complement to our SAW filters. Because of these factors, we believe we are wellpositioned to continue to support the growth and performance level demands ofthe electronic communications system industry.

**TriQuint Strategy**

Weare a global supplier to the communications industry with a focus on mediainterface applications of RF and optical communications systems. Our missionis, “Connecting the Digital World to the Global Network”, and we accomplishthis through a diversified product portfolio. We strive to be a premiersupplier of solutions based on complex materials such as GaAs, InP and othercompound semiconductor materials and SAW and BAW based products. The keyelements of our strategy include:

*Diversification of BusinessModels, Market Applications, Technologies and Customers.*

Weoffer a broad range of standard and customer-specific products, as well asmanufacturing, design and foundry services, which address numerous end-userapplications in a variety of communications markets. We provide a balancedproduct offering ranging from foundry services to die level products, 

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packaged components, and integrated modules. Our primaryapplication areas are wireless phones, infrastructure networks, opticalnetworks and defense. Our products are designed on various wafer substratesusing a variety of technologies. We delivered products and services to over 430customers during 2004. In addition, we had 42 customers that each contributed$1.0 million or more to our revenues in 2004.

*Focusing on RF Power, Filteringand Switching Design Excellence.*

Wehave made substantial investments in our RF power, filtering and switchingdesign capabilities. Our design teams have specialized expertise to address theneeds of each of our target markets. The foundation of our design resources isan extensive library of cells and associated software tools and databasesnecessary to develop new products rapidly and cost-effectively. We believe thatour RF power filtering and switching design capabilities provide us with acompetitive advantage in designing and developing integrated circuit modulesand SAW-based products for standard or customer-specific products in our targetmarkets.

*Targeting High-Growth Marketswith High Performance Solutions.*

Weplan to continue to develop and produce high performance RF, optical, analogand mixed-signal electronic components and modules. In 2001, we added SAWfilters to our portfolio of high performance solutions by merging with Sawtek,which enabled us to offer a complete array of RF products for wireless phones.Our new products are focused on modules for both GSM/GPRS/EDGE (globalsystem for mobile communications/general packet radio service/enhanced datarates for global evolution), CDMA (code division multiple access) and WDCMA (wide band code divisionmultiple access) wireless phones, WLANs,new SAW filter applications and new applications for broadband and microwaveequipment. In January 2005, we completed the acquisition of TFR, whichbrings BAW filtering expertise to TriQuint.

*Create the smallest, highestperformance and lowest cost components and modules for the front-end of variouscommunication systems.*

Wehave introduced a series of new products focused on the RF front-end ofwireless applications. One of these new products is the world’s smallest GSMtransition module for wireless phones in production which eliminates allsurface mounted devices to lower cost and improve performance for our customers.Another new product is a switch for GSM/EDGE wireless phones that frees upspace on circuit boards and reduces costs to our customers.

*Capitalizing on Partnershipswith Industry Leaders in our Target Markets.*

Weplan to continue to establish and maintain close working relationships withindustry leaders in our target markets. We also intend to establish strategicrelationships with companies that provide access to new technologies, productsand markets. These relationships are critical to providing us with insightsinto future customer requirements, which facilitates the timely development ofnew products and services to meet the changing needs of our target markets.

**Markets andApplications**

Wefocus on four end markets in the electronic communications system industry:wireless phones, infrastructure networks, optical networks and defenseapplications.

*Wireless Phones.*

This business accounted forapproximately 40% of our total revenues in 2004, 41% of revenues in 2003 and45% of revenues in 2002. The demand for wireless phones has evolved over thepast several years as a result of increased demand for portable voice and datacommunication capabilities. Implementation of 

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newstandards such as CDMA, 1xRTT (single carrier radio transmission technology),GSM, and GPRS are taking advantage of all allocated frequency bands around theworld and supporting the growing demand for wireless data communications. Inaddition to portability, there has also been increasing demand for wirelessphones to provide signal quality similar to wired communication systems, besmaller and lighter, accommodate longer talk time and standby time and containcomplex functionality such as digital cameras, color displays, GPS, Bluetoothand internet access. In addition, this increase in wireless phone communicationtraffic has resulted in congestion of the assigned frequency bands, creatingcapacity issues for network operators. As a consequence, wirelesscommunications standards are evolving to more efficiently utilize the availablespectrum and demand has increased for handsets that work across multiplestandards and frequency bands. Phones of this complexity provide new technicalchallenges that our products are well suited to address. The wireless phonemarket grew to industry estimates of over 680 million unit sales in 2004 andindustry projections are for approximately 730 million units in 2005 accordingto Strategy Analytics. The mobile phone market has experienced growth in eachof the past 15 years, except for 2001 due to a slowdown in the overall economy.In 2004, demand for these products strengthened particularly in the first ninemonths of the year due to growth in both Asia and India as well as the increasein demand for new phones with new features. We expect to see continuedstrengthening during 2005.

Our use of various wafersubstrates and a variety of technologies provides us with the ability tosatisfy these market demands. In many wireless phone applications, a specificsubstrate material and device design can provide key performance advantagesover silicon, such as higher frequency operation, improved signal reception andtransmission, better signal processing in congested bands and greater powerefficiency for longer battery life. Access to varied technologies enables us tocombine them in applications to optimize both product performance and cost.

We believe that we provide notonly the broadest product offering for the RF front-end portion of wirelessphones, but also the capability to integrate many of the functions into moduleform. We offer a full range of duplexers, RF and IF SAW filters and pHEMTswitches that can be sold independently**or integrated into modules along with our variousreceiver and power amplifier products. During 2004, we introduced many newproducts for this market, including a family of GSM power amplifier modules,our first GSM transmit module and quad band filter bank, as well as duplexersand power amplifier modules (“PAMs”) for CDMA phones.

Weexperience seasonal fluctuations in our business, primarily in the wirelessphone market. Our revenues are historically, but not always, the strongest inthe fourth quarter of each year in response to the holiday selling season. Thefirst quarter of each year is historically, but not always, the weakest quarterfor revenues, due to reduced consumer demand subsequent to the holiday sellingseason.

*Infrastructure Networks.*

This business accounted for approximately 33% of ourtotal revenues in 2004, as compared to 29% of our total revenues in 2003 and 31%in 2002. Infrastructure networks include a variety of applications and productssuch as base stations, point-to-point radio, WLANs, satellite communication,cable and other products. The largest portion of the infrastructure end marketfor us is the base station market. Base stations are necessary to operatewireless phone networks. The demand for base station equipment is related tonetwork build-out plans of network operators and is highly dependent upon thecapital equipment budgets of those operators. In 2004, demand in the basestation market was up substantially due to increased capital spending bynetwork operators, including EDGE rollouts in the U.S., WCDMA rollouts inEurope and initial network build outs in Asia and India.

We believe we are the leading supplier of SAW filtersfor both GSM/GPRS/EDGE, CDMA and WCDMA base stations. We believe that our longrelationships with the major base station equipment 

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providers and our designand manufacturing capabilities put us in a unique position to continue tosupport this market with innovative SAW solutions. In addition, we areutilizing our GaAs expertise to expand our product portfolio for this market.

Looking forward, we believe there are three majordrivers to the base station equipment market. The first is the continueddeployment of base stations in China and other emerging markets such as India.The second is the build-out of GSM/EDGE networks for the U.S. and Latin Americato upgrade and expand existing networks, however this projected growth couldoffset, in part, by the consolidation of network operators which could reducethe demand of infrastructure build out in the future. The third is thebuild-out of WCDMA systems.

We participate in the satellite communications marketin both orbiting payload and ground station uplinks for satellite communicationsystems. Demand in this market was largely flat in 2004. We believe that theVSAT (very small aperture terminal)ground station market will grow as home based satellite systems, similar tosatellite television, evolve for the internet. Other broadband products includeproducts for cable and wireless high-speed internet services and wirelessdistribution of phone, video and interactive cable television services. Thefastest growing products in this end market are products for WLAN applications.Our sales of products for WLANs nearly doubled in 2004 and we continued to be asupplier of foundry services for GaAs-based power amplifiers for thisapplication.

Less than 2% of our totalrevenues stem from sales of our products through our stocking distributor.Substantially all of these distributor sales are grouped into theinfrastructure networks end market.

*Defense.*

Ourdefense business accounted for approximately 13% of our total revenues in 2004,as compared to approximately 16% in 2003 and 19% in 2002. Our largest customersin this market are defense subcontractors to the U.S. government. Thesesubcontractors use our products in phased-array radar to identify, track andtarget aircraft and threats of unknown origin. The capability to track multipletargets simultaneously is one of the key enhancements found on the newgeneration of fighters such as the F-22 Raptor and Joint Strike Fighter (“JSF”).We are teamed with the prime contractors on both of these programs. Ourmicrowave power amplifiers (“PAs”) will provide the capability to transmit themicrowave power that is at the heart of the radar’s operation. These radars arecomprised of large arrays of elements, each with its own PA. This is a verystable business and our products are used in long lead-time, large-scaleprograms. We do not expect our revenues to increase materially as a result ofany near-term conflicts with foreign nations. The current conflict in Iraq isconsuming a significant portion of the military budget that may have otherwisebeen available for advanced aircraft upgrades and deployments and there is somerisk that programs such as the F-22 Raptor and JSF could be delayed.

*Optical Networks.*

This business accounted for approximately 14% of ourtotal revenues in 2004 and 2003 and 5% in 2002. The optical networking marketgrew significantly in the late 1990’s with increased demand for thetransmission and manipulation of large amounts of information at high speedsand with high integrity. In 2001, as a result of overbuilt capacity, theoptical networking market fell sharply. Fiber optic network demand continues tooccur for both the telecommunications and data communications markets, with themajority of bandwidth demand coming from data communications markets. Theoverall expansion has been driven by increasing internet usage, e-commerce,email, business networking, video conferencing and voice traffic, as well asthe ongoing upgrade of existing systems to fiber optics.

Fiber optic cables can transmit data at rates fargreater than copper lines. A single fiber can cost-effectively replace hundredsor thousands of copper lines. Optical networks operate in accordance with highfrequency standards such as SONET, SDH, Gigabit Ethernet (“GbE”), andFibreChannel (“FC”). 

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For example, highperformance SONET telecommunications systems can operate at frequencies of 10Gb/s or higher per wavelength. Dense Wave Division Multiplexing (“DWDM”) canthen be used to combine 80 or more of these 10 Gb/s signals to be carried downa single fiber, for a total of 800 Gb/s capacity. During the previously highlevels of this market, most capital spending went to long haul/long distancenetworks. To increase the capacity of these networks, technologies used in longhaul systems will migrate to metropolitan network equipment. An example of thisis the trend to using DWDM technology in MANs.

To fully utilize thebenefits of fiber optic cable, the electronic processors and modules in thesenetworks must be able to operate at speeds from 155 Mb/s to 40 Gb/scost-effectively and efficiently and still meet established signal quality anddata integrity standards. Our optical networking products specifically targetthe need for these high performance, integrated devices and support all majoroptical network standards such as SONET, SDH, GbE and FC. We offer a variety ofproducts that include multiplexers and demultiplexers, laser/modulator drivers,photo detectors, transimpedance amplifiers, high performance lasers, electroabsorptionmodulated lasers (“EMLs”), receivers and transceivers. Our overall revenue inthis end market was relatively flat in 2004 as compared to 2003.

**Products**

Weoffer a broad array of RF, analog and mixed-signal integrated circuits, lasers,detectors, optical transceivers and SAW products to address the needs of ourtarget markets. We utilize high-frequency substrate materials and highperformance technologies such as pHEMT, HBT, HFET, MESFET and SAW to design andmanufacture products which overcome the performance barriers of silicondevices. Our products offer other key advantages such as steeper selectivity, lowerdistortion, higher power and power added efficiency, reduced size and weightand more precise frequency control. We believe efficient manufacturingfacilities and processes result in products that provide our customers afavorable price/performance trade-off. Our broad range of standard andcustomer-specific integrated circuits, optical components and modules, and SAWduplexers and filters, combined with our manufacturing and design services,allow customers to select the specific product solution which best fulfillstheir technical and time-to-market requirements.

***Standard Products***

Weoffer families of standard products for the following target market applicationareas. These include:

*Wireless Phones.*

Ourproducts include receivers, power amplifier modules, filter banks, switches,low-loss transversal filters, reflective low-loss filters, duplexers,triplexers, resonator filters and front-end modules. These products address theneeds of system designers for low noise, power efficient amplification, low lossswitching and efficient and accurate frequency conversion.

*Infrastructure Networks.*

Ourproducts include bi-directional transversal filters, low-loss transversalfilters, LNA’s, mixers, reflective low-loss filters and oscillators. We believethat we are the leading supplier of SAW filters for base stations. Our productssupport GSM, EDGE, CDMA and 3G networks. We also provide products that serve asthe high data rate backhaul paths for base stations. These include integratedcircuits for millimeter wave (“mmW”) radios and optical components for opticalcommunication links. Our products also include high power amplifiers, low noiseamplifiers, switches, attenuators and discrete integrated 

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circuits. We support numerous additional applications inthis market including WLAN, radar systems, satellite, point-to-point radios,point to multipoint and cable.

*Defense.*

Our products for this market include PAsfor phased-array antenna and similar applications for airborne systems allowingthem the capability to track multiple targets simultaneously. These programsnormally have long lead times.

*Optical Networks.*

Ourproducts include laser/modulator drivers, photo detectors and transimpedanceamplifiers along with lasers, EMLs, detectors and transceivers. For some of ourproducts, we are compliant to industry Multi-Source Agreements (“MSA”). Theseoptical products also support the high performance system standards such asSONET, SDH, DWDM, GbE and FC.

***Customer-Specific Products and Services***

We offer our customers a varietyof product options and services for the development of customer-specificproducts. Our services include design, wafer fabrication, test engineering,package engineering, assembly and test. We generally receive revenues fromcustomer-specific products and services at two stages: when the design isdeveloped and engineered and when we manufacture and deliver the device. Wefocus the development of our customer-specific products on applicationsinvolving volume production requirements. As is typical in the semiconductorindustry, customer-specific products are developed for specific applications.As a result, we expect to generate production revenues only from thosecustomer-specific products that are subsequently produced in high volume. Asubstantial portion of our products are designed to address the needs ofindividual customers. Frequent product introductions by systems manufacturersmake our future success dependent on our ability to select customer-specificdevelopment projects which will result in sufficient production volume toenable us to achieve manufacturing efficiencies. Because customer-specificproducts are developed for unique applications, we expect that some of ourcurrent and future customer-specific products may never be produced in high volume.In addition, in the event of significant delays in completing designs or ourfailure to obtain development contracts from customers whose systems achieveand sustain commercial market success, our results of operations could bematerially adversely affected.

Customer-specificdesigns are generally implemented by one of two methods. Under the firstmethod, the customer supplies us with detailed performance specifications andwe design, develop and manufacture the integrated circuits. These designs aregenerated using either our in-house design engineering group or independentthird-party design organizations which have been qualified by us. Under thesecond method, we supply circuit design and process rules to our customerand the customer’s internal engineering staff designs and develops the product,which we then manufacture.

**Design and ProcessTechnology**

In order to rapidly develop andcost-effectively introduce new products which address the needs of ourcustomers, we have made substantial investments in building our capabilities inRF, analog and mixed-signal circuit design, and optical component processtechnologies. We have developed an extensive library of digital and analogcells and associated software tools and databases which we use to facilitatethe design of our integrated circuits and optical components. We have developedtechniques for material design as well. The advancement of both our electricaland optical components is highly dependent on our ability to quickly andaccurately produce the proper material structure to meet the targeted enddevice performance. We have also developed and documented process and design rules whichallow customers to design 

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proprietaryintegrated circuits themselves. Mixed-signal and optical products, which generallyinvolve varied and complex functions operating at high frequencies, generallypresent the most complex design and testing challenges. We believe that ourextensive cell library, device simulation models, optimized mixed-signalprocess technology and design and test engineering expertise in highperformance mixed-signal integrated circuits and optical components addressthese challenges and provide a competitive advantage.

Ourmanufacturing strategy is to use high volume process technologies when possibleto enable us to provide cost-effective, stable, uniform and repeatablesolutions for our customers. We provide advanced wafer manufacturing processesand we have pursued core process technologies that are cost-effective for RF,analog and mixed-signal electronic applications as well as for lasers anddetectors in the optical component market. As a result, we are able to enjoythe cost advantages associated with standard high volume semiconductormanufacturing practices. The core process technology in our Oregon waferfabrication operation employs both implanted and epitaxial structures, 4 micronmetal pitch, typically 0.5 or greater micron geometries, involves 10 to 18 masksteps, has a cutoff frequency of up to 21 GHz and is scalable. This scalabilityfacilitates further cost reduction and performance improvement. The processtechnology employed in our Texas wafer fabrication operation includes eightadvanced performance production processes: 0.5 micron gate length MESFET foramplifier applications; two 0.15, a 0.25 and a 0.5 micron gate length pHEMT forhigh power and high frequency applications; a 0.15 micron gate length mHEMTprocess for ultra-high frequency and low noise applications; HBT for highvoltage, high linearity and high power density; 0.5 micron gate length HFET forhigh voltage, high power amplifiers and switches and Vertical P-I-N diode(VPIN) for signal control devices such as switches, limiters and attenuators.In our Florida wafer fabrication operation, we use manufacturing techniques toproduce our SAW devices that are very similar to those for integrated circuits.Our Pennsylvania optical components wafer fabrication operation usesmulti-wafer low pressure Metal Organic Chemical Vapor Deposition (“MOCVD”)growth technologies and low K dielectrics with planar selective area growth ofmaterial for high performance Fabry Perot (“FP”), Distributed Feedback (“DFB”),and EML lasers, along with PIN and Avalanche Photo Diode (“APD”) detectors.

**Customers**

We have a broad customer base of leading systemsmanufacturers. In 2004, we shipped products or provided manufacturing servicesto over 430 end-user customers. Our top customers include Motorola, whichaccounted for 10%, 14% and 16% of our revenues in 2004, 2003 and 2002,respectively. Additionally in 2002, Nokia accounted for approximately 10% ofour revenue. No other single customer accounted for greater than 10% of ourrevenues during these periods, an indication of our strong and diverse customerbase.

Our sales to customers outside the U.S. accounted forapproximately 56%, 61% and 56% of revenues in 2004, 2003 and 2002,respectively. Sales to customers in Korea represent the largest portion of ourinternational sales in 2004. Customers in Korea accounted for approximately10%, 16% and 13% of our revenues in 2004, 2003 and 2002, respectively. No othercountry represented 10% or more of our revenues in any of those periods.

Some of our sales tooverseas customers are made under export licenses that must be obtained fromthe U.S. Department of Commerce. Protectionist trade legislation in either theU.S. or other countries, such as a change in the current tariff structures,export compliance laws, trade restrictions resulting from war or terrorism, orother trade policies could adversely affect our ability to sell or tomanufacture in international markets. Furthermore, revenues from outside theU.S. are subject to inherent risks, including the general economic andpolitical conditions in each country.

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**Manufacturing**

We currently have sixmanufacturing centers located in Oregon, Texas, Florida, Pennsylvania, Mexico,and Costa Rica. Our executive, administrative, test and technical offices arelocated in a 254,000 square foot facility in Hillsboro, Oregon on approximately52 acres. Included in this facility is a wafer fabrication facility consistingof 76,000 square feet, of which 21,000 is operated as a Class 10performance clean room.

Our Texas facility islocated in Richardson. It comprises approximately 540,000 square feet, of which48,000 is a Class 1 performance clean room. We currently operate thatclean room as a Class 10 performance clean room. In July 2002, wesuccessfully moved our manufacturing operations from our former Dallasfacility, which we leased from Raytheon under a sublease, solely to theRichardson facility. We no longer lease any portion of our former Dallasfacility.

Our Florida facility is awafer fabrication and assembly and test facility located in Apopka. The Apopka wafer fabrication facility includes16,000 square feet of clean room, of which 2,300 square feet is Class 10performance clean room.

OurSan Jose, Costa Rica facility is an assembly and test facility for theproduction of SAW filters. It is a 61,300 square foot facility with over 19,000square feet of clean room space, located in the Metro Free Trade Zone. We useour Costa Rica facility to assemble, package, test and ship final product tocustomers. We began operations at this facility in 1996.

In connection with our acquisitionof the Agere optoelectronics business, we acquired facilities in Breinigsville,Pennsylvania and Matamoros, Mexico. The Breinigsville, Pennsylvania facilitycontains approximately 849,000 square feet of manufacturing and office spacelocated on 139 acres. Pennsylvania is the headquarters and wafer fabricationoperation for our optoelectronics operations. We intended to reduce capacity atthis site shortly after acquiring it and subsequently listed the Pennsylvaniafacility for sale in the second quarter of 2003 (see Notes 4 and 10 to ourConsolidated Financial Statements for further discussion). During 2003 and 2004we had been in negotiations to sell the Pennsylvania facility to an agency ofthe Commonwealth of Pennsylvania. On October 18, 2004, we were informed thatthis agency was not going to purchase the facility. At December 31, 2004, weclassified the facility as held for sale, and in the first quarter of 2005entered into an agreement to sell the facility to a real estate investment firmand lease back approximately 80,000 square feet of the facility for continuingoperations (see Note 21 to our Consolidated Financial Statements). TheMatamoros, Mexico facility is approximately 81,750 square feet and isresponsible for the final assembly and test of both optical component andmodule products. The operating entity in Matamoros, Mexico is a Maquiladoraentity, which qualifies it for duty-free trade. We are continuing the processof scaling and integrating designated manufacturing assets from thePennsylvania facility into Mexico. We should complete the move in the firsthalf of 2005 to further improve our manufacturing efficiencies and recognizeadditional cost savings.

The fabrication ofintegrated circuits and SAW filter products is highly complex and sensitive toparticles and other contaminants and requires production in a highlycontrolled, clean environment. Minute impurities, difficulties in thefabrication process or defects in the masks used to print circuits on thewafers can cause a substantial percentage of the wafers to be rejected ornumerous die on each wafer to be nonfunctional. As compared to silicontechnology, the less mature stage of the technology of GaAs substrate materialleads to somewhat greater difficulty in circuit design and in controllingparametric variations, thereby yielding fewer good die per wafer. The morebrittle nature of GaAs wafers can also lead to higher processing losses thanexperienced with silicon wafers. To maximize wafer yield and quality, we test ourproducts in various stages in the fabrication process, maintain continuousreliability monitoring and conduct numerous quality control inspectionsthroughout the entire production flow. A sustained failure to maintainacceptable yields would have a material adverse effect on our operatingresults.

We incur a high level offixed costs to operate our own manufacturing facilities. These fixed costsconsist primarily of facility occupancy costs, investment in manufacturingequipment, repair, maintenance 

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and depreciationcosts related to equipment and fixed labor costs related to manufacturing andprocess engineering. Our manufacturing yields vary significantly among ourproducts, depending upon a given product’s complexity and our experience inmanufacturing it. We have in the past and may in the future experiencesubstantial delays in product shipments due to lower than expected productionyields. In addition, during periods of low demand, high fixed wafer fabricationcosts and/or assembly costs could have a material adverse effect on ouroperating results.

For integrated circuitproducts made by our Oregon facility, we assemble our products using outsideassembly contractors. Our Texas facility manufactures and sells packagedproducts, which are also assembled by outside contractors. Our Pennsylvaniaoperation has also used outside contract assembly facilities as well as thefacility in Matamoros, Mexico. We are in the process of consolidating theseassembly needs as we evaluate ongoing product offerings. Outside assemblyservices are contracted to 19 vendors, nine of which are located in the U.S. Inaddition, we have moved some of our assembly and test operations to a vendor inMalaysia. We perform some of our own tape and reel operations internally;however, we have four vendors, three of which are located in the U.S.,qualified for this service should we need to use them. A reduction orinterruption in the performance of assembly services by subcontractors or asignificant increase in the price charged for such services could adverselyaffect our operating results.

**Production Outside of the U.S.**

Because of the significantfixed costs associated with the manufacture of our products and components andour industry’s history of declining prices, we must continue to produce andsell our integrated circuits, optical components and SAW components insignificant volume, continue to lower manufacturing costs and carefully monitorinventory levels. We continually evaluate our integrated circuit and SAWcomponents manufacturing processes as well as the desirability of transferringvolume production of those products between facilities, including transferoverseas to countries where labor costs and other manufacturing costs aresignificantly lower than in the U.S., principally Costa Rica and Matamoros,Mexico. The functional currency for both our Costa Rican and Mexicansubsidiaries is the U.S. dollar since sales and most material cost andequipment are U.S. dollar denominated. The effects of currency fluctuations ofthe local currencies are not considered significant and are not hedged.

Frequently, transfer ofproduction of a product to a different facility requires qualification of suchnew facility by certain of our customers. There can be no certainty that suchchanges and transfers will be implemented on a cost-effective basis withoutdelays or disruption in our production and without adversely affecting ourresults of operations. Offshore operations are subject to certain inherentrisks, including delays in transportation, changes in governmental policies,tariffs, import/export regulations and fluctuations in currency exchange ratesin addition to geographic limitations on management controls and reporting.There can be no assurance that the inherent risks of offshore operations willnot adversely affect our future operating results.

**Raw Materials and Sources of Supply**

We generally maintainalternative sources for our principal raw materials to reduce the risk ofsupply interruptions or price increases. We purchase these materials on apurchase order basis. The raw materials used are available from severalsuppliers for our integrated circuit, SAW filter and optical components/modulesmanufacturing operations. For our GaAs integrated circuit manufacturingoperations, we currently have approximately 23 fully qualified wafer vendors,at least nine of which are located in the U.S., and five fully qualified maskset vendors, all of which are located in the U.S. We purchase high performance,multilayer ceramic packages from two vendors, both of which are located in theU.S. We currently purchase plastic packaging from approximately 15 suppliers,three of which are located in the U.S. We also utilize nonqualified vendors forthese and other materials for use in nonproduction research and testactivities.

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For our SAW filtermanufacturing operations, we use several raw materials, including wafers madefrom quartz, LiNbO3 or LiTaO3 and ceramic or metal packages. Relatively fewcompanies produce these piezoelectric wafers and metal and ceramic packages.Our most significant suppliers of ceramic surface mount packages are threecompanies based in Japan. For our SAW operations, we also utilize threequalified wafer vendors, one of which are located outside the U.S., and twoqualified mask set vendors, both of which are domestic companies.

For our optical componentsproducts, we depend upon a large number of suppliers for raw materials andcomponents that make up the bill of materials (“BOMs”) for its productofferings such as lasers, detectors and transceivers. The success of theseproducts is critical to the overall success of our business. For this business,we utilize three qualified wafer vendors and three qualified ceramic packagevendors, all of which are located outside of the U.S. For mask sets and plasticpackages, we have three qualified vendors for each and all are located in theU.S.

Our reliance on a limitednumber of suppliers for certain raw materials and parts may impair our abilityto produce our products on time and achieve acceptable yields. At times in thepast, we have experienced difficulties in obtaining ceramic packages used inthe production of certain SAW filters. The acquisition of relatively simpledevices, such as capacitors, has been problematic at times because of the largedemand swings that can occur in the cellular handset market for suchcomponents. This risk will spread across a larger percentage of our totalbusiness as a greater portion of our revenues results from our integratedproduct offerings. In an attempt to minimize this problem, we have qualifiedmultiple sources of supply when possible, negotiated long-term agreements whenpossible and intend to maintain a safety stock of raw material inventories ofthese items.

**Marketing, Sales and Distribution**

We sell our productsthrough independent manufacturers’ representatives, our distributor and ourdirect sales staff. As of December 31, 2004, we had 29 independentmanufacturers’ representative firms and one distributor worldwide. Of theindependent manufacturers’ representative firms, 17 are based in the U.S. and12 are located in Europe, the Pacific Rim and South America. Our direct salesstaff provides sales direction and support to the manufacturers’representatives and our distributor, which is based in the U.S. We havedomestic sales management offices in the metropolitan areas of Los Angeles,California; San Diego, California; San Jose, California; Boston, Massachusetts;Portland, Oregon; Chicago, Illinois; Breinigsville, Pennsylvania; and Raleigh, NorthCarolina. We have also established foreign sales and marketing offices inFinland, Germany, Japan, Korea, Sweden and Taiwan.

**Backlog**

Asof December 31, 2004, our backlog was approximately $60.7 million comparedto approximately $77.0 million as of December 31, 2003. We include in ourbacklog all purchase orders and contracts for products requested by thecustomer for delivery within approximately 12 months. We expect to ship nearlyall of our backlog by December 31, 2005. The backlog is not necessarily indicativeof future product sales, and a delay or cancellation of a small number ofpurchase orders may materially adversely affect us.

We do not have long-termagreements with any of our customers, except for certain defense-relatedcontracts. Customers generally purchase our products pursuant to cancelableshort-term purchase orders. Our customers have canceled these purchase ordersor rescheduled delivery dates in the past, and we expect that these events mayalso occur in the future. If there is anywork in process at the time of cancellation, the customer may be required topay customary termination charges. If customers over-order to secure deliverydates and eventually cancel orders, the customer may be subject to pricerenegotiations as a result of lower quantity of units taken.

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Frequently,we can ship our standard products from inventory shortly after receipt of anorder, referred to as “turns business”, and these orders may not be reflectedin backlog. Accordingly, backlog as of any particular date may not necessarilybe representative of actual sales for any future period.

**Research and Development**

Ourresearch and development efforts are directed towards developing integratedcircuits, SAW devices and optoelectronics products. We are also focused onimprovement of our existing products’ performance, development of newprocesses, reductions of manufacturing process costs and improvements in devicepackaging.

In2004, we introduced many new key products, such as our family of GSM PAMs, ourfilter bank and family of GSM SAW filters, a number of discrete filters forbase stations and handsets including a family for GPS, a GSM/GPRS transmitmodule CDMA PAMs and a CDMA switch, a family of WLAN products, and otherproducts.

Our research, developmentand engineering expenses in 2004, 2003 and 2002 were approximately $60.8million, $65.0 million and $58.5 million, respectively. As of December 31,2004, approximately 642 of our employees were engaged in activities related toprocess and product research and development. We expect that we will continueto spend substantial funds on research and development.

Weare continually designing new and improved products to maintain our competitiveposition. While we have patented a number of aspects of our process technology,the market for our products is characterized by rapid changes in technologies.Because of continual improvements in these technologies, we believe that ourfuture success will depend on our ability to continue to improve our productsand processes and develop new technologies in order to remain competitive.Additionally, our future success will depend on our ability to develop andintroduce new products for our target markets in a timely manner. The successof new product introductions is dependent upon several factors, includingtimely completion and introduction of new product designs, achievement ofacceptable fabrication yields and market acceptance. The development of newproducts by us and their design into customers’ systems can take as long as threeyears, depending upon the complexity of the device and the application.Accordingly, new product development requires a long-term forecast of markettrends and customer needs. Furthermore, the successful introduction of ourongoing products may be adversely affected by competing products ortechnologies. In addition, new product introductions frequently depend on ourdevelopment and implementation of new process technologies. If we are unable todesign, develop, manufacture and market new products successfully, our futureoperating results will be adversely affected. We cannot assure you that ourproduct and process development efforts will be successful or that our newproducts will be available on a timely basis or achieve market acceptance.

Asis characteristic of the integrated circuit and SAW filter componentindustries, the average selling prices of our products have historicallydecreased over the products’ life cycles and we expect this pattern tocontinue. We also expect the same pattern to continue with our optoelectronicsproducts. To offset these decreasing selling prices, we rely primarily onobtaining yield improvements and corresponding cost reductions in themanufacture of existing products and on introducing new products whichincorporate advanced features and can be sold at higher average selling prices.We also work closely with our suppliers to obtain continual improvement onpricing of key raw materials and components. As more of our product offeringsmigrate toward integrated assemblies requiring the acquisition of outsidemanufactured components, we will have to effectively work with our suppliers toreduce the total cost of the respective BOMs. To the extent that our costreduction efforts or new product introductions do not occur in a timely manneror our or our customers’ products do not achieve market acceptance, ouroperating results could be adversely affected.

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**Competition**

The markets for ourproducts are characterized by price competition, rapid technological change,short product life cycles, and heightened global competition. Many of ourcompetitors have significantly greater financial, technical, manufacturing andmarketing resources. Due to the increasing requirements for high-speed,high-frequency components, we expect intensified competition from existingintegrated circuit and SAW device suppliers, as well as from the entry of newcompetitors to our target markets and from the internal operations of somecompanies producing products similar to ours for their internal requirements.Several key customers in our optoelectronics operations have either captiveinternal suppliers or long-term contractual relationships with suppliers basedon factors other than cost and quality.

For products in depressedor flat markets, such as for optical components, competition can be even moreintense as companies attempt to maximize their revenues to cover as much oftheir fixed cost base as possible, even if it means selling products at a loss.There is no guarantee that pricing will stay at a level where we can sell ourproducts on a profitable basis.

For our integrated circuitdevices, we compete primarily with manufacturers of GaAs integrated circuits.Our GaAs-based competitors include companies such as Anadigics Inc., Eudyna, Inc.,Freescale Semiconductor, Inc., Raytheon, RF Micro Devices, SkyworksSolutions, Inc., Renesas Technology Corp. and others. For our SAW devicesour competitors include companies such as ICS, Phonon, RF Monolithics, VectronInternational, EPCOS AG, Temex, TST, Fujitsu Microelectronics, Inc.,Murata, Panasonic and others. Our major competitors across the optical marketsinclude JDS Uniphase, Bookham Technologies, Avanex, Eudyna, OpNext, Mitsubishi,Sumitomo and others. Competition could also come from companies ahead of us indeveloping alternative technologies such as silicon germanium (“SiGe”) and InPintegrated circuits and digital filtering and direct conversion devices.

Our prospective customersare typically systems designers and manufacturers that are considering the useof GaAs integrated circuits, optoelectronics devices, or SAW filters, as thecase may be, for their high performance systems. Competition is primarily basedon performance elements such as speed, complexity and power dissipation, aswell as price, product quality and ability to deliver products in a timelyfashion. We believe that we currentlycompete favorably with respect to these factors. Due to the proprietary natureof our products, competition occurs almost exclusively at the system design stage.As a result, a design win by our competitors or by us often limitsfurther competition with respect to manufacturing a given design. While our GaAs integrated circuit products haveinherent speed advantages over silicon devices, the speed of products basedupon silicon processes is continually improving and may displace some of ourGaAs products in the future. Our products are often sole sourced to ourcustomers and our operating results could be adversely affected if ourcustomers were to develop other sources for our products.

Theproduction of GaAs integrated circuits has been and continues to be more costlythan the production of silicon devices. This cost differential relatesprimarily to higher costs of the raw wafer material and higher unit costsassociated with lower production volumes. Although we have reduced productioncosts through decreasing raw wafer costs, increasing fabrication yields andachieving higher volumes, there can be no assurance that we will be able tocontinue to decrease production costs. Due to the current weakness in some ofour target markets, we have underutilized capacity in some of our plants.However, we believe that we are well positioned to meet the demands of thesemarkets when they strengthen. In addition, we believe our costs of producingGaAs integrated circuits will continue to exceed the costs associated with theproduction of silicon devices. As a result, we must offer devices which providesuperior performance to that of silicon such that the perceived price/performanceof our products is competitive with silicon devices. There can be no assurancethat we can continue to identify markets which require performance superior tothat offered by silicon solutions or that we will continue to offer productswhich provide sufficiently superior performance to offset the costdifferentials.

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**Intellectual Property Matters**

We rely on a combinationof patents, trademarks, trade secret laws, confidentiality procedures andlicensing arrangements to protect our intellectual property rights. Wecurrently have patents granted and pending in the U.S. and elsewhere and intendto seek further international and U.S. patents on our technology. In additionto our own inventions, we have acquired a substantial portfolio of U.S. andforeign patent applications in the optoelectronics area of technology. Many ofthese patent applications have issued as patents and will have lives that willextend 20 years from their respective filing dates, while others are stillpending. We cannot be certain that patents will be issued from any of ourpending applications or that patents will be issued in all countries where ourproducts can be sold or that any claims allowed from pending applications orwill be of sufficient scope or strength to provide meaningful protection or anycommercial advantage. Our competitors may also be able to design around ourpatents. The laws of some countries in which our products are or may bedeveloped, manufactured or sold, may not protect our products or intellectualproperty rights to the same extent as do the laws of the U.S., increasing thepossibility of piracy of our technology and products. Although we intend tovigorously defend our intellectual property rights, we may not be able toprevent misappropriation of our technology. Our competitors may alsoindependently develop technologies that are substantially equivalent orsuperior to our technology.

Our involvement in anypatent dispute or other intellectual property dispute or action to protecttrade secrets and know-how could have a material adverse effect on ourbusiness. Adverse determinations in any litigation could subject us tosignificant liabilities to third parties, require us to seek licenses fromthird parties and prevent us from manufacturing and selling our products. Anyof these situations could have a material adverse effect on our business.

We have approximately 130patents that expire from 2005 to 2023, with most expiring between 2015 and2023. We currently do not have any significant revenue related to a patent thatwill soon expire.

**Environmental Matters**

Federal, state and localregulations impose various environmental controls on the storage, handling,discharge and disposal of chemicals and gases used in our manufacturingprocesses. We believe that our activities conform to present environmentalregulations. Increasing public attention has, however, been focused on theenvironmental impact of semiconductor operations. While we have not experiencedany materially adverse effects on our operations from environmentalregulations, there can be no assurance that changes in such regulations willnot impose the need for additional capital equipment or other requirements. Anyfailure by us to adequately restrict the discharge of hazardous substancescould subject us to future liabilities or could cause our manufacturingoperations to be suspended.

**Employees**

Asof December 31, 2004, we employed a total of approximately 2,072 persons,including 1,120 in manufacturing and support related positions, 46 in qualityand reliability, 642 in process, product and development engineering, 113 inmarketing and sales and 151 in general and administration functions. Includedin these figures are approximately 119 employees located at our optoelectronicsfacilities that have been given a 60 day notice of termination under theFederal WARN Act due to our announced restructuring of our optoelectronicsproduct strategy (see Note 4 to our Consolidated Financial Statements). Theseemployees will be terminated in the first and second quarters of 2005. As of December 31,2004, none of our domestic employees were represented by a collectivebargaining agreement. At our German operation, approximately 28 of ouremployees are represented by a collective bargaining agreement and at ourMexico operations, approximately 78 of our employees work under a unioncontract. We consider our relations with employees to be good and we have notexperienced a work stoppage due to labor issues.

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**Executive Officers**

Biographicalinformation concerning our executive officers as of March 15, 2005 is setforth below:
| **Name**           | ** ** | **Age** | ** ** | **Current Position(s) with  Company**                                         | ** ** | **Position Held  Since** | ** ** |
|--------------------|------------|---------|------------|------------------------------------------------------------------------------------|------------|-------------------------------|------------|
| Steven J. Sharp    |       | 63      |       | Chairman of the  Board of Directors                                                |       | 1992                          |       |
| Ralph G. Quinsey   |       | 49      |       | President and  Chief Executive Officer                                             |       | 2002                          |       |
| Raymond A. Link    |       | 50      |       | Vice President,  Finance and Administration, Chief Financial Officer and Secretary |       | 2001                          |       |
| Brian P. Balut     |       | 39      |       | Vice President,  Sawtek Inc.                                                       |       | 2004                          |       |
| Thomas V. Cordner  |       | 60      |       | Vice President,  TriQuint Texas                                                    |       | 1998                          |       |
| Todd A. Debonis    |       | 40      |       | Vice President,  Sales                                                             |       | 2004                          |       |
| Bruce R. Fournier  |       | 48      |       | Vice President,  TriQuint Oregon                                                   |       | 2002                          |       |
| J. David Pye       |       | 54      |       | Vice President,  TriQuint Oregon                                                   |       | 2002                          |       |
| Glen A. Riley      |       | 42      |       | Vice President,  TriQuint Optoelectronics                                          |       | 2003                          |       |
| J. Michael Sanna   |       | 52      |       | Vice President,  TriQuint Texas                                                    |       | 2002                          |       |
| Azhar Waseem       |       | 51      |       | Vice President,  Sawtek Inc.                                                       |       | 2002                          |       |
| Stephanie J. Welty |       | 49      |       | Vice President,  Finance, Controller and Assistant Secretary                       |       | 1999                          |       |

 

*Steven J. Sharp*joined TriQuint inSeptember 1991 as Director, President and Chief Executive Officer. In May 1992he became Chairman of TriQuint’s Board of Directors. In July 2002, Mr. Sharpstepped down as President and Chief Executive Officer and remains as Chairmanof the Board. Previously, Mr. Sharp was the founder and served as ChiefExecutive Officer of Power Integrations, Inc., a semiconductormanufacturing company. Prior to that time, Mr. Sharp was employed for 14years by Signetics Corporation (since acquired by Philips Electronics N.V.), asemiconductor manufacturer and for nine years by Texas Instruments,Incorporated, a semiconductor manufacturer. Mr. Sharp also serves as adirector of Power Integrations and Pixelworks, Inc. He received a B.S.degree in Mechanical Engineering from Southern Methodist University, a M.S.degree in Engineering Science from California Institute of Technology and aM.B.A. from Stanford University.

*Ralph G. Quinsey* joined TriQuintin July 2002 as President and Chief Executive Officer. From September 1999to January 2002, Mr. Quinsey was with ON Semiconductor, amanufacturer of semiconductors for a wide array of applications, as VicePresident and General Manager of the Analog Division. Prior to that, Mr. Quinseywas with Motorola, a manufacturer of semiconductors and communicationsequipment, from 1979 to September 1999, holding various positionsincluding Vice President and General Manager of the RF/IF Circuits Division,which developed both silicon and gallium aresnide technologies for wirelessphone applications. Mr. Quinsey received a B.S. degree in ElectricalEngineering from Marquette University.

*Raymond A. Link* joined TriQuintin July 2001 as Vice President, Finance and Administration, ChiefFinancial Officer and Secretary as a result of TriQuint’s merger with Sawtek. Mr. Linkjoined Sawtek in September 1995 as Vice President, Finance and ChiefFinancial Officer and was promoted to Senior Vice President and Chief FinancialOfficer in October 1999. From 1987 to September 1995, Mr. Linkwas Vice President, Finance and Chief Financial Officer of Hubbard ConstructionCompany, a heavy/highway construction company. From 1980 to 1987, he was withHarris Corporation, a manufacturer of electronic communication equipment, invarious financial capacities. Mr. Link also serves as a director ofCascade Microtech, Inc., a manufacturer of wafer probing solutions. Mr. Linkreceived a B.S. degree from the State University of New York at Buffalo and aM.B.A. from the Wharton School at the University of Pennsylvania. He is aCertified Public Accountant.

*Brian P. Balut* joined TriQuint inJuly 2001 as Vice President, Sales and Marketing, Sawtek Inc. as a resultof TriQuint’s merger with Sawtek and was promoted to Vice President, Sales andMarketing of 

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TriQuint from 2002 to May 2004.In May 2004, Mr. Balut was promoted to Vice President of Sawtek. Mr. Balutjoined Sawtek in October 1994 as Sales Manager. He was promoted toDirector of Sales and Marketing in November 1996 and to Vice PresidentSales and Marketing in September 1998 and assumed overall corporateresponsibility for this function in July 2002. From 1987 to 1994, Mr. Balutheld various positions in sales, marketing and engineering with REMEC, amanufacturer of electronic components. Mr. Balut received a B.S. degree inElectrical Engineering from the Massachusetts Institute of Technology and aM.B.A. from Rollins College.

*Thomas V. Cordner* joined TriQuintin January 1998 as Vice President and General Manager, Millimeter WaveCommunications as a result of TriQuint’s acquisition of Raytheon’s MMICoperations and was promoted to Vice President, TriQuint Texas in May 2002.From July 1997 to January 1998, Mr. Cordner served as OperationsManager for Raytheon, heading its GaAs MMIC operations. Prior to that time, Mr. Cordnerwas an employee of Texas Instruments, a semiconductor and communicationsequipment manufacturer, for 32 years, most recently as the Operations Managerfor its GaAs Operations Group from January 1991 to July 1997. Mr. Cordnerreceived a B.S. degree in Mathematics from the University of Texas atArlington.

*Todd A. DeBonis* joined TriQuintin April 2004 as Vice President, Sales. Prior to joining TriQuint, Mr. DeBonisheld the position of Vice President, Worldwide Sales and Marketing atCentillium Communications. Mr. DeBonis also served in other sales andmanagement positions at ISHONI Networks and Infineon Technologies. Mr. DeBonishas a B.S degree in electrical engineering from the University of Nevada.

*Bruce R. Fournier* joined TriQuintin June 1987 as Area Sales Manager. Since that time, he has held a varietyof positions including National Sales Manager, Wireless Products from 1991 to1994, Director of Worldwide Sales from early 1994 to September 1994 andVice President, Worldwide Sales from September 1994 to June 1998.From June 1998 until May 2002, Mr. Fournier held the position ofVice President and General Manager, Foundry Services. He currently holds theposition of Vice President, TriQuint Oregon. Prior to joining TriQuint, Mr. Fournierheld engineering, sales and marketing management positions with FairchildSemiconductor, Weitek Corporation and Honeywell, Inc. Mr. Fournierreceived an A.S. degree in Electrical Engineering and a B.S. degree in BusinessAdministration from the University of Maine and a M.B.A. from the University ofSouthern Maine.

*J. David Pye* joined TriQuintin May 1996 as Vice President, Manufacturing and in May 2002 wasnamed Vice President, TriQuint Oregon. From 1983 until 1996, Mr. Pye wasVice President and General Manager at VLSI Technology, Inc., asemiconductor company, where he served in various capacities. From 1973 to1983, Mr. Pye served in various roles in process engineering and processdevelopment at Texas Instruments. Mr. Pye received a B.A. degree fromNapier College of Science and Technology, Edinburgh, Scotland.

*Glen A. Riley* joined TriQuint in January 2003as Vice President, TriQuint Optoelectronics. From December 2001 to August 2002,he was President and CEO of Opticalis, a venture-funded start-up companydeveloping optical communication sub-systems. Prior to that, he spent six yearswith Agere Systems, a semiconductor and optical component manufacturer, as VicePresident of Optical Core Networks, Vice President of Sales for theAsia-Pacific region, and as General Manager of the Storage Products group.Before Agere, he worked in various management, marketing and sales roles atPhilips Semiconductors, AT&T Microelectronics and Texas Instruments. Mr. Rileyholds a B.S. degree in Electrical Engineering from the University of Maine andhas completed the General Manager Program at Harvard Business School.

*J. Michael Sanna* joined TriQuintin January 1998 as Director of Business Development for the Texasoperation as a result of TriQuint’s acquisition of Raytheon’s MMIC operations.In May 2002 he was promoted to Vice President, TriQuint Texas. From July 1997to January 1998, Mr. Sanna served as the 

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Wafer FabricationOperations Manager for Raytheon, heading its GaAs MMIC manufacturingoperations. Prior to that time, Mr. Sanna was an employee of TexasInstruments for 17 years, most recently as the Wafer Fabrication Operationsmanager for its GaAs Operations Group from January 1994 to July 1997.Mr. Sanna received B.S. and M.S. degrees in Electrical Engineering fromthe University of Wisconsin and Southern Methodist University, respectively,and a Masters Degree in Administrative Studies from Southeastern Oklahoma StateUniversity.

*Azhar Waseem*joined TriQuint in July 2001as Vice President, Sawtek Inc. as a result of TriQuint’s merger with Sawtek. Mr. Waseemjoined Sawtek in March 1995 as Director of Wafer Fabrication and waspromoted to Vice President of Manufacturing in April 1998 and to VicePresident of Operations in October 1999. In May 2002 he was promotedto Vice President, Sawtek, Inc. From 1989 to 1994, Mr. Waseem heldvarious operations and engineering positions with Siliconix, Inc., amicroelectronics manufacturer based in Santa Clara, California. From 1986 to1989, Mr. Waseem held various engineering positions with General Electric.Mr. Waseem received B.S. and M.S. degrees in Electrical Engineering and aM.B.A., all from the University of Minnesota.

*Stephanie J. Welty*joined TriQuint in 1994. Since September 1999, Ms. Welty has beenTriQuint’s Vice President, Finance and in 2004 she was given the additionalresponsibility of Controller. Ms. Welty served as Accounting Manager from1994 to 1996 and served as Director of Information Systems from 1996 to September 1999.Prior to joining TriQuint, Ms. Welty held accounting and controllerpositions at other high technology firms. Ms. Welty holds a B.S. degreefrom the University of Washington and she is a Certified Public Accountant.

**Item 2**.                        *Properties*
| **Location**                                      | ** ** | **Purpose**                                                                    | ** ** | **Approximate  Building Size in**  Square Feet | ** ** | **Approximate  Land**  in Acres | ** ** | **Leased or Owned** | ** ** |
|---------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|--------------------------------------|------------|-------------------------------|------------|
| Breinigsville, Pennsylvania(1)                    |       | Wafer fabrication, engineering, administration, test,  technical               |       |                                                          | 849,000    |                                 |       |                          | 139        |   |   |   | Owned |   |   |
| Hillsboro, Oregon                                 |       | Headquarters, administration, test, technical, wafer  fabrication, engineering |       |                                                          | 254,000    |                                 |       |                          | 52         |   |   |   | Owned |   |   |
| Richardson, Texas                                 |       | Wafer fabrication, engineering, administration, test,  technical               |       |                                                          | 540,000    |                                 |       |                          | 38         |   |   |   | Owned |   |   |
| Apopka, Florida                                   |       | Wafer fabrication, engineering, administration, test,  technical               |       |                                                          | 92,100     |                                 |       |                          | 16         |   |   |   | Owned |   |   |
| San Jose, Costa Rica                              |       | Test and assembly                                                              |       |                                                          | 61,300     |                                 |       |                          | 2          |   |   |   | Owned |   |   |
| Matamoros, Mexico                                 |       | Test and assembly                                                              |       |                                                          | 81,750     |                                 |       |                          | —     |   |   |   | Leased |   |   |
| Munich, Germany                                   |       | Engineering, marketing                                                         |       |                                                          | 21,054     |                                 |       |                          | —     |   |   |   | Leased |   |   |
| Taipei, Taiwan                                    |       | Engineering, marketing                                                         |       |                                                          | 11,000     |                                 |       |                          | —     |   |   |   | Leased |   |   |
| Lowell, Massachusetts                             |       | Engineering                                                                    |       |                                                          | 9,141      |                                 |       |                          | —     |   |   |   | Leased |   |   |
| Seoul, Korea                                      |       | Engineering, marketing                                                         |       |                                                          | 5,307      |                                 |       |                          | —     |   |   |   | Leased |   |   |
| Nashua, New Hampshire                             |       | Engineering                                                                    |       |                                                          | 5,035      |                                 |       |                          | —     |   |   |   | Leased |   |   |
| Various  field offices each less than 1,000 sq ft |       |                                                                           |       |                                                          |       |                                 |       |                          |       |   |   |   |   |

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(1)      On March 7, 2005, we entered into an agreement to sellthe facility and lease back approximately 80,000 square feet of the facility forcontinuing operations. The transaction is expected to be completed within 90days of signing the agreement and is subject to customary closing procedures.See Note 21 to our Consolidated Financial Statements for further discussion.

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Except for the facility inBreinigsville, Pennsylvania, we believe these properties are suitable for ourcurrent operations. We are running below capacity in our Texas and Oregonfacilities and are exploring ways to increase capacity, reduce costs and utilizeexcess space. At December 31, 2004, we had listed the Breinigsville,Pennsylvania property for sale and recorded an impairment on the carrying valuein the fourth quarter of 2004 to reduce its book value to estimated marketvalue (see Note 15 to our Consolidated Financial Statements). On March 7, 2005,we entered into an agreement to sell the facility to a real estate investmentfirm and lease back approximately 80,000 square feet of the facility forcontinuing operations. The sale is subject to customary closing procedures andis expected to be completed with 90 days of signing the agreement (see Note 21 to our Consolidated Financial Statements).

**Item 3**.                        *Legal Proceedings*

In February 2003, several nearly identicalputative civil class action lawsuits were filed in the U.S. District Court forthe Middle District of Florida against Sawtek, Inc., our wholly ownedsubsidiary since July 2001. The lawsuits also named as defendants currentand former officers of Sawtek and our company. The cases were consolidated intoone action, and an amended complaint was filed in this action on July 21,2003. The amended class action complaint is purportedly filed on behalf ofpurchasers of Sawtek’s stock between January 2000 and May 24, 2001,and alleges that the defendants violated Sections 10(b) and 20(a) ofthe Securities Exchange Act, as well as Securities and Exchange Commission Rule 10b-5,by making false and misleading statements and/or omissions to inflate Sawtek’sstock price and conceal the downward trend in revenues disclosed in Sawtek’s May 23,2001 press release. The complaint does not specify the amount of monetarydamages sought. Sawtek and the individual defendants filed their motion todismiss on September 3, 2003, and briefing on the motion was completed on November 19,2003. The court heard oral argument on November 21, 2003, and issued anorder partially denying the motion to dismiss on December 19, 2003.Specifically, the court found that the complaint was not barred by the statuteof limitations, but reserved ruling on the other aspects of the motion todismiss. Because the statute of limitations issue is a novel question of law,the court stayed the proceedings in this case to allow the defendants to filean interlocutory appeal to the Eleventh Circuit Court of Appeals. Defendantsduly filed for interlocutory appeal on January 22, 2004. Because the Courtof Appeals is considering the identical issue in another matter, the appealprocess has been stayed, pending the Court of Appeals’ decision in the othermatter. We deny the allegations contained in the complaint and intend tocontinue our vigorous defense against these claims.

On February 16, 2005, we received notice that a summonsof civil action was filed in the Court of Common Pleas of Lehigh County,Pennsylvania by Preferred Real Estate Investments, Inc. against our subsidiary,TriQuint Optoelectronics, Inc. relating to negotiations for the sale ofour facility in Breinigsville,Pennsylvania. We deny any wrongdoing and intend to vigorously defend ourselvesagainst this action.

In addition, from time totime we are involved in judicial and administrative proceedings incidental toour business. Although occasional adverse decisions (or settlements) may occur,we believe that the final disposition of such matters will not have a materialadverse effect on our financial position or results of operations.

**Item 4**.                        *Submission of Matters to a Vote of SecurityHolders*

None.

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**PART II**

**Item 5**.                        *Market for Registrant’s Common Equity,Related Stockholder Matters and Issuer Purchases of Equity Securities*

Ourcommon stock is listed on the Nasdaq National Market under the symbol “TQNT”.As of February 28, 2005, there were 138,785,145 shares of common stockoutstanding held by approximately 530 stockholders of record. Many stockholdershold their shares in street name. We believe that there are more than 63,000beneficial owners of our common stock. The following table sets forth the highand low price per share of our common stock for the periods indicated asreported on the Nasdaq National Market:
| ** **      | ** ** | **Years Ended December 31,** | ** ** |
|-----------------|------------|---------------------------------------------|------------|
| ** **      | ** ** | **2004**                                    | ** ** | **2003** | ** ** |
| **Period:**     | ** ** | ** **                                  | ** ** | **High** | ** ** | **Low** | ** ** | **High** | ** ** | **Low** | ** ** |
| First Quarter   |       | $                                           | 9.93       |   | $ | 6.52 |   | $ | 4.79 |   | $ | 2.70 |   |
| Second Quarter  |       | $                                           | 7.91       |   | $ | 4.96 |   | $ | 5.50 |   | $ | 2.80 |   |
| Third Quarter   |       | $                                           | 5.07       |   | $ | 3.20 |   | $ | 6.90 |   | $ | 3.96 |   |
| Fourth  Quarter |       | $                                           | 4.71       |   | $ | 3.43 |   | $ | 8.74 |   | $ | 5.57 |   |
|                 |            |                                             |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

The closing price of our common stock on the NasdaqNational Market on December 31, 2004 was $4.45 per share.

We have never declared or paid cash dividends on ourcommon stock and do not anticipate paying cash dividends in the foreseeablefuture. We have subordinated convertible debt which contains restrictivecovenants which could limit our ability to pay cash dividends or make stockrepurchases. Any future determination to pay cash dividends will also be at thediscretion of our Board of Directors and will be dependent upon our financialcondition, results of operations, capital requirements, general businessconditions and other such factors as our Board of Directors deems relevant.

The information requiredby this item regarding equity compensation plans is incorporated by referenceunder the section entitled *ExecutiveCompensation and Other Matters* contained in our Proxy Statement forour 2005 Annual Meeting of Stockholders.

**Item 6**.                        *Selected Financial Data*

The following statementsof operations data and balance sheet data for the five years ended December 31,2004 were derived from our audited consolidated financial statements.Consolidated balance sheets at December 31, 2004 and 2003 and the relatedconsolidated statements of operations and of cash flows for each of the threeyears in the period ended December 31, 2004 and notes thereto appearelsewhere in this Annual Report on Form 10-K. The historical selectedconsolidated financial data has been derived from the audited historicalfinancial statements for 2000 of TriQuint and Sawtek, which were audited byKPMG LLP and Ernst & Young, LLP, respectively. The 2004, 2003, 2002and 2001 selected consolidated financial data has been derived from the auditedhistorical financial statements which were audited by KPMG LLP. The data shouldbe read in conjunction with the annual consolidated financial

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statements, related notes and other financialinformation appearing elsewhere in this Annual Report on Form 10-K.
| **(In thousands, except per share data)** | ** ** | ** ** | ** ** | **Years Ended December 31,** | ** ** |
|--------------------------------------------------------------------|------------|------------|------------|---------------------------------------------|------------|
| ** **                                                         | ** ** | **2004**   | ** ** | **2003**                                    | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** |
| Statement  of Operations Data:                                     |       |       |       |                                        |       |   |   |   |   |   |   |
| Revenue                                                            |       | $          | 347,005    |                                        | $          | 312,272 |   | $ | 267,313 |   | $ | 334,972 |   | $ | 460,590 |   |
| Cost of goods sold                                                 |       | 246,576    |       | 225,264                                     |       | 172,197 |   | 198,537 |   | 203,971 |   |
| Gross profit                                                       |       | 100,429    |       | 87,008                                      |       | 95,116 |   | 136,435 |   | 256,619 |   |
| Research, development and engineering                              |       | 60,779     |       | 65,033                                      |       | 58,547 |   | 51,685 |   | 39,753 |   |
| Selling, general and administrative                                |       | 53,261     |       | 51,415                                      |       | 42,889 |   | 46,718 |   | 45,980 |   |
| In-process research and development                                |       | —     |       | 500                                         |       | 8,575 |   | 7,546 |   | — |   |
| Reduction in workforce                                             |       | 2,005      |       | 2,484                                       |       | 1,011 |   | 1,077 |   | — |   |
| Impairment of long-lived assets and goodwill                       |       | 15,533     |       | —                                      |       | 94,740 |   | 76,933 |   | — |   |
| Gain on disposal of equipment                                      |       | (4,492     | )          | —                                      |       | — |   | — |   | — |   |
| Lease termination costs                                            |       | —     |       | 41,962                                      |       | — |   | — |   | — |   |
| Income (loss) from operations                                      |       | (26,657    | )          | (74,386                                     | )          | (110,646 | ) | (47,524 | ) | 170,886 |   |
| Interest income (expense), net                                     |       | (3,604     | )          | (5,874                                      | )          | (815 | ) | 12,792 |   | 25,474 |   |
| Foreign currency gain (loss)                                       |       | 2,121      |       | (250                                        | )          | (37 | ) | — |   | — |   |
| Impairment charge—investments in other companies              |       | (1,189     | )          | (2,387                                      | )          | (23,778 | ) | (15,057 | ) | — |   |
| Gain on recovery of previously impaired investment                 |       | —     |       | 8,450                                       |       | — |   | — |   | — |   |
| Gain on retirement of debt                                         |       | 539        |       | —                                      |       | 6,009 |   | 9,401 |   | — |   |
| Other, net                                                         |       | 161        |       | (75                                         | )          | 4,948 |   | (155 | ) | 118 |   |
| Income (loss) before income  tax                                   |       | (28,629    | )          | (74,522                                     | )          | (124,319 | ) | (40,543 | ) | 196,478 |   |
| Income tax expense (benefit)                                       |       | 425        |       | (1,544                                      | )          | 34,241 |   | (14,332 | ) | 45,785 |   |
| Net income (loss)                                                  |       | $          | (29,054    | )                                           | $          | (72,978 | ) | $ | (158,560 | ) | $ | (26,211 | ) | $ | 150,693 |   |
| Earnings  (loss) per common share data:                            |       |       |       |                                        |       |   |   |   |   |   |   |
| Basic                                                              |       | $          | (0.21      | )                                           | $          | (0.54 | ) | $ | (1.20 | ) | $ | (0.20 | ) | $ | 1.19 |   |
| Diluted                                                            |       | $          | (0.21      | )                                           | $          | (0.54 | ) | $ | (1.20 | ) | $ | (0.20 | ) | $ | 1.10 |   |

 
| **(In thousands)**                           | ** ** | ** ** | ** ** | **As of December 31,** | ** ** |
|---------------------------------------------------|------------|------------|------------|---------------------------------------|------------|
| ** **                                        | ** ** | **2004**   | ** ** | **2003**                              | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** |
| Balance  Sheet Data:                              |       |       |       |                                  |       |   |   |   |   |   |   |
| Cash, cash equivalents and  marketable securities |       | $          | 388,337    |                                  | $          | 400,264 |   | $ | 467,040 |   | $ | 581,531 |   | $ | 604,972 |   |
| Accounts receivable, net                          |       | $          | 40,131     |                                  | $          | 41,911 |   | $ | 34,977 |   | $ | 34,532 |   | $ | 76,398 |   |
| Inventories, net                                  |       | $          | 59,746     |                                  | $          | 65,286 |   | $ | 36,283 |   | $ | 34,836 |   | $ | 52,325 |   |
| Total assets                                      |       | $          | 722,400    |                                  | $          | 792,800 |   | $ | 840,666 |   | $ | 1,020,873 |   | $ | 1,084,904 |   |
| Working capital                                   |       | $          | 271,320    |                                  | $          | 362,515 |   | $ | 370,555 |   | $ | 560,613 |   | $ | 690,125 |   |
| Long-term liabilities                             |       | $          | 224,371    |                                  | $          | 269,355 |   | $ | 268,755 |   | $ | 296,859 |   | $ | 346,991 |   |
| Total stockholders’ equity                   |       | $          | 441,387    |                                  | $          | 460,121 |   | $ | 525,672 |   | $ | 682,774 |   | $ | 674,123 |   |

 

 

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**Item 7**.                        *Management’sDiscussion and Analysis of Financial Condition and Results of Operations*

*The following discussion should be read in conjunctionwith the Consolidated Financial Statements, the related notes and the “ImportantNotice to Investors” that appear elsewhere in this report.*

**Overview**

Weare a supplier of high performance components and modules for communicationsapplications. Our focus is on the specialized expertise, materials and know-howfor radio frequency (“RF”), intermediate frequency (“IF”) and opticalapplications. We enjoy diversity in our markets, applications, products,technology and customer base. Our markets include wireless phones, wirelessinfrastructure networks, optical networks, and defense. We provide customerswith standard and custom product solutions as well as foundry services. Ourproducts are designed on various wafer substrates including compoundsemiconductor materials such as gallium arsenide (“GaAs”) and indium phosphate(“InP”) and other materials such as quartz, as well as using a variety ofsemiconductor device process technologies and surface acoustic wave (“SAW”)technology. Using these materials, devices and our proprietary technology, ourproducts can overcome the performance barriers of competing devices in a varietyof applications and offer other key advantages such as steeper selectivity,lower distortion, reduced size and weight and more precise frequency control.For example, GaAs has inherent physical properties that allow its electrons tomove up to five times faster than those of silicon. This higher electronmobility permits the manufacture of GaAs integrated circuits that operate athigher levels of performance than silicon devices. Our customers include majorcommunication companies worldwide.

**Strategy and Industry Considerations**

Our business strategy is toprovide our customers with high performance, low-cost solutions to applicationsin the wireless phone, wireless infrastructure, optical network, and defensemarkets. Our goal is to build a strong and sustainable business by applying ourcore competencies and technologies to a diversified portfolio of markets withinthe communications industry. In wireless phones, we provide high performance RFfilters, duplexers, receivers, small signal components, power amplifiers,switches, and integrated passive components. We have also been a developer ofRF front-end modules with the goal of maximizing content and minimizing stackedmargins. In wireless infrastructure networks, we are a supplier of active and passivecomponents for RF communications and we are the dominant supplier of SAWfilters to base stations. We estimate the global number of subscribers towireless communications to grow from approximately 1.3 billion in 2002 toapproximately 1.7 billion by 2006. In optical networks, we are a supplier oflaser and detector components. In the defense market, we are a provider ofphased-array antenna components to the U.S. military. This has been a stablebusiness for us due to the long lead times and long product life cycles.

The semiconductor industry ingeneral has been subject to slumping demand and excess capacity since 2001.This has been the case for our business as well. Wafer and semiconductormanufacturing facilities represent a very high level of fixed cost due toinvestments in plant and equipment, labor costs, and repair and maintenancecosts. During periods of low demand, selling prices also tend to decreasewhich, when combined with high fixed manufacturing costs, can create a materialadverse impact on operating results.

Wireless phone demand, however,generally strengthened during 2003, especially during the seasonally strongersecond half of the year, and has continued during the first nine months of2004, although we experienced a slowdown with our products for this market forthe fourth quarter of 2004. The total global unit shipments for the wholemarket grew by more than 20%, resulting in projected shipments of over 680million handsets in 2004. We also believe we are positioned for sustained demandin the wireless phone market for 2005 due to continued demand in China, Indiaand other emerging countries, strong interest in camera phones and colordisplays worldwide, and increasing acceptance of non-voice 

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applicationssuch as text messaging. As the handset market expands, we expect this to alsocreate increased demand in the wireless infrastructure market for our basestation and point-to-point components.

As with the semiconductorindustry, the optical communication industry has also suffered since 2001. Asrestructuring and consolidation in the optical network market continues, webelieve strengthening long-term market demand may result. However, over thepast year demand has been relatively stable and the near term outlook appearsflat.

Thedefense market is stable and long-term. Revenues from this market decreasedapproximately 8% in 2004 from 2003 and accounted for approximately 13% of ourrevenues for fiscal year 2004 as compared to 16% of our revenues in fiscal year2003. However, we are actively engaged with multiple defense industrycontractors in the development of next-generation phased-array systems, havekey design wins in major projects such as the Joint Strike Fighter and F-22,and expect to participate in other large projects such as the B-2 radarupgrade. We expect these programs to ramp up over 2005 and 2006, however, thereremains uncertainty about long-term defense projects funding due to thenegative impact that the war in Iraq continues to have on defense relatedspending for large scale programs in which we participate.

**Critical AccountingPolicies and Estimates**

The preparation of financial statements in conformitywith accounting principles generally accepted in the United States of America (“GAAP”)requires us to make certain estimates, judgments and assumptions that affectthe reported amounts of assets and liabilities, the disclosure of contingentassets and liabilities at the date of the financial statements, and thereported amounts of revenues and expenses during the reporting period. Some ofour accounting policies require us to make difficult and subjective judgments,often as a result of the need to make estimates of matters that are inherentlyuncertain. The following accounting policies involve a critical accounting estimatebecause they are particularly dependent on estimates and assumptions made bymanagement about matters that are highly uncertain at the time the accountingestimates are made. In addition, while we have used our best estimates based onfacts and circumstances available to us at the time, different estimatesreasonably could have been used in the current period and changes in theaccounting estimates we used are reasonably likely to occur from period toperiod, which may have a material impact on the presentation of our financialcondition and results of operations.

Our most criticalaccounting estimates include revenue recognition, the valuation of inventory,which impacts gross margin; assessment of recoverability of long-lived assets,which primarily impacts operating expense when we impair assets or acceleratedepreciation; valuation of investments in privately held companies, whichimpacts net income when we record impairments; deferred income tax assets andliabilities, which impacts our tax provision; reserve for warranty costs, whichimpacts gross margin; and stock-based compensation. We also have other policiesthat we consider to be key accounting policies, such as our policies for thevaluation of accounts receivable, reserves for sales returns and allowances,and reserves for commitments and contingencies; however, these policies eitherdo not meet the definition of critical accounting estimates described above orare not currently material items in our financial statements. We review our estimates,judgments, and assumptions periodically and reflect the effects of revisions inthe period that they are deemed to be necessary. We believe that theseestimates are reasonable; however, actual results could differ from theseestimates.

***Recognition ofRevenue***

We derive revenues primarily from the sale of standardand customer-specific products and services in the wireless phone,infrastructure network (such as base station, satellite, and point-to-pointradios), defense and optical networks. We also receive revenues from foundryservices, non-recurring engineering fees and cost-plus contracts for researchand development work, which collectively are less than 5% of 

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consolidated revenues forany period. Sales of our products are generally done through either our salesforce and independent manufacturers’ representatives or through our stockingdistributor. The majority of our shipments are made directly to our customers,with shipments to our manufacturing representatives and stocking distributoraccounting for less than 10% of total revenues in 2004 and 2003, respectively.

Revenues from the sale ofstandard and customer-specific products are recognized when title to theproducts pass to the buyer. Revenues from foundry services and non-recurringengineering fees are recorded when the service is completed or upon certainmilestones as provided for in the agreements. Revenues from cost plus contractsare recognized on the percentage of completion method based on the costsincurred to date and the total contract amount, plus the contractual fee.Revenues from our distributor are recognized when the product is sold to thedistributor. Our distribution agreements provide for selling prices that arefixed at the date of sale, although we occasionally offer price concessionswhich are specific, of a fixed duration and are reserved for. Further, thedistributor is obligated to pay the amount and it is not contingent onreselling the product; the distributor takes title to the product and bearssubstantially all of the risks of ownership; the distributor has economicsubstance; we have no significant obligations for future performance to bringabout resale; and the amount of future returns can be reasonably estimated. Weallow our distributor to return products for warranty reasons as well asexchange products, within certain limitations. Customers can only returnproduct for warranty reasons. If we are unable to repair or replace productsreturned under warranty, we will issue a credit for a warranty return.

***Inventories***

We state our inventoriesat the lower of cost or market. We use a combination of standard cost andmoving average cost methodologies to determine our cost basis for ourinventories. This methodology approximates actual cost on a first-in, first-outbasis. In addition to stating our inventory at a lower of cost or marketvaluation, we also evaluate it each period for excess quantities andobsolescence. This evaluation includes identifying those parts specificallyidentified as obsolete and reserving for them, analyzing forecasted demandversus quantities on hand and reserving for the excess, identifying andrecording other specific reserves, and estimating and recording a generalreserve based on historical experience and our judgment of economic conditions.If future demand or market conditions are less favorable than our projectionsand we fail to reduce manufacturing output accordingly, additional inventoryreserves may be required and would have a negative impact on our gross marginin the period the adjustment is made.

***Long-Lived Assets***

We evaluate long-livedassets for impairment of their carrying value when events or circumstancesindicate that the carrying value may not be recoverable. Factors we mayconsider in deciding when to perform an impairment review include significantnegative industry or economic trends, significant changes or planned changes inour use of the assets, plant closure or production line discontinuance,technological obsolescence, or other changes in circumstances which indicatethe carrying value of the assets may not be recoverable. If impairment appearsprobable, we evaluate whether the sum of the estimated undiscounted cash flowsattributable to the assets in question is less than their carrying value. Ifthis is the case, we recognize an impairment loss to the extent that carryingvalue exceeds fair value. Fair value is determined based on market prices ordiscounted cash flow analysis, depending on the nature of the asset. Anyestimate of future cash flows is inherently uncertain. The factors we take intoconsideration in making estimates of future cash flows include product lifecycles, pricing trends, future capital needs, cost trends, product developmentcosts, competitive factors and technology trends as they each affect cashinflows and outflows. Technology markets are highly cyclical and arecharacterized by rapid shifts in demand that are difficult to predict in termsof direction and severity. If an asset is written down to fair value thatbecomes the asset’s new carrying value, which is depreciated over the remaininguseful life of the asset.

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***Investments inPrivately Held Companies***

We have made a number of investments in small,privately held technology companies in which we hold less than 20% of thecapital stock or hold notes receivable. We account for these investments attheir cost unless their value has been determined to be other than temporarilyimpaired, in which case we write the investment down to its impaired value. Wereview these investments periodically for impairment and make appropriatereductions in carrying value when an other-than-temporary decline is evident;however, for non-marketable equity securities, the impairment analysis requiressignificant judgment. We evaluate the financial condition of the investee,market conditions, and other factors providing an indication of the fair valueof the investments. Adverse changes in market conditions or poor operatingresults of the investees could result in additional other-than-temporary lossesin future periods.

See Note 15 of theaccompanying Condensed Consolidated Financial Statements for a discussion ofrecent events regarding our investments in privately held companies.

***Income Taxes***

We are subject to taxation from federal, state andinternational jurisdictions. A significant amount of management judgment isinvolved with our annual provision for income taxes and the calculation ofresulting deferred tax assets and liabilities. We evaluate liabilities forestimated tax exposures in jurisdictions of operation. These tax jurisdictionsinclude federal, state and international tax jurisdictions. Significant incometax exposures include potential challenges on foreign entities, merger,acquisition and disposition transactions and intercompany pricing. Exposuresare settled primarily through the completion of audits within these taxjurisdictions, but can also be affected by other factors. Changes could causemanagement to find a revision of past estimates appropriate. The liabilitiesare frequently reviewed by management for their adequacy and appropriateness.As of December 31, 2004, we were not currently under audit by the taxingauthorities. We concluded federal income tax audits for the U.S. consolidatedtax group on earlier years, most recently for the years 2000 and 2001. We arescheduled for an audit of our German subsidiary (TriQuint Semiconductor GmbH)in 2005. Tax periods within the statutory period of limitations not previouslyaudited are potentially open for examination by the taxing authorities. Potentialliabilities associated with these years will be resolved when an event occursto warrant closure, primarily through the completion of audits by the taxingjurisdictions. To the extent audits or other events result in a materialadjustment to the accrued estimates, the effect would be recognized during theperiod of the event. Management believes that an appropriate liability has beenestablished for estimated exposures, though the potential exists for results tomaterially vary from these estimates.

We record a valuationallowance to reduce deferred tax assets when it is more likely than not thatsome portion or all of the deferred tax assets may not be realized. We considerfuture taxable income and prudent and feasible tax planning strategies in determiningthe need for a valuation allowance. We evaluate the need for a valuationallowance on a regular basis and adjust as needed. These adjustments have animpact on our financial statements in the periods in which they are recorded.In 2002, we determined that a valuation allowance should be recorded againstall of our deferred tax assets based on the criteria of Statement of FinancialAccounting Standards (“SFAS”) No. 109, *Accounting for IncomeTaxes*. As of December 31, 2004, this valuation allowance isstill in place.

***Warranty Costs***

We sell our products with warranties that they will befree of faulty workmanship or defective materials and that they will conform toour published specifications or other specifications mutually agreed to with acustomer. In some cases, we have assumed the existing warranties on productspreviously sold by businesses we have acquired, such as the Agereoptoelectronics business. We have also established a reserve for potentialcatastrophic warranty claims for cases in which our obligation may extendbeyond the 

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repair and replacement ofa faulty product. We estimate the potential liability associated with thesewarranties based on a combination of factors including historical productreturn experience, known product warranty issues with specific customers, andjudgment of expected levels of returns based on economic and other factors. Anaccrual for expected warranty costs results in a charge to the financialresults in the period recorded. This liability can be difficult to estimateand, if we experience warranty claims in excess of our projections, we may needto record additional accruals which would adversely affect our financialresults.

We allow only our stockingdistributor to exchange product for other than warranty reasons. If we areunable to repair or replace a product returned under warranty, we will issue acredit for a warranty return.

***Stock-BasedCompensation***

We account for compensation cost related to employeestock options and other forms of employee stock-based compensation plans otherthan ESOP in accordance with the provisions of Accounting Principles BoardOpinion (“APB”) No. 25, *Accounting for StockIssued to Employees*, and related interpretations. As such,compensation expense would be recorded on the date of grant only if the currentmarket prices of the underlying stock exceeded the exercise price. We applyFinancial Accounting Standards Board (“FASB”) SFAS No. 123, *Accounting for Stock-Based Compensation*, which allowsentities to continue to apply the provision of APB No. 25 and provide proforma net income and pro forma earnings per share disclosures for employeestock option grants as if the fair value based method defined in SFAS No. 123had been applied.

The accounting forstock-based compensation involves a number of estimates about the expectedlives of stock options, interest rates, stock volatility, and assumptions aswell as the selection of a valuation model. We have selected to use theBlack-Scholes option valuation model. A change in any of these estimates or aselection of a different option pricing model could have a material impact onour pro forma net income (loss) disclosures. Beginning in the third quarter of2005, we will be required to account for stock-based compensation under SFAS No. 123(R),*Share-Based Payment*’, which will requireus to recognize the estimate on our financial statements. See “RecentAccounting Pronouncements” below for a further discussion.

**2003 Acquisitions**

***Agere’sOptoelectronics Business***

On January 2, 2003, we completed an acquisitionof a substantial portion of the optoelectronics business of Agere Systems Inc.(“Agere”) for $40.0 million in cash plus acquisition costs and certain assumedliabilities. The transaction included the products, technology and some facilitiesrelated to Agere’s optoelectronics business, which includes active and passivecomponents, amplifiers, transceivers and other products. As part of theacquisition, we also assumed operation of the back-end assembly and testoperations associated with these components at a leased facility in Matamoros,Mexico.

We acquired this business to expand its market andproduct offerings in its optical networks business.****Througha transition services agreement, Agere provided some business infrastructureservices to us for a short period following the close of the transaction toensure seamless transition of the business operations. On May 6, 2003, wesold a portion of the assets acquired in this transaction for $6.6 million incash. Further, during the fourth quarter of 2004, we initiated a repositioningof our optoelectronics operation strategy and incurred charges of $3.4 millionrelated to the restructuring (see Note 4 to our Consolidated FinancialStatements).

In connection with this acquisition, we considered anumber of factors, including valuations of some of the assets, when determiningthe purchase price allocation. Acquired in-process research and development 

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(“IPR&D”) assets wereexpensed at the date of acquisition in accordance with FASB Interpretation (“FIN”)No. 4, *Applicability of FASB Statement No. 2 toBusiness Combinations Accounted for by the Purchase*. The valueassigned to IPR&D related to research projects for which technologicalfeasibility had not been established and no future alternative uses existed.The fair value was determined using the income approach, which discountsexpected future cash flows from projects under development to their net presentvalue using a risk adjusted rate. The project was analyzed to determine thefollowing: the technological innovations included; the utilization of coretechnology; the complexity, cost and time to complete development; anyalternative future use or current technological feasibility; and the stage ofcompletion. Future cash flows were estimated based upon management’s estimatesof revenues expected to be generated upon completion of the projects and thebeginning of commercial sales and related operating costs. The projectionsassume that the technologies will be successful and that the product’s developmentand commercialization will meet management’s time schedule. The discount ratewas 35% and was based on the novelty of the technology, the risks remaining tocomplete each project, and the extent of our familiarity with the technology.

As part of the purchase,we assumed $22.7 million of liabilities, which included a warranty liabilityestimated to be $9.3 million. This amount was based upon Agere’s engineeringdata that forecasted product failure rates applied to historical revenue. Agerehad offered extended product warranties that ranged from three years tolifetime. Additionally, Agere had a robust process for preparing returnedproduct that we were not able to duplicate because we discontinued asignificant number of product lines and did not hire the employees thatperformed the repairs for the discontinued product lines.

**2002 Acquisitions**

***IBM’s WirelessPhone Chipset Business***

On July 1, 2002, we completed the acquisition ofa portion of the assets of IBM’s wireless phone chipset business to increaseour product line for wireless phone handsets. The acquisition was accounted foras a purchase transaction and the results of operations are included in theconsolidated financial statements from the date of acquisition. At the closingdate, we paid $21.8 million to IBM for the related assets, of which $5.0million represented an earnout deposit which was returned to us in 2003. Weacquired this business to expand its market and product offerings in thewireless communications industry and to strengthen its capabilities in silicongermanium process technology.

In a transaction related to this acquisition, wetransferred $1.3 million of the acquired machinery and equipment, $1.0 millionof the technology licenses, $0.7 million of acquired workforce and $11.0million in cash to a privately held technology company in exchange for a notereceivable of $14.0 million.

In connection with this acquisition, we considered anumber of factors, including valuations of some of the assets, when determiningthe purchase price allocation. Acquired IPR&D assets, a primary componentof the purchase which included wide band code division multiple access (“WCDMA”),receivers and voltage controlled oscillators (“VCOs”) that are based on a wafersubstrate different from gallium arsenide and developed technology related tothe VCOs and low noise amplifiers, were expensed at the date of acquisition inaccordance with FIN 4. The value assigned to IPR&D related to researchprojects for which technological feasibility had not been established and nofuture alternative uses existed. The fair value was determined using the incomeapproach, which discounts expected future cash flows from projects underdevelopment to their net present value using a risk adjusted rate. Each projectwas analyzed to determine the following: the technological innovationsincluded; the utilization of core technology; the complexity, cost and time tocomplete development; any alternative future use or current technologicalfeasibility; and the stage of completion. Future cash flows were estimatedbased upon management’s estimates of revenues expected to be generated uponcompletion of the projects and the beginning of commercial sales and relatedoperating costs. The projections assume that the technologies will besuccessful and that the 

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product’s development andcommercialization will meet management’s time schedule. The discount rateutilized was 29% and was based on the novelty of the technology, the risksremaining to complete each project, and the extent of our familiarity with thetechnology. The goodwill acquired in this transaction was allocated to theOregon operating unit.

In late 2002, we evaluatedits product strategy and revenue projections related to the acquired productsas well as its overall strategy and determined that the forecasts for theseproducts were substantially lower. Further, we concluded that furtherinvestment would not earn a satisfactory return, and the product lines wereabandoned. As a result, we wrote off all goodwill associated with thisacquisition (see Note 15 to our Consolidated Financial Statements).

***InfineonTechnologies AG GaAs Business***

On July 1, 2002, we completed the acquisition ofthe GaAs Business of Infineon Technologies AG (“Infineon”) to strengthen our Europeanpresence and to expand its market and product offerings in the wirelesscommunications industry. The acquisition was accounted for as a purchasetransaction and the results of operations are included in the consolidatedfinancial statements from the date of acquisition. At the closing date, we paidInfineon €50.0 million (approximately $53.6 million),of which €10.0million (approximately $9.9 million) represented an earnout deposit. Subsequentto the close of the acquisition, certain fixed assets were also purchased for €5.5million less €1.5million in funded liabilities acquired ($4.0 million at various spot rates).Additionally, the minimum purchase price of the acquisition was subsequentlyadjusted to €42.0million from €45.0million (approximately a $3.5 million reduction) in the fourth quarter of 2002.In the fourth quarter of 2004, Infineon repaid the contingent earnout deposit €10.0million (approximately $13.3 million at the exchange rate at the time ofreceipt) and refunded us for the €3.0 million reduction inthe purchase price (approximately $4.0 million at the exchange rate at the timeof receipt).

In connection with this acquisition, we considered anumber of factors, including valuations of some of the assets, when determiningthe purchase price allocation. Acquired IPR&D assets were expensed at thedate of acquisition in accordance with FIN 4. The value assigned to IPR&Drelated to research projects for which technological feasibility had not beenestablished and no future alternative uses existed. The fair value wasdetermined using the income approach, which discounts expected future cashflows from projects under development to their net present value using a riskadjusted rate. Each project was analyzed to determine the following: thetechnological innovations included; the utilization of core technology; thecomplexity, cost and time to complete development; any alternative future useor current technological feasibility; and the stage of completion. Future cashflows were estimated based upon management’s estimates of revenues expected tobe generated upon completion of the projects and the beginning of commercialsales and related operating costs. The discount rates utilized ranged from 25%to 50% and were based on the novelty of the technology, the risks remaining tocomplete each project, and the extent of our familiarity with the technology.The goodwill acquired in this transaction was allocated to the Oregon operatingunit. In addition, as of December 31, 2002, we wrote off all goodwillassociated with this acquisition.

In late 2002, we evaluatedthe product strategy and revenue projections related to the acquired productsas well as our overall strategy and determined that the forecasts for theseproducts were substantially lower. Furthermore, we concluded that furtherinvestment would not earn a satisfactory return. As a result, we wrote off allgoodwill associated with this acquisition (see Note 15 to our ConsolidatedFinancial Statements ).

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**Assets Held for Sale**

During 2004 and 2003, we determined that we will sellthe land, building and certain assets associated with our optoelectronicsoperation in Pennsylvania, excess equipment associated with our semiconductormanufacturing operations in Texas and Oregon and assets obtained from theliquidation of an investment we had in another company. The Pennsylvaniaproperty consists of several buildings comprising approximately 849,000 squarefeet of space on approximately 139 acres of land that we classified as held forsale in the second quarter of 2003. The buildings contain fabrication andassembly space, office space, and central services. During 2003 and 2004 wewere in negotiations to so sell the Pennsylvania facility, however in thefourth quarter of 2004, we were notified by the potential buyer that it was notgoing to purchase the facility. We subsequently recorded an impairment chargeof $14.3 million to reduce the value of the building to its current marketvalue of $8.0 million. On March 7, 2005, we entered into an agreement to sellthe Pennsylvania facility to a real estate investment firm and lease backapproximately 80,000 square feet of the facility for continuing operations. Thesale is subject to customary closing procedures and is expected to be completedwith 90 days of signing the agreement (see Note 21 to our Consolidated Financial Statements). The assets associatedwith our optoelectronics operations consists of a variety of equipment used foroptoelectronics fabrication and assembly operations as well as intangibleassets that we classified as held for sale in the fourth quarter of 2004 as aresult for our optoelectronics restructuring (approximately $8.1 million at December 31,2004). The assets in Texas and Oregon consist of a variety of equipment usedfor semiconductor and fabrication and assembly operations ($0.7 million).Additionally, we received $0.9 million of assets from the liquidation of acompany in which we had an investment. We are actively marketing these assetsand have met the accounting criteria for classifying these assets as held forsale; accordingly, they are identified on our balance sheet as assets held forsale. The carrying value of assets held for sale at December 31, 2004 and2003 was $17.7 million and $24.4 million, respectively (see Note 10 of ourConsolidated Financial Statements for further discussion).

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**Results ofOperations**

Thefollowing table sets forth the results of our operations expressed as apercentage of revenues. Our historical operating results are not necessarilyindicative of the results for any future period.
| ** **                                            | ** ** | **Years Ended December 31,** | ** ** |
|-------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                            | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| Revenues                                              |       | 100.0                                       | %          | 100.0 | % | 100.0 | % |
| Cost of goods sold                                    |       | 71.1                                        | %          | 72.1 | % | 64.4 | % |
| Gross profit                                          |       | 28.9                                        | %          | 27.9 | % | 35.6 | % |
| Operating expenses:                                   |       |                                        |       |   |   |   |   |
| Research, development and  engineering                |       | 17.5                                        | %          | 20.8 | % | 21.9 | % |
| Selling, general and  administrative                  |       | 15.3                                        | %          | 16.5 | % | 16.0 | % |
| In-process research and  development                  |       | —                                      |       | 0.2 | % | 3.2 | % |
| Reduction in workforce                                |       | 0.6                                         | %          | 0.8 | % | 0.4 | % |
| Impairment of long-lived  assets and goodwill         |       | 4.5                                         | %          | — |   | 35.5 | % |
| Gain on disposal of equipment                         |       | (1.3                                        | )%         | — |   | — |   |
| Lease termination costs                               |       | —                                      |       | 13.4 | % | — |   |
| Total operating expenses                              |       | 36.6                                        | %          | 51.7 | % | 77.0 | % |
| Loss from operations                                  |       | (7.7                                        | )%         | (23.8 | )% | (41.4 | )% |
| Other income (expense):                               |       |                                        |       |   |   |   |   |
| Interest income                                       |       | 2.1                                         | %          | 1.9 | % | 4.4 | % |
| Interest expense                                      |       | (3.1                                        | )%         | (3.8 | )% | (4.7 | )% |
| Foreign currency gain (loss)                          |       | 0.6                                         | %          | (0.1 | )% | (0.0 | )% |
| Impairment charge—investments of other companies |       | (0.3                                        | )%         | (0.8 | )% | (8.9 | )% |
| Gain on recovery of previously impaired investment    |       | —                                      |       | 2.7 | % | — |   |
| Gain on retirement of debt                            |       | 0.1                                         | %          | — |   | 2.2 | % |
| Other, net                                            |       | 0.0                                         | %          | (0.0 | )% | 1.9 | % |
| Total other income (expenses),  net                   |       | (0.6                                        | )%         | (0.1 | )% | (5.1 | )% |
| Loss before income tax                                |       | (8.3                                        | )%         | (23.9 | )% | (46.5 | )% |
| Income tax expense (benefit)                          |       | 0.1                                         | %          | (0.5 | )% | 12.8 | % |
| Net loss                                              |       | (8.4                                        | )%         | (23.4 | )% | (59.3 | )% |

 

***Years Ended December 31,2004 and 2003***

*Revenues*

Our operating results improvedsignificantly during 2004, from a net loss of $73.0 million for the year ended December 31,2003 to a net loss of $29.1 million for the year ended December 31, 2004.Our 2004 total operating results were primarily influenced by improvements intotal revenues from strengthening demand in most of our markets, ourintroduction of and customer acceptance of new products, improvements in grossmargin and reductions in operating expenses resulting from our cost reductionefforts, increased capacity utilization from increased demand and the absenceof lease termination costs which were incurred in 2003. These improvements werepartially offset by greater losses of our optoelectronics products in 2004 ascompared to 2003.

Our revenues increased 11%, or $34.7 million, to$347.0 million for the year ended December 31, 2004 compared $312.3million for the year ended December 31, 2003. This increase in revenues isprimarily due to increased shipments of products for the infrastructurenetworks markets, specifically for applications for base stations for wirelesscommunications, wireless local area networks (“WLAN”), 

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point-to-pointradios, and satellite, and increased revenue for products for wireless phones.The increase in revenues more than offsets declines in defense related productsand flat revenue for products for optical networks.

Theoverall demand for our products was strong in the first six months of 2004, butstarted to diminish in the latter part of the third quarter of 2004, andcontinued at a lower level in the fourth quarter of 2004, specifically inproducts for wireless phones, satellite communications, base stations and WLAN.Our book-to-bill ratio for the full year ended December 31, 2004 was 0.94to 1.00, compared to a book-to-bill ratio of 1.03 to 1.00 for the year ended December 31,2003. Our revenues by end market for the years ended December 31, 2004 and2003 were as follows:
| ** **              | ** ** | **Years Ended December 31,**                                      | ** ** |
|-------------------------|------------|----------------------------------------------------------------------------------|------------|
| ** **              | ** ** | **      2004      ** | ** ** | **      2003      ** | ** ** |
| Revenues:               |       |                                                                             |       |   |   |   |   |   |   |
| Wireless phones         |       |                                                                             | 40         | % |   |   | 41 | % |   |
| Infrastructure networks |       |                                                                             | 33         | % |   |   | 29 | % |   |
| Defense                 |       |                                                                             | 13         | % |   |   | 16 | % |   |
| Optical networks        |       |                                                                             | 14         | % |   |   | 14 | % |   |
|                    |       |                                                                             | 100        | % |   |   | 100 | % |   |

 

*Wireless Phones*

Our wireless phone market revenues are from electroniccomponents for mobile phones including filters, amplifiers, receivers,duplexers, switches, mixers and other related items. We sell these parts tophone manufactures worldwide. The demand for components parts has beenhistorically driven by the increasing usage of wireless phones and due to thecomplexity of wireless phones utilizing features such as multiband and globalpositioning systems which require more components. Worldwide, the total numberof wireless phones in use continues to grow with Asia and Eastern Europegrowing at the fastest rates. There are a number of wireless phone standards inuse. GSM, CDMA, and TDMA refer to the primary wireless air interface standardsused throughout the world. GSM (Global System for Mobile communications) is themost prevalent standard, utilized primarily in Europe and many parts of Asiawith a growing presence in the U.S. This standard accounts for over 60% oftotal phone sales and subscribers worldwide. CDMA (Code Division MultipleAccess) is the standard used principally in North and South America, Korea, andparts of China and India. Historically, we have more sales into CDMAapplications as many of our products, such as IF SAW filters, receivers,duplexers, and triplexers are better suited for CDMA and in some cases are notused in GSM. TDMA (Time Division Multiple Access) is an older digital airinterface standard that wireless phone manufacturers are phasing out. Ourefforts to design and introduce products based on the GSM standard are animportant element in our strategy and we believe we are gaining share in thislarge market.

Our revenues from productsfor wireless phones increased approximately 8% in 2004, due to the overallstrength in end market demand for wireless phones, especially in Asia. Weexperienced an increase in revenues from new products, specifically PAs andPAMs for wireless phones, which grew from approximately $7.6 million inrevenues last year, to approximately $19.8 million in 2004. Our new integratedRF front end module also experienced a significant increase in revenues comparedto 2003 as did our duplexer products for CDMA phones and our RF filter productsfor both CDMA and GSM applications. Revenues from IF filters, low noiseamplifiers and mixers declined in 2004 compared to 2003 as these products areolder products and are being phased out by direct conversion architectures innewer phone models which do not need these products. Overall, revenues for CDMAbased applications accounted for about 78% of our revenues from wireless phonesin 2004, compared to 84% last year, but our GSM based products are growing andnow account for 21% of our wireless phone revenues, up from 9% a year ago.Revenues from TDMA based phones are declining rapidly and now account for onlyabout 

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1% ofour wireless phone revenues in 2004, compared to approximately 7% for lastyear. Unit shipments remain high and we shipped our highest ever quantity ofdevices for the wireless phone market in 2004. Pricing, which at times may beunder severe competitive pressure, was relatively stable and our average sellingprices for products for wireless phones were flat overall compared to 2003. Weshipped more higher dollar value module based products such as GSM poweramplifier and RF front-end modules, which offset price declines for our otherwireless phone products.

*Infrastructure Networks*

The infrastructure networks market includes a varietyof applications such as base stations, point-to-point radios, satellitesystems, broadband cable, WLAN, automotive, and standard products. This endmarket has been the fastest growing for us over the past year due in part to anoverall recovery in infrastructure spending, new applications and new products.Overall, our revenues in this market increased by approximately 28% in 2004compared to 2003.

Our largest source of revenuesin this market is from base stations, which increased by approximately 60% in2004, compared to 2003. Base station revenues increased due to increasedvolumes of filters and other devices for this market. Base stations are used tohandle calls from wireless phones and, as usage of mobile phones increases, thedemand for more and better base stations grows. While shipments were extremelyrobust for base station products in the first three quarters of 2004, thebookings for these products in the third and fourth quarter of 2004 declined.Other applications in this market that experienced an increase in revenues in2004 compared to 2003 include point-to-point radios, WLAN, and satellitesystems.

*Defense*

Revenues from our defenserelated market decreased by approximately 8% in 2004 compared to 2003, due tothe timing and roll out of large scale defense programs and the negative impactthat the war in Iraq has had on defense related spending for fighter jets andresearch and development. The defense department has allocated more of itsbudget for current operations and has deferred some orders for longer-termprograms. Our products for this market typically are for phased-array antennaand similar applications for airborne systems and these programs normally havelong lead times.

*Optical Networks*

Revenues from products ofoptical networks were essentially unchanged in 2004 compared to 2003. However,our revenues in this market declined in the second half of 2004 and fell belowour expectations. The optical component market continues to suffer from excesscapacity, sluggish demand and price competition. On November 29, 2004, weannounced that we are repositioning our strategy to address this market. Aspart of the announcement, we are exiting certain module related products forthis market which may result in lower projected revenue for 2005 for thismarket.

*Domestic and International Revenues*

Revenues from domestic customers were $151.7 millionin 2004, compared to $122.9 million in 2003. Revenues from internationalcustomers were $195.3 million in 2004 compared to $189.4 million in 2003. Revenuescontinue to grow due to the increasing demand for wireless phones andinfrastructure products from countries in Asia, South America, and EasternEurope where wireless subscriber penetration rates are significantly lower thanpenetration rates in the U.S. and Western Europe. Revenues fromKorea, the only foreign country which represented 10% or more of revenues, were$35.0 million in 2004 and $49.1 million in 2003, respectively.

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Revenues generated fromU.S. operations were $304.1 million in 2004 and $258.5 million in 2003,respectively. Revenues generated from our international operations were $80.5million in 2004 and $84.4 million in 2003, respectively. Transfers betweenthese operations were $37.6 million in 2004 and $30.7 million in 2003,respectively. Our U.S. operations accounted for $174.0 million of ourlong-lived assets in 2004 and $202.6 million in 2003. Our international operationsaccounted for $27.8 million of our long-lived assets in 2004 and $24.7 millionin 2003.

*Gross Profit*

Gross profit is defined asrevenues less cost of goods sold. Cost of goods sold includes direct material,labor and overhead expenses and certain production costs related tonon-recurring engineering revenues. In general, we derive a higher gross profitmargin on lower volume products for the infrastructure network market productssuch as base stations, point-to-point radios and satellite systems, whereasproducts for the wireless phone and WLAN market are higher volume, pricesensitive, and generally lower margin products. Our gross profit margin as apercentage of revenues increased to 28.9% in 2004, compared to 27.9% in 2003.The increase was primarily due to increased sales of products for the networkinfrastructure market such as filters and components for base stations,point-to-point radio, and satellite systems which have higher gross profitmargins than our consumer driven products such as wireless phones. In addition,the higher overall revenues in 2004 compared to 2003 allows for more absorptionof fixed costs. Additionally, the results for 2003 included numerous transitionrelated costs associated with the purchase of the optoelectronics business fromAgere Systems in early 2003 which negatively affected gross margins. Weincurred no such charges in 2004.

We also recorded a benefit ofapproximately $7.3 million in 2004 associated with the reclaim of platinum andgold from our Pennsylvania and Texas manufacturing operations. Precious metalsare a primary component of our semiconductor fabrication process. Processwastes are routinely collected and processed to reclaim the precious metalcomponent. In the case of our Pennsylvania operation, we reclaimed $6.1 millionof platinum in 2004 that was embedded in equipment that was in excess of ourneeds. We did not recognize any gain on reclamation of platinum in 2003.

The operation of our own wafer fabrication facilitiesentails a high degree of fixed costs and requires an adequate volume ofproduction and sales to be profitable. During periods of decreased demand, highfixed wafer fabrication costs have a materially adverse effect on our operatingresults. As of the end of 2004, three of our four fabrication facilities arerunning at under 30% utilization capacity. Our SAW filter fabrication facilitywas running at over 60% utilization capacity.

We routinely review ouraccounting reserves, including those for excess and obsolete inventory andpotential warranty claims, as described under “Critical Accounting Policies andEstimates” above, and make adjustments as necessary. When we initially acquiredthe optoelectronics business from Agere Systems in January 2003, weestablished warranty reserves during the three months ended March 31,2003, using engineering failure rate data obtained from Agere. We havecontinued to refine our estimates for warranty reserves and have developed datafrom returns during the course of 2003. Accordingly, during 2004, we recorded areduction to the warranty reserve for our optoelectronics operations totalingapproximately $1.6 million due to a change in the methodology we use toestimate the reserve. In addition, we identified a portion of the remainingwarranty reserve balance for catastrophic warranty claims. This was done inresponse to increasing requests by our customers for catastrophic warrantyclauses that extend our obligation beyond the repair and replacement of afaulty product, to include other losses our customers may experience as aresult of failures in our products. We experienced one such warranty claimduring 2003. During 2004, warranty reserves decreased $2.9 million, largely dueto the resolution of certain warranty claims. Also, during 2004, grossinventory decreased $1.7 million and corresponding inventory reserves decreased$3.9 million as compared to 2003. The decrease in the warranty reserve wasprimarily due to consumption of previously reserved inventories by the optoelectronics operations.

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*Research, development andengineering expenses*

Research,development and engineering expenses include the costs incurred in the designof new products, as well as ongoing product research and development expenses.Our research, development and engineering expenses for the year ended December 31,2004 decreased $4.3 million (7%) to $60.8 million, as compared to $65.0 millionfor the year ended December 31, 2003. This decrease was primarilythe result of our cost reduction programs implemented during 2003, whichincluded reductions in our workforce, a change in our procedures on developmentof wafers, a consolidation of vendors for certain purchases, use of commoncomputer aided design tools and reduced work hours.

*Selling, general andadministrative expenses*

Selling, general andadministrative expenses include commissions, labor expenses for marketing andadministrative personnel, and other corporate administrative expenses. Selling, general and administrative expenses forthe year ended December 31, 2004 increased $1.8 million (4%) to $53.3million, as compared to $51.4 million for the year ended December 31,2003. The increase was primarily due to the commission and sales relatedexpenses associated with our higher revenues in 2004, as well as increasedadministrative costs to comply with Section 404 of the Sarbanes-Oxley Actof 2002.

*In-process research anddevelopment*

In 2003, we recorded acharge of $0.5 million for the write-off of acquired in-process research anddevelopment associated with our acquisition of the Agere optoelectronicsbusiness. We recorded no similar charge during 2004.

*Reduction in workforce*

In 2004, we recorded net severancecosts of $2.0 million related to reductions in our workforce of approximately110 employees in Pennsylvania and approximately 90 employees in Mexicoassociated with our optoelectronics operations and approximately 30 employeesassigned to our Texas operations. Included in this amount is a credit of $0.8million to reflect a reduction in the number of employees originally expectedto be impacted from the Agere acquisition. During 2003, we recorded severancecosts of $2.5 million. These costs related to reductions in our workforce ofapproximately 80 employees, resulting from our efforts to align our costs andcapacity with our levels of production and revenues. These reductions primarilyimpacted the workforce of our newly acquired optoelectronics operations and ourGerman engineering and marketing operations.

*Impairment of long-lived assetsand goodwill*

In 2004, we recorded impairments to long-lived assetsof $15.5 million. We did not have any charges for impairments in 2003. Theimpairments recorded in 2004 include impairments of our optoelectronicsfacility in Pennsylvania ($14.3 million), optoelectronic module manufacturingequipment ($0.5 million), excess six-inch wafer fabrication equipment ($0.3million), and a charge associated with the closing of our Tianjin, Chinafacility ($0.4 million). In regard to the optoelectronics facility, we were innegotiations to sell the fabrication facility located in Breinigsville,Pennsylvania for more than one year with an agency of the Commonwealth of Pennsylvania.We acquired the building as part of our acquisition of a portion of theoptoelectronics business from Agere Systems in January 2003. At the timeof the acquisition, we determined the value of the facility to be $30.0million, and recorded it on our books after a reduction due to purchaseaccounting adjustments at $22.3 million. On October 18, 2004, we wereinformed that this agency was not going to purchase the facility. In May of2003, we engaged a national real estate agency to market the facility with anasking price of $30.0 million. At that time, we reclassified the facility toassets held for sale. At December 31, 2004, we continued to hold thefacility as held for sale, and in the first 

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quarter of 2005 we enteredinto an agreement to sell the facility to a real estate investment firm andlease back approximately 80,000 square feet of the facility for continuingoperations (see Note 21 to our Consolidated Financial Statements).

As a result of theoptoelectronics restructuring we announced in October 2004, we reviewedthe carrying value of all of our optoelectronics related assets and recorded animpairment of $0.5 million related to specialized module manufacturingequipment during the fourth quarter of 2004. Additionally, we recorded an impairmentcharge of $0.3 million on certain six-inch wafer fabrication equipment tocurrent market values. The equipment was in excess of our needs and had beenclassified as held for sale. The $0.4 million charge associated with theTianjin, China facility was related to leasehold and other assets. The closurewas made as our primary customer in the region no longer required amanufacturing presence in the region and is expected to reduce employeeexpenses approximately $0.5 million per year.

*Gain on disposal of equipment*

In 2004, we recorded a$4.5 million gain on the disposal of equipment, primarily related to the saleof equipment at our optoelectronics facility. The optoelectronic equipment soldhad been classified as held for sale. We recorded no similar gains in 2003.

*Lease termination costs*

In 2003, we recorded acharge of $42.0 million for costs associated with the termination of the leaseon our wafer fabrication facility located in Richardson, Texas. Under theoriginal lease agreement sponsored by a financial institution, we were requiredto make lease payments through August 2005 or purchase the property atthat time. In June 2003, we notified the lender of our intention toterminate the lease and purchase the property. The purchase was completed in July 2003.We incurred no similar costs in 2004 and have no similar lease agreements inplace at December 31, 2004.

*Interest income (expense), net*

Interest income (expense),net decreased as an expense $2.3 million (39%) to $3.6 million for the yearended December 31, 2004, as compared to $5.9 million in 2003. This changewas attributable to higher interest rates earned on our short and long-terminvestments as interest rates on these investments rose in 2004 as compared to2003. For example, in 2004 the average commercial paper interest rate was 1.41%compared to 1.11% in 2003. Further, we repurchased $45.0 million of oursubordinated debt in 2004 which also reduced our interest expense.

*Foreign currency gain (loss)*

In 2004, we recorded a foreign currency gain of $2.1million, as compared to a foreign currency loss of $0.3 million for the yearended December 31, 2003. The gain in 2004 was primarily attributable to foreigncurrency receivables of €13.0 million(approximately $13.4 million at the exchange rate in effect at the time of thetransactions) that were reclassified as short-term monetary asset in the thirdquarter. As a result of the reclassification, we recorded a foreign currencygain of $2.5 million on the remeasurment of the receivables as the Eurostrengthened relative to the U.S. dollar. In November 2004, we received paymenton the receivable.

*Impairment charge—Investment in other companies*

In 2004, we recorded impairment losses of $1.2 millionas a result of either cessation of operations, deteriorating financialcondition or a reduction in our pro-rata ownership of the privately heldcompany in which we had invested. In 2003, we recorded impairment losses of$2.4 million, respectively, as a result of either deteriorating financialcondition or cessation of operations of the privately held company in which 

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we had invested.Additionally in 2003, we received a cash settlement on a previously impairedpromissory note from one of the privately held investees, resulting in a gainof $8.5 million.

Thefollowing table provides a summary of the impairments during fiscal years 2004and 2003 (in millions)
| **Year** | ** ** | ** **                 | ** **                                                                                                                                         | **Description** | ** ** | **Impairment** | ** ** |
|----------|------------|----------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------|-----------------|------------|----------------|------------|
| 2004     |       | ·                     | Impairment of investment in an optoelectronics company  that ceased operations, net of expected proceeds from recovered assets                     |            |       | $0.7           |       |   |
|     |       | ·                     | Impairment of investments in two privately held  companies based on deteriorating financial conditions and/or reduction in our  pro-rata ownership |            |       | 0.5            |       |   |
|     |       | Total impairments in 2004  |                                                                                                                                               |            | $1.2       |           |       |
| 2003     |       | ·                     | Impairment of investments in privately held  semiconductor companies based on deteriorating financial conditions                                   |            |       | $1.4           |       |   |
|     |       | ·                     | Impairment of  investments in privately held companies that ceased operations                                                                      |            |       | 0.3            |       |   |
|     |       | ·                     | Impairment of investment in privately held  optoelectronics company based on its deteriorating financial condition                                 |            |       | 0.7            |       |   |
|     |       | Total  impairments in 2003 |                                                                                                                                               |            | $2.4       |           |       |

 

*Gain on retirement of debt*

In 2004, we recorded again on the retirement of debt resulting from our repurchase of $45.0 millionprincipal amount of our convertible subordinated notes at the then currentmarket prices resulting in a gain of $0.5 million, net of the write off ofassociated capitalized bond issuance costs of $0.6 million. We recorded nosimilar benefit in 2003 as we did not repurchase any debt during that fiscalyear. From time to time, we may repurchase additional notes in the open market.

*Income tax expense (benefit)*

In 2004, we recordedincome tax expense of $0.4 million as compared to an income tax benefit of $1.5million in 2003. The income tax expense in 2004 was primarily the result ofincome taxes in foreign jurisdictions. The income tax benefit in 2003 wasprimarily the result of the settlement of certain prior year tax accruals andrefunds.

***Years Ended December 31,2003 and 2002***

Ouroperating results improved significantly from a net loss of $158.6 million in2002 to a net loss of $73.0 million in 2003. Our total operating results wereinfluenced during 2003 primarily by improvements in total revenues fromstrengthening demand in most of our markets, our introduction of and customeracceptance of new products, and the addition of the newly acquiredoptoelectronics operations, reductions in operating expenses primarily due to theelimination of a lease obligation associated with our Texas facility in 2002,and increased capacity utilization from increased demand. These gains werepartially offset by losses of our newly acquired optoelectronics operations.The optoelectronics operation was acquired with more capacity than necessary tosupport the size of the business and have subsequently repositioned ourstrategy in the optoelectronics market.

*Revenues*

Ourrevenues increased 16.8% to $312.3 million in 2003 from $267.3 million in 2002.Of this increase from 2002 to 2003, $36.5 million was attributable to theoptoelectronics operations we acquired from Agere in January 2003. Ourrevenues in 2003, as compared to 2002, increased for wireless phone and WLANproducts, but decreased for other infrastructure network products and decreasedslightly for 

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defense related products. The majority of ourshipments are made directly to our customers, with shipments to distributorsaccounting for only approximately 6% of our total revenues in 2003. Ourrevenues by end market for the years ended December 31, 2003 and 2002 wereas follows:
| ** **              | ** ** | **Years Ended December 31,**                                      | ** ** |
|-------------------------|------------|----------------------------------------------------------------------------------|------------|
| ** **              | ** ** | **      2003      ** | ** ** | **      2002      ** | ** ** |
| Revenues:               |       |                                                                             |       |   |   |   |   |   |   |
| Wireless phones         |       |                                                                             | 41         | % |   |   | 45 | % |   |
| Infrastructure networks |       |                                                                             | 29         | % |   |   | 31 | % |   |
| Defense                 |       |                                                                             | 16         | % |   |   | 19 | % |   |
| Optical networks        |       |                                                                             | 14         | % |   |   | 5 | % |   |
|                    |       |                                                                             | 100        | % |   |   | 100 | % |   |

 

*Wireless Phones*

On an absolute dollarbasis, our revenues from the wireless phone market increased from 2002 to 2003.This increase was driven by increased end market demand due to new phonesubscribers in Asia, the popularity of new feature-rich phones which includecolor screens and digital photography, and our new product introductions. Theworldwide sales of wireless phones grew by over 10% to approximately 500million phones in 2003. Pricing on component parts, such as the products thatwe sell, declined generally, while our unit shipments increased. For example,we increased our total shipments of RF SAW filters by nearly 70% in 2003compared to 2002, while average selling prices for these products declined over20% over the same time period. We shipped a record number of SAW filters, beganshipments of a new power amplifier module for the GSM market, and haveincreased sales of a new receiver product for CDMA phones. Our revenue in thewireless phone market is dominated by sales for CDMA applications, accountingfor 84% of our wireless phone revenue, followed by GSM applications at 9% andTDMA at 7% in 2003. This in comparison to 2002, in which CDMA accounted for68%, GSM 9%, and TDMA 23% of total wireless phone revenues. TDMA is an olderdigital air interface standard that is being phased out. In the fourth quarterof 2003, our sales into TDMA applications were only 4% of our total wirelessphone revenue and we expect this level to further decline over time. We havemore sales into CDMA applications as many of our products, such as IF SAWfilters, receivers, duplexers, and triplexers are better suited for CDMA and insome cases are not used in GSM. GSM is the world’s largest air interfacestandard, accounting for over 60% of total phone sales and subscribers.

*Infrastructure Networks*

Our infrastructure networkproducts address a variety of application areas, such as base stations,satellite, point-to-point radios, and WLAN. Base station products comprise ourlargest proportion of this business, but decreased significantly in 2003 to 25%of network infrastructure revenue from 39% in 2002 due to price declines andcontinued softness in this market. WLAN product revenues increased in proportionfrom 10% of infrastructure revenue in 2002 to 19% in 2003. This increase wasdriven by increasing demand for 802.11 standard products used in many of thenew personal computer and laptop computer for wireless access to the internet.We maintain a very high market share for many of the products we supply to theinfrastructure network market. This is a highly competitive market, however,and is characterized by intense pressure on selling prices.

*Defense*

Revenues from our defensebusiness declined slightly from 2002 to 2003. We believe this was caused by atemporary shift of government funding from research and development andlong-term programs toward short-term spending related to conflicts in Iraq andAfghanistan. Our business in this market is very stable and we have a strongposition, particularly for phased-array antenna and communications systems.

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*Optical Networks*

Products addressingoptical network applications have become a much bigger part of our overallrevenues since our acquisition of Agere’s optoelectronics business in early January 2003,growing from 5% of our total revenues in 2002 to 14% in 2003. Revenues from ourlegacy optoelectronics products such as multiplexers, demultiplexers, andtransimpedence amplifiers have been declining in recent years and that trendcontinued in 2003.

*Domestic and International Revenues*

Domestic and internationalrevenues were $122.9 million and $189.4 million, respectively, in 2003 ascompared to $116.1 million and $151.2 million, respectively, in 2002. The shiftin the proportion of our total revenues from international sources from 56.6%in 2002 to 60.7% in 2003 reflects the increasing demand from countries in Asia,Africa, and South America, where wireless subscriber penetration rates arecumulatively 20% or less, compared to penetration rates in the U.S. and Europeof approximately 50%, and the need to develop the wireless infrastructure inthese regions.

*Gross Profit*

Gross profit decreased 8.5% to $87.0 million in 2003from $95.1 million in 2002. Our gross profit also decreased as measured as apercentage of revenues, from 35.6% in 2002 to 27.9% in 2003. This decline in our gross profitability wasattributable primarily to the following factors: excessive cost structure andan extremely competitive pricing environment in the optoelectronics business weacquired from Agere in early January 2003, continued underutilization ofour Oregon and Texas wafer fabrication plants, and lower prices for ourproducts for wireless phones and base stations.

As of the end of 2003, our Oregon GaAs fabricationfacility was operating at only 35% utilization, our Texas fabrication facilitywas operating at less than 30% utilization, and our optoelectronicsmanufacturing facility in Pennsylvania was operating at less than 10% of itscapacity. Our SAW filter factories were operating at over 80% utilization as ofthe end of 2003. During 2003, we implemented several measures to reduce ourcost and capacity levels to more closely match demand. We reduced ongoingoperating expenses by approximately $1.2 million by disposing of non-strategicelements of the optoelectronics business acquired from Agere, savedapproximately $0.9 million by transferring the manufacturing associated withthe products we acquired from Infineon to our fabrication facility in Oregon,saved approximately $2.0 million by reducing work schedules, and reducedoperating expenses by approximately $0.8 million by moving the majority of theassembly and test operations associated with our optoelectronics products in Pennsylvaniato our plant in Matamoros, Mexico. Other efforts aimed at improving utilizationof our manufacturing facilities included shipping a record number of 150mm GaAswafers from our Oregon fabrication facility and record yields in ourPennsylvania and Texas fabrication facilities.

Most of the markets in which we operate are highlycompetitive and characterized by intense price pressure. The average sellingprices of many of our products decreased during 2003. Our strategy formaintaining profitability under these conditions is to maintain tight controlof our spending, implementing measures to maintain the proper level of capacitysuch as those described above, and continuing to aggressively develop newproducts.

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*Research,development and engineering expenses*

Research,development and engineering expenses include the costs incurred in the designof new products, as well as ongoing product research and development expenses.Our research, development and engineering expenses increased 11.1% in 2003 to$65.0 million from $58.5 million in 2002. Research, development and engineeringexpenses as a percentage of revenues decreased to 20.8% in 2003 from 21.9% in2002. The increase in research, development and engineering expenses on anabsolute dollar basis was primarily due to the additional research, developmentand engineering activities associated with our newly acquired businesses fromInfineon and Agere and to the ongoing costs associated with our ongoinginvestment in wireless, broadband, microwave, and optoelectronics products andtechnologies. We introduced 173 new products in 2003, including several keyproducts, such as our GSM module products, a family of WLAN products, and afamily of small form factor optical transceiver products. As a percentage ofrevenue, the decrease from 2002 to 2003 was attributable to the increase inrevenues from 2002 to 2003.

*Selling, general and administrative expenses*

Selling, general andadministrative expenses include commissions, labor expenses for marketing andadministrative personnel, and other corporate administrative expenses. Selling, general and administrative expensesincreased 19.9% to $51.4 million in 2003 from $42.9 million in 2002. Selling,general and administrative expenses as a percentage of revenues increased to16.5% in 2003 compared to 16.0% in 2002. This spending increase wasprimarily due to increased selling expenses associated with increased revenuesand additional costs associated with our acquisition of the Infineon and Agerebusinesses.

*In-process research and development*

In 2003, we recorded acharge of $0.5 million for the write-off of acquired IPR&D associated withour acquisition of the Agere optoelectronics business. During 2002, we recordeda charge of $8.6 million for the write-off of acquired IPR&D and othercosts associated with our acquisition of the Infineon and IBM businesses.

*Reduction inworkforce*

In 2003, we recordedseverance costs of $2.5 million. These costs relate to reductions in ourworkforce of approximately 80 employees, resulting from our efforts to alignour costs and capacity with our levels of production and revenues. Thesereductions primarily impacted the workforce of our newly acquiredoptoelectronics operations and our German engineering and marketing operations.During 2002, we reduced our workforce by approximately 117 employees also as aresult of the decreased demand for our products and the underutilization of ourfabrication facilities. We recorded a charge of $1.0 million associated withthis reduction in workforce. 

*Impairment of long-lived assets and goodwill*

Werecorded no charges from the impairment of long-lived assets in 2003, however,in 2002 we recorded impairment charges of $94.7 million. The impairment chargein 2002 was the result of the abandonment of $5.8 million of certain productionassets associated with one of our six-inch wafer productions lines at ourRichardson facility, the writedown of $49.0 million of certain equipment andfacilities associated with excess capacity at our Oregon facility and theimpairment of $39.9 million of goodwill and other intangibles associated withour acquisitions of businesses from IBM and Infineon. The businessesacquired from IBM and Infineon were assigned to the Oregon operating unit whenpurchased. The determination and recording of an impairment of the value ofcertain assets associated with the Oregon operating units was an event whichalso required the evaluation of the carrying value of goodwill associated withthe acquisition of the IBM and Infineon businesses, since these businesses areassociated with the Oregon operating unit. The anticipated effect ondepreciation expense of the impairment was approximately $6.5 million peryear.

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*Lease termination costs*

In 2003, we recorded acharge of $42.0 million for costs associated with the termination of the leaseon our wafer fabrication facility located in Richardson, Texas. Under theoriginal lease agreement sponsored by a financial institution, we were requiredto make lease payments through August 2005 or purchase the property atthat time. In June 2003, we notified the lender of our intention toterminate the lease and purchase the property. The purchase was completed in July 2003.We incurred no similar costs in 2002 and have no similar lease agreements inplace at December 31, 2003.

*Interest income (expense), net*

Interest income (expense),net increased as an expense to $5.9 million in 2003 compared to an expense ofapproximately $0.8 million in 2002. This change was attributable to lowerinterest rates earned on investments and a lower level of cash and short andlong-term investments due to our recent capital investments and acquisitions.

*Impairment charge—Investment in other companies*

In 2003 and 2002, we recorded impairment losses of$2.4 million and $23.8 million, respectively, on impairments of investments wehave made in small, privately held technology companies. The impairments in2003 were the result of either deteriorating financial condition of the companyor cessation of operations of the company. Additionally in 2003, we received acash settlement on a previously impaired promissory note from one of theprivately held investees described above, resulting in a gain of $8.5 million.We had no similar gain in 2002.

Thefollowing table provides a summary of the impairments during fiscal years 2003and 2002 (in millions):
| **Year** | ** ** | **Description**            | ** **                                                                                                                                                                                                                                        | **Impairment** | ** **       |
|----------|------------|----------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------|------------------|
| 2003     |       | ·                     | Impairment of investments in privately held  semiconductor companies based on deteriorating financial conditions                                                                                                                                  |           |             | $  1.4 |   |   |
|     |       | ·                     | Impairment of investments in privately held  companies that ceased operations                                                                                                                                                                     |           |             | 0.3 |   |   |
|     |       | ·                     | Impairment of investment in privately held  optoelectronics company based on its deteriorating financial condition                                                                                                                                |           |             | 0.7 |   |   |
|     |       | Total impairments in 2003  |                                                                                                                                                                                                                                              |           | $  2.4 |   |   |
| 2002     |       | ·                     | Impairment of investments in privately held  technology companies based on deteriorating financial conditions that  subsequently either were liquidated or filed for bankruptcy                                                                   |           |             | $  9.9 |   |   |
|     |       | ·                     | Impairment of investment in privately held RF  integrated circuit company based on its deteriorating financial condition due  to lack of revenue and reduced cash position. Company later was sold in 2003  and investment was largely recovered. |           |             | 11.2 |   |   |
|     |       | ·                     | Impairment of investments in privately held  technology companies based on deteriorating financial conditions                                                                                                                                     |           |             | 2.7 |   |   |
|     |       | Total  impairments in 2002 |                                                                                                                                                                                                                                              |           | $23.8            |   |   |

 

*Gain on retirement of debt*

In 2002 we recorded a gainon retirement of debt resulted from our repurchase of $27.7 million principalamount of our convertible subordinated notes at the then current market pricesresulting in a gain of $6.0 million. We repurchased no additional debt in 2003and recorded no similar gain.

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*Other, net*

Other, net for the yearended December 31, 2003 was a net expense of $0.1 million as compared tonet income of $4.9 million for the year ended December 31, 2002. Theincome in 2002 was primarily due to a realized gain of $4.6 million on aforward currency contract associated with the Infineon acquisition. We had nosimilar gain in 2003.

*Income tax expense (benefit)*

In 2003, we recorded anincome tax benefit of $1.5 million compared to an income tax expense of $34.2million recorded in 2002. The income tax benefit in 2003 was primarily theresult of the settlement of certain prior year tax accruals and refunds. Theincome tax expense in 2002 related to our determination that a valuationallowance should be recorded against all of our deferred tax assets based onthe criteria of SFAS 109 concerning whether it is more likely than not that ourdeferred tax assets may not be realized. In both 2003 and 2002, we determinedthat a valuation allowance should be recorded against all of our deferred taxassets based on the criteria of SFAS 109.

**Outlook for 2005**

We expect revenues for2005 to be similar to 2004 and operating losses to be less than those in 2004.We are anticipating growth in handsets, driven by our continued penetration ofthe GSM market. However, the impact of direct conversion architectures, whichreduce the need for some of our products in CDMA handsets in 2005, is expectedto reduce our revenues by $20.0 million to $26.0 million in 2005 as compared to2004. We are also anticipating growth in defense related revenues, due to ourplanned program ramps and the integration of our newly acquired subsidiary,TFR. Base station and broadband revenues are expected to be flat to slightlydown and we believe optoelectronics revenues will decrease in 2005 as comparedto 2004 due to discontinued product offerings. We expect improved profitabilityin 2005 as compared to 2004 due to the elimination of certain expenses relatedto the optoelectronics restructuring announced on November 29, 2004.

**Liquidity andCapital Resources**

As of December 31, 2004, our cash, cashequivalents and marketable securities decreased $12.0 million (3%) to $388.3million, from $400.3 million at December 31, 2003. The net decrease incash, cash equivalents, and marketable securities was primarily related to therepurchase of a portion of our subordinated notes ($43.9 million) and ourcapital expenditures ($25.3 million), partially offset by cash provided byoperating activities ($45.8 million) and the issuance of common stock ($12.1million). Cash flows provided by operating activities in 2004 reflect net incomeadjusted for depreciation and amortization ($12.1 million) and decreases inprepaid expenses and other assets ($15.5 million), inventories ($5.5 million)and receivables ($1.8 million), partially offset by increases in accountspayable and accrued expenses ($6.6 million). The adjusted net income for 2004was negatively affected by losses from the impairment of assets ($15.5million), net losses from the sale of assets ($1.4 million) and impairmentcharges from investments in other companies ($1.2 million).

The $41.5 million of cash provided by operations in2004 represents a $69.3 million change from the cash used in operatingactivities during 2003 ($27.8 million). This variance from 2003 is primarilyrelated to a net loss adjusted for depreciation and amortization ($33.5million) in 2003 and increases in inventories ($17.0 million), receivables($7.0 million), account payable and accrued expenses ($5.1 million) and prepaidexpenses ($2.6 million) during 2003. The adjusted net loss in 2003 wasprimarily due to a non-cash lease termination costs ($42.0 million) andimpairment charges from investments in other companies ($2.4 million),partially offset by a gain on the recovery of a previously impaired investment($8.5 million).

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At December 31, 2004, our net accounts receivabledecreased $1.8 million (4%) to $40.1 million, from $41.9 million at December 31,2003. The decrease is primarily due to a decrease in sales during the fourthquarter of 2004 as compared to the fourth quarter of 2003, partially offset byan increase in our days sales outstanding as of December 31, 2004 of 48days, compared to 44 days as of December 31, 2003.

At December 31, 2004, our net inventory balancedecreased $5.6 million (8%) to $59.7 million, from $65.3 million at December 31,2003. This decrease is primarily due to decreases in inventory values from ouroptoelectronics repositioning. At December 31, 2004, our inventoryturnover ratio was 3.7 times, consistent with December 31, 2003.

At December 31, 2004, our assets held for salebalance decreased $6.7 million (28%) to $17.7 million, from $24.4 million at December 31,2003. This decrease is primarily due to a $14.3 million impairment of ouroptoelectronics facility we recorded in the fourth quarter of 2004 (see Note 15to our Consolidated Financial Statements), partially offset by $7.2 million ofnet transfers of equipment from property, plant and equipment to held for saleas a result of the optoelectronics restructuring, also in the fourth quarter of2004 (see Note 4 to our Consolidated Financial Statements).

At December 31, 2004,our net property, plant and equipment balance decreased $22.2 million (10%) to$199.5 million, from $221.7 million at December 31, 2003. This decrease isprimarily due to current-year depreciation expense of $37.7 million, thetransfer of $7.2 million of assets to held for sale as a result of theoptoelectronics restructuring and disposals of equipment of $2.8 million. Thedecrease was partially offset by current-year capital expenditures of $25.3million.

*Recent TransactionsAffecting Liquidity*

On May 18, 2004, we completed the repurchase of$45.0 million (face value) of our convertible subordinated notes for $43.9million before accrued interest. We regularly evaluate the market pricing ofthese notes in comparison to our cash flow forecast to determine the value tous of repurchasing a portion of them. Since 2001, we have repurchased $121.2million face value of the original $345.0 million issuance.

On July 16, 2003, we terminated the lease on ourwafer fabrication facility located in Richardson, Texas and took ownership ofthe facility. In association with the termination of this lease, we releasedthe $17.4 million to the financial institution sponsoring the lease andincurred various legal fees associated with the title transfer.

On January 2, 2003,we completed our acquisition of a substantial portion of the optoelectronicsbusiness of Agere for $40.0 million in cash plus acquisition costs and certainassumed liabilities. Through a transitional manufacturing agreement, Ageresupplied components for us for a short period following the close of thetransaction to ensure seamless service to customers. Agere also provided somebusiness infrastructure services to us for a short period following the closeof the transaction to provide for an uninterrupted transition of the businessoperations.

*Sources ofLiquidity*

Our current cash, cashequivalent and short-term investment balances, together with cash anticipatedto be generated from operations are currently our principal sources ofliquidity and we believe these will satisfy our projected working capital,capital expenditure, and possible investment needs, at a minimum, through thenext 12 months. We expect our need for capital expenditures in 2005 to bebetween $20.0 million and $26.0 million. The principal risks to these sourcesof liquidity would be capital expenditures or investment needs in excess of ourexpectations, in which case we may be required to finance any additionalrequirements through additional equity offerings, debt financings or creditfacilities. We may not be able to obtain additional financings or creditfacilities, or if these funds are available, they may not be available onsatisfactory terms.

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*Other SignificantCash Obligations*

Thefollowing table summarizes our scheduled contractual commitments that willaffect our future liquidity as of December 31, 2004:
| ** **                             | ** ** | ** ** | ** ** | **Payments Due By Period** | ** ** |
|----------------------------------------|------------|------------|------------|-------------------------------------------|------------|
| **(In millions)**                 | ** ** | **Total**  | ** ** | **Less than  1 Year**           | ** ** | **1-3 Years** | ** ** | **4-5 Years** | ** ** | **After 5  Years** | ** ** |
| Convertible Subordinated  Notes(1)     |       | $          | 246.1      |                                      |       | $ | 8.9 |   |   |   | $ | 237.2 |   |   |   | $ | — |   |   |   | $ | — |   |   |
| Operating Leases(2)                    |       | 5.7        |       |                                      | 1.8        |   |   |   | 3.4 |   |   |   | 0.5 |   |   |   | — |   |   |
| Capital Lease(3)                       |       | 0.3        |       |                                      | 0.3        |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Unconditional  Purchase Obligations(4) |       | 5.6        |       |                                      | 0.5        |   |   |   | 0.7 |   |   |   | 0.7 |   |   |   | 3.7 |   |   |
| Deferred  Compensation(5)              |       | 0.1        |       |                                      | —     |   |   |   | — |   |   |   | — |   |   |   | 0.1 |   |   |
| Other Obligations(6)                   |       | 3.0        |       |                                      | —     |   |   |   | — |   |   |   | — |   |   |   | 3.0 |   |   |
| Total                                  |       | $          | 260.8      |                                      |       | $ | 11.5 |   |   |   | $ | 241.3 |   |   |   | $ | 1.2 |   |   |   | $ | 6.8 |   |   |

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(1)                 The notes are dueon March 1, 2007 and have a fixed interest rate of 4%. We have repurchaseda total of $121.2 million of the original $345.0 million obligation in the openmarket during 2004, 2002 and 2001, to reduce our obligation and we mayrepurchase additional notes in the future.

(2)                 Theamounts presented represent leases of certain equipment, office andmanufacturing space under operating leases. The amounts presented in this lineitem represent commitments for minimum lease payments under non-cancelableoperating leases.

(3)                 Theamounts presented represent leased computer equipment under a capital lease.The amounts presented in this line item represent commitments for minimum leasepayments under non-cancelable capital leases.

(4)                 Thepurchase obligations include agreements to purchase goods or services that areenforceable and legally binding on TriQuint and that specify all significantterms, including: fixed or minimum quantities to be purchased; fixed, minimumor variable price provisions; and the approximate timing of the transaction.Purchase obligations exclude agreements that are cancelable without penalty.

(5)                 Theamount presented represents the liability for our Non-Qualified DeferredCompensation Plan (the “Plan”) established in October 2004. The Planprovides employees who are eligible to participate and the members of the Boardof Directors with the opportunity to defer a specified percentage of their cashcompensation. The deferred earnings are invested at the discretion of eachparticipating employee or director and the deferred compensation we areobligated to deliver is adjusted for increases or decreases in the deferredamount due to such investment. We include the asset deferred by theparticipants ($0.1 million) in the “Other noncurrent assets, net” line item andour obligation to deliver the deferred compensation in the “Other long-termliabilities” line item on our consolidated balance sheet.

(6)                 Thebalance represents the pension liability of our German subsidiary ($2.2million) and our termination liability to certain officers if they areterminated for other than cause ($0.8 million). The pension liability isassociated with our German subsidiary, which becomes payable when the coveredemployees reach the age of 60 or 65. The liability was acquired through ourpurchase of Infineon in 2002. We elected to secure the liability through areinsurance program supported by us. No individual is eligible within the nextfive years. We included the reinsurance receivables ($2.1 million) in the “Othercurrent assets, net” line item and our obligation to deliver the pensionobligation in the “Accrued Payroll” line item on our consolidated balancesheet.

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**Recent Accounting Pronouncements**

On December 16, 2004,the FASB issued SFAS No. 123(R), *Share-Based Payment*’,which replaces SFAS No. 123, supersedes APB No. 25, and amends SFAS No. 95,*Statement of Cash Flow*. Currently, weuse the Black-Scholes model for option expense calculation and present proforma disclosure of the income statement effect in financial statementfootnotes only under APB No. 25. However, under SFAS No. 123(R), proforma disclosure of the income statement effects of share-based payments willno longer be an alternative and all share-based payments to employees,including grants of employee stock options will be recognized in the financialstatements based on their fair values. In addition, companies must alsorecognize compensation expense related to any awards that are not fully vestedas of the effective date. Compensation expense for the unvested awards will bemeasured based on the fair value of the awards previously calculated indeveloping the pro forma disclosures in accordance with the provisions of SFAS No. 123.SFAS 123(R) is effective for public companies at the beginning of thefirst interim or annual period beginning June 15, 2005. We are currentlyevaluating our share-based employee compensation programs to determine whataction, if any, we may make to these programs. As part of an overall review ofour compensation and benefits program we made a number of changes to theseprograms, including the acceleration of the vesting of options, excludingoption grants to our board members and chief executive officer,with an optionprice equal or greater to $9.00 per share (see Note 2 to ourConsolidated Financial Statements). We expect the adoption of SFAS 123(R) willhave a material impact on our results of operations; however, we have not yetdetermined the method of adoption, the effect of adopting SFAS 123(R), orwhether adoption will result in amounts that are similar to the current proforma disclosures under SFAS 123.

In November 2004, theFASB issued SFAS No. 151, *Inventory Costs—anamendment of ARB No. 43*, in an effort to converge U.S.accounting standards for inventories with International Accounting Standards.FAS No. 151 requires idle facility expenses, freight, handling costs, andwasted material (spoilage) costs to be recognized as current-period charges. Italso requires that allocation of fixed production overheads to the costs ofconversion be based on the normal capacity of the production facilities. FAS No. 151will be effective for inventory costs incurred during fiscal years beginningafter June 15, 2005. We have historically applied these principles to ourcosting methods and are currently in compliance with the standard. As such, thestandard is not expected to have a material impact on our financial statements.

On September 30, 2004, the Emerging Issues Task Force (“EITF”) reached consensus on Issue No. 04-08,*The Effect of Contingently Convertible Debt onDiluted Earnings per Share*, which changes the treatment ofcontingently convertible debt instruments in the calculation of dilutedearnings per share. EITF No. 04-08 provides that the shares issuableupon conversion of these debt instruments be included in the earnings per sharecomputation, if dilutive, regardless of whether the contingent conditions fortheir conversion have been met. This change does not have any effect on netincome, however it may affect the related earnings per share amounts. EITF No. 04-08will be effective for reporting periods ending after December 15, 2004,however the adoption of EITF No. 04-08 is not expected to have animpact on our earnings per share as our outstanding convertible debt is notcontingently convertible debt.

In January 2003, theFASB released Interpretation No. 46, *Consolidation of VariableInterest Entities* (“FIN 46”). FIN 46 requires an investor with amajority of the variable interests (primary beneficiary) in a variable interestentity (“VIE”) to consolidate the entity and also requires majority andsignificant variable interest investors to provide certain disclosures. A VIEis an entity in which the voting equity investors do not have a controllingfinancial interest or the equity investment at risk is insufficient to financethe entity’s activities without receiving additional subordinated financialsupport from the other parties. The provisions of FIN No. 46 wereeffective immediately for all arrangements entered into with new VIEs createdafter January 31, 2003. In December 2003, the FASB published arevision of FIN 46 (“FIN 46R”) to clarify some of the provisions of FIN 46 andto defer the effective date of implementation for certain entities. Under theguidance of FIN 46R, entities that did not have interests in structures thatare 

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commonlyreferred to as special-purpose entities are required to apply the provisions ofthe interpretation in financial statements for periods ending after March 14,2004. Based on the provisions of FIN 46 and FIN 46R, we do not have anyvariable interests in VIEs, and therefore, FIN 46 and FIN 46R has not had animpact on us in fiscal years 2003 or 2004.

**Impact of Inflation**

We believe that inflationhas not had a material impact on operating costs and expenses.

**Factors that May AffectFuture Results**

An investment in ourcommon stock is extremely risky. This Annual Report on Form 10-Kcontains forward-looking statements that involve risks and uncertainties, aswell as assumptions that, if they never materialize or prove incorrect, couldcause our actual results to differ materially from those expressed or impliedby such forward-looking statements. Such statements reflect management’scurrent expectations, assumptions and estimates of future performance andeconomic conditions. Such statements are made in reliance upon the safe harborprovisions of Section 27A of the Securities Act of 1933, as amended, and Section 21Eof the Securities Exchange Act of 1934, as amended. The following are some ofthe factors we believe could cause our actual results to differ materially fromexpected and historical results. The trading price of our common stock coulddecline due to any of these risks and you may lose part or all of yourinvestment. Other factors besides those listed here could also adversely affectus.

***Our operatingresults may fluctuate substantially, which may cause our stock price to fall.***

Ourquarterly and annual results of operations have varied in the past and may varysignificantly in the future due to a number of factors including, but notlimited to, the following:

·       cancellationor delay of customer orders or shipments;

·       oursuccess in achieving design wins in which our products are designed into thoseof our customers;

·       marketacceptance of our products and those of our customers;

·       variabilityof the life cycles of our customers’ products;

·       variationsin manufacturing yields;

·       timingof announcements and introduction of new products by us and our competitors;

·       changesin the mix of products we sell;

·       decliningaverage sales prices for our products;

·       abilityto integrate existing and newly developed technologies;

·       changesin manufacturing capacity and variations in the utilization of that capacity;

·       variationsin operating expenses;

·       impairmentsof our assets;

·       thelong sales cycles associated with our customer-specific products;

·       thetiming and level of product and process development costs;

·       availabilityof materials used in the assembly of our products;

·       performanceof vendors and subcontractors;

·       realizationof research and development efforts;

·       variationsin raw material quality and costs;

·       delaysin new process qualification or delays in transferring processes;

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·       thecyclical nature of the semiconductor and electronic communications componentindustries;

·       continued softness in the optical components andnetworks market;

·       delayed consolidations of the optoelectronicsindustry, continuing a state of the industry oversupply and pricing belowacceptable margins;

·       thetiming and level of nonrecurring engineering revenues and expenses relating tocustomer-specific products;

·       ourability to successfully integrate the operations of acquired businesses and toretain the customers of acquired businesses;

·       significantlyhigher costs associated with integrating the operations of acquired businessesthan we anticipated;

·       significantchanges in our and our customers’ inventory levels;

·       longerpayment terms; and

·       deliveryterms requiring that we cover shipment and insurance costs as well as requestthat we cover duty costs.

We expect that ouroperating results will continue to fluctuate in the future as a result of theseand other factors. Any unfavorable changes in these or other factors couldcause our results of operations to suffer as they have in the past. Due topotential fluctuations, we believe that period-to-period comparisons of ourresults of operations are not necessarily meaningful and should not be reliedupon as indicators of our future performance.

Additionally, if ouroperating results are not within the market’s expectations, then our stockprice may fall. The public stock markets have experienced extreme price andtrading volume volatility, particularly in high technology sectors of themarket. This volatility has significantly affected the market prices ofsecurities of many technology companies for reasons frequently unrelated to ordisproportionately impacted by the operating performance of these companies.These broad market fluctuations may adversely affect the market price of ourcommon stock.

***New competitiveproducts and technologies have been announced which could reduce demand for ourSAW filter products and our receiver and related products for wireless phones.***

New products have beenintroduced in the marketplace that use a direct conversion architecture inwireless phones, which reduces the number of components needed in the receiverportion of wireless phones. Sales of our SAW IF filter products along with someof our receiver products would be negatively impacted by wireless phonemanufacturers’ use of a direct conversion chipset as new phone models aredeveloped. Direct conversion architecture has been available since the mid-1990’sfor GSM phones and wireless phone manufacturers are increasing the use of thisprocess in new phones. In 2004 and 2003, sales of SAW IF filters and receiverproducts for GSM phones accounted for less than 1% of our total revenues. Inaddition, several companies have introduced a direct conversion chipset forCDMA phones which will impact our future revenues from SAW IF filters andreceiver products for CDMA phones. In 2004 and 2003, sales from SAW IF filtersfor CDMA phones were approximately 5% and 7%, respectively, of our totalrevenues and sales of receiver and related products for CDMA phones wereapproximately 8% and 10% of our total revenues, respectively. Further, wecontinue to sell products for TDMA wireless phones, which are increasinglymigrating to the GSM standard. Our sales of products for TDMA phones for yearended December 31, 2004 was less than 1% of our total revenue as comparedto approximately 3% of our total revenue for 2003. In 2005, we are anticipatingthis conversion for all standards to have a negative impact on our SAW filterrevenue in certain applications of $20.0 million to $26.0 million as comparedto 2004.

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Other competitivefiltering technologies, including film bulk acoustic resonator (“FBAR”) andbulk acoustic wave (“BAW”), have been introduced and have gained marketacceptance in certain applications.

We are actively pursuingnew products such as RF filters, duplexers, power amplifiers, modules and BAWfiltering to offset the decline in sales of products affected by directconversion architecture and the loss of revenues from products for TDMA phones.If we are not successful in introducing competitive or alternative products,our business, financial condition and results of operation will suffer.

***Our operatingresults may suffer due to fluctuations in demand for semiconductors andelectronic communications components.***

From time to time, thewireless phone, infrastructure networks, optical networks, and defense marketshave experienced significant downturns and wide fluctuations in product supplyand demand, often in connection with, or in anticipation of, maturing productcycles, capital spending cycles and declines in general economic conditions.This cyclical nature of these markets has led to significant imbalances indemand, inventory levels and production capacity. It has also accelerated thedecrease of average selling prices per unit. We have experienced, and mayexperience again, periodic fluctuations in our financial results because ofthese or other industry-wide conditions. For example, if demand forcommunications applications were to decrease substantially, demand for theintegrated circuits and modules, optical components and modules and SAW filtercomponents in these applications would also decline, which would negativelyaffect our operating results. Conversely, we believe that current trends suchas wireless phone portability, color screens and digital photo capability, andthe development of wireless infrastructure in countries such as India and Chinawill increase the demand for our products. We do not know, however, if thiswill lead to a sustained level of increased demand.

***We depend on thecontinued growth of communications markets.***

Wederive all of our product revenues from sales of products and services forelectronic communication applications. These markets are characterized by thefollowing:

·       cyclicaldemand;

·       intensecompetition;

·       rapidtechnological change; and

·       shortproduct life cycles, especially in the wireless phone market.

The electroniccommunications markets recovered some of their previous pattern of growthduring the first half of 2004; however the markets softened during the thirdquarter. These markets may not resume historical growth rates and if thecurrent market softness continues and demand for electronic communicationsapplications declines, our operating results could suffer.

Products for electroniccommunications applications are often based on industry standards, which arecontinually evolving. Our future success will depend, in part, upon our abilityto successfully develop and introduce new products based on emerging industrystandards, which could render our existing products unmarketable or obsolete.If communications markets evolve to new standards, we may be unable tosuccessfully design and manufacture new products that address the needs of ourcustomers or that will meet with substantial market acceptance.

***Our financialstatements will have a significant material adverse charge when we are requiredto expense share-based payment to employees.***

On December 16, 2004,the Financial Accounting Standards Board (‘‘FASB’’) issued SFAS No. 123(R),*Share-Based Payment*, which replaces SFASNo. 123, supersedes APB No. 25, and amends SFAS No. 95, *Statement of Cash Flow*. Currently, we use the Black-Scholesmodel for option expense 

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calculationand present pro forma disclosure of the income statement effect in financialstatement footnotes only under APB No. 25. However, under SFAS No. 123(R),pro forma disclosure of the income statement effects of share-based paymentswill no longer an alternative and all share-based payments to employees,including grants of employee stock options will be recognized in the financialstatements based on their fair values. In addition, companies must alsorecognize compensation expense related to any awards that are not fully vestedas of the effective date. Compensation expense for the unvested awards will bemeasured based on the fair value of the awards previously calculated indeveloping the pro forma disclosures in accordance with the provisions of SFAS No. 123.SFAS 123(R) is effective for public companies at the beginning of thefirst interim or annual period beginning June 15, 2005. We are currentlyevaluating our share-based employee compensation programs to determine whataction, if any, may be required to reduce this potential charge when thisstatement becomes effective. In anticipation of the effective date, we haveaccelerated the vesting of options, excluding option grants to our boardmembers and chief executive officer, with an option price equal or greater to$9.00 per share. The adoption of the standard is expected to have a materialadverse impact on our financial statements.

***In the event we areunable to satisfy regulatory requirements relating to internal controls, or ifthese internal controls over financial reporting are not effective, ourbusiness and our stock price could suffer.***

Section 404 ofSarbanes-Oxley requires companies to do a comprehensive and costly evaluationof their internal controls. As a result, during 2004, we were required toperform an evaluation of our internal controls over financial reporting andhave our auditor publicly attest to such evaluation. At December 31, 2004,management asserted, and our auditors attested, that we had no materialweaknesses over internal controls over financial reporting and were in fullcompliance of Section 404. Our efforts to comply with Section 404 andrelated regulations regarding our management’s required assessment of internalcontrol over financial reporting and our independent auditors’ attestation ofthat assessment has required, and continues to require, the commitment ofsignificant financial and managerial resources. While we anticipate maintainingthe integrity of our internal controls over financial reporting and all otheraspects of Section 404, we cannot be certain that a material weakness willnot arise. If a material weakness is discovered, we could be subject toregulatory investigations or sanctions, costly litigation or a loss of publicconfidence in our internal controls, which could have an adverse effect on ourbusiness and our stock price.

***Our revenues are at risk if we do not introduce newproducts and/or decrease costs.***

Historically, the averageselling prices of our products have decreased over the products’ lives and weexpect them to continue to do so. To offset these decreases, we rely primarilyon achieving yield improvements and other cost reductions for existing productsand on introducing new products that can be manufactured at lower costs.Selling prices for our SAW products have declined due to competitive pricingpressures and to the use of newer surface mount package devices that aresmaller and less expensive than previous generation filters. For example, wehave experienced declines in average selling prices for RF filters for wirelessphones due to competitive pressure and for filters for base stations due to theuse of surface mount packages. We believe our future success depends, in part,on our timely development and introduction of new products that competeeffectively on the basis of price and performance and adequately addresscustomer requirements. The success of new product and process introductionsdepends on several factors, including:

·       properselection of products and processes;

·       successfuland timely completion of product and process development and commercialization;

·       marketacceptance of our or our customers’ new products;

·       achievementof acceptable manufacturing yields;

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·       ourability to offer new products at competitive prices; and

·       managingthe cost of raw materials and manufacturing services.

Our product and processdevelopment efforts may not be successful and our new products or processes maynot achieve market acceptance. To the extent that our cost reductions and newproduct introductions do not occur in a timely manner, our results ofoperations could suffer.

***Our business could be harmed if systems manufacturersdo not use components made of GaAs or other alternative materials we utilize.***

Siliconsemiconductor technologies are the dominant process technologies for integratedcircuits and the performance of silicon integrated circuits continues toimprove. System designers may be reluctant to adopt our products because of:

·       theirunfamiliarity with designing systems with our products;

·       theirconcerns related to manufacturing costs and yields;

·       theirunfamiliarity with our design and manufacturing processes; and

·       uncertaintiesabout the relative cost effectiveness of our products compared to highperformance silicon components.

Systems manufacturers may not use GaAs componentsbecause the production of GaAs integrated circuits has been, and continues tobe, more costly than the production of silicon devices. Systems manufacturersmay also be reluctant to rely on a jointly produced product because futuresupplies may depend on our continued good relationships with those vendors. Asa result, we must offer devices that provide superior performance to that oftraditional silicon based devices.

In addition, customers maybe reluctant to rely on a smaller company like us for critical components. Wecannot be certain that additional systems manufacturers will design ourproducts into their systems or that the companies that have utilized ourproducts will continue to do so in the future. If our products fail to achievemarket acceptance, our results of operations would suffer.

***A decline in the growth of wireless communications orin the continued acceptance of CDMA technology, particularly in emergingmarkets, would have an adverse impact on us.***

Our products forCDMA-based systems, including filters for base stations and receivers and poweramplifiers for wireless phones comprise a significant part of our business.CDMA technology is relatively expensive and there can be no assurance thatemerging markets, such as China and India, will continue to adopt thistechnology. Our business and financial results would be adversely impacted ifCDMA technology does not continue to gain acceptance or if demand does notstrengthen.

***Our business may be adversely impacted if we fail tosuccessfully introduce new products or to gain our customers’ acceptance ofthose new products.***

The markets for electronic communications applicationsin which we participate are subject to intense competition, rapid technologicalchange, and short product life cycles. It is critical for companies such asours to continually and quickly develop new products to meet the changing needsof these markets. If we fail to develop new products to meet our customers’needs on a timely basis, we will not be able to effectively compete in thesemarkets.

For example, we announcedour intention to develop and market RF front-end modules for wireless phones atcost-effective prices. We will also need to continue to expand our wirelessapplications into CDMA and GSM applications. If we fail to design and producethese products in a manner acceptable to 

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ourcustomers or have incorrectly anticipated our customers’ demand for these typesof products, our operating results could be harmed.

***Our business will be adversely impacted if we do notcontinue to gain market acceptance of our wireless phone module products ordevelop effective manufacturing processes to produce them.***

Our strategy for wireless phone products depends inlarge part upon the success of our design and marketing of wireless phonemodules. Wireless phone modules represent the incorporation of some or all ofthe components of the wireless phone radio into a single product. If we areunable to design these modules in a manner acceptable to our customers or haveincorrectly anticipated our customers’ demand for these products, our operatingresults will be adversely affected.

Manufacturing moduleproducts represents a departure from our traditional component manufacturingbusiness. Production of module products entails different processes, costs,yields, and lead times. If we fail to successfully transition manufacturingresources to produce these products or are unable to do so cost-effectively,our operating results will be adversely affected. Our current experience isthat increased module sales are having a negative impact on gross margins. Ifwe are unable to reduce the costs of producing modules, total gross margin willdecrease as the proportion of module sales increase.

***If we fail to sell a high volume of products, ouroperating results will be harmed.***

Because large portions ofour manufacturing costs are relatively fixed, our manufacturing volumes arecritical to our operating results. If we fail to achieve acceptablemanufacturing volumes or experience product shipment delays, our results ofoperations could be harmed. During periods of decreased demand, our high fixedmanufacturing costs negatively affect our results of operations. We base ourexpense levels in part on our expectations of future orders and these expenselevels are predominantly fixed in the short-term. However, if the rate ofgrowth of demand decreases, we will not be able to grow our revenue. If wereceive fewer customer orders than expected or if our customers delay or cancelorders, we may not be able to reduce our manufacturing costs in the short-termand our operating results would be harmed. In addition, we are selling productsto an increasing number of our customers on a consignment basis, which canlimit our ability to forecast revenues.

***If we do not sell our customer-specific products inlarge volumes, our operating results may be harmed.***

We manufacture a substantial portion of our productsto address the needs of individual customers. Frequent product introductions bysystems manufacturers make our future success dependent on our ability toselect development projects which will result in sufficient volumes to enableus to achieve manufacturing efficiencies. Because customer-specific productsare developed for unique applications, we expect that some of our current andfuture customer-specific products may never be produced in sufficient volumeand may impair our ability to cover our fixed manufacturing costs. Furthermore,if customers cancel or delay orders for these customer-specific products, ourinventory of these products may become unmarketable or obsolete, which wouldnegatively affect our operating results.

In addition, if weexperience delays in completing designs, fail to obtain development contractsfrom customers whose products are successful, or fail to have our productdesigned into the next generation product of existing volume productioncustomers, our revenues could be harmed.

***Our excess manufacturing capacity may adversely affectour operating results if current market softness does not improve and if we areunable to sell our assets held for sale.***

We have converted our Hillsboro facility fromfour-inch wafer production to six-inch wafer production and have expanded thecapacity of our Texas operation with the acquisition of the Richardsonfacility. In addition, we have acquired additional manufacturing facilities andpersonnel in connection with our 

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acquisition of businessesfrom Infineon and Agere. However, in the first quarter of 2005, we entered intoan agreement to sell our Breinigsville, Pennsylvania facility to a real estateinvestment firm and lease back approximately 80,000 square feet of the 849,000square foot facility to reduce excess manufacturing capacity (see Note 21 toour Consolidated Financial Statements).

These increases incapacity directly relate to significant increases in fixed costs and operatingexpenses. These increased costs could have an adverse effect on our results ofoperations during economic downturns. If the current market softness does notimprove, and if we are unable to successfully complete the sale of ourPennsylvania facility and, to sell excess equipment associated with ourmanufacturing operations in Pennsylvania, Texas and Oregon, the decreasedlevels of demand and production in conjunction with these increased expenselevels will have an adverse effect on our business, financial condition andresults of operations.

***We face challenges and risks associated with ouracquisition of TFR Technologies, Inc. and, as a result, may not realizethe expected benefit of this acquisition.***

On January 5, 2005, we completed the acquisitionof TFR Technologies, Inc., (“TFR”), a manufacturer and developer of thinfilm resonator filters for communication applications using bulk acoustic wave(“BAW”) or film bulk acoustic resonator (“FBAR”) technology.

We face risksassociated with this acquisition such as:

·       ourability to develop new products and generate new design wins;

·       ourability to retain the employees and to integrate them into our corporateculture;

·       ourability to retain existing partners and customers of this business;

·       ourability to cost-effectively develop commercial products using BAW technology;and

·       ourability to successfully integrate the BAW applications into our products.

***If investors or financial or industry analysts do notthink the integration of our acquisitions is proceeding as anticipated or thatthe benefits of the acquisitions may not be realized, the market price of ourcommon stock may decline.***

The market price ofour common stock may decline if:

·       theintegration of our acquisitions is not completed in a timely and efficientmanner;

·       ourassumptions about the business models and operations of the acquired businesseswere incorrect or their role in our business does not develop as we planned;

·       weare unable to introduce new products incorporating acquired technology;

·       theeffect of the acquisitions on our financial results is not consistent with theexpectations of financial or industry analysts; or

·       following the acquisitions,our stockholders that hold relatively larger interests in our company maydecide to dispose of their shares because the results of the acquisitions arenot consistent with their expectations.

***We face risks of a loss of revenues as we aredependent on U.S. government and military contracts for a portion of ourrevenues.***

While the U.S. governmentand military programs we are involved in generally have long lead times such asthe F-22 and B-2 aircraft programs, they are also subject to delays orcancellation. Additionally, changes in government funding for defense or theloss of a significant defense program or contract would 

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have amaterial adverse impact on our company. In 2004 and 2003, we receivedapproximately 12% of our revenues from the U.S. government or from primecontractors on U.S. government sponsored programs principally for defenseapplications. Further, spending on defense contracts can vary significantlydepending on funding from the U.S. government. During 2004, our government andmilitary contracts were negatively impacted by the war in Iraq as thegovernment allocated more business to funding the war and less on newdevelopment and long-term programs, such as the ones we are dependent upon.

***We face risks from failures in our manufacturingprocesses, the maintenance of our fabrication facilities and the processes ofour vendors.***

The fabrication ofintegrated circuits, particularly those made of GaAs, is a highly complex andprecise process. Our integrated circuits are currently manufactured on wafersmade of GaAs, InP, and LiNbO3. Our SAW filters are currently manufacturedprimarily on LiNbO3, LiTaO3 and quartz wafers. During manufacturing, each waferis processed to contain numerous integrated circuits or SAW filters. We mayreject or be unable to sell a substantial percentage of wafers or thecomponents on a given wafer because of:

·       minuteimpurities;

·       difficultiesin the fabrication process, such as failure of special equipment, operatorerror or power outages;

·       defectsin the masks used to print circuits on a wafer;

·       electricaland/or optical performance;

·       waferbreakage; or

·       otherfactors.

We refer to the proportion of final components thathave been processed, assembled and tested relative to the gross number ofcomponents that could be constructed from the raw materials as ourmanufacturing yield. Compared to the manufacture of silicon integratedcircuits, GaAs technology is less mature and more difficult to design andmanufacture within specifications in large volume. In addition, the morebrittle nature of GaAs wafers can result in lower manufacturing yields thanwith silicon wafers. We have in the past experienced lower than expectedmanufacturing yields, which have delayed product shipments and negativelyimpacted our results of operations. We may experience difficulty maintainingacceptable manufacturing yields in the future.

In addition, themaintenance of our fabrication facilities and our assembly facilities issubject to risks, including:

·       thedemands of managing and coordinating workflow between geographically separateproduction facilities;

·       disruptionof production in one of our facilities as a result of a slowdown or shutdown inour other facility; and

·       higheroperating costs from managing geographically separate manufacturing facilities.

We depend on certainvendors for components, equipment and services. We maintain stringent policiesregarding qualification of these vendors. However, if these vendors’ processesvary in reliability or quality, they could negatively affect our products, andthereby, our results of operations.

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***We face risks from an increasing proportion of ouroperations and employees being located outside of the U.S.***

As we continue to expandour operations, an increasing number of our employees and operations arelocated in countries other than the U.S. The laws and governance of thesecountries may differ substantially from that of the U.S. and may expose us toincreased risks of adverse impacts on our operations and results of operations.These risks could include: loss of protection of proprietary technology,disruption of production processes, interruption of freight channels anddelivery schedules, currency exposure, financial institution failure,government expropriation, labor shortages, political unrest, and fraud.

***Some of our manufacturing facilities are located inareas prone to natural disasters.***

We have a SAW manufacturing and assembly facilitylocated in Apopka, Florida. We also have assembly facilities for SAW productsin San Jose, Costa Rica and for optoelectronics products in Matamoros, Mexico.Hurricanes, tropical storms, flooding, tornadoes, and other natural disastersare common events for the southeastern and Gulf of Mexico regions of the U.S.and in Central America which could affect our operations in these areas.Additionally, mud slides, earthquakes and volcanic eruptions could also affectour Costa Rican and Oregon facilities. Any disruptions from these or otherevents would have a material adverse impact on our operations and financialresults.

Although we have manufacturing and assemblycapabilities for our Sawtek products in both Apopka, Florida and San Jose,Costa Rica, we are only capable of fabricating wafers for those products in ourApopka facility and rely on our San Jose facility for the majority of ourassembly operations. As a result, any disruption to either facility would havea material adverse impact on our operations and financial results.

The hurricanes encountered in the southeastern U.S.during the third quarter of 2004 did not cause any significant damage to ourfacilities.

Thefollowing table indicates the approximate exposure we believe we have withrespect to natural disasters:
| ** **           | ** ** | **Type of** | ** ** | **Approximate Percent  of Total*** | ** ** |
|----------------------|------------|------------------|------------|----------------------------------------------|------------|
| **Location**         | ** ** | ** **       | ** ** | **Disaster**                                 | ** ** | **Fixed Assets** | ** ** | **Revenues** | ** ** |
| Apopka, Florida      |       | H                |       | 10% - 15%                                    |       |   | 25 | % |   |
| Dallas, Texas        |       | H                |       | 40% - 45%                                    |       |   | 20 | % |   |
| Hillsboro, Oregon    |       | E, V             |       | 15% - 20%                                    |       |   | 30 | % |   |
| Matamoros, Mexico    |       | H                |       | Under 5%                                     |       |   | 5 | % |   |
| San Jose, Costa Rica |       | E,  V, H         |       | 10%  - 15%                                   |       |   | 25 | % |   |
|                      |            |                  |            |                                              |            |  |  |  |  |  |  |

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E—Earthquake/mudslide

V—Volcanic eruption

H—Hurricane and/or tornado and flooding

*                    Figures arebased on revenues for the year ended December 31, 2004 or fixed assets asof December 31, 2004. Additionally, the sum may be greater than 100% dueto shared risks between locations.

***A disruption in our Costa Rican or Mexican operationswould have an adverse impact on our operating results.***

Operating facilities in Costa Rica and Mexico presentsrisks of disruption such as government intervention, currency fluctuations,labor disputes, limited supplies of labor, power interruption, civil unrest, orwar. Any such disruptions could have a material adverse effect on our business,results of operations and financial condition.

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Our Costa Rican operationshave been a significant contributor to our operating results in the past. Weexpect our Costa Rican operations to continue to account for a significantproportion of our SAW operations in the future and our Mexican operation to bean important part of our optoelectronics component business. Any disruption inthese operations would have a significant negative impact on our operatingresults.

***We face risks from changes in tax regulations and achange in our Costa Rican subsidiary’s favorable tax status would have anadverse impact on our operating results.***

We are subject to taxation in many different countriesand localities worldwide. In some jurisdictions, we have employed specificbusiness strategies to minimize our tax exposure. To the extent the tax lawsand regulations in these various countries and localities could change, our taxliability in general could increase or our tax saving strategies could bethreatened. Such changes could have a material adverse effect on our operationsand financial results.

For example, our subsidiary in Costa Rica operates ina free trade zone. We expect to receive a 75% exemption from Costa Rican incometaxes through 2007. The Costa Rican government continues to review its policyon granting tax exemptions to companies located in free trade zones and it maychange our tax status or minimize our benefit at any time. Any adverse changein the tax structure for our Costa Rican subsidiary made by the Costa Ricangovernment would have a negative impact on our net income. In 2004, the 75% taxexemption reduced our income tax expense by $2.7 million.

In addition, the U.S.Internal Revenue Service could assert additional taxes associated with our subsidiarydue to differing interpretations of transfer pricing and other intercompanytransactions.

***Our business may be adversely affected by acts ofterrorism or war.***

Acts of terrorism or war could interrupt or restrictour business in several ways. We rely extensively on the use of airtransportation to move our inventory to and from our vendors and to shipfinished products to our customers. If war or terrorist acts cause airtransportation to be grounded or severely interrupted, our business would be similarlyadversely impacted.

In addition, war or actsof terrorism could cause existing export regulations to be changed, which couldlimit the extent to which we are allowed to export our products. To the extentthat war or acts of terrorism also reduce customer confidence and creategeneral economic weakness, our business would also be adversely affected.

***A widespread outbreak of an infectious disease orillness could negatively affect our marketing, assembly and test, design, orother operations, making it more difficult and expensive to meet ourobligations to our customers and could result in reduced demand from ourcustomers.***

A widespread outbreak ofan infectious disease or illness could adversely affect our operations as wellas demand from our customers. A number of countries in the Asia/Pacific regionhave experienced outbreaks of different infectious diseases and illnesses inthe past and the U.S. has reported a current shortage in the influenza vaccine.As a result of widespread outbreaks, businesses can be temporarily affected andindividuals can become ill or quarantined.

***Our operating results could be harmed if we loseaccess to sole or limited sources of materials, equipment or services.***

We currently obtain some components, equipment andservices for our products from limited or single sources, such as certainceramic packages and chemicals. Approximately 30% of our purchases are fromsole sources. We purchase these components, equipment, supplies and services ona purchase order 

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basis, do not carrysignificant inventories and generally do not have long-term supply contractswith these vendors. Our requirements are relatively small compared to siliconsemiconductor manufacturers. Because we often do not account for a significantpart of our vendors’ business, we may not have access to sufficient capacityfrom these vendors in periods of high demand. If we were to change any of oursole or limited source vendors, we would be required to requalify each newvendor. Requalification could prevent or delay product shipments, which couldnegatively affect our results of operations. In some cases, it would bedifficult to replace these suppliers and requalification could take up to 12months.

Our reliance on a limitednumber of suppliers for certain raw materials and parts may impair our abilityto produce our products on time and in acceptable yields. For example, at timesin the past, we have experienced difficulties in obtaining ceramic packages andlids used in the production of bandpass filters. At other times, theacquisition of relatively simple devices, such as capacitors, has beenproblematic because of the large demand swings that can occur in the cellularhandset market for such components. Our optical components group is dependentupon a large number of suppliers, some of which are very small companies, forcomponents that make up their components and sub-system product offerings suchas transceivers. The success of these products is critical to the overallsuccess of our business. The primary risk to our source of supply tomanufacture these products is the currently depressed state of the opticalnetwork market and its potential impact on smaller vendors in terms of possiblebankruptcy or inability to meet delivery schedules. In addition, our relianceon these vendors may negatively affect our production if the components,equipment or services vary in reliability or quality. If we are unable toobtain timely deliveries of sufficient quantities of acceptable quality or ifthe prices increase, our results of operations could be harmed.

***Our operating results could be harmed if oursubcontractors and partners are unable to fulfill our requirements.***

We currently utilizesubcontractors for the majority of our integrated circuit and moduleassemblies. Approximately 30% of our revenue is derived from components inwhich we utilize subcontractors for some portion of the production process.There are certain risks associated with dependence on third party providers,such as minimal control over delivery scheduling, adequate capacity duringdemand peaks, warranty issues and protection of intellectual property.Additionally, if these subcontractors are unable to meet our needs, it couldprevent or delay production shipments that could negatively affect our resultsof operations. If we were to change any of our subcontractors, we would berequired to requalify each new subcontractor, which could also prevent or delayproduct shipments that could negatively affect our results of operations. Inaddition, our reliance on these subcontractors may negatively affect ourproduction if the services vary in reliability or quality. If we are unable toobtain timely service of acceptable quality or if the prices increase, ourresults of operations could be harmed.

***If our products fail to perform or meet customerrequirements, we could incur significant additional costs.***

The fabrication ofintegrated circuits and SAW filters from substrate materials such and themodules containing these components is a highly complex and precise process.Our customers specify quality, performance and reliability standards that wemust meet. If our products do not meet these standards, we may be required torework or replace the products. Our products may contain undetected defects orfailures that only become evident after we commence volume shipments. We haveexperienced product quality, performance or reliability problems from time totime. We are currently experiencing field failures and returns on somecomponents and are collecting data for analysis and evaluation as to the extentof the problem. Other defects or failures may also occur in the future. Iffailures or defects occur, we could:

·       loserevenues;

·       incurincreased costs such as warranty expense and costs associated with customer support;

·       experiencedelays, cancellations or rescheduling of orders for our products; or

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·       experience increasedproduct returns or discounts.

***We may face fines or our facilities could be closed ifwe fail to comply with environmental regulations.***

Federal, state and localregulations impose various environmental controls on the storage, handling,discharge and disposal of chemicals and gases used in our manufacturingprocess. For our manufacturing facilities, we generally provide our ownmanufacturing waste treatment and contract for disposal of some materials. Weare required to report usage of environmentally hazardous materials. Thefailure to comply with present or future regulations could result in finesbeing imposed on us and we could be required to suspend production or cease ouroperations. These regulations could require us to acquire significant equipmentor to incur substantial other expenses to comply with environmentalregulations. Any failure by us to control the use of, or to adequately restrictthe discharge of, hazardous substances could subject us to future liabilitiesand harm our results of operations. Further, new environmental initiativescould affect the materials we currently use in production.

***We have substantial indebtedness.***

We have $223.8million of indebtedness remaining in the form of our convertible subordinatednotes due in 2007. We have additional indebtedness for operating and capitalleases. We may incur substantial additional indebtedness in the future. Thelevel of our indebtedness, among other things, could:

·       makeit difficult for us to obtain any necessary future financing for workingcapital, capital expenditures, debt service requirements or other purposes;

·       requireus to dedicate a substantial portion of our expected cash flow from operationsto service our indebtedness, which would reduce the amount of our expected cashflow available for other purposes, including working capital and capitalexpenditures;

·       limitour flexibility in planning for or reacting to, changes in our business; and

·       makeus more vulnerable in the event of a downturn in our business.

There can be no assurancethat we will be able to meet our debt service obligations, including ourobligation under the notes.

***We may not be able to pay our debt and otherobligations.***

If our cash flow isinadequate to meet our obligations, we could face substantial liquidityproblems. If we are unable to generate sufficient cash flow or otherwise obtainfunds necessary to make required payments on the notes or our otherobligations, we would be in default under the terms thereof. Default under theindenture would permit the holders of the notes to accelerate the maturity ofthe notes and could cause defaults under future indebtedness we may incur. Anysuch default could have a material adverse effect on our business, prospects,financial condition and operating results. In addition, we can not assure youthat we would be able to repay amounts due in respect of the notes if paymentof the notes were to be accelerated following the occurrence of an event ofdefault as defined in the indenture.

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***Customers may delay or cancel orders due to regulatorydelays.***

The increasingsignificance of electronic communications products has increased pressure onregulatory bodies worldwide to adopt new standards for electroniccommunications, generally following extensive investigation of and deliberationover competing technologies. The delays inherent in the regulatory approvalprocess may in the future cause the cancellation, postponement or reschedulingof the installation of communications systems by our customers. These delayshave in the past had, and may in the future have, a negative effect on oursales and our results of operations.

***We must improve our products and processes to remaincompetitive.***

If technologies orstandards supported by our or our customers’ products become obsolete or failto gain widespread commercial acceptance, our results of operations may bematerially impacted. Because of continual improvements in semiconductortechnology, including those in high performance silicon technologies such asCMOS, where substantially more resources are invested than in othertechnologies such as GaAs or SAW products, we believe that our future successwill depend, in part, on our ability to continue to improve our product andprocess technologies. We must also develop new technologies in a timely manner.In addition, we must adapt our products and processes to technological changesand to support emerging and established industry standards. We have and mustcontinue to perform significant research and development into advanced materialdevelopment such as InP, gallium nitride (“GaN”), and silicon carbide (“SiC”)to compete with future technologies of our competitors. These research anddevelopment efforts may not be accepted by our customers, and therefore may notachieve sustained production in the future. We may not be able to improve ourexisting products and process technologies, develop new technologies in atimely manner or effectively support industry standards. If we fail to do so,our customers may select another GaAs or SAW product or move to an alternativetechnology.

***Our results of operations may suffer if we do notcompete successfully.***

The markets for our products are characterized byprice competition, rapid technological change, short product life cycles, andheightened global competition. Many of our competitors have significantlygreater financial, technical, manufacturing and marketing resources. Due to theincreasing requirements for high-speed, high-frequency components, we expectintensified competition from existing integrated circuit and SAW devicesuppliers, as well as from the entry of new competitors to our target marketsand from the internal operations of some companies producing products similarto ours for their internal requirements. Several key customers in theoptoelectronics market have either captive internal suppliers or long-termcontractual relationships with suppliers based on factors other than cost andquality.

For products in depressed or flat markets, such as foroptical components, competition can be even more intense as companies attemptto maximize their revenue to cover as much of their fixed cost base aspossible, even if it means selling products at a loss. There is no guaranteethat pricing will stay at a level where we can sell our products on aprofitable basis.

For our integrated circuit devices, we competeprimarily with both manufacturers of high performance silicon integratedcircuits as well as manufacturers of GaAs integrated circuits. Our siliconbased competitors include companies such as Applied Micro Circuits Corporation,Maxim Integrated Products Inc., Motorola, Philips, STMicroelectronics N.V andothers. Our GaAs-based competitors include companies such as Anadigics Inc.,Eudyna, Inc., Raytheon, RF Micro Devices, Skyworks Solutions, Inc.,Vitesse Semiconductor Corp. and others. For our SAW devices our competitorsinclude companies such as ICS, Phonon, RF Monolithics, Vectron, EPCOS AG,Temex, TST, Fujitsu Microelectronics, Inc., Murata, Panasonic and others.Our major competitors across the optical markets include JDS Uniphase, BookhamTechnologies, Avanex, Eudyna, OpNext, Mitsubishi, Sumitomo and others.Competition could also come 

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from companies ahead of usin developing alternative technologies such as silicon germanium (“SiGe”) andInP integrated circuits and digital filtering and direct conversion devices.

Competition fromexisting or potential competitors may increase due to a number of factorsincluding, but not limited to, the following:

·       offeringof new or emerging technologies in integrated circuit or optical componentdesign using alternative materials such as InP;

·       offeringof new or emerging technologies such as digital filtering, BAW or directconversion as alternatives to SAW filters;

·       mergersand acquisitions of our customers by our competitors or other entities;

·       longeroperating histories and presence in key markets;

·       developmentof strategic relationships between our competitors;

·       abilityto obtain raw materials at lower costs due to larger purchasing volumes orother advantageous supply relationships;

·       accessto a wider customer base; and

·       accessto greater financial, technical, manufacturing and marketing resources.

Additionally, manufacturers of high performancesilicon integrated circuits have achieved greater market acceptance of theirexisting products and technologies in some applications.

We compete with both GaAs and silicon suppliers in allof our target markets. In microwave and millimeter wave applications, our competitionis primarily from a limited number of GaAs suppliers, which are in the processof expanding their product offerings to address commercial applications otherthan aerospace. We currently have excess capacity in our GaAs fabricationplants and are in the process of evaluating the carrying value of thesefacilities, which may result in a potential impairment charge.

Competition is primarilybased on performance elements such as speed, complexity and power dissipation,as well as price, product quality and ability to deliver products in a timelyfashion. Due to the proprietary nature of our products, competition occursalmost exclusively at the system design stage. As a result, a design win by ourcompetitors or by us typically limits further competition with respect tomanufacturing a given design.

***If we fail to integrate any future acquisitions, suchas TFR Technologies, Inc., or successfully invest in privately heldcompanies, our business will be harmed.***

We face risks fromany future acquisitions, including the following:

·       wemay fail to merge and coordinate the operations and personnel of newly acquiredcompanies with our existing business;

·       wemay fail to retain the key employees required to make the operation successful;

·       additionalcomplexity may affect our flexibility and ability to respond quickly to marketand management issues;

·       wemay experience difficulties integrating our financial and operating systems;

·       wemay experience additional financial and accounting challenges and complexitiesin areas such as tax planning, treasury management, financial reporting andrisk management;

·       ourongoing business may be disrupted or receive insufficient management attention;

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·       wemay not cost-effectively and rapidly incorporate the technologies we acquire;

·       wemay not be able to cost-effectively develop commercial products using the newlyacquired technology, including the new acquired BAW technology used in militaryapplications;

·       wemay not be able to recognize the cost savings or other financial benefits weanticipated;

·       wemay not be able to retain the existing customers of newly acquired operations;

·       existingcustomers of the acquired operations may demand significant price reductions orother detrimental term changes as a result of the change in ownership;

·       ourcorporate culture may clash with that of the acquired businesses;

·       wemay incur unknown liabilities associated with acquired businesses; and

·       ourincreasing international presence resulting from acquisitions increases ourexposure to foreign political, currency, and tax risks.

We face risks from equity investments in privatelyheld companies, such as:

·       wemay not realize the expected benefits associated with the investment resultingin a partial or total write-off of this investment;

·       wemay need to provide additional funding to support the privately held company;or

·       iftheir value decreases, we may realize losses on our holdings.

We may not successfully address these risks or anyother problems that arise in connection with future acquisitions or equityinvestments in privately held companies.

We will continue toevaluate strategic opportunities available to us and we may pursue product,technology or business acquisitions or investments in strategic partners. Inaddition, in connection with any future acquisitions, we may issue equitysecurities that could dilute the percentage ownership of our existingstockholders, we may incur additional debt and we may be required to amortizeexpenses related to other intangible assets or record impairment of goodwillthat may negatively affect our results of operations.

***If we do not hire and retain key employees, ourbusiness will suffer***

Our future success dependsin large part on the continued service of our key technical, marketing andmanagement personnel. We also depend on our ability to continue to identify,attract and retain qualified technical employees, particularly highly skilleddesign, process and test engineers involved in the manufacture and developmentof our products and processes. We must also recruit and train employees tomanufacture our products without a substantial reduction in manufacturingyields. There are many other semiconductor companies located in the communitiesnear our facilities and, as the economy improves, it may become increasinglydifficult for us to attract and retain those employees. The competition for keyemployees is intense, and the loss of key employees could negatively affect us.Only four employees have employment agreements; our Chief Executive Officer, ChiefFinancial Officer, Vice President of Sales and the founder of TFR Technologies, Inc.(“TFR”), a company acquired on January 5, 2005. The founder of TFR is theonly individual for whom we currently have key man life insurance in place.

***Our business may be harmed if we fail to protect ourproprietary technology.***

We rely on a combination of patents, trademarks, tradesecret laws, confidentiality procedures and licensing arrangements to protectour intellectual property rights. We currently have patents granted and pendingin the U.S. and elsewhere and intend to seek further international and U.S.patents on our 

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technology. In addition toour own inventions, we have acquired a substantial portfolio of U.S. andforeign patent applications in the optoelectronics area of technology. Many ofthese patent applications have issued as patents and will have lives that willextend 20 years from their respective filing dates, while other are stillpending. We cannot be certain that patents will be issued from any of ourpending applications or that patents will be issued in all countries where ourproducts can be sold or that any claims allowed from pending applications orwill be of sufficient scope or strength to provide meaningful protection or anycommercial advantage. Our competitors may also be able to design around ourpatents. The laws of some countries in which our products are or may bedeveloped, manufactured or sold, may not protect our products or intellectual propertyrights to the same extent as do the laws of the U.S., increasing thepossibility of piracy of our technology and products. Although we intend tovigorously defend our intellectual property rights, we may not be able toprevent misappropriation of our technology. Our competitors may alsoindependently develop technologies that are substantially equivalent orsuperior to our technology.

Our involvement in any patent dispute or otherintellectual property dispute or action to protect trade secrets and know-howcould have a material adverse effect on our business. Adverse determinations inany litigation could subject us to significant liabilities to third parties,require us to seek licenses from third parties and prevent us frommanufacturing and selling our products. Any of these situations could have amaterial adverse effect on our business.

We have approximately 130patents that expire from 2005 to 2023, with most expiring between 2015 and2023. We currently do not have any significant revenue related to a patent thatwill soon expire.

***Our ability to produce our products may suffer ifsomeone claims we infringe on their intellectual property.***

The integratedcircuit and SAW device industries are characterized by vigorous protection andpursuit of intellectual property rights or positions, which have resulted insignificant and often protracted and expensive litigation. If it is necessaryor desirable, we may seek licenses under such patents or other intellectualproperty rights. However, we cannot be certain that licenses will be offered orthat we would find the terms of licenses that are offered acceptable orcommercially reasonable. Our failure to obtain a license from a third party fortechnology used by us could cause us to incur substantial liabilities and tosuspend the manufacture of products. Furthermore, we may initiate claims orlitigation against third parties for infringement of our proprietary rights orto establish the validity of our proprietary rights. Litigation by or againstus could result in significant expense and divert the efforts of our technicalpersonnel and management, whether or not the litigation results in a favorabledetermination. In the event of an adverse result in any litigation, we could berequired to:

·       paysubstantial damages;

·       indemnifyour customers;

·       stopthe manufacture, use and sale of the infringing products;

·       expendsignificant resources to develop non-infringing technology;

·       discontinuethe use of certain processes; or

·       obtainlicenses to the technology.

We may be unsuccessful indeveloping non-infringing products or negotiating licenses upon reasonableterms, or at all. These problems might not be resolved in time to avoid harmingour results of operations. If any third party makes a successful claim againstour customers or us and a license is not made available to us on commerciallyreasonable terms, our business could be harmed.

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***Our ability to accurately predict revenues coulddeteriorate if we generate additional sales through inventory hubbing distributionfacilities.***

Several of our largercustomers have requested that we send our products to independent warehousesknown as inventory hubbing distribution facilities to assist them in inventorycontrol. We do not recognize revenues from these hubbing arrangements until thecustomer takes delivery of the inventory and title of the goods passes to thecustomer. As a result, increased shipments to these facilities make it moredifficult for us to predict short-term revenues as customers can take delivery ofthe products with little lead-time.

***Our business may suffer due to risks associated withinternational sales.***

Our sales outsideof the U.S. comprised approximately 56% and 61% of revenues during 2004 and2003, respectively. As a result, we face inherent risks from these sales,including:

·       impositionof government controls;

·       currencyexchange fluctuations;

·       longerpayment cycles and difficulties related to the collection of receivables frominternational customers;

·       reducedprotection for intellectual property rights in some countries;

·       unfavorabletax consequences;

·       difficultyobtaining distribution and support;

·       politicalinstability; and

·       tariffsand other trade barriers.

In addition, due to thetechnological advantages provided by GaAs integrated circuits in many militaryapplications, the Office of Export Administration of the U.S. Department ofCommerce must license all of our sales outside of North America. We are alsorequired to obtain licenses from that agency for sales of our SAW products tocustomers in certain countries. If we fail to obtain these licenses orexperience delays in obtaining these licenses in the future, our results ofoperations could be harmed. Also, because a majority of our foreign sales aredenominated in U.S. dollars, increases in the value of the dollar wouldincrease the price in local currencies of our products and make our productsless price competitive.

***We may be subject to a securities class action suit ifour stock price falls.***

Following periods of volatility in the market price ofa company’s stock, some stockholders may file securities class actionlitigation. For example, in 1994, a stockholder class action lawsuit was filedagainst us, our underwriters and some of our officers, directors and investors,which alleged that we, our underwriters and certain of our officers, directorsand investors intentionally misled the investing public regarding our financialprospects. We settled the action and recorded a special charge of $1.4 millionassociated with the settlement of this lawsuit and related legal expenses, netof accruals, in 1998.

In February 2003,several nearly identical putative civil class action lawsuits were filed in theUnited States District Court for the Middle District of Florida against Sawtek, Inc.,our wholly owned subsidiary since July 2001. The lawsuits also named asdefendants current and former officers of Sawtek and our company. The caseswere consolidated into one action, and an amended complaint was filed in thisaction on July 21, 2003. The amended class action complaint is purportedlyfiled on behalf of purchasers of Sawtek’s stock between January 2000 and May 24,2001, and alleges that the defendants violated Sections 10(b) and 20(a) ofthe Securities Exchange Act, as well as Securities and Exchange Commission Rule 10b-5,by making false and misleading statements and/or omissions to inflate Sawtek’sstock price and 

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concealthe downward trend in revenues disclosed in Sawtek’s May 23, 2001 pressrelease. The complaint does not specify the amount of monetary damages sought.Sawtek and the individual defendants filed their motion to dismiss on September 3,2003, and briefing on the motion was completed on November 19, 2003. Thecourt heard oral argument on November 21, 2003, and issued an orderpartially denying the motion to dismiss on December 19, 2003.Specifically, the court found that the complaint was not barred by the statuteof limitations, but reserved ruling on the other aspects of the motion todismiss. Because the statute of limitations issue is a novel question of law,the court stayed the proceedings in this case to allow the defendants to filean interlocutory appeal to the Eleventh Circuit Court of Appeals. Defendantsduly filed for interlocutory appeal on January 22, 2004. Because the Courtof Appeals is considering the identical issue in another matter, the appealprocess has been stayed, pending the Court of Appeals’ decision in the othermatter. We deny the allegations contained in the complaint and intend tocontinue our vigorous defense against these claims. This litigation may,however, require us to spend a substantial amount of time and money and coulddistract management from our day to day operations. In addition, there can beno assurance as to our success in defending ourselves against these charges.This and any future securities class action litigation could be expensive anddivert our management’s attention and harm our business, regardless of itsmerits.

***Our stock will likely be subject to substantial priceand volume fluctuations due to a number of factors, many of which are beyondour control and may prevent our stockholders from reselling our common stock ata profit.***

The securities marketshave experienced significant price and volume fluctuations and the marketprices of the securities of semiconductor companies have been especiallyvolatile. The market price of our common stock may experience significantfluctuations in the future. For example, our common stock price has fluctuatedfrom a high of approximately $9.93 to a low of approximately $3.20 during thefiscal year ended December 31, 2004. This market volatility, as well asgeneral economic, market or political conditions could reduce the market priceof our common stock in spite of our operating performance. In addition, ouroperating results could be below the expectations of public market analysts andinvestors, and in response, the market price of our common stock could decreasesignificantly.

***Our certificate of incorporation and bylaws includeanti-takeover provisions, which may deter or prevent a takeover attempt.***

Some provisions of our certificate of incorporationand bylaws and provisions of Delaware law may deter or prevent a takeoverattempt, including a takeover that might result in a premium over the marketprice for our common stock. These provisions include:

*Cumulativevoting.  *Our stockholders are entitled tocumulate their votes for directors.

*Stockholder proposals and nominations.  *Ourstockholders must give advance notice, generally 120 days prior to the relevantmeeting, to nominate a candidate for director or present a proposal to ourstockholders at a meeting. These notice requirements could inhibit a takeoverby delaying stockholder action.

*Stockholder rights plan.  *Wemay trigger our stockholder rights plan in the event our board of directorsdoes not agree to an acquisition proposal. The rights plan may make it moredifficult and costly to acquire our company.

*Preferred stock.  *Ourcertificate of incorporation authorizes our board of directors to issue up tofive million shares of preferred stock and to determine what rights,preferences and privileges such shares have. No action by our stockholders isnecessary before our board of directors can issue the preferred stock. Ourboard of directors could use the preferred stock to make it more difficult andcostly to acquire our company.

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*Delawareanti-takeover statute.  *The Delawareanti-takeover law restricts business combinations with some stockholders oncethe stockholder acquires 15% or more of our common stock. The Delaware statutemakes it harder for our company to be acquired without the consent of our boardof directors and management.

**Item 7A**.                *Quantitative and Qualitative Disclosureabout Market Risk*

**Cash Equivalents,Short-term and Long-term Investments**

Our investments in cashequivalents, short-term investments and long-term investments are classified asavailable-for-sale securities and are comprised of highly rated, short andlong-term investments, such as U.S. government agencies, corporate debtsecurities, commercial paper and other such low risk investments, in accordancewith an investment policy approved by our board of directors. All of theseinvestments are held at fair value. Although we manage investments under aninvestment policy, economic, market and other events may occur which we cannotcontrol. Although the risks are minimal, fixed rate securities may have theirfair value adversely impacted because of changes in interest rates and creditratings. Due in part to these factors, our future investment income may fallshort of expectations because of changes in interest rates or we may sufferprincipal losses if we were to sell securities that have declined in valuebecause of changes in interest rates or issuer credit ratings. We do not holdor issue derivatives, derivative commodity instruments or other financialinstruments for trading speculative purposes. We do not believe that ourresults of operations would be materially impacted by an immediate 10% changein interest rates.

**Debt**

Our convertible subordinated notes due in 2007 have afixed interest rate of 4%. Consequently, we do not have significant interestrate cash flow exposure on our long-term debt. However, the fair value of theconvertible subordinated notes is subject to significant fluctuations due totheir convertibility into shares of our stock and other market conditions. Thefair value of these convertible subordinated notes is also sensitive tofluctuations in the general level of the U.S. interest rates. We would beexposed to interest rate risk, if we used additional financing to fund capitalexpenditures. The interest rate that we may be able to obtain on financingswill depend on market conditions at that time and may differ from the rates wehave secured in the past. The notes do not contain significant restrictivecovenants.

Thefollowing table shows the fair values of our investments and convertiblesubordinated notes as of December 31, 2004:
| **(in thousands)**                                                 | ** ** | **Cost** | ** ** | **Fair Value** | ** ** |
|-------------------------------------------------------------------------|------------|----------|------------|---------------------|------------|
| Cash and cash  equivalents (including unrealized gains of $0)           |       | $        | 90,004     |                | $          | 90,004 |   |
| Available-for-sale  investments (including unrealized losses of $1,990) |       | 300,323  |       | 298,333             |       |
| Convertible subordinated  notes                                         |       | 223,755  |       | 217,042             |       |
|                                                                         |            |          |            |                     |            |  |  |

 

**Foreign CurrencyRisk**

We are exposed to currencyexchange fluctuations, as we sell our products internationally and haveoperations in Costa Rica, Germany and Mexico. We manage the sensitivity of ourinternational sales, purchases of raw materials and equipment and our CostaRican operations by denominating most transactions in U.S. dollars. We doengage in limited foreign currency hedging transactions, principally to lock inthe cost of purchase commitments and to hedge material cash flows that are notdenominated in U.S. dollars, in accordance with a foreign exchange riskmanagement policy approved by our board of directors. We primarily use currencyforward contracts for this purpose. This hedging activity will reduce, but maynot always entirely eliminate, the impact of currency exchange movements. As ofDecember 31, 2004 and 2003, we had forward currency contracts outstandingof approximately $39.5 million and 

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$18.4 million,respectively. The contracts designated as cash flow hedges at December 31,2004 and 2003, were approximately $7.3 million and $2.4 million, respectively.The contracts designated as balance sheet hedges at December 31, 2004 and2003, approximately $32.2 million and $16.0 million, respectively.

**Item 8**.                        *Financial Statements and Supplementary Financial Data*

Our consolidated financialstatements at December 31, 2004 and 2003 and for each of the three yearsin the period ended December 31, 2004, together with the reports of ourindependent registered public accounting firm, are included in this AnnualReport on Form 10-K on pages F-1 through F-40.

**Item 9**.                        *Changes in andDisagreements with Accountants on Accounting and Financial Disclosure*

None

**Item 9A**.                *Controlsand Procedures*

We maintain disclosurecontrols and procedures that are designed to ensure that information requiredto be disclosed in our reports filed with the SEC is recorded, processed,summarized and reported within the time periods specified in the SEC’s rules andforms, and that such information is accumulated and communicated to ourmanagement, including our Chief Executive Officer and Chief Financial Officer,as appropriate, to allow timely decisions regarding required disclosure.

***Management’s Report on Internal Control Over FinancialReporting***

The Company’smanagement is responsible for establishing and maintaining adequate internalcontrol over financial reporting for the Company pursuant to Section 404 of theSarbanes-Oxley Act of 2002 (Section 404) as defined in Rules 13a-15(f) and15d-15(f) under the U.S. Securities Exchange Act of 1934.  The Company’s internal control over financialreporting is designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles.  Internal control over financial reportingincludes those policies and procedures that:

·  pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company;

·  provide reasonable assurance that transactionsare recorded as necessary to permit preparation of financial statements in accordancewith generally accepted accounting principles, and that receipts andexpenditures of the company are being made only in accordance withauthorizations of management and directors of the company; and

·  provide reasonable assurance regarding preventionor timely detection of unauthorized acquisition, use or disposition of thecompany’s assets that could have a material effect on the financial statements.

Management has adopted the Committee of SponsoringOrganizations of the Treadway Commission (“COSO”) framework to evaluate theeffectiveness of the Company’s internal control over financial reporting.Management has selected the COSO framework for its evaluation as it is acontrol framework recognized by the SEC and the Public Company Accounting OversightBoard, that is free from bias, permits reasonably consistent qualitative andquantitative measurement of the Company’s internal controls, is sufficientlycomplete so that relevant controls are not omitted and is relevant to anevaluation of internal controls over financial reporting.

Management’s evaluation of the results of testingincluded consideration of susceptibility to loss or fraud, subjectivity,complexity, the extent of judgment, the amount and volume of the transactionsexposed to the deficiency, the existence of mitigating controls, the cause ofdetected exceptions, how the exception 

64

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was detected, thepervasiveness of the exception, the significance of the deviation from policy,and the frequency of exceptions relative to the frequency of operation.

Indicators of deficiencies that may be material weaknessand are at least significant include restatement, material misstatement in thecurrent period, ineffective Audit Committee oversight, ineffective internalaudit function, identification of fraud of any magnitude by management,significant deficiencies that remain uncorrected for some period of time,ineffective control environment, and the aggregate effect of all deficiencies.

As of December 31, 2004, management has assessedthe effectiveness of the Company’s internal control over financial reporting,and has concluded that such control over financial reporting is effective.There are no material weaknesses in the Company’s internal control overfinancial reporting that have been identified by management and there were nochanges in our internal control over financial reporting during the quarterended December 31, 2004, that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting

The Company’s independent registered public accountingfirm, KPMG LLP has audited the consolidated financial statements of the Companyfor the year ended December 31, 2004 and has issued their reports on theconsolidated financial statements and management’s assessment as to theeffectiveness of internal controls over financial reporting under AuditingStandard No. 2 of the Public Company Accounting Oversight Board. Theirreport on the effectiveness of internal controls over financial reporting isincluded below. Their report on our consolidated financial statements isincluded in Item 8.

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**Report**of Independent Registered Public Accounting Firm

The Board of Directors TriQuint Semiconductor, Inc.:

We have audited management’s assessment, included inthe accompanying Management’s Report on Internal Control Over FinancialReporting, that TriQuint Semiconductor, Inc. maintained effective internalcontrol over financial reporting as of December 31, 2004, based oncriteria established in *Internal Control—IntegratedFramework*issued by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO).TriQuint Semiconductor, Inc.’s management is responsible for theseconsolidated financial statements, for maintaining effective internal controlover financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting. Our responsibility is to express anopinion on these consolidated financial statements, an opinion on management’sassessment, and an opinion on the effectiveness of the Company’s internalcontrol over financial reporting based on our audits.

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting wasmaintained in all material respects. Our audit included obtaining anunderstanding of internal control over financial reporting, evaluatingmanagement’s assessment, testing and evaluating the design and operatingeffectiveness of internal control, and performing such other procedures as weconsidered necessary in the circumstances. We believe that our audit provides areasonable basis for our opinions.

A company’s internal control over financial reportingis a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with accounting principles generally accepted in theUnited States of America. A company’s internal control over financial reportingincludes those policies and procedures that (1) pertain to the maintenanceof records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with accounting principlesgenerally accepted in the United States of America, and that receipts andexpenditures of the company are being made only in accordance withauthorizations of management and directors of the company; and (3) providereasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use, or disposition of the company’s assets that could have amaterial effect on the financial statements.

Because of its inherent limitations, internal controlover financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject tothe risk that controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures maydeteriorate.

In our opinion, management’s assessment that TriQuintSemiconductor, Inc. maintained effective internal control over financialreporting as of December 31, 2004, is fairly stated, in all materialrespects, based on criteria established in *InternalControl—Integrated Framework*issuedby the Committee of Sponsoring Organizations of the Treadway Commission (COSO).Also, in our opinion, TriQuint Semiconductor, Inc. maintained, in allmaterial respects, effective internal control over financial reporting as of December 31,2004, based on criteria established in *InternalControl—Integrated Framework*issuedby the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standardsof the Public Company Accounting Oversight Board (United States), theconsolidated balance sheets of TriQuint Semiconductor, Inc. andsubsidiaries as of December 31, 2004 and 2003, and the relatedconsolidated statements of operations, stockholders’ equity, and cash flows foreach of the years in the three-year period ended December 31, 2004,and our report dated March 14, 2005, expressed an unqualified opinion onthose consolidated financial statements.

/s/ KPMG LLP

Portland, OregonMarch 14, 2005

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**Item 9B**.               *Other Information*

None

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**PART III**

**ITEM 10**.         *Directors and Executive Officers of the Registrant*

Information required bythis item is included in our definitive Proxy Statement under the captions *Election of Directors* and *Section 16(a) BeneficialOwnership Reporting Compliance*, to be filed with the Commissionwithin 120 days after the conclusion of our fiscal year ended December 31,2004 (April 30, 2005) pursuant to General Instructions G(3) of Form 10-Kand is incorporated herein by this reference.

**ITEM 11**.         *Executive Compensation*

We maintain employeebenefit plans and programs in which our executive officers are participants.Copies of certain of these plans and programs are set forth or incorporated byreference as Exhibits to this report. Information required by Item 11 isincluded in our definitive Proxy Statement under the caption *Executive Compensation and Other Matters*, *Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-EndOption Values*, *Employment Contracts andTermination of Employment and Change-of-Control Arrangements*, *Compensation Committee Interlocks and Insider Participation*,*Report of the Compensation Committee* and*Stock Price Performance Graph*, to befiled with the Commission within 120 days after the conclusion of our fiscal yearended December 31, 2004 (April 30, 2005) pursuant to Regulation 14A,which information is incorporated herein by this reference.

**ITEM 12**.         *Security Ownership of Certain Beneficial Owners and Management andRelated Stockholder Matters*

Informationrequired by this item is included under the caption *Common StockOwnership of Certain Beneficial Owners and Management* contained inour definitive Proxy Statement to be filed with the Commission within120 days after the conclusion of our fiscal year ended December 31, 2004 (April 30,2005) pursuant to Regulation 14A, which information is incorporated herein bythis reference.

**ITEM 13**.         *Certain Relationships and Related Transactions*

Informationrequired by this item is included under the caption *Certain Relationshipsand Related Transactions* contained in our definitive Proxy Statementto be filed with the Commission within 120 days after the conclusion ofour fiscal year ended December 31, 2004 (April 30, 2005) pursuant toRegulation 14A, which information is incorporated herein by this reference.

**ITEM 14**.         *Principal Accountant Fees and Services*

Information required by thisitem is included under the caption *Ratification ofIndependent Auditors* contained in our definitive Proxy Statement tobe filed with the Commission within 120 days after the conclusion of our fiscalyear ended December 31, 2004 (April 30, 2005) pursuant to Regulation14A, which information is incorporated herein by this reference.

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**PART IV**

**ITEM 15**.         *Exhibits and Financial Statement Schedules*

(a)           *Documentsfiled as part of this report:*

1.     *Consolidated Financial Statements.  *The followingconsolidated financial statements of TriQuint Semiconductor and itssubsidiaries, together with the report thereon of KPMG LLP, required to befiled pursuant to Part II, Item 8 of this Form 10-K, are included in thisAnnual Report on Form 10-K on pages F-1 through F-40:
| Report of Independent  Registered Public Accounting Firm;                                                            |
|----------------------------------------------------------------------------------------------------------------------|
| Consolidated Statements of Operations for the years  ended December 31, 2004, 2003 and 2002;                    |
| Consolidated Balance Sheets at December 31,  2004 and 2003;                                                     |
| Consolidated Statements of Cash Flows for the years  ended December 31, 2004, 2003 and 2002;                    |
| Consolidated Statements of Stockholders’ Equity for  the years ended December 31, 2004, 2003 and 2002; and |
| Notes to  Consolidated Financial Statements.                                                                         |

 

2.     *ConsolidatedFinancial Statement Schedule.  *The following consolidated financial statement schedule ofTriQuint Semiconductor and its subsidiaries required to be filed pursuant to Part IV,Item 15 of this Form 10-K, is included in this Annual Report on Form 10-Kon pages S-1 and S-2:
| Schedule II—Consolidated Valuation and  Qualifying Accounts; and |
|-----------------------------------------------------------------------|
| Report and Consent of  Independent Registered Public Accounting Firm. |

 

All other schedules are omitted because they are notapplicable or the required information is shown in the Consolidated FinancialStatements or notes thereto.

3.     *Exhibits.*
| Exhibit No.         | *** *** | **Description**                                                                                                                                                                                                                                                                                              |
|--------------------------|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     3.1   |         | Certificate of Incorporation, incorporated herein by reference to the corresponding exhibit to the  Registrant’s Registration Statement on Form 8-B (File  No. 000-22660) as declared effective by the SEC on February 18,  1997.                                                        |
|     3.1.1 |         | Certificate of Amendment to Certificate of  Incorporation, incorporated herein by reference to the corresponding exhibit  to the Registrant’s Quarterly Report  on Form 10-Q (File No. 000-22660) for the period ended  September 30, 2000 filed with the SEC on November 13, 2000. |
|     3.1.2 |         | Certificate of Correction to Certificate of  Incorporation, incorporated herein by reference to the corresponding exhibit  to the Registrant’s Registration Statement on Form S-4 (File  No. 333-62062) declared effective by the SEC on June 13, 2001.                                  |
|     3.1.3 |         | Certificate of Designation of Series A  Participating Preferred Stock, incorporated herein by reference to the  corresponding exhibit to the Registrant’s Registration Statement on  Form S-4 (File No. 333-62062) declared effective by the SEC  on June 13, 2001.                 |
|     3.1.4 |         | Certificate of Amendment to Certificate of  Incorporation, incorporated herein by reference to the corresponding exhibit  to the Registrant’s Registration Statement on Form S-4 (File  No. 333-62062) declared effective by the SEC on June 13, 2001.                                   |

69

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|     3.2 |   | Bylaws of Registrant, incorporated herein by this reference to  the corresponding exhibit to the  Registrant’s Registration Statement on Form 8-B (File  No. 000-22660) as declared effective by the SEC on February 18,  1997.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     4.1 |   | Preferred Shares Rights  Agreement, dated as of June 30, 1998 between Registrant and ChaseMellon  Shareholder Services, L.L.C., including the Certificate of Determination, the  form of Rights Certificate and the Summary of Rights attached thereto as  Exhibits A, B, and C, respectively, incorporated herein by reference to the  corresponding exhibit to the Registrant’s Current Report on Form 8-A  (File No. 000-22660) as declared effective by the SEC on July 24,  1998.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|     4.2 |   | Indenture dated February 24, 2000 between the  Registrant and State Street Bank and Trust Company of California, N.A.,  incorporated herein by reference to the corresponding exhibit to the Registrant’s  Registration Statement on Form S-3 (File No. 333-36112) as declared  effective by the SEC on May 16, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   10.4       |   | Letter Agreement dated November 22, 1991  between Registrant and Steven J. Sharp, incorporated herein by reference to  the corresponding exhibit to the Registrant’s Registration Statement on  Form S-1 (File No. 333-70594) as declared effective by the SEC on  December 13, 1993.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   10.18      |   | 1996 Stock Incentive Program and forms of agreement  thereunder, incorporated herein by this  reference to the corresponding exhibit to the Registrant’s Registration Statement on Form S-8  (File No. 333-81273) as declared effective by the SEC on June 22,  1999, as amended by the Registrant’s Registration Statement on Form S-8  (File No. 333-39730), as declared effective by the SEC on June 20,  2000, as amended by the Registrant’s Registration Statement on Form S-8  (File No. 333-61582), as declared effective by the SEC on May 24,  2001, as amended by the Registrant’s Registration Statement on Form S-8  (File No. 333-105701), as declared effective by the SEC on May 30,  2003 and incorporated by reference to the Registrant’s Quarterly Report on  Form 10-Q (File No. 000-22660) for the period ended  September 30, 2003 filed with the SEC on November 4, 2003. |
|   10.19      |   | Form of Indemnification Agreement executed by  Registrant and its officers and directors pursuant to Delaware  reincorporation, incorporated herein by  this reference to the corresponding exhibit to the Registrant’s Registration Statement on Form 8-B  (File No. 000-22660) as declared effective by the SEC on  February 18, 1997.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   10.22      |   | 1998 Nonstatutory Stock Option Plan and forms of  agreement thereunder, incorporated herein by reference to the corresponding  exhibit to the Registrant’s  Registration Statement on Form S-8 (File No. 333-102085) as  declared effective by the SEC on December 20, 2002 and incorporated by  reference to the Registrant’s Quarterly Report on Form 10-Q (File  No. 000-22660) for the period ended September 30, 2003 filed with  the SEC on November 4, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   10.23      |   | 1998 Employee Stock Purchase Plan and forms of  agreement thereunder, incorporated herein by reference to the corresponding  exhibit to the Registrant’s  Registration Statement on Form S-8 (File No. 333-66707) as declared  effective by the SEC on November 3, 1998, as amended by the Registrant’s  Registration Statement on Form S-8 (File No. 333-39732), as  declared effective by the SEC on June 20, 2000, and by the Registrant’s  Registration Statement on Form S-8 (File No. 333-61582), as  declared effective by the SEC on May 24, 2001.                                                                                                                                                                                                                                                                                                                                                                                     |
|   10.33      |   | Sawtek Inc. Employee Stock Ownership and  401(k) Plan, incorporated herein by reference to the corresponding  exhibit to the Registrant’s  Quarterly Report on Form 10-Q (File No. 000-22660) for the  period ended June 30, 2002 filed with the SEC on August 13, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

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|   10.34   |   | Sawtek Inc. 2000  Implementation Agreement, incorporated herein by reference to the  corresponding exhibit to the Registrant’s  Registration Statement on Form S-8 (File No. 333-65850) as  declared effective by the SEC on July 25, 2001.                                                                                                               |
|---------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   10.35   |   | Sawtek Inc. 2000 Modified ESOP Loan Agreement,  incorporated herein by reference to the corresponding exhibit to the Registrant’s Registration Statement on  Form S-8 (File No. 333-65850) as declared effective by the  SEC on July 25, 2001.                                                                                                            |
|   10.36   |   | Sawtek Inc. 2000 Renewed  ESOP Note, incorporated herein by reference to the corresponding exhibit to  the Registrant’s Registration  Statement on Form S-8 (File No. 333-65850) as declared  effective by the SEC on July 25, 2001.                                                                                                                      |
|   10.37   |   | Sawtek Inc. Second Stock Option Plan, incorporated  herein by reference to the corresponding exhibit to the Registrant’s Registration Statement on  Form S-8 (File No. 333-65850) as declared effective by the  SEC on July 25, 2001.                                                                                                                     |
|   10.38   |   | Sawtek Inc. Stock Option Plan for Acquired  Companies, incorporated herein by reference to the corresponding exhibit to  the Registrant’s Registration  Statement on Form S-8 (File No. 333-65850) as declared effective by  the SEC on July 25, 2001.                                                                                                    |
|   10.40*  |   | Amended Sale and Transfer Agreement between Infineon  Technologies AG, Infineon Technologies North America Corp., Registrant and  TriQuint GmbH dated as of April 29, 2002, incorporated herein by  reference to the corresponding exhibit to the Registrant’s Current Report on Form 8-K (File  No. 000-22660) filed with the SEC on July 15, 2002. |
|   10.41   |   | Letter Agreement dated June 28, 2002 between  Registrant and Ralph G. Quinsey, incorporated herein by reference to the  corresponding exhibit to the Registrant’s  Quarterly Report on Form 10-Q (File No. 000-22660) for the period  ended June 30, 2002 filed with the SEC on August 13, 2002.                                                |
|   10.42   |   | Asset Purchase Agreement by and between Agere  Systems Inc. and Registrant dated as of October 21, 2002, incorporated  herein by reference to the corresponding exhibit to the Registrant’s Current Report on  Form 8-K (File No. 000-22660) filed with the SEC on  January 17, 2003.                                                                |
|   10.42.1 |   | Amendment No. 1 to Asset Purchase Agreement by  and between Agere Systems Inc. and Registrant dated as of January 2,  2003, incorporated herein by reference to the corresponding exhibit to the Registrant’s Current Report on  Form 8-K (File No. 000-22660) filed with the SEC on  January 17, 2003.                                         |
|   10.42.2 |   | Assignment and Bill of Sale and Assumption Agreement  by and between Agere Systems Inc. and TriQuint Optoelectronics, Inc.  dated as of January 2, 2003, incorporated herein by reference to the  corresponding exhibit to the Registrant’s  Current Report on Form 8-K (File No. 000-22660) filed with  the SEC on January 17, 2003.           |
|   10.42.3 |   | Assignment and Bill of Sale and Assumption Agreement  by and between Agere Systems Inc. and TriQuint Technology Holding Co. dated  as of January 2, 2003, incorporated herein by reference to the  corresponding exhibit to the Registrant’s  Current Report on Form 8-K (File No. 000-22660) filed with  the SEC on January 17, 2003.               |
|   10.43.4 |   | Intellectual Property Agreement by and between Agere  Systems Inc. and Registrant dated as of January 2, 2003, incorporated  herein by reference to the corresponding exhibit to the Registrant’s Current Report on  Form 8-K (File No. 000-22660) filed with the SEC on  January 17, 2003.                                                          |
|   10.43.5 |   | Purchase Agreement by and between Agere Systems Inc.  and Registrant dated as of January 2, 2003, incorporated herein by reference  to the corresponding exhibit to the Registrant’s  Current Report on Form 8-K (File No. 000-22660) filed with  the SEC on January 17, 2003.                                                                       |

71

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|   10.43.7 |   | Equity Purchase  Agreement by and among Agere Systems Inc., Agere Systems International, LLC,  Registrant, TriQuint International Holding Co., TriQuint International  Holding LLC and Agere Systems de Mexico, S. DE R.L. DE C.V. dated as of  January 2, 2003, incorporated herein by reference to the corresponding  exhibit to the Registrant’s Current  Report on Form 8-K (File No. 000-22660) filed with the SEC on  January 17, 2003. |
|---------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   10.44   |   | Letter Agreement dated November 20, 2002  between Registrant and Raymond A. Link, incorporated herein by reference to  the corresponding exhibit to the Registrant’s  Annual Report on Form 10-K (File No. 000-22660) for the year ended  December 31, 2002 filed with the SEC on March 27, 2003.                                                                                                                                        |
|   10.44.1 |   | Letter Agreement dated  November 19, 2003 between Registrant and Raymond A. Link, incorporated  herein by reference to the corresponding exhibit to the Registrant’s Quarterly Report on  Form 10-Q (File No. 000-22660) for the period ended March 31,  2004 filed with the SEC on May 10, 2004.                                                                                                                                        |
|   10.45   |   | Letter Agreement dated April 9, 2004 between  Registrant and Todd A. Debonis, incorporated herein by reference to the  corresponding exhibit to the Registrant’s  Quarterly Report on Form 10-Q (File No. 000-22660) for the period  ended March 31, 2004 filed with the SEC on May 10, 2004.                                                                                                                                            |
|   10.46   |   | TriQuint Semiconductor, Inc. Nonqualified  Deferred Compensation Plan,. incorporated herein by reference to the  corresponding exhibit to the Registrant’s  Current Report on Form 8-K (File No. 000-22660) filed with  the SEC on November 2, 2004.                                                                                                                                                                                          |
|   10.47   |   | Agreement and Plan of Reorganization by and among  Sawtek Inc., TFR Acquisition, Inc., and TFR Technologies, Inc.,  dated as of December 14, 2004.±                                                                                                                                                                                                                                                                                                |
|   10.47.1 |   | Amendment No. 1 to Agreement and Plan of  Reorganization by and among Sawtek Inc., TFR Acquisition, Inc., and TFR  Technologies, Inc., dated as of January 6, 2005.±                                                                                                                                                                                                                                                                          |
|   10.48*       |   | Purchase and Sale Agreement by and between TriQuint  Optoelectronics, Inc. and Anthem Partners, LLC, dated as of March 7, 2005.±                                                                                                                                                                                                                                                                                                                                  |
|   12.1    |   | Computation of Ratios of Earnings to Fixed Charges±                                                                                                                                                                                                                                                                                                                                                                                                               |
|   21.1    |   | Subsidiaries±                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   23.1    |   | Report and Consent of Independent Registered Public  Accounting Firm±                                                                                                                                                                                                                                                                                                                                                                                             |
|   24.1    |   | Power of Attorney±                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   31.1    |   | Certification of Chief Executive Officer pursuant to  Rule 13a-14(a) and Rule 15d-14(a) of the Securities  Exchange Act, as amended±                                                                                                                                                                                                                                                                                                          |
|   31.2    |   | Certification of Chief Financial Officer pursuant to  Rule 13a-14(a) and Rule 15d-14(a) of the Securities  Exchange Act, as amended±                                                                                                                                                                                                                                                                                                          |
|   32.1    |   | Certification of Chief Executive Officer and Chief  Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley act of 2002±                                                                                                                                                                                                                                                                                     |

----

*                    Confidentialtreatment has been granted with respect to certain portions of this exhibit.Omitted portions have been filed separately with the SEC.

±                Included in thisReport

72

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**SIGNATURES**

Pursuantto the requirements of the Securities and Exchange Act of 1934, the registranthas duly caused this report to be signed on its behalf by the undersignedthereunto duly authorized.
|                             | TRIQUINT SEMICONDUCTOR,  INC. |
|-----------------------------|-------------------------------|
| Dated: March 15,  2005 | By:                           | /s/  RALPH G. QUINSEY |
|                        |                          | Ralph G. Quinsey |
| * *                    |                          | *President  and Chief Executive Officer  (Principal Executive Officer)* |
| Dated: March 15,  2005 | By:                           | /s/  RAYMOND A. LINK |
|                        |                          | Raymond A.  Link |
| * *                    |                          | *Vice  President, Finance and Administration,  Chief Financial Officer and Secretary  (Principal Financial and Accounting Officer)* |

 

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**POWER OF ATTORNEY**

KNOW ALL PERSONS BY THESE PRESENTS, that each personwhose signature appears below constitutes and appoints Ralph Quinsey andRaymond A. Link, jointly and severally, his attorneys-in-fact, each withthe power of substitution, for him in any and all capacities, to sign anyamendments to this Annual Report on Form 10-K and to file the same, withexhibits thereto and other documents in connection therewith, with theSecurities and Exchange Commission, hereby ratifying and confirming all that eachof said attorneys-in-fact, or his substitute or substitutes, may do or cause tobe done by virtue hereof.

**Pursuant to the requirements of the Securities Act of1933, this Registration Statement has been signed by the following persons inthe capacities and on the dates indicated.**
|                        | **Signature** | ** **                                                                           | ** ** | ** **           | **Title** | ** ** | ** ** | ** ** | **Date** | ** ** |
|------------------------|---------------|--------------------------------------------------------------------------------------|------------|----------------------|-----------|------------|------------|------------|----------|------------|
| /s/  RALPH G. QUINSEY  |          | President and Chief  Executive Officer                                               |       | March 15,  2005 |
| Ralph G. Quinsey       |          | (Principal Executive  Officer)                                                       |       |                 |
| /s/  RAYMOND A. LINK   |          | Vice President, Finance  and Administration,                                         |       | March 15,  2005 |
| Raymond A. Link        |          | Chief Financial Officer  and Secretary  (Principal Financial and Accounting Officer) |       |                 |
| /s/  STEVEN J. SHARP   |          | Chairman of the Board                                                                |       | March 15,  2005 |
| Steven J. Sharp        |          |                                                                                 |       |                 |
| /s/  FRANCISCO ALVAREZ |          | Director                                                                             |       | March 15,  2005 |
| Francisco Alvarez      |          |                                                                                 |       |                 |
| /s/  PAUL A. GARY      |          | Director                                                                             |       | March 15,  2005 |
| Paul A. Gary           |          |                                                                                 |       |                 |
| /s/  NICOLAS KAUSER    |          | Director                                                                             |       | March 15,  2005 |
| Nicolas Kauser         |          |                                                                                 |       |                 |
| /s/  WALDEN C. RHINES  |          | Director                                                                             |       | March 15,  2005 |
| Walden C. Rhines       |          |                                                                                 |       |                 |
| /s/  EDWARD F. TUCK    |          | Director                                                                             |       | March 15,  2005 |
| Edward F. Tuck         |          |                                                                                 |       |                 |
| /s/  WILLIS C. YOUNG   |          | Director                                                                             |       | March 15,  2005 |
| Willis C. Young        |          |                                                                                 |       |                 |

 

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**TRIQUINTSEMICONDUCTOR, INC.INDEX TO CONSOLIDATED FINANCIAL STATEMENTSContents**
| Report of Independent  Registered Public Accounting Firm                                                         |   | F-2    |
|------------------------------------------------------------------------------------------------------------------|--------|--------|
| Financial Statements:                                                                                            |   |   |
| Consolidated Statements of  Operations for the years ended December 31, 2004, 2003 and 2002                 |   | F-3    |
| Consolidated Balance Sheets as of  December 31, 2004 and 2003                                               |   | F-4    |
| Consolidated Statements of  Stockholders’ Equity for the years ended December 31, 2004, 2003 and  2002 |   | F-5    |
| Consolidated Statements of Cash Flows for  the years ended December 31, 2004, 2003 and 2002                 |   | F-6    |
| Notes to Consolidated  Financial Statements                                                                      |   | F-7    |

 

F-1

----

 

**Report of Independent Registered Public AccountingFirm**

The Board of Directors TriQuint Semiconductor, Inc.:

We have audited the accompanying consolidated balancesheets of TriQuint Semiconductor, Inc. and subsidiaries as of December 31,2004 and 2003, and the related consolidated statements of operations,stockholders’ equity, and cash flows for each of the years in the three-yearperiod ended December 31, 2004. These consolidated financial statementsare the responsibility of the Company’s management. Our responsibility is toexpress an opinion on these consolidated financial statements based on ouraudits.

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statementsreferred to above present fairly, in all material respects, the financialposition of TriQuint Semiconductor, Inc. and subsidiaries as of December 31,2004 and 2003, and the results of their operations and their cash flows foreach of the years in the three-year period ended December 31, 2004,in conformity with accounting principles generally accepted in the UnitedStates of America.

We also have audited, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the effectiveness of TriQuint Semiconductor, Inc.’sinternal control over financial reporting as of December 31, 2004, basedon criteria established in *InternalControl—Integrated Framework*issuedby the Committee of Sponsoring Organizations of the Treadway Commission (COSO),and our report dated March 14, 2005 expressed an unqualified opinion onmanagement’s assessment of, and the effective operation of, internal controlover financial reporting.
| /s/ KPMG LLP     |   |
|------------------|--------|
| Portland, Oregon |   |
| March 14, 2005   |   |

 

F-2

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**TRIQUINT SEMICONDUCTOR, INC.CONSOLIDATED STATEMENTS OFOPERATIONS(In thousands, except per share data)**
| ** **                                             | ** ** | **Years Ended December 31,** | ** ** |
|--------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                             | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| Revenues                                               |       | $                                           | 347,005    |   | $ | 312,272 |   | $ | 267,313 |   |
| Cost of goods sold                                     |       | 246,576                                     |       | 225,264 |   | 172,197 |   |
| Gross profit                                           |       | 100,429                                     |       | 87,008 |   | 95,116 |   |
| Operating expenses:                                    |       |                                        |       |   |   |   |   |
| Research, development and  engineering                 |       | 60,779                                      |       | 65,033 |   | 58,547 |   |
| Selling, general and  administrative                   |       | 53,261                                      |       | 51,415 |   | 42,889 |   |
| In-process research and  development                   |       | —                                      |       | 500 |   | 8,575 |   |
| Reduction in workforce                                 |       | 2,005                                       |       | 2,484 |   | 1,011 |   |
| Impairment of long-lived  assets and goodwill          |       | 15,533                                      |       | — |   | 94,740 |   |
| Gain on disposal of equipment                          |       | (4,492                                      | )          | — |   | — |   |
| Lease termination costs                                |       | —                                      |       | 41,962 |   | — |   |
| Total operating expenses                               |       | 127,086                                     |       | 161,394 |   | 205,762 |   |
| Loss from operations                                   |       | (26,657                                     | )          | (74,386 | ) | (110,646 | ) |
| Other income (expense):                                |       |                                        |       |   |   |   |   |
| Interest income                                        |       | 7,126                                       |       | 6,135 |   | 11,869 |   |
| Interest expense                                       |       | (10,730                                     | )          | (12,009 | ) | (12,684 | ) |
| Foreign currency gain (loss)                           |       | 2,121                                       |       | (250 | ) | (37 | ) |
| Impairment charge—investments in  other companies |       | (1,189                                      | )          | (2,387 | ) | (23,778 | ) |
| Gain on recovery of previously  impaired investment    |       | —                                      |       | 8,450 |   | — |   |
| Gain on retirement of debt                             |       | 539                                         |       | — |   | 6,009 |   |
| Other, net                                             |       | 161                                         |       | (75 | ) | 4,948 |   |
| Total other income (expense),  net                     |       | (1,972                                      | )          | (136 | ) | (13,673 | ) |
| Loss before income tax                                 |       | (28,629                                     | )          | (74,522 | ) | (124,319 | ) |
| Income tax expense (benefit)                           |       | 425                                         |       | (1,544 | ) | 34,241 |   |
| Net loss                                               |       | $                                           | (29,054    | ) | $ | (72,978 | ) | $ | (158,560 | ) |
| Loss per common share:                                 |       |                                        |       |   |   |   |   |
| Basic and Diluted                                      |       | $                                           | (0.21      | ) | $ | (0.54 | ) | $ | (1.20 | ) |
| Common equivalent shares:                              |       |                                        |       |   |   |   |   |
| Basic and Diluted                                      |       | 136,936                                     |       | 133,920 |   | 131,969 |   |

 

The accompanying notes are an integral part of these financial statements.

F-3

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**TRIQUINT SEMICONDUCTOR, INC.CONSOLIDATED BALANCE SHEETS(In thousands, except share and per share data)**
| ** **                                                                                                                                                                                           | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                           | ** ** | **2004**              | ** ** | **2003** | ** ** |
| **ASSETS**                                                                                                                                                                                           |       |                  |       |   |   |
| Current  assets:                                                                                                                                                                                     |       |                  |       |   |   |
| Cash and cash equivalents                                                                                                                                                                            |       | $                     | 90,004     |   | $ | 125,549 |   |
| Investments in marketable  securities                                                                                                                                                                |       | 108,778               |       | 154,581 |   |
| Accounts receivable, net                                                                                                                                                                             |       | 40,131                |       | 41,911 |   |
| Inventories, net                                                                                                                                                                                     |       | 59,746                |       | 65,286 |   |
| Assets held for sale                                                                                                                                                                                 |       | 17,654                |       | 24,423 |   |
| Prepaid expenses                                                                                                                                                                                     |       | 3,290                 |       | 8,592 |   |
| Other current assets                                                                                                                                                                                 |       | 8,359                 |       | 5,497 |   |
| Total current assets                                                                                                                                                                                 |       | 327,962               |       | 425,839 |   |
| Long-term investments in  marketable securities                                                                                                                                                      |       | 189,555               |       | 120,134 |   |
| Property, plant and equipment, net                                                                                                                                                                   |       | 199,518               |       | 221,678 |   |
| Other noncurrent assets, net                                                                                                                                                                         |       | 5,365                 |       | 25,149 |   |
| Total assets                                                                                                                                                                                         |       | $                     | 722,400    |   | $ | 792,800 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                                       |       |                  |       |   |   |
| Current  liabilities:                                                                                                                                                                                |       |                  |       |   |   |
| Accounts payable                                                                                                                                                                                     |       | $                     | 12,792     |   | $ | 18,905 |   |
| Accrued payroll                                                                                                                                                                                      |       | 11,726                |       | 7,668 |   |
| Deferred tax liability                                                                                                                                                                               |       | 7,607                 |       | 7,607 |   |
| Capital leases, current  portion                                                                                                                                                                     |       | 275                   |       | — |   |
| Other accrued liabilities                                                                                                                                                                            |       | 24,242                |       | 29,144 |   |
| Total current liabilities                                                                                                                                                                            |       | 56,642                |       | 63,324 |   |
| Long-term liabilities:                                                                                                                                                                               |       |                  |       |   |   |
| Convertible subordinated notes                                                                                                                                                                       |       | 223,755               |       | 268,755 |   |
| Other long-term liabilities                                                                                                                                                                          |       | 616                   |       | 600 |   |
| Total liabilities                                                                                                                                                                                    |       | 281,013               |       | 332,679 |   |
| Commitments and contingencies (Note 16)                                                                                                                                                              |       |                  |       |   |   |
| Stockholders’ equity:                                                                                                                                                                           |       |                  |       |   |   |
| Common stock, $.001 par value,  600,000,000 shares authorized, 138,773,680 shares and 135,403,258 shares  issued and outstanding at December 31, 2004 and December 31, 2003,  respectively |       | 139                   |       | 135 |   |
| Additional paid-in capital                                                                                                                                                                           |       | 472,675               |       | 460,593 |   |
| Accumulated other  comprehensive income (loss)                                                                                                                                                       |       | (1,707                | )          | 59 |   |
| Accumulated deficit                                                                                                                                                                                  |       | (29,720               | )          | (666 | ) |
| Total stockholders’ equity                                                                                                                                                                      |       | 441,387               |       | 460,121 |   |
| Total liabilities and stockholders’ equity                                                                                                                                                      |       | $                     | 722,400    |   | $ | 792,800 |   |

 

The accompanying notes are an integral part of these financial statements.

F-4

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**TRIQUINT SEMICONDUCTOR, INC.CONSOLIDATED STATEMENTS OFSTOCKHOLDERS’ EQUITY(In thousands)**
| ** **                                    | ** ** | **Common Stock** | ** ** | ** Additional   Paid-in** | ** ** | **Accumulated  Other  Comprehensive** | ** ** | **Unearned  ESOP**     | ** ** | **Retained  Earnings  (Accumulated** | ** ** | **Total  Stockholders’** | ** ** |
|-----------------------------------------------|------------|-----------------------|------------|-------------------------------------|------------|---------------------------------------|------------|------------------------|------------|--------------------------------------|------------|-------------------------------|------------|
| ** **                                    | ** ** | **Shares**            | ** ** | **Amount**                          | ** ** | **Capital**                           | ** ** | **Income (Loss)** | ** ** | **Compensation**                     | ** ** | **Deficit)**                  | ** ** | **Equity** | ** ** |
| **Balance, December 31, 2001**      |       | 131,141               |       |                                | $          | 131                                   |       |                   |       | $                                    | 451,703    |                          |       |   | $ | 458 |   |   |   | $ | (390 | ) |   |   | $ | 230,872 |   |   |   | $ | 682,774 |   |   |
| Issuance of common stock under plans     |       | 2,022                 |       |                                | 2          |                                  |       |                   | 9,132      |                                 |       |                          | —     |   |   |   | — |   |   |   | — |   |   |   | 9,134 |   |   |
| Income tax benefit of stock option plans |       | —                |       |                                | —     |                                  |       |                   | (8,074     | )                                    |       |                          | —     |   |   |   | — |   |   |   | — |   |   |   | (8,074 | ) |   |
| ESOP allocation                               |       | —                |       |                                | —     |                                  |       |                   | —     |                                 |       |                          | —     |   |   |   | 195 |   |   |   | — |   |   |   | 195 |   |   |
| Accumulated other comprehensive income        |       | —                |       |                                | —     |                                  |       |                   | —     |                                 |       |                          | 203        |   |   |   | — |   |   |   | — |   |   |   | 203 |   |   |
| Net loss                                      |       | —                |       |                                | —     |                                  |       |                   | —     |                                 |       |                          | —     |   |   |   | — |   |   |   | (158,560 | ) |   |   | (158,560 | ) |   |
| **Balance, December 31, 2002**      |       | 133,163               |       |                                | 133        |                                  |       |                   | 452,761    |                                 |       |                          | 661        |   |   |   | (195 | ) |   |   | 72,312 |   |   |   | 525,672 |   |   |
| Issuance of common stock under plans     |       | 2,240                 |       |                                | 2          |                                  |       |                   | 7,832      |                                 |       |                          | —     |   |   |   | — |   |   |   | — |   |   |   | 7,834 |   |   |
| ESOP allocation                               |       | —                |       |                                | —     |                                  |       |                   | —     |                                 |       |                          | —     |   |   |   | 195 |   |   |   | — |   |   |   | 195 |   |   |
| Accumulated other comprehensive income        |       | —                |       |                                | —     |                                  |       |                   | —     |                                 |       |                          | (602       | ) |   |   | — |   |   |   | — |   |   |   | (602 | ) |   |
| Net loss                                      |       | —                |       |                                | —     |                                  |       |                   | —     |                                 |       |                          | —     |   |   |   | — |   |   |   | (72,978 | ) |   |   | (72,978 | ) |   |
| **Balance, December 31, 2003**      |       | 135,403               |       |                                | 135        |                                  |       |                   | 460,593    |                                 |       |                          | 59         |   |   |   | — |   |   |   | (666 | ) |   |   | 460,121 |   |   |
| Issuance of common stock under plans     |       | 3,371                 |       |                                | 4          |                                  |       |                   | 12,082     |                                 |       |                          | —     |   |   |   | — |   |   |   | — |   |   |   | 12,086 |   |   |
| Accumulated other comprehensive income        |       | —                |       |                                | —     |                                  |       |                   | —     |                                 |       |                          | (1,766     | ) |   |   | — |   |   |   | — |   |   |   | (1,766 | ) |   |
| Net loss                                      |       | —                |       |                                | —     |                                  |       |                   | —     |                                 |       |                          | —     |   |   |   | — |   |   |   | (29,054 | ) |   |   | (29,054 | ) |   |
| **Balance, December 31, 2004**      |       | 138,774               |       |                                | $          | 139                                   |       |                   |       | $                                    | 472,675    |                          |       |   | $ | (1,707 | ) |   |   | $ | — |   |   |   | $ | (29,720 | ) |   |   | $ | 441,387 |   |   |

 

The accompanying notes are an integral part of these financial statements.

F-5

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**TRIQUINT SEMICONDUCTOR, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)**
| ** **                                                                                 | ** ** | **Years Ended December 31,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                                 | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| **Cash flows from operating  activities:**                                                 |       |                                        |       |   |   |   |   |
| Net  loss                                                                                  |       | $                                           | (29,054    | ) | $ | (72,978 | ) | $ | (158,560 | ) |
| Adjustments to reconcile net  loss to net cash provided by (used in) operating activities: |       |                                        |       |   |   |   |   |
| Depreciation  and amortization                                                             |       | 41,113                                      |       | 39,516 |   | 38,312 |   |
| Income  tax benefit of stock option exercises                                              |       | —                                      |       | — |   | (8,074 | ) |
| Loss  (gain) on disposal of assets                                                         |       | (2,987                                      | )          | 856 |   | 287 |   |
| Impairment  of long-lived assets and goodwill                                              |       | 15,533                                      |       | — |   | 94,740 |   |
| Lease  termination costs                                                                   |       | —                                      |       | 41,962 |   | — |   |
| Acquired  in-process research and development                                              |       | —                                      |       | 500 |   | 8,575 |   |
| Gain  on retirement of debt                                                                |       | (539                                        | )          | — |   | (6,009 | ) |
| Realized  gain on forward contract                                                         |       | —                                      |       | — |   | (4,570 | ) |
| Gain  on recovery of previously impaired investment                                        |       | —                                      |       | (8,450 | ) | — |   |
| Impairment  charge—investments in other companies                                     |       | 1,189                                       |       | 2,387 |   | 23,778 |   |
| Deferred  income taxes                                                                     |       | —                                      |       | — |   | 35,120 |   |
| Unrealized  ESOP compensation                                                              |       | —                                      |       | 195 |   | 195 |   |
| Changes in assets and  liabilities, net of assets acquired:                                |       |                                        |       |   |   |   |   |
| Accounts  receivable, net                                                                  |       | 1,780                                       |       | (7,042 | ) | (445 | ) |
| Inventories,  net                                                                          |       | 5,540                                       |       | (17,003 | ) | (1,447 | ) |
| Other  assets                                                                              |       | 15,499                                      |       | (2,591 | ) | 3,574 |   |
| Accounts  payable and accrued expenses                                                     |       | (6,624                                      | )          | (5,122 | ) | 5,068 |   |
| Net cash provided by (used in) operating activities                                        |       | 41,450                                      |       | (27,770 | ) | 30,544 |   |
| **Cash flows from investing  activities:**                                                 |       |                                        |       |   |   |   |   |
| Purchase  of available-for-sale investments                                                |       | (526,695                                    | )          | (1,271,527 | ) | (1,747,399 | ) |
| Proceeds  from note receivable                                                             |       | —                                      |       | 11,250 |   | — |   |
| Maturity  / sale of available-for-sale investments                                         |       | 500,985                                     |       | 1,279,817 |   | 1,873,366 |   |
| Increase  in restricted long-term assets                                                   |       | —                                      |       | — |   | (2,861 | ) |
| Infineon  acquisition                                                                      |       | —                                      |       | — |   | (49,557 | ) |
| IBM  acquisition                                                                           |       | —                                      |       | — |   | (23,411 | ) |
| Agere  acquisition                                                                         |       | —                                      |       | (40,151 | ) | — |   |
| Capital  expenditures                                                                      |       | (25,288                                     | )          | (27,934 | ) | (24,185 | ) |
| Investments  in other companies                                                            |       | —                                      |       | — |   | (17,103 | ) |
| Purchase  of other investments                                                             |       | —                                      |       | — |   | (14,475 | ) |
| Proceeds  from sale of assets                                                              |       | 5,792                                       |       | 10,895 |   | — |   |
| Book  value of assets sold                                                                 |       |                                        |       |   |   | — |   |
| Net  cash used in investing activities                                                     |       | (45,206                                     | )          | (37,650 | ) | (5,625 | ) |
| **Cash flows from financing  activities:**                                                 |       |                                        |       |   |   |   |   |
| Principal  payments under capital lease and installment note obligations                   |       | —                                      |       | (341 | ) | (1,598 | ) |
| Repurchase  of convertible subordinated notes                                              |       | (43,875                                     | )          | — |   | (21,137 | ) |
| Issuance  of common stock, net                                                             |       | 12,086                                      |       | 7,834 |   | 9,089 |   |
| Net  cash provided by (used in) financing activities                                       |       | (31,789                                     | )          | 7,493 |   | (13,646 | ) |
| Net decrease in cash and cash equivalents                                                  |       | (35,545                                     | )          | (57,927 | ) | 11,273 |   |
| Cash and cash equivalents at beginning of period                                           |       | 125,549                                     |       | 183,476 |   | 172,203 |   |
| Cash and cash equivalents at end of period                                                 |       | $                                           | 90,004     |   | $ | 125,549 |   | $ | 183,476 |   |
| Supplemental disclosures:                                                                  |       |                                        |       |   |   |   |   |
| Cash  paid for interest                                                                    |       | $                                           | 10,225     |   | $ | 10,762 |   | $ | 11,744 |   |
| Cash paid for income taxes                                                                 |       | $                                           | 655        |   | $ | 702 |   | $ | 992 |   |

 

The accompanying notes are an integral part of these financial statements.

F-6

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**TRIQUINT SEMICONDUCTOR, INC.NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS**

**(In thousands unless otherwisenoted, except share and per share amounts)**

**Note 1.   TheCompany**

TriQuint Semiconductor, Inc.(the “Company”) is a supplier of highperformance components and modules for communications applications. The Company’sfocus is on the specialized expertise, materials and know-how for radiofrequency (“RF”), intermediate frequency (“IF”) and optical applications. TheCompany’s markets include wireless phones, wireless infrastructure networks,optical networks, and defense. The Company provides customers with standard andcustom product solutions as well as foundry services. The Company’s productsare designed on various wafer substrates including compound semiconductormaterials such as gallium arsenide (“GaAs”) and indium phosphate (“InP”) andother materials such as quartz, as well as using a variety of semiconductordevice process technologies and surface acoustic wave (“SAW”) technology. TheCompany’s customers include major communication companies worldwide.

**Note 2.   Significant Accounting Policies**

***Principles of Consolidation***

The consolidated financialstatements for the periods presented include the accounts of the Company andits wholly owned subsidiaries, TriQuintOptoelectronics, Inc., TriQuint Semiconductor Texas LP, TriQuintSemiconductor GMBH, Sawtek, Inc. and Sawtek SRL. Investments inwhich the Company does not exercise significant influence are recorded at cost(generally less than a 20% interest). The Company has no investments in whichit exercises significant influence but which it does not control (generally 20%to 50% ownership interest). All significant intercompany transactions andbalances have been eliminated.

***Reclassifications***

Certain amounts in the December 31,2003 and 2002 financial statements have been reclassified to conform to the December 31,2004 presentation. Reclassifications made to the 2003 and 2002 financialstatements include adjustments to reclassify auction rate preferred securitiesfrom cash and cash equiliviants to short-term investments. For the years ended December 31,2003, 2002 and 2001, these reclassifications totaled $96,475, $42,750 and$89,525, respectively. Further, purchases and sales of available-for-salesecurities were increased $928,800 and $875,075, respectively, for the yearended December 31, 2003, and $1,290,830 and $1,337,605, respectively, forthe year ended December 31 2002, to account for the reclassification ofthe auction rate preferred securities. Additionally, in 2004 $22,000 ofsecurities classified as short-term investments as of December 31, 2003were reclassified as long-term investments. These reclassifications had noeffect on net income or loss or stockholders’ equity as previously reported.

***Management Estimates***

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period. The Company bases its estimates on historical experience andon various other assumptions that are believed to be reasonable under the circumstances.Examples of such estimates include, but are not limited 

F-7

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to,allowance for doubtful accounts, sales returns reserves, inventory reserves,income tax valuation allowance, warranty reserves, investment impairments,impairments of goodwill and long-lived assets and commitments andcontingencies. On a regular basis, the Company reviews its estimates to ensurethe estimates appropriately reflect changes in its business or as newinformation becomes available. Management believes that these estimates arereasonable; however, actual results could materially differ from theseestimates.

***Recognition of Revenues***

Revenues are primarilyderived from the sale of standard and customer-specific products and services.The Company also receives revenue from foundry services, non-recurringengineering fees and cost-plus contracts for research and development work,which collectively are less than 5% of consolidated revenue for any period.Sales of products are generally done through either the Company’s sales force andmanufacturers’ representatives or through a distribution network. Revenues fromstandard and customer-specific products are recognized when title to theproducts pass to the buyer. Revenues from foundry services and non-recurringengineering fees are recorded when the service is completed or upon certainmilestones as provided for in the agreements. Revenues from cost plus contractsare recognized on the percentage of completion method based on the costsincurred to date and the total contract amount, plus the contractual fee.Revenues from distributor sales are recognized when the product is sold to thedistributor. The Company’s distribution agreements provide for selling pricesthat are fixed at the date of sale, although the Company occasionally offersprice concessions which are specific, of a fixed duration and reserved for bythe Company. Further, the distributor is obligated to pay the amount and it isnot contingent on reselling the product; the distributor takes title to theproduct and bears substantially all of the risks of ownership; the distributorhas economic substance; the Company has no significant obligations for futureperformance to bring about resale; and the amount of future returns can bereasonably estimated. The Company allows its stocking distributor to returnproducts for warranty reasons as well as exchange products, within certainlimitations. Customers can only return product for warranty reasons. If theCompany is unable to repair or replace products returned under warranty, theCompany will issue a credit for a warranty return. Revenues from stockingdistributors in 2004, 2003 and 2002 were $4,679, $4,343 and $5,677,respectively. Additionally, the Company records a general reserve based onhistorical experience and judgment of expected levels of returns, as well, asthe Company becomes aware of potential returns due to warranty or other issues.

***Product Warranty***

The Company sells product with warranties that theproduct will be free of faulty workmanship or defective materials and that itwill conform to the Company’s published specifications or other specificationsmutually agreed to with the customer. The Company has also established areserve for potential catastrophic warranty claims for cases in which theobligation may extend beyond the repair and replacement of a faulty product.The Company estimates the potential liability associated with these warrantiesbased on a combination of factors including historical product returnexperience, known product warranty issues with specific customers, and judgmentof expected levels of returns based on economic and other factors. An accrualfor expected warranty costs results in a charge to the financial results in theperiod recorded. This liability can be difficult to estimate and, if theCompany experiences warranty claims in excess of projections, the Company mayneed to record additional accruals which would adversely affect the financialresults. In some cases, the Company has also assumed the existing warranties onproducts previously sold by businesses that the Company has acquired, such asthe Agere optoelectronics business.

F-8

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The Company allows only our stocking distributor toreturn product for other than warranty reasons. If the Company is unable torepair or replace a product returned under warranty, the Company will issue acredit for a warranty return.

The liability for productwarranties is included in “Other accrued liabilities” on the Company’scondensed consolidated balance sheet. The following table provides a reconciliationof the activity related to the Company’s reserve for warranty expense:
| ** **             | ** ** | **Years Ended December 31,** | ** ** |
|------------------------|------------|---------------------------------------------|------------|
| ** **             | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| Beginning balance      |       | $                                           | 9,293      |   | $ | 2,159 |   | $ | 1,577 |   |
| Additions              |       | (442                                        | )(2)       | 1,321 |   | 1,388 |   |
| Deductions             |       | (2,427                                      | )          | (3,487 | ) | (806 | ) |
| Acquisition related(1) |       | —                                      |       | 9,300 |   | — |   |
| Ending  balance        |       | $                                           | 6,424      |   | $ | 9,293 |   | $ | 2,159 |   |

----

(1)                 As part of theAgere acquisition in 2003, the Company assumed the existing warranties onproducts previously sold by Agere.

(2)                 During2004, the Company continued to refine its methodology for determining itsestimated warranty liability. As a result, the Company reduced the warrantyliability approximately $1,588 in the first quarter of 2004.

***Fair Value ofFinancial Instruments***

The Company’s financial instruments consist of cashand cash equivalents, marketable securities, trade receivables and payables andforward currency contracts. The carrying amounts of these instrumentsapproximate fair value because of their short-term maturities and variableinterest rates. The Company also has 4% convertible subordinated notes due in2007 (Note 11). The fair value of the convertible subordinated notes is subjectto significant fluctuations due to their convertibility into shares of theCompany’s stock and other market conditions. The fair value of these notes isalso sensitive to fluctuations in the general level of the U.S. interest rates.

Fair value estimates aremade at a specific point in time, based on relevant market information aboutthe financial instrument. These estimates are subjective in nature and involveuncertainties and matters of significant judgment and therefore cannot bedetermined with precision. Changes in assumptions could significantly affectthe estimates.

***Cash and Cash Equivalents***

The Company considers allhighly liquid debt and other instruments purchased with an original maturity ofthree months or less to be cash equivalents. These investments includeobligations of U.S. government agencies, corporate debt securities, commercialpaper and money market funds.

***MarketableSecurities and Other Investments***

The Company determines the appropriate classificationof its investments at the time of acquisition and reevaluates suchdetermination at each balance sheet date. The Company’s investment policy setsminimum credit quality criteria and maximum maturity limits on its investmentto provide for safety of principal, liquidity and a reasonable rate of return.Investments for which maturity from the balance sheet date is greater than oneyear are classified as long-term investments in marketable securities.Available-for-sale securities are recorded at fair value, based on currentmarket valuations. Unrealized holding gains and losses, net of the related taxeffect, on available-for-sale securities are excluded from earnings and are 

F-9

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reported as a separatecomponent of other comprehensive income until realized. Realized gains andlosses are included in earnings and are derived using the specificidentification method for determining the cost of the securities sold.Held-to-maturity securities are recorded at amortized cost, adjusted for theamortization or accretion of premiums or discounts. During 2004 the Companydetermined that its auction preferred securities were short-term investmentsand reclassified these holdings from cash and cash equilivants to short-terminvestments for the years ended December 31, 2004, 2003 and 2002.

At December 31, 2004and 2003 the Company’s investments consisted of U.S. treasury securities andobligations of U.S. government agencies, municipal notes and bonds, corporatedebt securities, auction rate preferred securities and other investments. Allare classified as available-for-sale.

***Trade AccountsReceivable***

Trade accounts receivableare recorded at the invoiced amount and do not bear interest. The Companyestablishes an allowance for the trade accounts receivable which represents theCompany’s best estimate of the amount of probable credit losses in the Company’sexisting accounts receivable. The Company determines the allowance byperforming on-going evaluations of its customers and their ability to makepayments. The Company determines the adequacy of the allowance based on lengthof time past due, historical experience and judgment of economic conditions.Additionally, the Company has a credit policy that is applied to potentialcustomers. Account balances are charged off against the allowance after allmeans of collection have been exhausted and the potential for recovery isconsidered remote. The Company does not have any off-balance sheet creditexposure related to its customers.

***Inventories***

The Company states itsinventories at the lower of cost or market. The Company uses a combination ofstandard cost and moving average cost methodologies to determine its cost basisfor its inventories. This methodology approximates actual cost on a first-in,first-out basis. In addition to stating inventory at a lower of cost or marketvaluation, the Company also evaluates it each period for excess quantities andobsolescence. This evaluation includes identifying those parts specificallyidentified as obsolete and reserving for them, analyzing forecasted demandversus quantities on hand and reserving for the excess, identifying andrecording other specific reserves, and estimating and recording a generalreserve based on historical experience and judgment of economic conditions. Iffuture demand or market conditions are less favorable than projections and theCompany fails to reduce manufacturing output accordingly, additional inventoryreserves may be required and would have a negative impact on the Company’sgross margin in the period the adjustment is made.

***Property, Plant &Equipment***

Property, plant and equipment is recorded at cost.Machinery and equipment under capital leases is stated at the lower of thepresent value of the minimum lease payments at the beginning of the lease termor the fair value of the leased assets at the inception of the lease.

Depreciation is providedusing the straight-line method over the estimated useful lives of theassets, which are as follows: three to seven years for machinery and equipment,furniture and fixtures and computer equipment and software and 39 years forbuildings. Leasehold improvements are amortized over the shorter of theestimated life of the asset or the term of the related lease, generally threeto seven years. Asset lives are reviewed periodically to determine ifappropriate and adjustments are made as necessary. Depreciation begins at thetime assets are placed in service. Maintenance and repairs are expensed asincurred. For the years ended December 31, 2004, 2003 and 2002, theCompany incurred depreciation expense of $37,691, $35,029 and $35,502,respectively.

F-10

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***Goodwill and OtherIntangible Assets***

Goodwill represents the excess of costs over fairvalue of assets of business acquired. Other intangible assets consistsprimarily of patents, developed technology and other intangibles with estimableuseful lives, ranging from two to 10 years at the time of acquisition. Goodwilland intangible assets acquired in a purchase business combination anddetermined to have an indefinite useful life are not amortized, but insteadreviewed at least annually for impairment. Intangible assets with estimableuseful lives are amortized over their respective estimated lives to theirestimated residual values, and reviewed for impairment in accordance with SFAS No. 144,*Accounting for Impairment or Disposal of Long-LivedAssets*.

The Company performsimpairment tests annually and when events and circumstances warrant. The amountof other intangible asset impairment, if any, is measured based on projecteddiscounted future operating cash flows using a discount rate reflecting theCompany’s average cost of funds. Financing costs related to the issuance ofdebt are capitalized as other noncurrent assets, net and amortized to interestexpense over the term of the related debt using the straight-line method, whichapproximates the effective interest method. Intangible assets are included inother non-current assets in the Consolidated Balance Sheet. See Note 9 foradditional discussion of goodwill and other intangible assets.

***Investments inPrivately Held Companies***

The Company has made anumber of investments in small, privately held technology companies in whichthe Company holds less than 20% of the capital stock or hold notes receivable.The Company accounts for these investments at their cost unless their value hasbeen determined to be other than temporarily impaired, in which case the investmentis impaired to its current value. The investments are included in othernoncurrent assets in the Consolidated Balance Sheet. The Company reviews theinvestments periodically for impairment and makes appropriate reductions incarrying value when an other-than-temporary decline is evident; however, fornon-marketable equity securities, the impairment analysis requires significantjudgment. The Company evaluates the financial condition of the investee, marketconditions, and other factors providing an indication of the fair value of theinvestments. Adverse changes in market conditions or poor operating results ofthe investees could result in additional other-than-temporary losses in futureperiods. See Note 15 for further discussion of impairments that have beenrecorded by the Company.

***Assets Held forSale***

In accordance with SFAS No. 144,*Accounting for the Impairment or Disposal ofLong-Lived Assets*, the Company has classified as held for sale,certain buildings, land, machinery and equipment, and intangible assets thatthe Company is marketing and expects to sell within one year.

***Research andDevelopment Costs***

The Company chargesresearch and development costs associated with the development of new productsto expense when incurred. Engineering and design costs related to revenues onnonrecurring engineering services billed to customers are classified as cost ofgoods sold.

***Advertising Costs***

The Company expensesadvertising costs as incurred.

***ComprehensiveIncome (Loss)***

TheCompany has adopted the provisions of SFAS No. 130, *ReportingComprehensive Income*. The objective of SFAS No. 130 is toreport all changes in equity that result from transactions and economic eventsother than transactions with owners. The components of comprehensive incomeinclude unrealized 

F-11

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holding gains and losses on available-for-saleinvestments and unrealized gains and losses on cash flow hedges which areincluded as a separate component of stockholders’ equity until realized. Forthe years presented, other comprehensive loss approximates net income. TheComponents of accumulated other comprehensive income (loss) are as follows:
| ** **                                                    | ** ** | **Years Ended December 31,** | ** ** |
|---------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                    | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| Net loss                                                      |       | $                                           | (29,054    | ) | $ | (72,978 | ) | $ | (158,560 | ) |
| Other comprehensive income (loss):                            |       |                                        |       |   |   |   |   |
| Net unrealized gain on cash flow hedges                       |       | 326                                         |       | (43 | ) | — |   |
| Net unrealized gain (loss) on available for sale  investments |       | (2,092                                      | )          | (559 | ) | 203 |   |
| Comprehensive loss                                            |       | $                                           | (30,820    | ) | $ | (73,580 | ) | $ | (158,357 | ) |

 

***Earnings (Loss) PerShare***

Basic earnings (loss) pershare is calculated by dividing the net income (loss) for the period by theweighted-average number of common shares outstanding during the period. Dilutedearnings (loss) per share is calculated by dividing net income for the periodby the weighted-average number of common shares outstanding during the period,increased by potentially dilutive common shares (“dilutive securities”) thatwere outstanding during the period. Dilutive securities include options grantedpursuant to the Company’s stock option plans and potential shares related tothe Employee Stock Purchase Plan and convertible subordinated debt. Areconciliation of the numerators and denominators of the basic and dilutedearnings (loss) per share calculations for the years ended December 31,2004, 2003 and 2002 is presented in Note 8.

***Income Taxes***

The Company is subject to taxation from federal, stateand international jurisdictions. A significant amount of management judgment isinvolved with the Company’s annual provision for income taxes and thecalculation of resulting deferred tax assets and liabilities. The Companyevaluates liabilities for estimated tax exposures in jurisdictions ofoperation. These tax jurisdictions include federal, state and international taxjurisdictions. Significant income tax exposures include potential challenges onforeign entities, merger, acquisition and disposition transactions andintercompany pricing. Exposures are settled primarily through the completion ofaudits within these tax jurisdictions, but can also be affected by otherfactors. Changes could cause management to find a revision of past estimatesappropriate. The liabilities are frequently reviewed by management for theiradequacy and appropriateness. As of December 31, 2004, the Company was notcurrently under audit by the taxing authorities. The Company concluded federalincome tax audits for the U.S. consolidated tax group on earlier years, mostrecently for the years 2000 and 2001. Tax periods within the statutory periodof limitations not previously audited are potentially open for examination bythe taxing authorities. Potential liabilities associated with these years willbe resolved when an event occurs to warrant closure, primarily through thecompletion of audits by the taxing jurisdictions. The Company is scheduled foran audit of its German subsidiary (TriQuint Semiconductor GmbH) in 2005. Issuesrelated to the German subsidiary include the Infineon Technologies purchaseaccounting, intercompany loans and transfer pricing. To the extent audits orother events result in a material adjustment to the accrued estimates, theeffect would be recognized during the period of the event. Management believesthat an appropriate liability has been established for estimated exposures,though the potential exists for results to materially vary from theseestimates.

The Company records avaluation allowance to reduce deferred tax assets when it is more likely thannot that some portion or all of the deferred tax assets may not be realized.The Company considers future 

F-12

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taxableincome and prudent and feasible tax planning strategies in determining the needfor a valuation allowance. The Company evaluates the need for a valuationallowance on a regular basis and adjusts the balance as needed. Theseadjustments have an impact on the Company’s financial statements in the periodsin which they are recorded. In 2002, the Company determined that a valuationallowance should be recorded against all of the Company’s deferred tax assetsbased on the criteria of SFAS No. 109, *Accounting for IncomeTaxes*. As December 31, 2004, this valuation allowance is stillin place.

***Foreign CurrencyRemeasurement***

The Company’s functionalcurrency for all operations worldwide is the U.S. dollar. For foreignoperations with the U.S. dollar as the functional currency, monetary assets andliabilities are remeasured at the year-end exchange rates. Certain non-monetaryassets and liabilities are remeasured using historical rates. Statements ofoperations are remeasured at an average exchange rate for the year. See Note 13for additional information about the Company’s foreign currency remeasurementactivity.

***Derivatives andHedging***

The Company enters into forward currency contracts forhedging purposes and accounts for derivatives and hedging activities in accordancewith SFAS No. 133, *Accounting for DerivativeInstruments and Certain Hedging Activities*, as amended, whichrequires that all derivative instruments be recorded on the balance sheet attheir respective fair values. The purpose of the forward currency hedges is tominimize the variability of cash flows associated with the anticipatedtransactions being hedged. As changes in foreign currency rates impact the U.S.dollar value transactions, the fair value of the forward contracts alsochanges, offsetting the foreign currency rate fluctuations. Changes in the fairvalue of derivatives are recorded in each period in income or othercomprehensive income, depending on the types and effectiveness of the hedges.

On the date the derivative contract is entered into,the Company designates the derivative as either a hedge of the fair value of arecognized asset or liability or of an unrecognized firm commitment (fair valuehedge), a hedge of a forecasted transaction or the variability of cash flows tobe received or paid related to a recognized asset or liability (cash flowhedge), a foreign currency fair value or cash flow hedge (foreign currencyhedge), or a hedge or a net investment in a foreign operation. For all hedgingrelationships the Company formally documents the hedging relationship and itsrisk-management objective and strategy for undertaking the hedge, the hedginginstrument, the item, the nature of the risk being hedged, how the hedginginstrument’s effectiveness in offsetting the hedged risk will be assessed, anda description of the method of measuring ineffectiveness. This process includeslinking all derivatives that are designated as fair value, cash flow, orforeign currency hedges to specific assets and liabilities on the balance sheetor to specific firm commitments or forecasted transactions. The Company alsoformally assesses, both at the hedge’s inception and on an ongoing basis,whether the derivatives that are used in hedging transactions are highlyeffective in offsetting changes in fair values or cash flows of hedged items.Changes in the fair-value of a derivative that is highly effective and that isdesignated and qualifies as a fair-value hedge, along with the loss or gain onthe hedged asset or liability or unrecognized firm commitment of the hedgeditem that is attributable to the hedged risk, are recorded in earnings. Changesin the fair value of a derivative that is highly effective and that isdesignated and qualifies as a cash flow hedge are recorded in othercomprehensive income to the extent that the derivative is effective as a hedge,until earnings are affected by the variability in cash flows of the designatedhedged item. Changes in the fair value of derivatives that are highly effectiveas hedges and that are designated and qualify foreign-currency hedges arerecorded in either earnings or other comprehensive income, depending on whetherthe hedge transaction is a fair-value hedge or cash flow hedge.

Additional informationabout the Company’s use of derivative instruments is presented in Note 13.

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***Impairments ofLong-lived Assets to be Disposed of***

Long-lived assets, such asproperty, plant, and equipment, and purchased intangibles subject toamortization, are reviewed for impairment whenever events or changes incircumstances indicate that the carrying amount of an asset may not berecoverable. Recoverability of assets to be held and used is measured by acomparison of the carrying amount of an asset to estimated undiscounted futurecash flows expected to be generated by the asset. If the carrying amount of anasset exceeds its estimated future cash flows, an impairment charge isrecognized in the amount by which the carrying amount of the asset exceeds thefair value of the asset. Fair value is determined by reference to market pricesor through discounted cash flow analysis, depending on the asset. Assets to bedisposed of are separately presented in the balance sheet and reported at thelower of the carrying amount or fair value less costs to sell, and are nolonger depreciated. The assets and liabilities of a disposed group classifiedas held for sale are presented separately in the appropriate asset andliability sections of the balance sheet.

***ESOP CompensationExpense***

The Company has anemployee stock ownership plan (“ESOP”), which is described in Note 18. TheCompany accounts for the ESOP shares acquired prior to January 1, 1993 inaccordance with Statement of Position (“SOP”) 76-3, *AccountingPractices for Certain Employee Stock Ownership Plans*, which requirescompensation expense to be measured using the cost basis of the shares when theshares are committed to be released to employees. Compensation expenseassociated with the allocation of the ESOP shares was $195 for the years ended December 31,2003 and 2002. There was no allocated compensation expense for the year ended December 31,2004 as all shares were allocated as of December 31, 2003.

***Stock-BasedCompensation***

The Company has stock-based employee compensationplans, which are described in Note 18. The Company accounts for compensationcost related to employee stock options and other forms of employee stock-basedcompensation plans other than ESOP in accordance with the provisions ofAccounting Principles Board Opinion (“APB”) No. 25, *Accountingfor Stock Issued to Employees*, and related interpretations. As such,compensation expense would be recorded on the date of grant only if the currentmarket price of the underlying stock exceeded the exercise price. The Companyalso applies SFAS No. 123, *Accounting for Stock-BasedCompensation*, which allows entities to continue to apply theprovisions of APB No. 25 and provide pro forma net income and pro formaearnings per share disclosures for employee stock option grants as if the fairvalue based method defined in SFAS No. 123 had been applied. Beginning inthe third quarter of 2005, the Company will be required to account forstock-based compensation under SFAS No. 123(R), *Share-BasedPayment*, which will require the Company to recognize the cost on itsfinancial statements. See “Recent Accounting Pronouncements” below for furtherdiscussion.

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TheCompany continues to apply the provisions of APB No. 25 in accounting forits plans. As the fair value was equal to the grant price on the date of grant,no compensation cost has been recognized for its stock-based compensationawards in the financial statements. Had the Company determined compensationcost based on the fair value at the date of grant for its stock-basedcompensation awards under SFAS No. 123, the Company’s net loss would havebeen adjusted to the pro forma amounts indicated in the following table:
| **(In thousands, except per share amounts)**                                                | ** ** | ** ** | ** ** | **Years Ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|------------|------------|---------------------------------------------|------------|
| ** **                                                                                                           | ** ** | **2004**   | ** ** | **2003**                                    | ** ** | **2002** | ** ** |
| Net loss as reported                                                                                                 |       | $          | (29,054    | )                                           | $          | (72,978 | ) | $ | (158,560 | ) |
| Deduct: Total stock-based employee compensation expense determined  under fair value based methods for all awards(1) |       | (37,042    | )          | (53,559                                     | )          | (56,253 | ) |
| Pro forma net loss                                                                                                   |       | $          | (66,096    | )                                           | $          | (126,537 | ) | $ | (214,813 | ) |
| Loss per share:                                                                                                      |       |       |       |                                        |       |   |   |
| Basic and diluted—as reported                                                                                   |       | $          | (0.21      | )                                           | $          | (0.54 | ) | $ | (1.20 | ) |
| Basic and diluted—pro forma                                                                                     |       | $          | (0.48      | )                                           | $          | (0.94 | ) | $ | (1.63 | ) |

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(1)                 On November 11,2004, the Compensation Committee of the Board of Directors approved theacceleration of the vesting of those employee stock options, excluding optiongrants to the Company’s board members and chief executive officer, with anoption price equal or greater to $9.00 per share. The acceleration was done aspart of a comprehensive review of the Company’s entire benefits program. Thedecision to accelerate some of the Company’s options was made after review ofthe Company’s current stock price, the competitive standpoint for the Companyfrom the options, the benefit of the options to the employees and the potentialeffects of SFAS No. 123(R). As a result of this action, approximately832,793 options with varying remaining vesting schedules were subject to theacceleration provision and became immediately exercisable. The Company’s stockprice on the acceleration date was $4.00, as reported on the Nasdaq NationalMarket. The total pro-forma stock-based employee compensation expense stated of$37,042 for the year ended December 31, 2004 includes approximately $4,223of expense resulting from this acceleration provision.

Thepro forma amounts reflected above may not be reflective of future disclosuressince the estimated fair value of stock options is amortized to expense as theoptions vest and additional options may be granted in future years. The fairvalue of employee stock options and employee stock purchase plans was estimatedon the date of the grant using the Black-Scholes option-pricing model with thefollowing assumptions:
| ** **                                        | ** ** | **Years Ended December 31,** | ** ** |
|---------------------------------------------------|------------|---------------------------------------------|------------|
| **Stock Option Plans**                  | ** ** | ** **                                  | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| Risk free interest rates                          |       | 3.43%                                       |       | 3.52% |   | 3.82% |   |
| Expected life in years                            |       | 4-5 years                                   |       | 5-6 years |   | 5-6 years |   |
| Expected volatility                               |       | 87%                                         |       | 93% |   | 97% |   |
| Per  share weighted-average grant-date fair value |       | $4                                          |       | $3 |   | $5 |   |
|                                                   |            |                                             |            |  |  |  |  |  |  |

 
| ** **                                        | ** ** | **Years Ended December 31,** | ** ** |
|---------------------------------------------------|------------|---------------------------------------------|------------|
| **Employee Stock Purchase Plans**  | ** ** | ** **                                  | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| Risk free interest rates                          |       | 1.89%                                       |       | 1.24% |   | 2.00% |   |
| Expected life in years                            |       | 0-1 years                                   |       | 0-1 years |   | 0-1 years |   |
| Expected volatility                               |       | 60%                                         |       | 71% |   | 95% |   |
| Per  share weighted-average grant-date fair value |       | $2                                          |       | $2 |   | $2 |   |
|                                                   |            |                                             |            |  |  |  |  |  |  |

 

F-15

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**Recent Accounting Pronouncements**

On December 16, 2004, the Financial AccountingStandards Board (‘‘FASB’’) issued SFAS No. 123(R), *Share-BasedPayment*, which replaces SFAS No. 123, supersedes APB No. 25,and amends SFAS No. 95, *Statement of Cash Flow*.Currently, the Company uses the Black-Scholes model for option expensecalculation and presents pro forma disclosure of the income statement effect infinancial statement footnotes only under APB No. 25. However, under SFAS No. 123(R),pro forma disclosure of the income statement effects of share-based paymentswill no longer be an alternative and all share-based payments to employees,including grants of employee stock options, will be recognized in the financialstatements based on their fair values. In addition, companies must alsorecognize compensation expense related to any awards that are not fully vestedas of the effective date. Compensation expense for the unvested awards will bemeasured based on the fair value of the awards previously calculated indeveloping the pro forma disclosures in accordance with the provisions of SFAS No. 123.SFAS 123(R) is effective for public companies at the beginning of thefirst interim or annual period beginning June 15, 2005. In anticipation ofthe effective date, the Company has accelerated the vesting of options,excluding option grants to the Company’s board members and chief executiveofficer, with an option price equal or greater to $9.00 per share. (see “Stock-BasedCompensation” above for further discussion). The Company expects the adoptionof the adoption of SFAS 123(R) will have a material impact on its results ofoperations however the Company has not yet determined the method of adoption,the effect of adopting SFAS 123(R), or whether adoption will result inamounts that are similar to the current pro forma disclosures under SFAS 123.

In December 2004, the FASB issued SFAS No. 153,*Exchanges of Nonmonetary Assets*, whichamends APB Opinion No. 29, *Accounting for NonmonetaryTransactions*. SFAS No. 153 amends APB Opinion No. 29 to eliminatethe exception for nonmonetary exchanges of similar productive assets andreplaces it with a general exception for exchanges of nonmonetary assets thatdo not have commercial substance. A nonmonetary exchange has commercialsubstance if the future cash flows of the entity are expected to changesignificantly as a result of the exchange. The statement is to be appliedprospectively for nonmonetary assets exchanges occurring in fiscal periodsbeginning after June 15, 2005. The Company does not anticipate that theadoption of SFAS No. 153 will have a significant impact on the Company’soverall results of operations or financial position.

In November 2004, the FASB issued SFAS No. 151,*Inventory Costs—an amendment of ARB No. 43*,in an effort to converge U.S. accounting standards for inventories withInternational Accounting Standards. FAS No. 151 requires idle facilityexpenses, freight, handling costs, and wasted material (spoilage) costs to berecognized as current-period charges. It also requires that allocation of fixedproduction overheads to the costs of conversion be based on the normal capacityof the production facilities. FAS No. 151 will be effective for inventorycosts incurred during fiscal years beginning after June 15, 2005. TheCompany is currently in compliance with the standard and it has not had amaterial impact on the Company’s financial statements.

In November 2004, the FASB ratified a consensusreached by the Emerging Issues Task Force (“EITF”) with respect to EITF Issue No. 03-13,*Applying the Conditions in Paragraph 42 of FASBStatement No. 144, Accounting for the Impairment or Disposal of Long-LivedAssets, in Determining Whether to Report Discontinued Operations*. Anumber of issues have arisen in practice in applying the criteria in paragraph 42,and the following broad categories of issues related to the application of bothcriteria in that paragraph have been identified: (a) whether the intent ofthe paragraph is that all operations and cash flows of the disposal componentbe eliminated from the ongoing operations of the entity or whether some minorlevel of operations or cash flow may remain; (b) if some insignificantlevel of operations or cash flows of the disposal component can continuewithout precluding discontinued operations reporting, the level at which “significance”should be measured; and (c) in applying the paragraph, the factors toconsider in determining whether the selling entity has retained “significantcontinuing involvement” in the disposed 

F-16

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component. At December 31,2004, the Company did not have a component that had been identified fordisposal. The Company will adopt this EITF January 1, 2005 and do notexpect it to have a material effect on the Company’s consolidated financialstatements

In October 2004, the FASB ratified the consensusreached by the EITF with respect to EITF No. 04-10, *Determining Whether to Aggregate Operating Segments That Do Not Meetthe Quantitative Thresholds*, which clarifies the guidance inparagraph 19 of SFAS No. 131, *Disclosures about Segmentsof an Enterprise and Related Information*. According to EITF Issue No. 04-10,operating segments that do not meet the quantitative thresholds can beaggregated only if aggregation is consistent with the objective and basicprinciples of SFAS No. 131, the segments have similar economiccharacteristics, and the segments share a majority of the aggregation criterialisted in items (a)-(e) in paragraph 17 of SFAS No. 131. Theconsensus applies to fiscal years ending after October 13, 2004. EITF 04-10has not resulted in a change to our SFAS No. 131 disclosure.

On September 30,2004, the EITF reached consensus on Issue No. 04-08, *The Effect of Contingently Convertible Debt on Diluted Earnings perShare*, which changes the treatment of contingently convertible debtinstruments in the calculation of diluted earnings per share. EITF No. 04-08provides that the shares issuable upon conversion of these debt instruments beincluded in the earnings per share computation, if dilutive, regardless ofwhether the contingent conditions for their conversion have been met. Thischange does not have any effect on the Company’s net income, however it mayaffect the related earnings per share amounts. EITF No. 04-08 willbe effective for reporting periods ending after December 15, 2004, howeverthe adoption of EITF No. 04-08 is not expected to have an impact onthe Company’s earnings per share as the Company’s outstanding convertible debtis not contingently convertible debt.

**Note 3.**   BusinessCombinations

***Agere’sOptoelectronics Business***

On January 2, 2003, the Company completed anacquisition of a substantial portion of the optoelectronics business of AgereSystems Inc. (“Agere”) for $40,000 in cash plus acquisition costs and certainassumed liabilities. The transaction included the products, technology and somefacilities related to Agere’s optoelectronics business, which includes activeand passive components, amplifiers, transceivers and other products. As part ofthe acquisition, the Company has also assumed operation of the back-endassembly and test operations associated with these components at a leasedfacility in Matamoros, Mexico.

The Company acquired this business to expand itsmarket and product offerings in its optical networks business.****Through a transition services agreement, Agere providedsome business infrastructure services to the Company for a short periodfollowing the close of the transaction to ensure seamless transition of thebusiness operations. On May 6, 2003, the Company sold a portion of theassets acquired in this transaction for $6,600 in cash. Further, during thefourth quarter of 2004, the Company initiated a repositioning of itsoptoelectronics business strategy and incurred charges of $3,417 related to therestructuring (see Note 4).

Detailsof the purchase price were as follows:
| Cash paid at  closing |   | $   | 40,000 |   |
|-----------------------|--------|-----|--------|--------|
| Acquisition costs     |   | 200 |   |
| Total purchase price  |   | $   | 40,200 |   |

 

 

F-17

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Thepurchase price was allocated to the assets and liabilities based on fair valuesas follows:
| Property, plant and  equipment                |   | $       | 36,271 |   |
|-----------------------------------------------|--------|---------|--------|--------|
| Inventory                                     |   | 12,000  |   |
| Product line held for  sale                   |   | 6,600   |   |
| Precious metals held for  sale                |   | 3,295   |   |
| Identifiable intangibles                      |   | 2,178   |   |
| Equipment held for sale                       |   | 1,000   |   |
| Other assets                                  |   | 1,105   |   |
| Acquired in-process  research and development |   | 500     |   |
| Liabilities assumed                           |   | (22,749 | )      |
| Allocated purchase price                      |   | $       | 40,200 |   |

 

In connection with this acquisition, the Companyconsidered a number of factors, including valuations of some of the assets,when determining the purchase price allocation. Acquired in-process researchand development (“IPR&D”) assets were expensed at the date of acquisitionin accordance with FASB Interpretation (“FIN”) No. 4, *Applicabilityof FASB Statement No. 2 to Business Combinations Accounted for by thePurchase*. The value assigned to IPR&D related to researchprojects for which technological feasibility had not been established and nofuture alternative uses existed. The fair value was determined using the incomeapproach, which discounts expected future cash flows from projects underdevelopment to their net present value using a risk adjusted rate. The projectwas analyzed to determine the following: the technological innovationsincluded; the utilization of core technology; the complexity, cost and time tocomplete development; any alternative future use or current technologicalfeasibility; and the stage of completion. Future cash flows were estimated basedupon management’s estimates of revenues expected to be generated uponcompletion of the projects and the beginning of commercial sales and relatedoperating costs. The projections assume that the technologies will besuccessful and that the product’s development and commercialization will meetmanagement’s time schedule. The discount rate was 35% and was based on thenovelty of the technology, the risks remaining to complete each project, andthe extent of the Company’s familiarity with the technology.

As part of the purchase,the Company assumed $22,749 of liabilities, which included a warranty liabilityestimated to be $9,300. The warranty liability was based upon Agere’sengineering data that forecasted product failure rates applied to historicalrevenue. Agere had offered extended product warranties that ranged from threeyears to lifetime. Additionally, Agere had a robust process for preparingreturned product that TriQuint was not able to duplicate because TriQuintdiscontinued a significant number of product lines and did not hire theemployees that performed the repairs for the discontinued product lines.

***IBM’s WirelessPhone Chipset Business***

On July 1, 2002, the Company completed theacquisition of a portion of the assets of IBM’s wireless phone chipset businessto increase the Company’s product line for wireless phone handsets. Theacquisition was accounted for as a purchase transaction and the results ofoperations are included in the consolidated financial statements from the dateof acquisition. At the closing date, the Company paid $21,750 to IBM for therelated assets, of which $5,000 represented an earnout deposit which wasreturned to the Company in 2003. The Company acquired this business to expandits market and product offerings in the wireless communications industry and tostrengthen its capabilities in silicon germanium process technology.

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Detailsof the purchase price were as follows:
| Cash paid at  closing |   | $      | 21,750 |   |
|-----------------------|--------|--------|--------|--------|
| Acquisition costs     |   | 1,661  |   |
| Less: Earnout deposit |   | (5,000 | )      |
| Total purchase price  |   | $      | 18,411 |   |

 

Thepurchase price was allocated to the assets and liabilities based on fair valuesas follows:
| Machinery and  equipment                      |   | $     | 1,959  |   |
|-----------------------------------------------|--------|-------|--------|--------|
| Goodwill                                      |   | 7,682 |   |
| Acquired  in-process research and development |   | 5,900 |   |
| Technology  licenses                          |   | 1,635 |   |
| Current  technology                           |   | 1,077 |   |
| Backlog                                       |   | 158   |   |
| Allocated  purchase price                     |   | $     | 18,411 |   |

 

In a transaction related to this acquisition, theCompany transferred $1.3 million of the acquired machinery and equipment, $1.0million of the technology licenses, $733 of acquired workforce and $11.0million in cash to a privately held technology company in exchange for a notereceivable of $14.0 million.

In connection with this acquisition, the Companyconsidered a number of factors, including valuations of some of the assets,when determining the purchase price allocation. Acquired IPR&D assets, aprimary component of the purchase which included wide band code divisionmultiple access (“WCDMA”), receivers and voltage controlled oscillators (“VCOs”)that are based on a wafer substrate different from gallium arsenide anddeveloped technology related to the VCOs and low noise amplifiers, wereexpensed at the date of acquisition in accordance with FIN 4. The valueassigned to IPR&D related to research projects for which technologicalfeasibility had not been established and no future alternative uses existed.The fair value was determined using the income approach, which discountsexpected future cash flows from projects under development to their net presentvalue using a risk adjusted rate. Each project was analyzed to determine thefollowing: the technological innovations included; the utilization of coretechnology; the complexity, cost and time to complete development; anyalternative future use or current technological feasibility; and the stage ofcompletion. Future cash flows were estimated based upon management’s estimatesof revenues expected to be generated upon completion of the projects and thebeginning of commercial sales and related operating costs. The projectionsassume that the technologies will be successful and that the product’sdevelopment and commercialization will meet management’s time schedule. Thediscount rate utilized was 29% and was based on the novelty of the technology,the risks remaining to complete each project, and the extent of the Company’sfamiliarity with the technology. The goodwill acquired in this transaction wasallocated to the Oregon operating unit.

In late 2002, the Companyevaluated its product strategy and revenue projections related to the acquiredproducts as well as its overall strategy and determined that the forecasts forthese products were substantially lower. Further, the Company concluded thatfurther investment would not earn a satisfactory return, and the product lineswere abandoned. As a result, the Company wrote off all goodwill associated withthis acquisition (see Note 15).

***InfineonTechnologies AG GaAs Business***

On July 1, 2002, the Company completed theacquisition of the GaAs business of Infineon Technologies AG (“Infineon”) tostrengthen its European presence and to expand its market and product offeringsin the wireless communications industry. The acquisition was accounted for as apurchase 

F-19

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transaction and theresults of operations are included in the consolidated financial statementsfrom the date of acquisition. At the closing date, the Company paid Infineon €50,000($53,559), of which €10,000($9,910) represented an earnout deposit. Subsequent to the close of theacquisition, certain fixed assets were also purchased for €5,500,less €1,500in funded liabilities acquired ($4,000 at various spot rates). Additionally,the minimum purchase price of the acquisition was subsequently adjusted to €42,000from €45,000(a $3,528 reduction) in the fourth quarter of 2002. In the fourth quarter of2004, Infineon repaid the contingent earnout deposit of €10,000($13,288 at the exchange rate at the time of receipt) and refunded the Companyfor the €3,000reduction in the purchase price ($3,986 at the exchange rate at the time ofreceipt). See Note 19 for further discussion of the Infineon receivable.

Detailsof the purchase price were as follows:
| Cash paid at  closing |   | $      | 53,559 |   |
|-----------------------|--------|--------|--------|--------|
| Acquisition costs     |   | 568    |   |
| Less: Earnout deposit |   | (9,910 | )      |
| Total purchase  price |   | $      | 44,217 |   |

 

Thepurchase price was allocated to the assets and liabilities based on fair valuesas follows:
| Machinery and  equipment                      |   | $      | 5,440  |   |
|-----------------------------------------------|--------|--------|--------|--------|
| Goodwill                                      |   | 24,024 |   |
| Identifiable  intangibles                     |   | 13,373 |   |
| Acquired  in-process research and development |   | 2,675  |   |
| Liabilities assumed                           |   | (1,295 | )      |
| Allocated purchase  price                     |   | $      | 44,217 |   |

 

In connection with this acquisition, the Companyconsidered a number of factors, including valuations of some of the assets,when determining the purchase price allocation. Acquired IPR&D assets wereexpensed at the date of acquisition in accordance with FIN 4. The valueassigned to IPR&D related to research projects for which technologicalfeasibility had not been established and no future alternative uses existed.The fair value was determined using the income approach, which discountsexpected future cash flows from projects under development to their net presentvalue using a risk adjusted rate. Each project was analyzed to determine thefollowing: the technological innovations included; the utilization of coretechnology; the complexity, cost and time to complete development; anyalternative future use or current technological feasibility; and the stage ofcompletion. Future cash flows were estimated based upon management’s estimatesof revenues expected to be generated upon completion of the projects and thebeginning of commercial sales and related operating costs. The discount ratesutilized ranged from 25% to 50% and were based on the novelty of thetechnology, the risks remaining to complete each project, and the extent of theCompany’s familiarity with the technology. The goodwill acquired in thistransaction was allocated to the Oregon operating unit. In addition, as of December 31,2002, the Company wrote off all goodwill associated with this acquisition.

In late 2002, the Companyevaluated its product strategy and revenue projections related to the acquiredproducts as well as its overall strategy and determined that the forecasts forthese products were substantially lower. Further, the Company concluded thatfurther investment would not earn a satisfactory return. As a result, theCompany wrote off all goodwill associated with this acquisition (see Note 15).

**Note4.**   Optoelectronics Repositioning

During the fourth quarter of 2004, the Companyinitiated a repositioning of its optoelectronics product strategy. Therepositioning was done to focus on InP components, chips, subassemblies and 

F-20

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technology and todiscontinue further investment in pluggable optical modules. The Companybelieves the restructuring will allow the Company to be a more focused supplierof optical components, InP laser and detector chips, optical sub-assemblies andtechnology to the optical networking market.

As a result of the restructuring, the Company recordeda charge of $2,337 related to severance costs as it will eliminateapproximately 110 employees in Pennsylvania and approximately 90 employees inMexico (see Note 14). The Company also transferred certain optoelectronicassets, including module-related capital equipment ($7,158) and relatedintangible assets ($972) to held for sale (see Note 10). Additionally, theCompany recorded charges of $519 related to the write down of surplusoptoelectronics module-related capital assets and $108 related to modulesinventory that was scrapped, both results of the restructuring and included incost of goods sold (see Note 15). Other charges related to the restructuringinclude a charge of $445 related to purchase order cancellations and $8 forother services also included in costs of goods sold. The restructuring willeliminate significant ongoing costs of the business beginning in mid-2005.

During the fourth quarter,the Company also recorded an impairment charge on the Company’s Pennsylvaniafacility it had classified as held-for-sale (see Note 15).

**Note5.**   Change in Accounting Estimate

In preparing its financialstatements, the Company is required to make certain estimates, including thosefor uncollectible accounts receivable, excess and obsolete inventory andpotential warranty claims, and make adjustments as necessary. In connectionwith the acquisition of the optoelectronics business from Agere Systems in January 2003,the Company established warranty reserves using engineering failure rate dataobtained from Agere. Subsequent to the acquisition, the Company continued torefine its estimates for the warranty reserves and developed data from returnsduring the course of 2003. Accordingly, during fiscal year 2004, the Companyrecorded a reduction to the warranty reserve of its optoelectronics operationtotaling approximately $1,588 due to a change in the methodology we use toestimates reserves. In addition, the Company identified a portion of theremaining warranty reserve balance for catastrophic warranty claims. This wasdone in response to increasing requests by the Company’s customers forcatastrophic warranty clauses that extend the Company’s obligation beyond therepair and replacement of a faulty product, to include other losses the Company’scustomers may experience as a result of failures in the Company’s products. TheCompany experienced one such warranty claim during 2003. During 2004, warrantyreserves decreased $2,869, largely due to the $1,588 reduction noted above andthe resolution of certain warranty claims.

F-21

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**Note6.**   Selected Financial StatementInformation
| ** **                           | ** ** | **December 31,  2004** | ** ** | **December 31,  2003** | ** ** |
|--------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Accounts  receivable, net:           |       |                        |       |                        |       |   |   |   |   |
| Trade accounts receivable            |       |                        | $          | 40,957                      |       |   |   | $ | 43,122 |   |   |
| Allowance for doubtful  accounts     |       |                        | (826       | )                           |       |   | (1,211 | ) |   |
|                                 |       |                        | $          | 40,131                      |       |   |   | $ | 41,911 |   |   |
| Inventories,  net:                   |       |                        |       |                        |       |   |   |   |   |
| Raw materials                        |       |                        | $          | 25,577                      |       |   |   | $ | 27,405 |   |   |
| Work-in-process                      |       |                        | 22,850     |                        |       |   | 31,973 |   |   |
| Finished goods                       |       |                        | 24,205     |                        |       |   | 22,709 |   |   |
|                                 |       |                        | 72,632     |                        |       |   | 82,087 |   |   |
| Reserve for excess and  obsolescence |       |                        | (12,886    | )                           |       |   | (16,801 | ) |   |
|                                 |       |                        | $          | 59,746                      |       |   |   | $ | 65,286 |   |   |
| Property,  plant and equipment, net: |       |                        |       |                        |       |   |   |   |   |
| Land                                 |       |                        | $          | 19,691                      |       |   |   | $ | 19,691 |   |   |
| Buildings                            |       |                        | 92,113     |                        |       |   | 89,226 |   |   |
| Leasehold improvements               |       |                        | 1,299      |                        |       |   | 2,014 |   |   |
| Machinery and equipment              |       |                        | 238,073    |                        |       |   | 236,017 |   |   |
| Furniture and fixtures               |       |                        | 4,903      |                        |       |   | 6,972 |   |   |
| Computer equipment and  software     |       |                        | 21,042     |                        |       |   | 20,269 |   |   |
| Assets in process                    |       |                        | 3,961      |                        |       |   | 6,385 |   |   |
|                                 |       |                        | 381,082    |                        |       |   | 380,574 |   |   |
| Accumulated depreciation             |       |                        | (181,564   | )                           |       |   | (158,896 | ) |   |
|                                 |       |                        | $          | 199,518                     |       |   |   | $ | 221,678 |   |   |
| Accrued  payroll:                    |       |                        |       |                        |       |   |   |   |   |
| Accrued payroll and taxes            |       |                        | $          | 7,009                       |       |   |   | $ | 3,092 |   |   |
| Accrued vacation and sick pay        |       |                        | 4,717      |                        |       |   | 4,576 |   |   |
|                                 |       |                        | $          | 11,726                      |       |   |   | $ | 7,668 |   |   |
| Other  accrued liabilities:          |       |                        |       |                        |       |   |   |   |   |
| Warranty liability                   |       |                        | $          | 6,424                       |       |   |   | $ | 9,293 |   |   |
| Accrued interest payable             |       |                        | 2,983      |                        |       |   | 3,583 |   |   |
| Sales return reserve                 |       |                        | 1,287      |                        |       |   | 4,387 |   |   |
| Other                                |       |                        | 13,548     |                        |       |   | 11,881 |   |   |
|                                 |       |                        | $          | 24,242                      |       |   |   | $ | 29,144 |   |   |

 

**Note7.**   Investments in Marketable Securities

Thecost, gross unrealized holding gains, gross unrealized holding losses and fairvalue of available-for-sale investments by types and classes of security at December 31,2004 and 2003 consisted of the following:
| **At December 31, 2004**                                   | ** ** | ** ** | ** ** | **Cost** | ** ** | **Gross  unrealized  holding gains** | ** ** | **Gross  unrealized  holding losses** | ** ** | **Fair Value** | ** ** |
|---------------------------------------------------------------------------|------------|------------|------------|----------|------------|-------------------------------------------|------------|--------------------------------------------|------------|---------------------|------------|
| Available-for-sale:                                                       |       |       |       |     |       |                                      |       |                                       |       |                |       |   |   |
| U.S.  treasury securities and obligations of U.S government agencies |       | $          | 230,829    |     |       | $                                         | 15         |                                       |       |                | $          | 1,819 |   |   | $ | 229,025 |   |
| Corporate  debt securities and other                                      |       | 69,494     |       |     | 1          |                                      |       |                                       | 187        |                |       | 69,308 |   |
|                                                                      |       | $          | 300,323    |     |       | $                                         | 16         |                                       |       |                | $          | 2,006 |   |   | $ | 298,333 |   |

 

F-22

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| **At December 31, 2003**                                   | ** ** | ** ** | ** ** | **Cost** | ** ** | **Gross  unrealized  holding gains** | ** ** | **Gross  unrealized  holding losses** | ** ** | **Fair Value** | ** ** |
|---------------------------------------------------------------------------|------------|------------|------------|----------|------------|-------------------------------------------|------------|--------------------------------------------|------------|---------------------|------------|
| Available-for-sale:                                                       |       |       |       |     |       |                                      |       |                                       |       |                |       |   |   |
| U.S. treasury securities and  obligations of U.S government agencies |       | $          | 128,280    |     |       | $                                         | 257        |                                       |       |                | $          | 208 |   |   | $ | 128,329 |   |
| Corporate debt securities and  other                                      |       | 146,333    |       |     | 53         |                                      |       |                                       | —     |                |       | 146,386 |   |
|                                                                      |       | $          | 274,613    |     |       | $                                         | 310        |                                       |       |                | $          | 208 |   |   | $ | 274,715 |   |

 

Investments by contractual maturity are as follows (inthousands):
| ** **                            | ** ** | **December 31, 2004** | ** ** | **December 31, 2003** | ** ** |
|---------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                            | ** ** | **Cost**                        | ** ** | **Fair Value**             | ** ** | **Cost** | ** ** | **Fair Value** | ** ** |
| Due or callable in one year or less   |       | $                               | 109,151    |                            | $          | 108,778 |   | $ | 154,552 |   | $ | 154,581 |   |
| Due  after one year through 42 months |       | $                               | 191,172    |                            | $          | 189,555 |   | $ | 120,061 |   | $ | 120,134 |   |

 

**Note 8.**   Earnings(Loss) Per Share

Theschedule below summarizes the elements included in the calculation of basic anddiluted earnings (loss) per share for the years ended December 31, 2004,2003 and 2002.
| **(in thousands, except per share amounts)** | ** ** | **Years Ended December 31,** | ** ** |
|-----------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                            | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| Net loss                                                              |       | $                                           | (29,054    | ) | $ | (72,978 | ) | $ | (158,560 | ) |
| Weighted-average shares outstanding—Basic                        |       | 136,936                                     |       | 133,920 |   | 131,969 |   |
| Dilutive securities                                                   |       | —                                      |       | — |   | — |   |
| Weighted-average shares outstanding—Dilutive                     |       | 136,936                                     |       | 133,920 |   | 131,969 |   |
| Net loss per  shares—Basic and dilututed                         |       | $                                           | (0.21      | ) | $ | (0.54 | ) | $ | (1.20 | ) |

 

For the years ended December 31,2004, 2003 and 2002, options and other exercisable convertible securitiestotaling 18,127 shares, 16,600 shares and 14,997 shares, respectively, wereexcluded from the calculation as their effect would have been antidilutive.

**Note9.**   Goodwill and Other Acquisition-RelatedIntangible Assets

In accordance with SFAS No. 142, *Goodwill and Other Intangible Assets*, the Company isrequired to perform impairment tests of goodwill at least annually or whenevents and circumstances warrant. The Company performs this test in the fourthquarter of each year. At December 31, 2004, there were no events orcircumstances warranting impairment and therefore the Company did not recordany impairments of intangible assets during the year. However, in late 2002,the Company evaluated its goodwill and intangible assets related to previousacquisitions and, due to revenue projections related to the acquired productsas well as its overall strategy and determined that the forecasts for theseproducts being substantially lower than anticipated, the Company concluded thatfurther investment would not earn a satisfactory return. As a result, the Companywrote off all goodwill associated with the acquisitions (see Note 15). Goodwilland other acquisition-related intangible assets, other than those held forsale, are included in “Other non-current assets, net” on the Company’sconsolidated balance sheet. IP licenses and sublicenses held for sale areincluded in “Assets held for sale” on the Company’s consolidated balance sheet.

F-23

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Informationregarding the Company’s other acquisition-related intangible assets is asfollows:
| ** **                                    | ** ** | **Useful**        | ** ** | **December 31, 2004** | ** ** | **December 31, 2003** | ** ** |
|-----------------------------------------------|------------|-------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                                    | ** ** | **Life  (Years)** | ** ** | **Gross**                       | ** ** | **Accumulated  Amortization**   | ** ** | **Net Book  Value** | ** ** | **Gross** | ** ** | **Accumulated  Amortization** | ** ** | **Net Book  Value** | ** ** |
| Non-Amortizing:                               |       |              |       |                            |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Goodwill                                      |       |              |       |                            |       | $                               | 450        |   |   | $ | — |   |   |   | $ | 450 |   |   | $ | 450 |   |   | $ | — |   |   |   | $ | 450 |   |   |
| IP licenses and  sublicenses held for sale(1) |       |              |       |                            |       | 972                             |       |   | — |   |   |   | 972 |   |   | — |   |   | — |   |   |   | — |   |   |
| Amortizing:                                   |       |              |       |                            |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Patents,  trademarks and other                |       |              | 2  - 10    |                            |       | 7,416                           |       |   | 5,605 |   |   |   | 1,811 |   |   | 9,594 |   |   | 4,493 |   |   |   | 5,101 |   |   |
| Total intangible assets                       |       |              |       |                            |       | $                               | 8,838      |   |   | $ | 5,605 |   |   |   | $ | 3,233 |   |   | $ | 10,044 |   |   | $ | 4,493 |   |   |   | $ | 5,551 |   |   |

----

(1)          As part of the Company’srepositioning of its optoelectronics operation in the fourth quarter of 2004,approximately $972 of net intellectual property (“IP”) licenses and sublicenseswere reclassified as held for sale.

Amortizationexpense of intangible assets was approximately $2,318, $3,254 and $1,503 forthe years ended December 31, 2004, 2003 and 2002, respectively.Amortization expense related to intangible assets at December 31, 2004 ineach of the next five fiscal years and beyond is expected to be as follows:
| 2005       |   | $      | 1,007  |   |
|------------|--------|--------|--------|--------|
| 2006       |   | 227    |   |
| 2007       |   | 227    |   |
| 2008       |   | 175    |   |
| 2009       |   | 175    |   |
| Thereafter |   | — |   |
|       |   | $1,811 |   |

 

**Note 10.**   AssetsHeld for Sale

At December 31, 2004 the Company had $17,654 ofassets held for sale as compared to $24,423 at December 31, 2003. Thebalance at December 31, 2004 includes $16,130 of assets associated withits optoelectronics operations in Pennsylvania and Mexico, $674 related tocertain equipment located at the Company’s Texas facility, and $850 of assetsobtained from the liquidation of an investment the Company had in anothercompany. The assets associated with the Company’s optoelectronics operationsinclude the Company’s Pennsylvania facility($8,000) that the Company had classified as held for sale in the second quarterof 2003. In the fourth quarter 2004, a potential buyer of the facilitynotified the Company that it was not going to purchase the facility and as aresult, the Company recorded an impairment charge of $14,305 to reduce thevalue of the building to its current level (see Note 15). Other assetsassociated with the Company’s optoelectronics operations that are classified asheld for sale as of December 31, 2004 consists of a variety of equipmentused for optoelectronics fabrication and assembly operations at the Company’s Pennsylvania and Mexico facilities($7,158) and intangible assets related to the optoelectronics business ($972),both of which were classified as held for sale as a result of the Company’srestructuring announced in the fourth quarter of 2004 (see Note 4). During2004, the Company sold $1,453 of assets classified as held for sale by itsoptoelectronics operations. The Company also classified $14 of assets at itsTexas facility as held for sale and sold $60 of assets classified as held forsale during the year. No gain or loss was recorded on these asset sales.Additionally, in the fourth quarter of 2004, the Company recorded an impairmentof $320 on a portion of the assets at its Texas facility classified as held forsale (see Note 15). No assets were sold in 2003 and no gains wererecognized

F-24

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Forthe year ended December 31, 2004, the Company reclassified $1,092 ofassets held for sale to held and used at their carrying value. Thisreclassification is the result of the assets being transferred to otherlocations to replace or enhance existing capacity. No adjustment fordepreciation expense for the period of time the assets were classified as heldfor sale was necessary as the assets had never been placed into service. OnMarch 7, 2005, we entered into an agreement to sell the Pennsylvania facilityto a real estate investment firm and lease back approximately 80,000 squarefeet of space for continuing operations. The sale is subject to customaryclosing procedures and is expected to be completed with 90 days of signing theagreement (see Note 21).

**Note11.**   Convertible Subordinated Notes

In February and March 2000, the Companycompleted the sale of $345,000 aggregate principal amount of 4% convertiblesubordinated notes due in 2007, raising approximately $333,900 net of fees andexpenses. The notes are unsecured obligations of the Company, subordinated toall of the Company’s present and future senior indebtedness and do not containsignificant restrictive covenants. Interest on the notes is payable in arrearssemiannually on each March 1 and September 1. The notes areconvertible, at the option of the holder, at any time prior to redemption ormaturity into shares of the Company’s common stock at a conversion price pershare of $67.80, subject to certain adjustments. Financing costs related to theissuance of the debt are capitalized as “Other noncurrent assets, net” on theCompany’s condensed balance sheet, and are amortized over the term of therelated debt using the straight-line method which approximates the effectiveinterest method.

During 2004, the Companyrepurchased approximately $45,000 of these notes at a cost of $43,875. The 2004repurchase resulted in a gain on retirement of long term debt of $539, net ofthe write-down of associated capitalized bond issuance costs of $586. During2002, the Company repurchased approximately $27,745 of these notes at a cost of$21,137. The 2002 repurchase resulted in a gain on retirement of long term debtof $6,009, net of the write-down of associated capitalized bond issuance costsof $599. During 2001, the Company repurchased approximately $48,500 of thesenotes at a cost of $39,100, which includes the write-down of associatedcapitalized bond issuance cost of $1,228. The 2001 repurchase resulted in again of $9,401. At December 31, 2004, the Company had $233,755 ofconvertible subordinated notes outstanding and net capitalized issuance costsof $2,228 as compared to $268,755 of convertible subordinated notes outstandingand $3,917 of net capitalized issuance costs at December 31, 2003. Therewere no repurchases during 2003. During the years ended December 31, 2004,2003 and 2002, the Company amortized $1,104, $1,233 and $1,306, respectively,of the capitalized issuance costs.

**Note12.   Income Taxes**

Domesticand foreign pre-tax income (loss) for the years ended December 31, 2004,2003 and 2002 were as follows:
| ** ** | ** ** | **Years Ended December 31,** | ** ** |
|------------|------------|---------------------------------------------|------------|
| ** ** | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| Domestic   |       | $                                           | (47,020    | ) | $ | (88,889 | ) | $ | (139,158 | ) |
| Foreign    |       | 18,391                                      |       | 14,367 |   | 14,839 |   |
|       |       | $                                           | (28,629    | ) | $ | (74,522 | ) | $ | (124,319 | ) |

 

 

F-25

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Incometax expense (benefit) for the years ended December 31, 2004, 2003 and2002, consisted of the following:
| ** **                        | ** ** | **Years Ended December 31,** | ** ** |
|-----------------------------------|------------|---------------------------------------------|------------|
| ** **                        | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| Current:                          |       |                                        |       |   |   |   |   |   |   |
| Federal                           |       | $                                           | (335       | ) |   | $ | 741 |   |   | $ | 6,063 |   |
| State                             |       | (53                                         | )          |   | (1,916 | ) |   | 1,087 |   |
| Foreign                           |       | 813                                         |       |   | (369 | ) |   | — |   |
|                              |       | 425                                         |       |   | (1,544 | ) |   | 7,150 |   |
| Deferred:                         |       |                                        |       |   |   |   |   |   |   |
| Federal                           |       | —                                      |       |   | — |   |   | 24,554 |   |
| State                             |       | —                                      |       |   | — |   |   | 2,537 |   |
| Foreign                           |       | —                                      |       |   | — |   |   | — |   |
|                              |       | —                                      |       |   | — |   |   | 27,091 |   |
| Net  income tax expense (benefit) |       | $                                           | 425        |   |   | $ | (1,544 | ) |   | $ | 34,241 |   |

 

Theeffective tax rate differed from the federal statutory income tax rate for theyears ended December 31, 2004, 2003 and 2002 were as follows:
| ** **                                                                | ** ** | **Years Ended December 31,** | ** ** |
|---------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| Tax  computed at the federal statutory rate                               |       | (35.0                                       | )%         |   | (35.0 | )% |   | (35.0 | )% |
| State  income tax, net of federal effect                                  |       | (2.0                                        | )          |   | (2.0 | ) |   | (2.0 | ) |
| Increase  in valuation allowance                                          |       | 19.6                                        |       |   | 38.1 |   |   | 69.7 |   |
| Non-deductible  merger costs                                              |       | 2.8                                         |       |   | — |   |   | — |   |
| Foreign  sales benefit                                                    |       | —                                      |       |   | — |   |   | (0.8 | ) |
| Current  benefit of tax exemption of Costa Rican subsidiary          |       | (11.2                                       | )          |   | (5.7 | ) |   | (5.6 | ) |
| Subpart  F income                                                         |       | 28.6                                        |       |   | 3.0 |   |   | — |   |
| IRS  settlement                                                           |       | —                                      |       |   | 2.7 |   |   | — |   |
| Other,  including credits, tax-exempt interest income and dividend income |       | (1.3                                        | )          |   | (3.2 | ) |   | 1.2 |   |
| Effective  tax rate                                                       |       | 1.5                                         | %          |   | (2.1 | )% |   | 27.5 | % |

 

Thetax effects of significant items comprising the Company’s deferred tax assetand liability as of December 31, 2004 and 2003 were as follows:
| ** **                                     | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                     | ** ** | **2004**              | ** ** | **2003**              | ** ** |
| Deferred  tax assets:                          |       |                  |       |                  |       |   |   |   |   |
| Amortization  and depreciation                 |       |                  | $          | 42,960                |       |   |   | $ | 55,323 |   |   |
| Capital  research and development expenditures |       |                  | 7,147      |                  |       |   | 8,434 |   |   |
| Reserves  and allowances                       |       |                  | 2,949      |                  |       |   | 4,215 |   |   |
| Accrued  liabilities                           |       |                  | 5,100      |                  |       |   | 1,430 |   |   |
| Impairment  of investment in other companies   |       |                  | 5,697      |                  |       |   | 5,463 |   |   |
| Inventory                                      |       |                  | 8,729      |                  |       |   | 6,839 |   |   |
| Net  operating loss carryforwards              |       |                  | 50,360     |                  |       |   | 44,670 |   |   |
| Capital  loss carryforwards                    |       |                  | 6,174      |                  |       |   | 6,174 |   |   |
| Research  and development, and other credits   |       |                  | 1,807      |                  |       |   | 2,338 |   |   |
| Other                                          |       |                  | 124        |                  |       |   | — |   |   |
| Total  deferred tax asset                      |       |                  | 131,047    |                  |       |   | 134,886 |   |   |
| Valuation  allowance                           |       |                  | (131,047   | )                     |       |   | (134,886 | ) |   |
| Net deferred tax asset                         |       |                  | $          | —                |       |   |   | $ | — |   |   |

 

F-26

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The Company recorded a tax provision of $425 and$34,241 for the years ended December 31, 2004 and 2002, and a tax benefitof $1,544 for the year ended December 31, 2003. The provision for fiscalyear 2004 does not reflect a benefit for current year losses due to a fullvaluation allowance against deferred tax assets. The net change in totalvaluation allowance for the deferred tax assets for the year ended December 31,2004 was a net decrease of $3,839. For the years ended December 31, 2003and 2002 the net change in the valuation allowance for the deferred tax assetswere net increases of $40,868 and $88,003, respectively.

In assessing the realizability of deferred tax assets,SFAS No. 109 establishes a more likely than not standard. If it isdetermined that it is more likely than not that deferred tax assets will not berealized, a valuation allowance must be established against the deferred taxassets. The ultimate realization of deferred tax assets is dependent upon thegeneration of future taxable income during the periods in which the associatedtemporary differences become deductible. Management considers the scheduledreversal of deferred tax liabilities, projected future taxable income, and taxplanning strategies in making this assessment.

Although the Company anticipates future sustainedprofitability, SFAS No. 109 requires that recent historical operatingperformance and income projections be considered in assessing the realizabilityof the deferred tax assets. The more likely than not assessment was principallybased upon the losses generated during 2004, 2003 and 2002.

At December 31, 2004, the Company hadapproximately $133,536 of net operating loss carryforwards to offset futureU.S. taxable income, expiring from 2005 through 2024, $101,631 for state taxpurposes, expiring 2007 through 2024 and $1,446 for foreign tax purposes, whichcarry forward indefinitely. Additionally, during 2003 the Company generated$16,248 of capital loss carryforwards to offset future capital gains, whichwill expire in 2008. The Company has placed a full valuation allowance againstthe tax effect of all net operating and capital loss carryforwards.

For 2004, the Company generated $5,520 of netoperating loss carryforwards resulting from stock option transactions, whichwere offset by a valuation allowance. The Company will record benefits toadditional paid in capital as the net operating losses are realized pursuant toSFAS No 109. Due to the creation of a valuation allowance against deferred taxassets during 2002, the Company recorded a decrease to additional paid-incapital of $8,074 to reverse the benefit of net operating loss carryforwardsgenerated from stock option transaction.

During 2003, the Company settled an IRS taxexamination relating to the 2000 and 2001 tax years, which resulted in thereduction of net operating loss carryforwards by $2,292 and $10,105,respectively.

The Company provided for deferred taxes on thenon-repatriated earnings of its subsidiary in Costa Rica prior to fiscal 2000.This subsidiary benefited from a complete exemption from Costa Rican incometaxes through 2003 and 75% exemption thereafter through 2007. In 2000, theCompany determined that its investments in Germany and Costa Rica werepermanent and that its earnings are considered indefinitely reinvested; and,accordingly, no provision for U.S. federal and state income taxes has beenprovided for 2004, 2003 or 2002. In the event the Costa Rican subsidiary remitsthese earnings to the U.S. parent, the earnings may be subject to U.S. federaland state income taxes. The estimated unrecognized deferred income taxliability on these unremitted earnings at December 31, 2004, 2003 and 2002was $46,285, $44,300 and $39,600, respectively.

On October 22, 2004,the American Jobs Creation Act was signed into law, which included a deductionof 85% of certain foreign earnings that are repatriated, provided certainrestrictions are met. The Company may elect to apply this provision toqualifying earnings repatriations in either 2005 or 2006. The Company hasstarted an evaluation of the effects of the repatriation provisions. The rangeof possible 

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amountsthat the Company is considering for repatriation under the provision is betweenzero and $80.0 million. The related potential range of income tax is betweenzero and $4.6 million.

**Note 13.   ForeignCurrency Exchange**

The Company’s functional currency for all operationsworldwide is the U.S. dollar. For foreign operations with the U.S. dollar asthe functional currency, monetary assets and liabilities are remeasured at theperiod-end exchange rates. Certain non-monetary assets and liabilities areremeasured using historical rates. Statements of operations are remeasured atthe prior months balance sheet rate. To manage its exposure to foreign currencyexchange rate fluctuations, the Company enters into derivative financialinstruments, including hedges. The ineffective portion of the gain or loss forderivative instruments that are designated and qualify as cash flow hedges isimmediately reported as a component of other income (expense), net. Theeffective portion of the gain or loss on the derivative instrument is initiallyrecorded in accumulated other comprehensive income (“OCI”) as a separatecomponent of stockholders’ equity and subsequently reclassified into earningsin the period during which the hedged transaction is recognized into earnings.For the years ended December 31, 2004, the Company reported foreigncurrency gains from remeasurement and hedging activity of $2,121, compared toforeign currency losses from remeasurement and hedging activity of $250 for theyear ended December 31, 2003 and losses from remeasurement of $37 for theyear ended December 31, 2002, respectively. The gain recognized in fiscalyear 2004 was primarily due to the remeasurement of a Euro receivable during theyear (see Note 19 for further discussion).

As of December 31,2004 and 2003, the Company had forward currency contracts outstanding of$39,492 and $18,438, respectively. The contracts designated as cash flow hedgesat December 31, 2004 and 2003 were approximately $7,331 and $2,448,respectively. The contracts designated as balance sheet hedges at December 31,2004 and 2003, were approximately $32,161 and $15,990, respectively.

**Note 14.   Severance Costs**

In the fourth quarter of 2004, the Company repositionedits optoelectronics product strategy (see Note 4). As part of thisrestructuring the Company terminated approximately 110 employees inPennsylvania and approximately 90 employees in Mexico. At the time of therestructuring, the Company incurred severance and related payroll costs of$2,337 and anticipates recording an additional $908 during the first half of2005. As of December 31, 2004, a liability of $1,485 was included in “OtherAccrued liabilities” related to the severance charges recorded in the fourthquarter of 2004. Also during 2004, the Company accrued and recorded as a chargeto earnings $428 for severance costs associated with a reduction in force ofapproximately 30 employees assigned to its Texas operations. The charge was aresult of the Company’s ongoing efforts to align costs and capacity with itslevels of production and revenue. As of December 31, 2004, no liabilityremained for the unpaid portion of these severance costs.

Due to continued losses in the optoelectronicsoperations and excess design engineering capacity, the Company adopted a planto reduce its operating costs and streamline its available capacity in June 2003.As part of this plan, the Company determined that it would terminateapproximately 80 employees associated with its optoelectronics operation inBreinigsville, Pennsylvania and its design center in Munich, Germany. Duringthe year ended December 31, 2003, the Company accrued and recorded as acharge to earnings $2,633 for expected severance costs related to the plan asan operating expense. This amount was adjusted $160 during the third quarter of2003 to reflect a reduction in the number of employees originally expected tobe impacted from the reduction in workforce due to greater than expectedattrition of the workforce which reduced the estimated involuntary workforcereductions. As of December 31, 2004, no liability remained for the unpaidportion of the severance costs related to the German operations. As of December 31,2003, the liability for the unpaid portion of the severance costs was $752.

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As part of the Agere purchase in the first quarter of2003, the Company recorded an accrued severance liability of $1,800. Thisamount was reduced by $614 during the first quarter of fiscal year 2004 toreflect a reduction in the number of employees originally expected to beimpacted from the acquisition due to normal attrition of the workforce whichreduced the estimated involuntary workforce reductions. Additionally, in thesecond quarter of fiscal year 2004, the remaining liability of $147 waseliminated due to continued attrition and the reversal of the decision to layoff certain individuals. As of December 31, 2004, no liability remainedfor these severance costs. As of December 31, 2003, the liability for theunpaid portion of the severance costs was $838.

In 2002, the Company reduced its workforce byapproximately 117 employees at its Oregon and Texas facilities as a result ofthe decreased demand for products and the underutilization of its fabricationfacilities. The $1,011 charge associated with these reductions was recorded inthe third quarter of 2002 and there was no remaining liability at December 31,2002.

Thefollowing table details the severance activity for periods presented:
| ** **                                       | ** ** | **Years Ended December 31,** | ** ** |
|--------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                       | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| Beginning severance liability                    |       | $                                           | 1,590      |   | $ | — |   | $ | — |   |
| Severance charges incurred                       |       | 2,766                                       |       | 2,644 |   | 1,011 |   |
| Severance liability assumed  from acquisition(1) |       | —                                      |       | 1,800 |   | — |   |
| Severance disbursements                          |       | (2,110                                      | )          | (2,694 | ) | (1,011 | ) |
| Adjustments to severance  liability              |       | (761                                        | )          | (160 | ) | — |   |
| Ending  severance liability                      |       | $                                           | 1,485      |   | $ | 1,590 |   | $ | — |   |

----

(1)          Aspart of the Agere acquisition in 2003, the Company recorded an accruedseverance liability of $1,800 during the first quarter of 2003. During thefirst half of 2004 the Company reduced the liability due to attrition and thereversal of a decision to lay off certain employees.

**Note 15.   Impairments**

***Impairments ofLong-Lived Assets and Intangibles***

During fiscal years2004 and 2002, the Company recorded impairment charges of $15,533 and $94,740on long-lived assets and intangible assets to reduce the carrying value ofthese assets to their current market values. The impairments were due tobusiness decisions, current and projected market conditions resulting in excesscapacity and reduced cash flow projection on these assets. Factors incorporatedin the projections of future cash flows included reduced revenue projections offuture years compared to prior projections, continued excess capacity, thecontinuation of the trend toward the movement of production to offshorefacilities and independent third-party valuations. These factors, combined withfurther reductions in the demand for, and value of, used semiconductorfabrication equipment resulted in additional impairments over and above thoserecorded. The impairments taken during 2004 are as follows:

·       Animpairment charge of $14,305 was recognized in the fourth quarter of 2004associated with the Company’s optoelectronics facility located in Pennsylvania.This facility was acquired from Agere Systems in 2003, and was recorded on theCompany’s books at approximately $30,000, reduced by purchase accountingadjustments to $22,307. During the second quarter of 2003 the facility wasclassified as an asset held for sale, and has been actively marketed by anational realtor since May 2003. The Company had been in negotiations tosell this facility to an agency of the Commonwealth of Pennsylvania for morethan one year at a price approximating book value. However in October 2004,the Company was informed by the agency that it would not purchase the facility.Concurrently, the market for large specialized high technology manufacturingplants in eastern Pennsylvania declined since the acquisition due to an excessof similar properties available 

F-29

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for sale. In December 2004,the Company began negotiating a sale of the facility to a qualified firm thatis expected to yield a net cash amount of approximately $8,000, the currentestimated market value for this facility. As the facility was classified asheld for sale, there is no reduction in anticipated depreciation expense.

·       Animpairment charge of $519 was recorded during the fourth quarter of 2004related to the write down of surplus optoelectronics assets. The charge was aresult of the Company’s repositioning of its business strategy, including theexit of certain product lines in the optoelectronics market (see Note 4). Thecharge taken reduced the carrying value of the assets to their current marketvalue as determined by management, which considered a number of factorsincluding an evaluation by independent equipment experts.

·       Animpairment charge of $320 was recorded during the fourth quarter of 2004related to certain excess gallium arsenide wafer manufacturing equipment thatwere classified as held for sale during 2002 (see below). The impairmentreduced the carrying value of these assets to their market values as determinedby management, which considered a number of factors including an independentappraisal. As these assets were classified as held for sale, there is noreduction in depreciation expense.

·       Animpairment charge of $389 was recorded in the third quarter of 2004 related toleasehold and other assets associated with the closure of the Company’soperation in Tianjin, China. The closure was made as the Company’s primarycustomer in the region no longer required a manufacturing presence in China.

During fiscal year2002, the Company recorded charges for the impairment of long-lived assets andgoodwill to reduce the carrying value of assets previously impaired in fiscalyear 2001. Continued deterioration in market conditions during fiscal year 2002resulted in reduced cash flow forecasts used in the evaluation of potentialimpairments. The reduced cash flow forecasts once again resulted in thecarrying value of the assets exceeding the cash flow forecasts. As such, theCompany recorded further impairments on the assets. The impairments takenduring 2002 are as follows:

·       TheCompany recorded an impairment charge of $48,984 on property, plant andequipment during the fourth quarter of 2002 related to excess facility spaceand equipment in the Company’s Oregon operation. In determining the impairmentat the Company’s Oregon facility, management considered a number of factors,including appraisals and excess facility space when making thesedeterminations.

·       TheCompany recorded an impairment charge of $5,829 during the third quarter of2004 resulting from the Company’s decision to abandon certain production assetsassociated with one of the Company’s six-inch wafer production lines at theCompany’s Richardson, Texas facility. Subsequent to the abandonment, the equipmentwas either transferred to Company’s Oregon facility, converted for use in theTexas 4-inch wafer line, sold or currently held for sale.

·       TheCompany recorded impairment charges of $30,973 related to the evaluation of thecarrying value of the goodwill associated with acquisitions of technologyassets and product lines and $8,954 related to the carrying value of otherintangible assets with respect to assets acquired in acquisitions earlier in2002. The impairment charge recorded on the Company’s goodwill and intangibleassets was related goodwill and intangibles obtained during the acquisition ofcertain assets and product lines from the IBM RF integrated circuits businessand certain assets and product lines of the Infineon gallium arsenide semiconductoroperation. The decrease in the carrying value to market value was determinedthrough a present value analysis similar to that prepared in the originalpurchase price allocation for the goodwill and other intangible assets in 2002.In late 2002, the Company evaluated its product strategy and forecasts relatedto the acquired products as well as its 

F-30

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overall strategy anddetermined that the forecasts for these products were substantially lower. As aresult, the Company reassessed the carrying value of the other intangibleassets and goodwill from these acquisitions and determined that an impairmenthad occurred. The Company determined that an impairment of this nature existeddue to the impairment of the carrying value of the assets assigned to the Oregonoperating unit, an event requiring the evaluation of the goodwill associatedwith these acquisitions assigned to this operating unit. The impairment wasdetermined based upon the Company’s estimate of fair value of the Oregonoperating unit. With respect to the assets acquired from IBM, the Company,after reviewing the products, markets, technologies and costs to furtherdevelop these products, determined that a substantial investment would berequired and that the core technology of silicon germanium was not costeffective. As a result, the Company concluded that further investment would notearn a satisfactory return, and the product lines were abandoned. With respectto the assets acquired from Infineon, the Company concluded that a decline inthe forecast from original expectations due to slower market demand for theseproducts would result in a significant decline in projected revenue. TheCompany’s valuation methods did not change, but due to overall deterioratingmarket conditions, a change in strategic direction, and costs to complete thedevelopment of some of the acquired products, the Company’s revenue forecastsfell, which triggered an impairment review.

There were no impairmentsof fixed assets recorded during fiscal year 2003.

F-31

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***Impairments ofInvestments in Other Companies***

Duringfiscal years 2004, 2003 and 2002, the Company recorded charges of $1,189,$2,387 and $23,778, respectively, related to the deteriorating financialcondition of certain investments in privately held technology companies. Theseinvestments were in small companies whose valuations declined significantlybased on factors such as current equity offerings, projected financialconditions, decline in market value of similar companies, or cessation ofoperations. The charges were derived through analysis of such companies’current operating results, anticipated future results and discussions suchcompanies’ representatives. The following table provides a summary of theimpairments during each of the fiscal years presented:
| **Year** | ** ** | **Description**                                                                                                                                                                                                                                                  | ** ** | **Impairment** | ** ** |
|----------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------|------------|
| 2004     |       | · Impairment  of investment in an optoelectronics company that ceased operations, net of  expected proceeds from recovered assets                                                                                                                      |       |           | $          | 652 |   |   |
|     |       | · Impairment  of investments in two privately held companies based on deteriorating  financial conditions and/or reduction in the Company’s pro-rata ownership                                                                                    |       |           | 537        |   |   |
|     |       | Total impairments in 2004                                                                                                                                                                                                                                        |       |           | $          | 1,189 |   |   |
| 2003     |       | · Impairment  of investments in privately held semiconductor companies based on  deteriorating financial conditions                                                                                                                                    |       |           | $          | 1,392 |   |   |
|     |       | · Impairment  of investments in privately held companies that ceased operations                                                                                                                                                                        |       |           | 270        |   |   |
|     |       | · Impairment  of investment in privately held optoelectronics company based on its  deteriorating financial condition                                                                                                                                  |       |           | 725        |   |   |
|     |       | Total impairments in 2003                                                                                                                                                                                                                                        |       |           | $          | 2,387 |   |   |
| 2002     |       | · Impairment  of investments in privately held technology companies based on deteriorating  financial conditions that subsequently either were liquidated or filed for  bankruptcy                                                                     |       |           | $          | 9,867 |   |   |
|     |       | · Impairment  of investment in privately held RF integrated circuit company based on its  deteriorating financial condition due to lack of revenue and reduced cash  position. Company later was sold in 2003 and investment was largely recovered(1). |       |           | 11,200     |   |   |
|     |       | · Impairment  of investments in privately held technology companies based on deteriorating  financial conditions                                                                                                                                       |       |           | 2,711      |   |   |
|     |       | Total  impairments in 2002                                                                                                                                                                                                                                       |       |           | $          | 23,778 |   |   |

----

(1)                 Inthe fourth quarter of 2003, the RF integrated circuit company noted above wassold to a large public semiconductor company and the Company was able torecover $11,250 from the sale, resulting in a net gain of $8,450 in the fourthquarter of 2003.

**Note16.   Commitments and Contingencies**

***Legal Matters***

In February 2003, several nearly identicalputative civil class action lawsuits were filed in the United States DistrictCourt for the Middle District of Florida against Sawtek, Inc., the Company’swholly owned subsidiary since July 2001. The lawsuits also named asdefendants current and former officers of Sawtek and the Company. The caseswere consolidated into one action, and an amended complaint was filed in thisaction on July 21, 2003. The amended class action complaint is purportedlyfiled on behalf of purchasers of Sawtek’s stock between January 2000 and May 24,2001, and alleges that the defendants violated Sections 10(b) and 20(a) ofthe Securities Exchange Act, as well as Securities and Exchange Commission Rule 10b-5,by making false and misleading statements and/or omissions to inflate Sawtek’sstock price and conceal the downward trend in revenues disclosed in Sawtek’s May 23,2001 press release. The complaint does not specify the amount of monetary damagessought. Sawtek and the individual 

F-32

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defendants filed theirmotion to dismiss on September 3, 2003, and briefing on the motion wascompleted on November 19, 2003. The court heard oral argument on November 21,2003, and issued an order partially denying the motion to dismiss on December 19,2003. Specifically, the court found that the complaint was not barred by thestatute of limitations, but reserved ruling on the other aspects of the motionto dismiss. Because the statute of limitations issue is a novel question oflaw, the court stayed the proceedings in this case to allow the defendants tofile an interlocutory appeal to the Eleventh Circuit Court of Appeals. Thedefendants duly filed for interlocutory appeal on January 22, 2004.Because the Court of Appeals is considering the identical issue in anothermatter, the appeal process has been stayed, pending the Court of Appeals’decision in the other matter. The Company denies the allegations contained inthe complaint and intends to continue its vigorous defense against theseclaims.

On February 16, 2005,the Company received notice that a summons of civil action was filed in theCourt of Common Pleas of Lehigh County, Pennsylvania by Preferred Real EstateInvestments, Inc. against its subsidiary, TriQuint Optoelectronics, Inc.relating to negotiations for the sale of its facility in Breinigsville, Pennsylvania. The Companydenies any wrongdoing and intends to vigorously defend itself in this action.

***Lease Commitments***

TheCompany leases certain equipment, office and manufacturing space underoperating leases and certain computer equipment under capital leases. Leaseterms range from approximately one to ten years, expiring at various datesthrough 2015 with options to renew at varying terms. At December 31, 2004,the Company had $275 of outstanding capital leases obligations, all of whichwere current obligations. Commitments for minimum lease payments undernon-cancelable leases as of December 31, 2004 were as follows:
| 2005       |   | $1,822 |   |
|------------|--------|--------|--------|
| 2006       |   | 1,691  |   |
| 2007       |   | 1,684  |   |
| 2008       |   | 472    |   |
| 2009       |   | — |   |
| Thereafter |   | — |   |
|       |   | $      | 5,669  |   |
|            |        |        |        |  |

 

The Company also had a $342 per year commitment,through 2015, for materials and services at December 31, 2004. Rentexpense under operating leases for the years ended December 31, 2004, 2003and 2002 was $2,634, $2,672 and $2,168, respectively.

In August 2000, theCompany acquired a 420,000 square foot wafer fabrication facility located inRichardson, Texas for $87.0 million. The acquisition was financed by a variableinterest entity (“VIE”) sponsored by a financial institution in which theCompany contributed $73.0 million and a lender contributed $14.0 million. In September 2002,the Company completed an improvement to the Richardson, Texas facility, ofwhich $18.5 million was financed through the same financialinstitution-sponsored VIE as part of the original financing agreement. TheCompany contributed $14.5 million and the lender contributed $4.0 million. Of thetotal amount contributed to the VIE, the Company was required to collateralize97% through pledged investment securities and a participation interest in theVIE. Under the agreement, the Company was required to make lease paymentsthrough August 2005 or purchase the property at that time. On July 16,2003, the Company terminated the lease on its wafer fabrication facilitylocated in Richardson, Texas and took ownership of the facility. In associationwith the termination of this lease, the Company released the $17.4 million onits balance sheet as “Restricted long-term assets” as of December 31, 2002to the financial institution sponsoring the lease and incurred various 

F-33

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legalfees associated with the title transfer. In addition, of the $88.1 millionshown on the Company’s balance sheet as “Other investment” as of December 31,2002, representing the Company’s previous participation in the VIE financing tothe facility, $46.1 million was reclassified as “Property, plant and equipment”and $42.0 million was recorded as a noncash charge to earnings during the yearended December 31, 2003 for costs associated with the termination of thislease. Management considered a number of factors, including third-partyvaluations, in determining the noncash charge and the market value of thebuilding and land of $82.0 million. Of the $82.0 million assigned to the fixedassets, $8.0 million was assigned to the value of the 38 acres of landassociated with the building. The remaining $74.0 million was assigned to thebuilding and equipment. The Company recorded these assets at fair market valueat the date of the lease termination. The difference between the lease buyoutamount and the market value was recorded as a charge to earnings in the secondquarter of fiscal year 2003. This charge is classified as “Lease terminationcosts” on the Consolidated Statements of Operations. There were no relatedcharges during the years ended December 31, 2004 or 2002, respectively.

**Note17.   Concentration of Credit Risk**

***Suppliers***

The Company currentlyobtains some components, equipment and services for their products from limitedor single sources. The Company purchases these components, equipment andservices on a purchase order basis, does not carry significant inventories ofcomponents and does not have any long-term supply contracts with these vendors.Requirements of the Company are relatively small compared to siliconsemiconductor manufacturers. Access to sufficient capacity from these vendorsin periods of high demand may be limited, as the Company often does not accountfor a significant part of the vendor’s business. If the Company were to changeany of its sole or limited source vendors, it would be required to requalifyeach new vendor. Requalification could prevent or delay product shipments thatcould negatively affect its results of operations. In addition, reliance onthese vendors may negatively affect the Company’s production if the components,equipment or services vary in reliability or quality. If the Company is unableto obtain timely deliveries of sufficient quantities of acceptable quality orif the prices increase, results of operations could be harmed.

***Credit Risk***

The Company performsperiodic credit evaluations of certain customers and generally does not requirecollateral; however, in certain circumstances, the Company may require lettersof credit from its customers. All of the Company’s customers are in thecommunications markets.

***Foreign CurrencyExchange***

At times the Company may engage in foreign exchangeforward contracts to lock in the cost of foreign currency exposures for thepurchase of equipment or raw materials denominated in foreign currencies. Whilethese forward contracts are subject to fluctuations in value from movement inthe foreign currency exchange rates, such fluctuations are offset by the changein value of the underlying exposures being hedged.

The Company is not a partyto leveraged derivatives and does not hold or issue financial instruments for tradingpurposes. Foreign currency contracts are entered into with major financialinstitutions with investment grade credit ratings, thereby decreasing the riskof credit loss. Gains and losses on instruments that hedge firm commitments aredeferred and are included in the basis of the underlying hedged item.

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**Note 18.**   Stock, Stock Options, Employee BenefitPlans and Rights

***Common Stock***

The Company has authorizedcapital of 600,000,000 common shares, $.001 par value Common Stock. Holders ofthe Common Stock are entitled to one vote for each share of Common Stock on allmatters submitted to a vote of the Company’s shareholders.

***Stock Option Plans***

The Company had two stock option plans under whichshares were available for grant at December 31, 2004: the 1996 StockIncentive Plan (the “1996 Plan”) and the 1998 Nonstatutory Stock Option Plan(the “1998 Plan” and together with the 1996 Plan, the “Plans”). The 1996 Planprovides for the grant of incentive stock options to officers, outsidedirectors and other employees of the Company or any parent or subsidiary. The1998 Plan provides for the grant of non-qualified stock options tonon-officer employees of the Company. The stock plans were amended in 2002 toprovide that options granted thereunder must have an exercise price per shareno less than 100% of the fair market value of the share price on the grantdate. Further, with respect to any participant who owns stock possessing morethan 10% of the voting rights of the Company’s outstanding capital stock, theexercise price of any incentive stock option granted must equal at least 110%of the fair market value on the grant date. The terms of all options grantedunder the Plans may not exceed 10 years.

Thefollowing table presents shares authorized, available for future grant andoutstanding under each of the Company’ plans at December 31, 2004:
| ** **                          | ** ** | **Authorized** | ** ** | **Available** | ** ** | **Outstanding** | ** ** |
|-------------------------------------|------------|----------------|------------|---------------|------------|-----------------|------------|
| 1987 Stock Incentive Program        |       |           | 11,387     |          |       |            | —     |   |   |   | 116 |   |   |
| 1996 Stock Incentive Program        |       |           | 36,050     |          |       |            | 9,450      |   |   |   | 22,144 |   |   |
| 1998 Nonstatutory Stock Option Plan |       |           | 4,000      |          |       |            | 703        |   |   |   | 2,065 |   |   |
| Sawtek Stock Option Plans(1)        |       |           | 2,603      |          |       |            | —     |   |   |   | 1,527 |   |   |
| Total                               |       |           | 54,040     |          |       |            | 10,153     |   |   |   | 25,852 |   |   |

----

(1)                 Includes theacquired Sawtek Inc. Second Stock Option Plan and the Sawtek Inc. Stock OptionPlan for Acquired Companies

Subject to the discretion of the Board of Directors,outstanding options granted to new employees under the Plans generally vest andbecome exercisable at the rate of 28% at the end of the first year, andthereafter at a rate of 2% per month and generally expire up to 10 years afterthe grant date. Options granted to current employees typically vest and becomeexercisable between the third and fourth year following the grant date, or asapproved by the Compensation Committee, and typically expire up to 10 yearsafter the grant date.

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Thefollowing summarizes the Company’s stock option transactions for the yearsended December 31, 2004, 2003 and 2002:
| ** **                                                   | ** ** | **Years Ended December 31,** | ** ** |
|--------------------------------------------------------------|------------|---------------------------------------------|------------|
| **(in thousand, except per share data)** | ** ** | ** **                                  | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                   | ** ** | **Shares**                                  | ** ** | **Weighted-  average  exercise price** | ** ** | **Shares** | ** ** | **Weighted-  average  exercise price** | ** ** | **Shares** | ** ** | **Weighted-  Average  Exercise Price** | ** ** |
| Outstanding at beginning  of year                            |       | 24,257                                      |       |   | $ | 12.21 |   |   | 19,168 |   |   | $ | 14.94 |   |   | 17,662 |   |   | $ | 16.80 |   |   |
| Granted                                                      |       | 5,108                                       |       |   | $ | 5.53 |   |   | 7,265 |   |   | $ | 4.14 |   |   | 4,355 |   |   | $ | 6.88 |   |   |
| Exercised                                                    |       | (1,253                                      | )          |   | $ | 3.60 |   |   | (528 | ) |   | $ | 3.03 |   |   | (1,128 | ) |   | $ | 3.06 |   |   |
| Cancelled                                                    |       | (2,260                                      | )          |   | $ | 12.32 |   |   | (1,648 | ) |   | $ | 11.36 |   |   | (1,721 | ) |   | $ | 21.87 |   |   |
| Outstanding at end of  year                                  |       | 25,852                                      |       |   | $ | 11.30 |   |   | 24,257 |   |   | $ | 12.21 |   |   | 19,168 |   |   | $ | 14.94 |   |   |
|                                                              |            |                                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Thefollowing table summarizes information concerning stock options outstanding andexercisable at December 31, 2004 (in thousands, except per share data):
| **Range of  Exercise Price** | ** ** | **Number  Outstanding  (in thousands)** | ** ** | **Weighted-Average  Remaining  Contractual  Life-Years** | ** ** | **Weighted-Average  Exercise Price** | ** ** | **Number  Exercisable  (in thousands)** | ** ** | **Weighted-Average  Exercise Price** | ** ** |
|----------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------------------|------------|-------------------------------------------|------------|----------------------------------------------|------------|-------------------------------------------|------------|
| $  0.59  - $  5.00 |       |                                         | 9,501      |                                                     |       |                                      | 6.43       |                                         |       |                                      | $          | 3.62 |   |   |   | 5,385 |   |   |   | $ | 3.40 |   |   |
| $  5.01  - $10.00            |       |                                         | 8,223      |                                                     |       |                                      | 8.04       |                                         |       |                                      | $          | 6.63 |   |   |   | 3,227 |   |   |   | $ | 7.76 |   |   |
| $10.01  - $15.00                       |       |                                         | 2,661      |                                                     |       |                                      | 6.14       |                                         |       |                                      | $          | 11.40 |   |   |   | 2,660 |   |   |   | $ | 11.40 |   |   |
| $15.01  - $25.00                       |       |                                         | 2,271      |                                                     |       |                                      | 5.24       |                                         |       |                                      | $          | 21.20 |   |   |   | 2,266 |   |   |   | $ | 21.20 |   |   |
| $25.01  - $61.44                       |       |                                         | 3,196      |                                                     |       |                                      | 5.36       |                                         |       |                                      | $          | 38.97 |   |   |   | 3,196 |   |   |   | $ | 38.97 |   |   |
| $  0.59 - $61.44             |       |                                         | 25,852     |                                                     |       |                                      | 6.68       |                                         |       |                                      | $          | 11.30 |   |   |   | 16,734 |   |   |   | $ | 14.72 |   |   |

 

***Employee BenefitPlans***

The Company has aqualified retirement plan under the provisions of Section 401(k) ofthe Internal Revenue Code covering substantially all employees in the U.S.Participants in this plan may defer up to the maximum annual amount allowableunder IRS regulations. Company contributions to the 401(k) Plan wereapproximately $543, $733 and $745 in 2004, 2003 and 2002. The Company also hasprofit share and other benefit plans covering substantially all employeesworldwide. The Company made contributions under these plans of approximately $230,$180, and $211 for 2004, 2003 and 2002, respectively.

The Company also has anEmployee Stock Purchase Plan (“ESPP”), pursuant to which participatingemployees authorize the Company to withhold compensation and to use thewithheld amounts to purchase shares of the Company’s Common Stock at 85% of thelower of the fair market value on the first day of a two year offering periodor the last day of each six month exercise period. During 2004, 2003 and 2002,approximately 2,116,969, 1,712,583 and 892,876 shares, respectively, of theCompany’s Common Stock were purchased under the ESPP. As of December 31,2004 283,031 shares were reserved for issuance under the ESPP. In addition, theCompany has an employee stock ownership plan (“ESOP”) for employees of itsSawtek, Inc. subsidiary acquired in 2001. Under the ESOP, the Company madecontributions of approximately $209 and $223 during 2003 and 2002,respectively. There was no ESOP expense in 2004. Share allocation toparticipants’ accounts in 2003 and 2002 were 831,599 and 887,164, respectively.The shares allocated to the ESOP were acquired by the Plan in 1991. As of December 31,2003, all shares under the ESOP Plan had been allocated.

During the fourth quarterof 2004, the Company’s Board of Directors approved a non-qualified deferredcompensation plan (the “Compensation Plan”). Under the Compensation Plan,employees who are eligible to participate and members of its Board ofDirectors, are provided with the opportunity to defer a specified percentage oftheir cash compensation which the Company will obligated to deliver on a 

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futuredate. At the time of deferral, the Company allocates the deferred monies to atrust account that is invested at the participants election. The amount ofcompensation to be deferred by each participating employee or board member willbe based on elections by each participant and adjusted for any positive ornegative investment results from investment alternatives selected by theparticipant under the Compensation Plan. The liability for the deferred compensationis included in “Other long-term liabilities” on the Company’s balance sheet andwas $99 at December 31, 2004. The value of the funds allocated to thetrust by the Company was $99 at December 31, 2004 and included in “Othernoncurrent assets, net.” For the year ended December 31, 2004, the totalparticipant deferrals were $97.

***Preferred SharesRights Plan***

On June 30, 1998, theCompany adopted a Preferred Shares Rights Agreement (the “Agreement”). Pursuantto the Agreement, rights were distributed as a dividend at the rate of oneright for each share of TriQuint common stock, held by stockholders of recordas of the close of business on July 24, 1998. The rights expire on June 29,2008, unless redeemed or exchanged. Initially, under the Agreement, each rightentitled the registered holder to buy one share of preferred stock for $20.83.On April 5, 2000, the Company approved an amendment to the Agreement toincrease the per unit price to $200.00. These prices are reflective of allstock splits. The rights will become exercisable only if a person or group(other than stockholders currently owning 15% of the Company’s common stock)acquires beneficial ownership of 15% or more of the Company’s common stock, orcommences a tender offer or exchange offer upon consummation of which suchperson or group would beneficially own 15% or more of the Company’s commonstock.

**Note 19.   InfineonReceivable**

As part of the Infineon purchase in 2002, the pricepaid by the Company included a €10,000 (approximately$9,920) contingent earnout deposit. The earnout deposit required certain salesgoals to be met for products acquired as part of the acquisition for Infineonto retain the deposit. If the sales goals were not met by September 30, 2004,Infineon was to reimburse the Company the entire amount. At the time of thepurchase, the earnout deposit was recorded by the Company as a non-monetarylong-term asset at its historical value of $9,920. The Company continued tomonitor the sales of the products associated with the deposit to determine ifthe expense has been incurred. On September 30, 2004, the Company determinedthat the sales goals had not been met and notified Infineon that repayment ofthe earnout deposit was required by December 31, 2004, in accordance with the termsof the purchase agreement. During 2004, the Company reclassified the deposit asa non-monetary short-term asset and when the earnout period expired at the endof the third quarter of 2004, the Company reclassified the deposit as amonetary asset and recorded a foreign currency gain of $2,480 on theremeasurment. On November 16, 2004, the Company received payment on thereceivable.

Additionally, in thefourth quarter of 2002, the Company recorded a receivable of approximately$3,526 as a result of the €3,000 reduction in thepurchase price. On November 16, 2004, the Company received payment on thebalance.

**Note 20.   SegmentInformation**

The Company complies with Statement of SFAS No. 131,*Disclosures About Segments of an Enterprise andRelated Information*. SFAS No. 131 establishes standards for thereporting by public business enterprises of information about operatingsegments, products and services, geographic areas and major customers. Themethod for determining what information to report is based on the way thatmanagement organizes the segments within the Company for making operatingdecisions and assessing financial performance.

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The Company’s chief operating decision maker isconsidered to be the President and Chief Executive Officer (the “CEO”). TheCompany’s CEO evaluates both consolidated and disaggregated financialinformation in deciding how to allocate resources and assess performance. TheCEO receives certain disaggregated financial information for the Company’s fourmarkets, including, Wireless Phones, Infrastructure Networks, Optical Networksand Defense, and four geographic units, including, Oregon, Pennsylvania, Texasand Florida.

The Company has aggregated its businesses into asingle reportable segment as allowed under SFAS 131 as each of thebusinesses have similar long-term economic characteristics, including averagegross margin. In addition, the businesses are similar in regards to (a) natureof products and production processes, (b) type of customers and (c) methodused to distribute products. Accordingly, the Company describes its reportablesegment as high performance components and modules for communicationsapplications. All of the Company’s revenues result from sales in these productlines.

TheCompany’s revenue by business market (as a percentage of total revenues) are asfollows:
| ** **              | ** ** | **Years Ended  December 31,** | ** ** |
|-------------------------|------------|-----------------------------------------|------------|
| ** **              | ** ** | **2004**                                | ** ** | **2003** | ** ** | **2002** | ** ** |
| Business market:        |       |                                    |       |   |   |   |   |
| Wireless phones         |       | 40                                      | %          | 41 | % | 45 | % |
| Infrastructure networks |       | 33                                      | %          | 29 | % | 31 | % |
| Optical networks        |       | 14                                      | %          | 14 | % | 5 | % |
| Defense                 |       | 13                                      | %          | 16 | % | 19 | % |
|                    |       | 100                                     | %          | 100 | % | 100 | % |
|                    |       |                                    |       |   |   |   |   |

 

Revenuesare reported in the geographic areas where they originate. Transfers from theU.S. to Costa Rica are made on a basis intended to reflect the market price ofthe products. This market price is above cost and are consistent with rules andregulations of taxing authorities. Such transfers are eliminated in theconsolidated financial statements. To date, substantially all sales have beendenominated in U.S. dollars. The functional currency for the Costa Ricanoperations is the U.S. dollar as sales, most material cost and equipment aredenominated in the U.S. dollar. The impact of fluctuations of the local CostaRican currency is not considered significant and the foreign exchange rate isnot hedged. Selected financial information by geographical area is summarizedbelow:
| ** **               | ** ** | **Years Ended December 31,** | ** ** |
|--------------------------|------------|---------------------------------------------|------------|
| ** **               | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| Revenues  (origin):      |       |                                        |       |   |   |   |   |
| United States            |       | $                                           | 304,072    |   | $ | 258,515 |   | $ | 214,001 |   |
| Costa Rica               |       | 80,547                                      |       | 84,438 |   | 79,147 |   |
| Transfers / Eliminations |       | (37,614                                     | )          | (30,681 | ) | (25,835 | ) |
|                     |       | $                                           | 347,005    |   | $ | 312,272 |   | $ | 267,313 |   |
| Operating Income (Loss): |       |                                        |       |   |   |   |   |
| United States            |       | $                                           | (35,398    | ) | $ | (84,289 | ) | $ | (124,758 | ) |
| Costa Rica               |       | 8,741                                       |       | 10,002 |   | 14,220 |   |
| Transfers / Eliminations |       | —                                      |       | (99 | ) | (108 | ) |
|                     |       | $                                           | (26,657    | ) | $ | (74,386 | ) | $ | (110,646 | ) |
| Long-Lived Assets:       |       |                                        |       |   |   |   |   |
| United States            |       | $                                           | 173,996    |   | $ | 202,579 |   | $ | 135,177 |   |
| Costa Rica               |       | 27,783                                      |       | 24,650 |   | 24,537 |   |
|                     |       | $                                           | 201,779    |   | $ | 227,229 |   | $ | 159,714 |   |

 

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Revenues outside of the U.S. were approximately$195,300 in 2004 of which revenues to Korea were approximately $35,000. In 2003and 2002, revenues outside of the U.S., were approximately $189,400 and $151,200,respectively, of which revenues to Korea were $49,100 and $34,900 in 2003 and2002. There were no other foreign countries to which revenues represented 10%or more of revenues.

Revenuesfor significant customers, those representing approximately 10% or more oftotal revenues for each period, generated from both geographic areas were asfollows:
| ** ** | ** ** | **Years Ended December 31,** | ** ** |
|------------|------------|---------------------------------------------|------------|
| ** ** | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| Motorola   |       |                                        | 10         | % |   |   | 14 | % |   |   | 16 | % |   |
| Nokia      |       |                                        |       | (1) |   |   |   | (1) |   |   | 10 | % |   |

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(1)                 Duringthe period presented, Nokia did not represent more than 10% of the Company’stotal revenues

Related receivables fromMotorola at December 31, 2004 and 2003 were 10% and 8% of trade accountsreceivable, respectively.

**Note 21.   SubsequentEvents**

On January 5, 2005, the Company successfullycompleted the acquisition of TFR Technologies, Inc. (“TFR”), amanufacturer and developer of thin film resonator filters for communicationapplications using bulk acoustic wave (“BAW”) or film bulk acoustic resonator (“FBAR”)technology. The Company believes that BAW technology is critical to developinghigher frequency filters for next generation wireless communication productsand is a natural complement to the Company’s SAW filters. This acquisition isnot considered a material acquisition for the Company.

On February 16, 2005, the Company received noticethat a summons of civil action was filed in the Court of Common Pleas of LehighCounty, Pennsylvania by Preferred Real Estate Investments, Inc. against itssubsidiary, TriQuint Optoelectronics, Inc. relating to negotiations forthe sale of its facility in Breinigsville,Pennsylvania. The Company denies any wrongdoing and intends to vigorouslydefend itself in this action.

On March 7, 2005, TriQuintOptoelectronics, Inc., a wholly-owned subsidiary of the Company, entered into apurchase and sale agreement to sell to Anthem Partners, LLC (“Anthem”) the landand building and related facilities occupied by TriQuint’s optoelectronicsoperations in Breinigsville, Pennsylvania (the “Agreement”). The gross salesprice is approximately $9,300, less commissions and certain facility clean-upand other costs. Pursuant to the Agreement, the Company and Anthem have agreedto negotiate in good faith a lease for approximately 80,000 square feet of the849,000 square foot facility for the Company’s continuing operations based uponthe general terms set forth in the Agreement. The lease term will be two yearsfrom the closing of the sale, with an option to renew and the lease will beassignable to third parties provided that the Company guarantees the paymentsdue under the initial two year term. The Agreement also provides Anthem withthe right to terminate the Agreement up until April 6, 2005 for any or noreason. The sale is subject to customary closing conditions and is scheduled tooccur within approximately 90 days from the date of the Agreement. At December 31,2004, the facility was recorded on the Company’s consolidated balance sheet at$8,000 in the “Assets held for sale” line item.

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**Note 22.   Summarized Quarterly Data (Unaudited)**
| ** **                           | ** ** | **Fiscal Year 2004 Quarters**                       | ** ** |
|--------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                           | ** ** | **1st**                                                            | ** ** | **2nd** | ** ** | **3rd** | ** ** | **4th** | ** ** | **Total** | ** ** |
| ** **                           | ** ** | **(In thousands, except per share data)** | ** ** |
| Revenues                             |       | $                                                                  | 89,903     |   | $ | 92,648 |   | $ | 89,729 |   | $ | 74,725 |   | $ | 347,005 |   |
| Gross profit                         |       | $                                                                  | 29,480     |   | $ | 30,038 |   | $ | 21,219 |   | $ | 19,692 |   | $ | 100,429 |   |
| Net income (loss)                    |       | $                                                                  | 2          |   | $ | 287 |   | $ | (4,087 | ) | $ | (25,256 | )(2) | $ | (29,054 | ) |
| Earnings (loss) per common  share(1) |       |                                                               |       |   |   |   |   |   |   |   |   |
| Basic                                |       | $                                                                  | 0.00       |   | $ | 0.00 |   | $ | (0.03 | ) | $ | (0.18 | ) | $ | (0.21 | ) |
| Diluted                              |       | $                                                                  | 0.00       |   | $ | 0.00 |   | $ | (0.03 | ) | $ | (0.18 | ) | $ | (0.21 | ) |

 
| ** **                           | ** ** | **Fiscal Year 2003 Quarters** | ** ** |
|--------------------------------------|------------|----------------------------------------------|------------|
| ** **                           | ** ** | **1st**                                      | ** ** | **2nd** | ** ** | **3rd** | ** ** | **4th** | ** ** | **Total** | ** ** |
| Revenues                             |       | $                                            | 71,655     |   | $ | 72,815 |   | $ | 78,794 |   | $ | 89,008 |   | $ | 312,272 |   |
| Gross profit                         |       | $                                            | 15,923     |   | $ | 18,725 |   | $ | 23,443 |   | $ | 28,917 |   | $ | 87,008 |   |
| Net income (loss)                    |       | $                                            | (16,515    | ) | $ | (59,560 | ) | $ | (5,764 | ) | $ | 8,861 |   | $ | (72,978 | ) |
| Earnings (loss) per common  share(1) |       |                                         |       |   |   |   |   |   |   |   |   |
| Basic                                |       | $                                            | (0.12      | ) | $ | (0.45 | ) | $ | (0.04 | ) | $ | 0.07 |   | $ | (0.54 | ) |
| Diluted                              |       | $                                            | (0.12      | ) | $ | (0.45 | ) | $ | (0.04 | ) | $ | 0.06 |   | $ | (0.54 | ) |

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(1)                 Earningsper share is computed individually for each of the quarters presented; therefore,the sum of the quarterly earnings per share may not necessarily equal the totalfor the year.

(2)                 Inthe fourth quarter of 2004, the Company recorded charges of $15,144 for theimpairments of long-term assets and $2,337 for severance charges relating tothe Company’s optoelectronics restructuring.

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**ScheduleII**

**TRIQUINTSEMICONDUCTOR, INC.CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTSFor the Years Ended December 31, 2004, 2003 and 2002(in thousands)**
| ** **                                                             | ** ** | **Allowance for** | ** ** | **Inventory** | ** ** | **Estimated**          | ** ** |
|------------------------------------------------------------------------|------------|------------------------|------------|---------------|------------|------------------------|------------|
| ** **                                                             | ** ** | **Doubtful**           | ** ** | **Valuation** | ** ** | **Liability for** | ** ** |
| **Date**                                                               | ** ** | ** **             | ** ** | **Accounts**  | ** ** | **Reserve**            | ** ** | **Warranty** | ** ** |
| Balance at  December 31, 2001                                     |       |                   | $          | 2,565         |       |                   | $          | 20,171 |   |   | $ | 1,577 |   |   |
| Additions charged to costs and expenses                                |       |                   | 1,424      |          |       | 1,349                  |       |   | 1,388 |   |   |
| Deductions                                                             |       |                   | (122       | )             |       | (1,734                 | )          |   | (806 | ) |   |
| Balance at December 31, 2002                                      |       |                   | 3,867      |          |       | 19,786                 |       |   | 2,159 |   |   |
| Acquisition related(1)                                                 |       |                   | —     |          |       | —                 |       |   | 9,300 |   |   |
| Additions charged to costs and expenses                                |       |                   | 755        |          |       | 6,222                  |       |   | 1,321 |   |   |
| Deductions                                                             |       |                   | (3,411     | )             |       | (9,207                 | )          |   | (3,487 | ) |   |
| Balance at December 31, 2003                                      |       |                   | 1,211      |          |       | 16,801                 |       |   | 9,293 |   |   |
| Additions/(deductions) charged/(credited) to costs and  expenses  |       |                   | (359       | )             |       | 4,283                  |       |   | (442 | )(2) |   |
| Deductions                                                             |       |                   | (26        | )             |       | (8,198                 | )          |   | (2,427 | ) |   |
| Balance at  December 31, 2004                                     |       |                   | $          | 826           |       |                   | $          | 12,886 |   |   | $ | 6,424 |   |   |
|                                                                        |            |                        |            |               |            |                        |            |  |  |  |  |  |  |  |  |  |

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(1)                 Aspart of the Agere Optoelectronics (“Agere”) acquisition in 2003, the Companyassumed the existing warranties on products previously sold by Agere.

(2)                 During2004, the Company continued to refine its methodology for determining itsestimated warranty liability. As a result, the Company reduced the warranty liabilityapproximately $1,588 in the first quarter of 2004.

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**Reportand Consent OF Independent REGISTERED PUBLIC ACCOUNTING FIRM**

The Board of DirectorsTriQuint Semiconductor, Inc.: 

The audits referred to in our report datedMarch 14, 2005, with respect to the consolidated financial statements ofTriQuint Semiconductor, Inc. and Subsidiary, included the related financialstatement schedule as of December 31, 2004, and for each of the years inthe three-year period ended December 31, 2004, as contained in the annualreport in Form 10-K for the year 2004. This financial statement schedule is theresponsibility of the Company’s management. Our responsibility is to express anopinion on this financial statement schedule based on our audits. In ouropinion, such financial statement schedule, when considered in relation to thebasic consolidated financial statements taken as a whole, present fairly in allmaterial respects the information set forth therein.

We consent to theincorporation by reference in the registration statement (Nos. 33-75464,333-02166, 333-08893, 333-08891, 333-31585, 333-39732, 333-48883, 333-66707,333-74617, 333-81273, 333-39730, 333-61582, 333-65850, 333-89242, 333-102085, 333-105701,333-15809 and 333-120407) on Form S-8 of our reports dated March 14,2005, with respect to the consolidated balance sheets of TriQuintSemiconductor, Inc as of December 31, 2004 and 2003, and the relatedconsolidated statements of operations, stockholders’ equity, cash flows, andcomprehensive income for each of the years in the three-year period ended December 31,2004, and the related financial statement schedule, management’s assessment ofthe effectiveness of internal control over financial reporting as ofDecember 31, 2004 and the effectiveness of internal control over financialreporting as of December 31, 2004, which reports appear in theDecember 31, 2004 annual report on Form 10-K of TriQuint Semiconductor.

/s/ KPMG LLP   

Portland, OregonMarch 14, 2005 

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