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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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| ̈ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2006.

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission
File Number: 000-30615



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SIRENZA MICRODEVICES, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 77-0073042                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|303 S. Technology Court, Broomfield, CO                        |  | 80021                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

(303) 327-3030

(Registrants telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)



---

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated
filer ̈Accelerated filer  x                     Non-accelerated filer ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes ̈No  x

As of April 30, 2006 there were 44,754,401 shares of registrants Common Stock outstanding.



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##### Table of Contents

SIRENZA MICRODEVICES, INC.

INDEX



|                              |  |                                                                                       |  |     
|----------------------------- |  | ------------------------------------------------------------------------------------- |  | ----
|                              |  |                                                                                       |  | Page
|                              | 
|Part I. Financial Information |  |                                                                                      
|                              |  |                                                                                      
|Item 1.                       |  | Financial Statements                                                                  |  | 1   
|                              |  |                                                                                      
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 11  
|                              |  |                                                                                      
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 20  
|                              |  |                                                                                      
|Item 4.                       |  | Controls and Procedures                                                               |  | 20  
|                              | 
|Part II. Other Information    |  |                                                                                      
|                              |  |                                                                                      
|Item 1.                       |  | Legal Proceedings                                                                     |  | 20  
|                              |  |                                                                                      
|Item 1A.                      |  | Risk Factors                                                                          |  | 21  
|                              |  |                                                                                      
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 29  
|                              |  |                                                                                      
|Item 3.                       |  | Defaults Upon Senior Securities                                                       |  | 29  
|                              |  |                                                                                      
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                   |  | 29  
|                              |  |                                                                                      
|Item 5.                       |  | Other Information                                                                     |  | 29  
|                              |  |                                                                                      
|Item 6.                       |  | Exhibits                                                                              |  | 29  
|                              |  |                                                                                      
|Signatures                    |  |                                                                                       |  | 31  



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##### Table of Contents

Part I. Financial Information



|Item 1. | Financial Statements
|------- | --------------------

SIRENZA MICRODEVICES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)



|                                           |  |                          |         |   |                  |   |         |  
|------------------------------------------ |  | ------------------------ | ------- | - | ---------------- | - | ------- | -
|                                           |  | March 31,2006(unaudited) |         |   | December 31,2005 |  
|ASSETS                                     |  |                          |         |   |                  |   |         |  
|Current assets:                            |  |                          |         |   |                  |   |         |  
|Cash and cash equivalents                  |  | $                        | 18,059  |   |                  | $ | 11,266  |  
|Short-term investments                     |  |                          | 6,846   |   |                  |   | 6,979   |  
|Accounts receivable, net                   |  |                          | 11,749  |   |                  |   | 11,856  |  
|Inventories                                |  |                          | 8,849   |   |                  |   | 8,961   |  
|Other current assets                       |  |                          | 1,161   |   |                  |   | 1,338   |  
|                                           |  |                          |         |   |                  |   |         |  
|Total current assets                       |  |                          | 46,664  |   |                  |   | 40,400  |  
|Property and equipment, net                |  |                          | 5,935   |   |                  |   | 6,013   |  
|Investment in GCS, net                     |  |                          | 3,065   |   |                  |   | 3,065   |  
|Other non-current assets                   |  |                          | 2,090   |   |                  |   | 1,515   |  
|Acquisition-related intangibles, net       |  |                          | 4,634   |   |                  |   | 5,083   |  
|Goodwill                                   |  |                          | 6,413   |   |                  |   | 6,413   |  
|                                           |  |                          |         |   |                  |   |         |  
|Total assets                               |  | $                        | 68,801  |   |                  | $ | 62,489  |  
|                                           |  |                          |         |   |                  |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY       |  |                          |         |   |                  |   |         |  
|Current liabilities:                       |  |                          |         |   |                  |   |         |  
|Accounts payable                           |  | $                        | 5,055   |   |                  | $ | 4,999   |  
|Accrued compensation and other expenses    |  |                          | 5,587   |   |                  |   | 4,822   |  
|Accrued acquisition costs                  |  |                          | 550     |   |                  |   | 586     |  
|Deferred margin on distributor inventory   |  |                          | 1,157   |   |                  |   | 950     |  
|                                           |  |                          |         |   |                  |   |         |  
|Total current liabilities                  |  |                          | 12,349  |   |                  |   | 11,357  |  
|Other long-term liabilities                |  |                          | 319     |   |                  |   | 391     |  
|Commitments and contingencies              |  |                          |         |   |                  |   |         |  
|Stockholders equity:                      |  |                          |         |   |                  |   |         |  
|Common stock                               |  |                          | 38      |   |                  |   | 37      |  
|Additional paid-in capital                 |  |                          | 142,450 |   |                  |   | 138,660 |  
|Treasury stock, at cost                    |  |                          | (165    | ) |                  |   | (165    | )
|Accumulated other comprehensive loss       |  |                          | (47     | ) |                  |   | (65     | )
|Accumulated deficit                        |  |                          | (86,143 | ) |                  |   | (87,726 | )
|                                           |  |                          |         |   |                  |   |         |  
|Total stockholders equity                 |  |                          | 56,133  |   |                  |   | 50,741  |  
|                                           |  |                          |         |   |                  |   |         |  
|Total liabilities and stockholders equity |  | $                        | 68,801  |   |                  | $ | 62,489  |  
|                                           |  |                          |         |   |                  |   |         |  

See accompanying notes.



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SIRENZA MICRODEVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per
share data)

(Unaudited)



|                                                           |  |                             |        |      |   |        |  
|---------------------------------------------------------- |  | --------------------------- | ------ | ---- | - | ------ | -
|                                                           |  | Three Months EndedMarch 31, |       
|                                                           |  | 2006                        |        | 2005 |  
|Net revenues                                               |  | $                           | 20,892 |      | $ | 12,167 |  
|Cost of revenues                                           |  |                             | 10,813 |      |   | 6,841  |  
|                                                           |  |                             |        |      |   |        |  
|Gross profit                                               |  |                             | 10,079 |      |   | 5,326  |  
|Operating expenses:                                        |  |                             |        |      |   |        |  
|Research and development                                   |  |                             | 2,876  |      |   | 2,811  |  
|Sales and marketing                                        |  |                             | 2,226  |      |   | 1,831  |  
|General and administrative                                 |  |                             | 3,092  |      |   | 2,200  |  
|Amortization of acquisition-related intangible assets      |  |                             | 449    |      |   | 465    |  
|                                                           |  |                             |        |      |   |        |  
|Total operating expenses                                   |  |                             | 8,643  |      |   | 7,307  |  
|                                                           |  |                             |        |      |   |        |  
|Income (loss) from operations                              |  |                             | 1,436  |      |   | (1,981 | )
|Interest and other income, net                             |  |                             | 194    |      |   | 61     |  
|                                                           |  |                             |        |      |   |        |  
|Income (loss) before income taxes                          |  |                             | 1,630  |      |   | (1,920 | )
|Provision for (benefit from) income taxes                  |  |                             | 47     |      |   | (77    | )
|                                                           |  |                             |        |      |   |        |  
|Net income (loss)                                          |  | $                           | 1,583  |      | $ | (1,843 | )
|                                                           |  |                             |        |      |   |        |  
|Basic net income (loss) per share                          |  | $                           | 0.04   |      | $ | (0.05  | )
|                                                           |  |                             |        |      |   |        |  
|Diluted net income (loss) per share                        |  | $                           | 0.04   |      | $ | (0.05  | )
|                                                           |  |                             |        |      |   |        |  
|Shares used to compute basic net income (loss) per share   |  |                             | 36,917 |      |   | 35,463 |  
|                                                           |  |                             |        |      |   |        |  
|Shares used to compute diluted net income (loss) per share |  |                             | 38,880 |      |   | 35,463 |  
|                                                           |  |                             |        |      |   |        |  

See accompanying notes.



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SIRENZA MICRODEVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



|                                                                                         |  |                             |        |   |      |   |        |  
|---------------------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                         |  | Three Months EndedMarch 31, |       
|                                                                                         |  | 2006                        |        |   | 2005 |  
|Operating Activities                                                                     |  |                             |        |   |      |   |        |  
|Net income (loss)                                                                        |  | $                           | 1,583  |   |      | $ | (1,843 | )
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                             |        |   |      |   |        |  
|Depreciation and amortization                                                            |  |                             | 1,235  |   |      |   | 1,551  |  
|Compensation expense related to employee equity awards                                   |  |                             | 1,193  |   |      |   | 19     |  
|Loss on disposal of property and equipment                                               |  |                             | 20     |   |      |   | 15     |  
|Changes in operating assets and liabilities:                                             |  |                             |        |   |      |   |        |  
|Accounts receivable                                                                      |  |                             | 107    |   |      |   | 2,046  |  
|Inventories                                                                              |  |                             | 175    |   |      |   | (183   | )
|Other assets                                                                             |  |                             | 102    |   |      |   | (429   | )
|Accounts payable                                                                         |  |                             | 56     |   |      |   | 566    |  
|Accrued expenses                                                                         |  |                             | 740    |   |      |   | (492   | )
|Accrued restructuring                                                                    |  |                             |       |   |      |   | (229   | )
|Deferred margin on distributor inventory                                                 |  |                             | 207    |   |      |   | (190   | )
|                                                                                         |  |                             |        |   |      |   |        |  
|Net cash provided by operating activities                                                |  |                             | 5,418  |   |      |   | 831    |  
|Investing Activities                                                                     |  |                             |        |   |      |   |        |  
|Sales/maturities of available-for-sale securities, net                                   |  |                             | 151    |   |      |   | 4      |  
|Purchases of property and equipment                                                      |  |                             | (775   | ) |      |   | (500   | )
|Payment of PDI acquisition costs                                                         |  |                             | (536   | ) |      |   |       |  
|                                                                                         |  |                             |        |   |      |   |        |  
|Net cash used in investing activities                                                    |  |                             | (1,160 | ) |      |   | (496   | )
|Financing Activities                                                                     |  |                             |        |   |      |   |        |  
|Principal payments on capital lease obligations                                          |  |                             |       |   |      |   | (18    | )
|Proceeds from employee stock plans                                                       |  |                             | 2,535  |   |      |   | 277    |  
|                                                                                         |  |                             |        |   |      |   |        |  
|Net cash provided by financing activities                                                |  |                             | 2,535  |   |      |   | 259    |  
|Increase in cash and cash equivalents                                                    |  |                             | 6,793  |   |      |   | 594    |  
|Cash and cash equivalents at beginning of period                                         |  |                             | 11,266 |   |      |   | 2,440  |  
|                                                                                         |  |                             |        |   |      |   |        |  
|Cash and cash equivalents at end of period                                               |  | $                           | 18,059 |   |      | $ | 3,034  |  
|                                                                                         |  |                             |        |   |      |   |        |  
|Supplemental disclosures of non-cash investing and financing activities                  |  |                             |        |   |      |   |        |  
|Capitalized and accrued PDI acquisition costs                                            |  | $                           | 550    |   |      | $ |       |  
|Reclassification of property and equipment and accrued expenses                          |  | $                           | 47     |   |      |   |       |  

See accompanying notes.



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Note 1: Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the disclosures required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2006 are not necessarily indicative of
the results that may be expected for any subsequent period or for the year as a whole.

The balance sheet at December 31, 2005 has been derived from
the audited financial statements at that date but does not include all of the disclosures required by accounting principles generally accepted in the United States for complete financial statements.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements of Sirenza
Microdevices, Inc. (the Company) for the fiscal year ended December 31, 2005, which are included in the Companys Form 10-K filed with the Securities and Exchange Commission (SEC) on March 15, 2006.

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany accounts and transactions
have been eliminated.

Stock-Based Compensation

Effective January 1, 2006, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payment
(SFAS 123R), using the modified prospective transition method and therefore has not restated results for prior periods. Under this transition method, stock-based compensation expense for the first quarter of fiscal 2006 includes
compensation expense for all stock-based compensation awards granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provision of SFAS No. 123,
Accounting for Stock-Based Compensation (SFAS 123). Prior to the adoption of SFAS 123R, the Company recognized stock-based compensation expense in accordance with Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). In March 2005, the Securities and Exchange Commission (the SEC) issued Staff Accounting Bulletin No. 107 (SAB 107)
regarding the SECs interpretation of SFAS 123R and the valuation of share-based payments for public companies. The Company has applied the provisions of SAB 107 in its adoption of SFAS 123R. See Note 2 to the Condensed
Consolidated Financial Statements for a further discussion on stock-based compensation.

Recent Accounting Pronouncements

There have been no material changes to the recent accounting pronouncements as previously reported in the Companys Annual Report on Form 10-K for the fiscal year
ended December 31, 2005.

Note 2: Stock-Based Compensation

At March 31, 2006, the Companys 1998 Stock Plan (the 1998 Plan) was the only stock-based employee compensation plan and is described more fully below. Equity awards granted under the 1998 Plan have
historically consisted of stock options and more recently restricted stock purchase rights. The total compensation expense related to this plan was approximately $1.2 million for the three months ended March 31, 2006. Prior to January 1,
2006, the Company accounted for this plan under the recognition and measurement provisions of APB Opinion No. 25. Accordingly, the Company did not typically recognize compensation expense for stock option grants, as it granted stock options at
an exercise price equal to the fair market value of the Companys common stock on the date of grant. However, in 2004, the Company began granting restricted stock purchase rights, or stock awards, at an exercise price of par value ($0.001 per
share), which are subject to a right of reacquisition by the Company at cost or for no consideration. The Company measures the fair value of the stock awards based upon the fair market value of the Companys common stock on the dates of grant
and recognizes any resulting compensation expense, net of a forfeiture rate, on a straight-line basis over the associated service period, which is generally the vesting term of the stock awards. The Company typically estimates forfeiture rates based
on historical experience, while also considering the duration of the vesting term of the option or stock award.

Prior to January 1, 2006, the Company
provided pro forma disclosure amounts in accordance with SFAS No. 148, Accounting for Stock-Based CompensationTransition and Disclosure (SFAS 148), as if the fair value method defined by SFAS 123 had been
applied to its stock-based compensation.

As a result of adopting SFAS 123R, the impact to the Condensed Consolidated Financial Statements for the
three months ended March 31, 2006 for income before income taxes and net income for the three months ended March 31, 2006 was $976,000 lower, respectively, than if the Company had continued to account for stock-based compensation under
APB 25. The impact on both basic and diluted earnings per share for the three months ended March 31, 2006 was $0.03 per share. In addition, prior to the adoption of SFAS 123R, the Company presented the tax benefit of stock option
exercises as operating cash flows. Upon the adoption of SFAS 123R, tax benefits resulting from tax deductions in excess of the compensation cost recognized for those options are classified as financing cash flows. Due to the utilization of net
operating loss carryforwards, the Company did not realize tax benefit for the tax deduction from stock option exercises for the three months ended March 31, 2006 and March 31, 2005.

The following table illustrates the effect on net loss and loss per share if the Company had applied the fair value recognition provisions of SFAS 123 to stock options
granted under the Companys 1998 Plan. For purposes of this pro forma disclosure, the value of the stock options is estimated using a Black-Scholes option pricing model and amortized to expense over the stock options vesting period.



|                                                                                                                               |  |                                         |        |  
|------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------- | ------ | -
|                                                                                                                               |  | Three months ended,March 31, 2005       |       
|                                                                                                                               |  | (In thousands, exceptper share amounts) |       
|Net loss, as reported                                                                                                          |  | $                                       | (1,843 | )
|Add: Stock-based compensation included in reported net loss, net of related tax effects                                        |  |                                         | 19     |  
|Less: Stock-based compensation expense determined under the fair-value-based method for all awards, net of related tax effects |  |                                         | (1,728 | )
|                                                                                                                               |  |                                         |        |  
|Pro forma net loss                                                                                                             |  | $                                       | (3,552 | )
|                                                                                                                               |  |                                         |        |  
|Basic and diluted net loss per share:                                                                                          |  |                                         |        |  
|Basic and diluted - as reported                                                                                                |  | $                                       | (0.05  | )
|Basic and diluted - pro forma                                                                                                  |  | $                                       | (0.10  | )



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Note that the above pro forma disclosure is provided for the three months ended March 31, 2005 because employee
stock options were not accounted for using the fair-value method during that period.

Stock Option Plan

In January 1998, the Company established the 1998 Plan under which stock options may be granted to employees, directors and consultants of the Company. Under the 1998
Plan, nonstatutory stock options may be granted to employees, directors and consultants, and incentive stock options (ISO) may be granted only to employees. In the case of an ISO that is granted to an employee who, at the time of the grant of such
option, owns stock representing more than 10% of the total combined voting power of all classes of stock of the Company, the per share exercise price shall not be less than 110% of the fair market value per share on the date of grant. For ISOs
granted to any other employee, the per share exercise price shall not be less than 100% of the fair value per share on the date of grant. The exercise price for nonqualified options may not be less than 85% of the fair value of Common Stock at the
option grant date. Options generally expire after ten years. Vesting and exercise provisions are determined by the Board of Directors. Options generally vest over 4 years, 25% after the first year and ratably each month over the remaining 36 months.

Rights to purchase restricted stock and other types of equity awards may also be granted under the 1998 Plan with terms, conditions, and restrictions
determined by the Board of Directors. Restricted stock purchase rights, or stock awards, are typically granted at an exercise price equal to the par value of the underlying stock ($0.001 per share) and are subject to a right of reacquisition by the
Company at cost or for no consideration. This right of reacquisition then lapses over a period of time following the grant date based on continued service to the Company by the grantee, in a process similar to an option vesting. While vesting rates
for the Companys stock awards vary, the basic vesting schedule for new employee grants is for one-third of the stock subject to the award to vest on each anniversary of the grant date, such that the award is fully-vested after 3 years. Stock
awards are independent of stock option grants and are generally subject to forfeiture if employment terminates prior to the release of the restrictions. Stock awards have the same cash dividend and voting rights as other common stock and are
considered to be currently issued and outstanding when exercised. The Company expenses the cost of the stock awards, which is deemed to be the fair market value of the shares at the date of grant, on a straight-line basis over the period during
which the restrictions lapse.

The Company has not granted any stock options subsequent to the third quarter of 2005. The fair value of all previously
granted stock options was estimated on the date of grant using a Black-Scholes option pricing model. The Companys volatility computation for the three months ended March 31, 2005 was based on a historical-based volatility. The expected
life computation for the three months ended March 31, 2005 was based on historical exercise patterns. The interest rate for periods within the contractual life of the award was based on the U.S. Treasury yield curve in effect at the time of
grant.

The fair value of stock options granted was estimated using the Black-Scholes option pricing model with the following assumptions and weighted
average fair value as follows:



|                                     |  |                                               |      |  
|------------------------------------ |  | --------------------------------------------- | ---- | -
|                                     |  | Stock OptionsThree Months EndedMarch 31, 2005 |     
|Weighted average fair value of grant |  | $                                             | 3.87 |  
|Risk-free interest rate              |  |                                               | 3.88 | %
|Dividend yield                       |  |                                               | 0    | %
|Expected volatility                  |  |                                               | 113  | %
|Expected life (in years)             |  |                                               | 5.13 |  

A summary of stock option activity under the 1998 Plan as of March 31, 2006 and changes during the three
months ended March 31, 2006 is presented below:



|                                 |  |           |   |  |                               |      |                                                    |      |                                       |   |       
|-------------------------------- |  | --------- | - |  | ----------------------------- | ---- | -------------------------------------------------- | ---- | ------------------------------------- | - | ------
|Stock Options                    |  | Shares    |   |  | Weighted-AverageExercisePrice |      | Weighted-AverageRemainingContractualTerm(in years) |      | AggregateIntrinsicValue(in thousands)
|Outstanding at December 31, 2005 |  | 4,497,545 |   |  | $                             | 2.66 |                                                    |      |                                       |   |       
|Granted                          |  |          |   |  |                               |      |                                                    |      |                                       |   |       
|Exercised                        |  | (977,350  | ) |  | $                             | 2.59 |                                                    |      |                                       |   |       
|Forfeited/cancelled/expired      |  | (61,947   | ) |  | $                             | 4.77 |                                                    |      |                                       |   |       
|                                 |  |           |   |  |                               |      |                                                    |      |                                       |   |       
|Outstanding at March 31, 2006    |  | 3,458,248 |   |  | $                             | 2.64 |                                                    | 6.99 |                                       | $ | 23,605
|                                 |  |           |   |  |                               |      |                                                    |      |                                       |   |       
|Exercisable at March 31, 2006    |  | 2,507,182 |   |  | $                             | 2.57 |                                                    | 6.72 |                                       | $ | 17,301
|                                 |  |           |   |  |                               |      |                                                    |      |                                       |   |       

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference
between the Companys closing stock price on the last trading day of the first quarter of fiscal 2006 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option
holders exercised their options on March 31, 2006. This amount changes based on the fair market value of the Companys stock. Total intrinsic value of options exercised for the three months ended March 31, 2006 was $4.4 million. Total
fair value of stock options vested and expensed was approximately $960,000, net of tax, for the three months ended March 31, 2006.

As of
March 31, 2006, $3.2 million of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 1.20 years.



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Cash received from stock option exercises for the three months ended March 31, 2006 was approximately
$2.5 million.

Nonvested stock awards as of March 31, 2006 and changes during the three months ended March 31, 2006 were as follows:



|                               |  |         |   |  |                                     |     
|------------------------------ |  | ------- | - |  | ----------------------------------- | ----
|Stock Awards                   |  | Shares  |   |  | Weighted-AverageGrantDate FairValue
|Nonvested at December 31, 2005 |  | 212,650 |   |  | $                                   | 2.71
|Granted                        |  | 166,728 |   |  | $                                   | 6.82
|Vested                         |  |        |   |  | $                                   |    
|Forfeited/cancelled/expired    |  | (8,386  | ) |  | $                                   | 3.04
|                               |  |         |   |  |                                     |     
|Nonvested at March 31, 2006    |  | 370,992 |   |  | $                                   | 4.55
|                               |  |         |   |  |                                     |     

As of March 31, 2006, there was $1.2 million of unrecognized stock-based compensation expense related to
nonvested stock awards. That cost is expected to be recognized over a weighted-average period of 1.08 years.

Total stock-based compensation expense
related to stock options and stock awards under the 1998 Plan was allocated as follows:



|                                       |                |                                  |     |             |   |       |  |   |      
|-------------------------------------- | -------------- | -------------------------------- | --- | ----------- | - | ----- |  | - | -----
|                                       |                | Three months endedMarch 31, 2006
|                                       | (in thousands)
|                                       |                | StockOptions                     |     | StockAwards |   | Total
|Cost of sales                          |                | $                                | 59  |             | $ | 27    |  | $ | 86   
|Research and development               |                |                                  | 188 |             |   | 64    |  |   | 252  
|Sales and marketing                    |                |                                  | 204 |             |   | 40    |  |   | 244  
|General and administrative             |                |                                  | 525 |             |   | 86    |  |   | 611  
|                                       |                |                                  |     |             |   |       |  |   |      
|Total stock-based compensation expense |                | $                                | 976 |             | $ | 217   |  | $ | 1,193
|                                       |                |                                  |     |             |   |       |  |   |      

Stock-based compensation costs capitalized into inventory of approximately $66,000 are not included in the table
above.

Note 3: Amortizable acquisition-related intangible assets

Amortization of acquisition-related intangible assets totaled $449,000 and $465,000 for the three-month periods ended March 31, 2006 and 2005, respectively. The amortization of acquisition-related intangible
assets in the three-month periods ended March 31, 2006 and 2005 included amortization associated with the Companys acquisitions of Xemod, Vari-L and ISG. Acquisition-related intangible assets related to the ISG acquisition are being
amortized over the periods in which the economic benefits of such assets are expected to be used. Acquisition-related intangible assets related to the Vari-L and Xemod acquisitions are being amortized on a straight-line basis, which management
believes to reasonably reflect the pattern over which the economic benefits are being derived.

The Companys acquisition-related intangible assets
were as follows (in thousands):



|                                                   |  |                     |       |                         |   |       |  |                     |       |                         |   |       |  |   |       |  |   |      
|-------------------------------------------------- |  | ------------------- | ----- | ----------------------- | - | ----- |  | ------------------- | ----- | ----------------------- | - | ----- |  | - | ----- |  | - | -----
|                                                   |  | March 31, 2006      |       | December 31, 2005      
|                                                   |  | GrossCarryingAmount |       | AccumulatedAmortization |   | Net   |  | GrossCarryingAmount |       | AccumulatedAmortization |   | Net  
|Amortizable acquisition-related intangible assets: |  |                     |       |                         |   |       |  |                     |       |                         |   |       |  |   |       |  |   |      
|Developed Product Technology                       |  | $                   | 6,810 |                         | $ | 3,138 |  | $                   | 3,672 |                         | $ | 6,810 |  | $ | 2,793 |  | $ | 4,017
|Customer Relationships                             |  |                     | 970   |                         |   | 931   |  |                     | 39    |                         |   | 970   |  |   | 921   |  |   | 49   
|Core Technology Leveraged                          |  |                     | 860   |                         |   | 87    |  |                     | 773   |                         |   | 860   |  |   | 18    |  |   | 842  
|Patented Core Technology                           |  |                     | 700   |                         |   | 550   |  |                     | 150   |                         |   | 700   |  |   | 525   |  |   | 175  
|                                                   |  |                     |       |                         |   |       |  |                     |       |                         |   |       |  |   |       |  |   |      
|Total                                              |  | $                   | 9,340 |                         | $ | 4,706 |  | $                   | 4,634 |                         | $ | 9,340 |  | $ | 4,257 |  | $ | 5,083
|                                                   |  |                     |       |                         |   |       |  |                     |       |                         |   |       |  |   |       |  |   |      



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##### Table of Contents

The weighted average amortization period of the Companys acquisition-related intangible assets as of March 31,
2006 and December 31, 2005 were as follows (in months):



|                             |  |   
|---------------------------- |  | --
|Developed Product Technology |  | 66
|Customer Relationships       |  | 34
|Core Technology Leveraged    |  | 60
|Patented Core Technology     |  | 53

As of March 31, 2006, the Companys estimated amortization expense of acquisition-related intangible
assets over the next five years and thereafter is as follows (in thousands):



|                          |  |   |      
|------------------------- |  | - | -----
|2006 (remaining 9 months) |  | $ | 1,348
|2007                      |  |   | 1,609
|2008                      |  |   | 1,227
|2009                      |  |   | 318  
|2010                      |  |   | 132  
|                          |  |   |      
|                          |  | $ | 4,634
|                          |  |   |      

Note 4: Goodwill

There were no changes in the carrying amount of goodwill during the three-month period ended March 31, 2006.

Note 5: Inventories

Inventories are stated at the lower of standard cost, which approximates actual (first-in, first-out method) or market (estimated net realizable
value).

The Company plans production based on orders received and forecasted demand and must order wafers and raw material components and build
inventories well in advance of product shipments. The valuation of inventories at the lower of cost or market requires the use of estimates regarding the amounts of current inventories that will be sold. These estimates are dependent on the
Companys assessment of current and expected orders from its customers, including consideration that orders are subject to cancellation with limited advance notice prior to shipment. Because the Companys markets are volatile, and are
subject to technological risks and price changes as well as inventory reduction programs by the Companys customers and distributors, there is a risk that the Company will forecast incorrectly and produce excess inventories of particular
products. This inventory risk is compounded because many of the Companys customers place orders with short lead times. As a result, actual demand will differ from forecasts, and such a difference has in the past and may in the future have a
material adverse effect on actual results of operations.

The Company sold previously written-down inventory products with an original cost basis of
approximately $90,000 and $65,000 in the first quarters of 2006 and 2005, respectively. As the cost basis for written-down inventories is less than the original cost basis when such products are sold, cost of revenues associated with the sale will
be lower, which results in a higher gross margin on that sale. Sales of previously written-down inventories increased the Companys gross margin for the three months ended March 31, 2006 by less than one percentage point. The Company may
sell previously written-down inventory products in future periods, which would have a similarly positive impact on the Companys results of operations.

The components of inventories, net of written-down inventories and reserves, are as follows (in thousands):



|                |  |               |       |                  |   |      
|--------------- |  | ------------- | ----- | ---------------- | - | -----
|                |  | March 31,2006 |       | December 31,2005
|Raw materials   |  | $             | 3,559 |                  | $ | 3,740
|Work-in-process |  |               | 1,677 |                  |   | 1,422
|Finished goods  |  |               | 3,613 |                  |   | 3,799
|                |  |               |       |                  |   |      
|                |  | $             | 8,849 |                  | $ | 8,961
|                |  |               |       |                  |   |      



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Note 6: Investment in GCS

In the first quarter of 2002, the Company converted an outstanding loan receivable of approximately $1.4 million and invested cash of approximately $6.1 million in Global Communication Semiconductors, Inc. (GCS), a
privately held semiconductor foundry, in exchange for 12.5 million shares of GCS Series D-1 preferred stock valued at $0.60 per share. In connection with the investment, the Companys President and CEO joined GCS seven-member board
of directors.

The Company accounts for its investment in GCS under the cost method of accounting and has classified the investment as a non-current asset
on its consolidated balance sheet.

The Company regularly evaluates its investment in GCS to determine if an other than temporary decline in value has
occurred. Factors that may cause an other than temporary decline in the value of the Companys investment in GCS would include, but not be limited to, a degradation of the general business environment in which GCS operates, the failure of GCS
to achieve certain performance milestones, a series of operating losses in excess of GCS business plan, the inability of GCS to continue as a going concern or a reduced valuation as determined by a new financing event. There is no public
market for the securities of GCS, and the factors mentioned above require management to make significant judgments about the fair value of the GCS securities.

In the fourth quarters of 2004 and 2002, the Company determined that an other than temporary decline in value of its investment had occurred. Accordingly, the Company recorded a charge of approximately $1.5 million in 2004 and $2.9 million
in 2002 to reduce the carrying value of its investment to its estimated fair value. The fair value has been estimated by management and may not be reflective of the value in a third party financing event.

The ultimate realization of the Companys investment in GCS will be dependent on the occurrence of a liquidity event for GCS, and/or our ability to sell our GCS
shares, for which there is currently no public market. The likelihood of any of these events occurring will depend on, among other things, the market conditions surrounding the wireless communications industry and the related semiconductor foundry
industry, as well as the public markets receptivity to liquidity events such as initial public offerings or merger and acquisition activities. Even if the Company is able to sell its GCS shares, the sale price may be less than carrying value
of the investment, which could have a material adverse effect on the Companys consolidated results of operations.

Note 7: Restructuring
Activities

All of the activities related to the Companys prior restructurings have been completed, with the exception of $26,000 of cash
expenditures related to a noncancelable lease commitment that is expected to be paid over the respective lease term, which ends in the second quarter of 2006. The Company paid $27,000 during the three months ended March 31, 2006, and the
$26,000 of the remaining accrued restructuring is recorded our consolidated balance sheet in Accrued compensation and other expenses.

Note 8: Net Income (Loss) Per Share

The Company computes basic net income (loss) per share by dividing the net income (loss) for the
period by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of shares of common stock
and potential common stock equivalents outstanding during the period, if dilutive. Potential common stock equivalents include incremental shares of common stock issuable upon the exercise of stock options and employee stock awards.

The shares used in the computation of the Companys basic and diluted net income (loss) per common share were as follows (in thousands):



|                                                              |  |                    |  |               
|------------------------------------------------------------- |  | ------------------ |  | --------------
|                                                              |  | Three Months Ended
|                                                              |  | March 31, 2006     |  | March 31, 2005
|Weighted average common shares outstanding                    |  | 36,917             |  | 35,463        
|Dilutive effect of employee stock options and awards          |  | 1,963              |  |              
|                                                              |  |                    |  |               
|Weighted average common shares outstanding, assuming dilution |  | 38,880             |  | 35,463        
|                                                              |  |                    |  |               

Weighted average common shares outstanding, assuming dilution, include the incremental shares that would be issued
upon the assumed exercise of stock options and employee stock awards.

The effect of options to purchase 49,625 shares of common stock have not been
included in the computation of diluted net loss per share for the quarter ended March 31, 2006 as the effect would have been antidilutive. Stock options are antidilutive when the exercise price of the options is greater than the average market
price of the common shares for the period.

The effect of options to purchase 5,329,236 shares of common stock at an average exercise price of $2.68 for
the quarter ended March 31, 2005 have not been included in the computation of diluted net loss per share as the effect would have been antidilutive. In addition, 50,000 shares of non-vested common stock at a purchase price of $0.001 have not
been included in the computation of diluted net loss per share as the effect would have been antidilutive.



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Note 9: Comprehensive Income (Loss)

The components of comprehensive income (loss), net of tax, were as follows (in thousands):



|                                                                |  |                    |       |               |   |        |  
|--------------------------------------------------------------- |  | ------------------ | ----- | ------------- | - | ------ | -
|                                                                |  | Three Months Ended |      
|                                                                |  | March 31,2006      |       | March 31,2005 |  
|Net income (loss)                                               |  | $                  | 1,583 |               | $ | (1,843 | )
|Change in net unrealized loss on available-for-sale investments |  |                    | 18    |               |   | (54    | )
|                                                                |  |                    |       |               |   |        |  
|Total comprehensive income (loss)                               |  | $                  | 1,601 |               | $ | (1,897 | )
|                                                                |  |                    |       |               |   |        |  

The components of accumulated other comprehensive loss, net of tax, were as follows (in thousands):



|                                                                  |  |               |     |   |                  |   |     |  
|----------------------------------------------------------------- |  | ------------- | --- | - | ---------------- | - | --- | -
|                                                                  |  | March 31,2006 |     |   | December 31,2005 |  
|Accumulated net unrealized loss on available-for-sale investments |  | $             | (47 | ) |                  | $ | (65 | )
|                                                                  |  |               |     |   |                  |   |     |  
|Total accumulated other comprehensive loss                        |  | $             | (47 | ) |                  | $ | (65 | )
|                                                                  |  |               |     |   |                  |   |     |  

Note 10: Segments of an Enterprise and Related Information

Beginning in January 2006, the Company moved from a three segment reporting structure to a structure consisting of one RF component sales segment made up of five
market-focused strategic business units (SBU). The Company was previously organized largely along product linesamplifiers, signal source and aerospace & defenseto accelerate and facilitate the Companys past integration
plans and to maintain alignment with major customers following acquisitions in 2003 and 2004. The Company determined it was in the best interests of its customers, stockholders and employees to realign the organization to better support the
Companys strategic goals.

The Company moved to a market-facing Strategic Business Unit (SBU) structure. The Company believes this will enable it to
improve its resource alignment in both current and emerging markets. This strategically focused SBU structure allows the Company to further concentrate its efforts in strategic planning, product development, and marketing to better support the
Companys worldwide customers. The Companys SBU organizations aim to grow our core businesses; diversify our end markets; and expand our RF core competencies and capabilities. The Companys five SBUs are as follows:

Aerospace and Defense Applications

The Aerospace and
Defense SBU concentrates on aerospace, military/defense and homeland security applications.

Broadband and Consumer Applications

The Broadband and Consumer SBU concentrates on digital satellite radio applications, digital TV (DTV), digital satellite and CATV set-top boxes, as well as CATV
infrastructure applications.

Mobile Wireless

The Mobile Wireless SBU concentrates on global mobile wireless customers, focusing on leading standards, including GSM/EDGE, WCDMA, CDMA2K, and TD-SCDMA infrastructure opportunities.



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Standard and Catalog Products

The Standard and Catalog Products SBU focuses on established and emerging mid-level to smaller customers which the Company largely serve through its global sales distribution and sales representative networks.

Wireless Access Applications

The Wireless
Access SBU focuses on the WiMAX, WLAN and emerging Ultra Wideband and Zigbee markets for infrastructure and CPE terminal applications.

Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information (SFAS 131), requires disclosures of certain information regarding operating segments, products and services, geographic
areas of operation and major customers. The method for determining what information to report under SFAS 131 is based upon the management approach, or the way that management organizes the operating segments within a company, for
which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker (CODM) in deciding how to allocate resources and in assessing performance. The Companys CODM is the Chief Executive Officer.
The CODM evaluates the performance of the Company based on consolidated income or loss before income taxes. For the purpose of making operating decisions, the CODM primarily considers financial information presented on a consolidated basis
accompanied by disaggregated information about revenues. Revenue is defined as revenues from external customers.

Non-segment items include certain
corporate manufacturing expenses, research and development expenses, sales and marketing expenses, general and administrative expenses, amortization of acquisition-related intangible assets, interest income and other, net, and the provision for
(benefit from) income taxes, as the aforementioned items are not allocated for purposes of the CODMs reportable segment review. Assets and liabilities are not discretely reviewed by the CODM.

The disaggregated financial information reviewed by the CODM can be reconciled to the net revenues disclosed in the Condensed Consolidated Statements of Operations for
the three month periods ended March 31, 2006 and 2005 as follows (in thousands):



|                                         |  |           |        |      |   |       
|---------------------------------------- |  | --------- | ------ | ---- | - | ------
|                                         |  | March 31,
|                                         |  | 2006      |        | 2005
|Aerospace, Defense and Homeland Security |  | $         | 1,498  |      | $ | 727   
|Broadband and Consumer                   |  |           | 5,192  |      |   | 584   
|Mobile Wireless                          |  |           | 7,186  |      |   | 5,496 
|Standard Products                        |  |           | 4,494  |      |   | 5,157 
|Wireless Access                          |  |           | 2,522  |      |   | 203   
|                                         |  |           |        |      |   |       
|Total net revenues                       |  | $         | 20,892 |      | $ | 12,167

Beginning in the second quarter of 2006, we will move to a two-segment reporting structure consisting of the
historical Sirenza segment, which includes each of the five SBUs described above, as well as a new segment comprising the recently acquired PDI business. See Note 12: Subsequent Event for more information pertaining to the acquisition of PDI.

Note 11: Contingencies

In November 2001, we,
various officers and certain underwriters of the Companys initial public offering of securities were named in a purported class action lawsuit filed in the United States District Court for the Southern District of New York. The suit, In re
Sirenza Microdevices, Inc. Initial Public Offering Securities Litigation, Case No. 01-CV-10596, alleges improper and undisclosed activities related to the allocation of shares in our initial public offering, including obtaining commitments from
investors to purchase shares in the aftermarket at pre-arranged prices. Similar lawsuits concerning more than 300 other companies initial public offerings were filed during 2001, and this lawsuit is being coordinated with those actions (the
coordinated litigation). Plaintiffs filed an amended complaint on or about April 19, 2002, bringing claims for violation of several provisions of the federal securities laws and seeking an unspecified amount of damages. On or about
July 1, 2002, an omnibus motion to dismiss was filed in the coordinated litigation on behalf of the issuer defendants, of which we and our named officers and directors are a part, on common pleadings issues. On October 8, 2002, pursuant to
stipulation by the parties, the court dismissed the officer and director defendants from the action without prejudice. On February 19, 2003, the court granted in part and denied in part a motion to dismiss filed on behalf of defendants,
including us. The courts order dismissed all claims against us except for a claim brought under Section 11 of the Securities Act of 1933.

In
June 2004, a stipulation of settlement and release of claims against the issuer defendants, including us, was submitted to the court for approval. The terms of the settlement, if approved, would dismiss and release all claims against the
participating defendants (including us). In exchange for this dismissal, D&O insurance carriers would agree to guarantee a recovery by the plaintiffs from the underwriter defendants of at least $1 billion, and the issuer defendants would agree
to an assignment or surrender to the plaintiffs of certain claims the issuer defendants may have against the underwriters. On August 31, 2005, the court granted preliminary approval of the settlement. The settlement is subject to a number of
conditions, including final court approval. On April 24, 2006, the court held a hearing regarding the possible final approval of the previously described preliminary settlement between the 300 issuers and the plaintiffs. After hearing arguments
from a number of interested parties, the court adjourned the hearing to consider its ruling on the matter, without giving an expected date at which such ruling will be handed down. If the settlement does not occur, and litigation against us
continues, we believe we have meritorious defenses and intend to defend the case vigorously. In addition, we do not believe the ultimate outcome will have a material adverse impact on our results of operations or financial condition.

On April 16, 2003, Scientific Components Corporation d/b/a Mini-Circuits Laboratory (Mini-Circuits) filed a complaint against us in the United States
District Court for the Eastern District of New York alleging, among other things, breach of warranty by us for alleged defects in certain goods sold to Mini-Circuits. Mini-Circuits seeks compensatory damages plus interest, costs and attorneys
fees. On July 30, 2003, we filed an answer to the complaint and asserted counterclaims against Mini-Circuits. Even though we believe Mini-Circuits claims to be without merit and we intend to defend the case and assert our claims
vigorously, if we ultimately lose or settle the case, we may be liable for monetary damages and other costs of litigation. An estimate as to the possible loss or range of loss in the event of an unfavorable outcome cannot be made as of
March 31, 2006. Even if we are entirely successful in the lawsuit, we may incur significant legal expenses and our management may expend significant time in the defense.

In addition, we currently are involved in litigation and regulatory proceedings incidental to the conduct of our business and expect that we will be involved in other litigation and regulatory proceedings from time to
time. While we currently believe that an adverse outcome with respect to such pending matters would not materially affect our business or financial condition, there can be no assurance that this will ultimately be the case.

On December 16, 2004, the Company acquired ISG Broadband, Inc. (ISG), a designer of RF gateway module and IC products for the cable TV, satellite radio and HDTV
markets, for approximately $6.9 million in cash and estimated direct transaction costs of approximately $789,000 for a total preliminary purchase price of $7.7 million. Additional cash consideration of up to $7.15 million may become due and payable
by the Company upon the achievement of margin contribution objectives attributable to sales of selected products for periods through December 31, 2007. To the extent sales of the selected products achieve a minimum gross margin



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percentage, the Company will be required to make additional payments to the former shareholders of ISG for a portion or all of the gross profit earned on
such sales, up to a pre-defined maximum, as outlined below. The future cash payout of additional consideration, if any, will be payable in the first or second quarter following the end of the applicable annual earn-out period, as outlined below, and
will be recorded as additional goodwill.

As of December 31, 2005, the Company determined it to be probable that the full earn-out of $1.15 million
related to the year ended December 31, 2005 would be paid. Accordingly, the Company has accrued for the expected payment of the earn-out on its consolidated balance sheet in Accrued compensation and other expenses and
correspondingly increased goodwill by $1.15 million. The $1.15 million earn-out related to the year ended December 31, 2005 was paid in the second quarter of 2006.

The range of possible payments for the years ended December 31, 2006 and 2007 is as follows (in thousands):



|                              |  |                        |   |                   |   |      
|----------------------------- |  | ---------------------- | - | ----------------- | - | -----
|                              |  | Possible Payment Range
|Earn-out Period               |  | Low Endof Range        |   | High End of Range
|Year ending December 31, 2006 |  | $                      |  |                   | $ | 3,000
|Year ending December 31, 2007 |  | $                      |  |                   | $ | 3,000
|                              |  |                        |   |                   |   |      
|                              |  | $                      |  |                   | $ | 6,000

Note 12: Subsequent Event

On April 3, 2006, the Company completed its acquisition of Premier Devices, Inc. (PDI) for 7,000,000 shares of Sirenza common stock, $14.0 million in cash and $6.0 million in promissory notes bearing 5% simple
interest per annum paid monthly and maturing in one year. PDI designs, manufactures and markets complementary RF components featuring technologies common to existing and planned Sirenza products and is headquartered in San Jose, California with
significant manufacturing operations in both Shanghai, China and Nuremberg, Germany. Upon the closing of this transaction, Mr. Phillip Liao, founder and president of PDI, became president of Premier Devices Inc., a wholly owned subsidiary of
Sirenza, and joined the Sirenza Board of Directors. The acquisition will be reflected in the Companys consolidated financial results beginning in the second quarter of 2006.



|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

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

We begin MD&A with a discussion of Sirenzas overall strategy to give the reader an overview of the goals of our business and the
directions in which our business and products are moving, followed by an overview of the critical factors that affect our net revenues, cost of revenues and operating expenses. This is followed by a discussion of the critical accounting policies and
estimates that we believe require the most significant judgments to be made in the preparation of our consolidated financial statements. In the next section we discuss the results of our operations for the three month period ended March 31,
2006 compared to the three month period ended March 31, 2005. We then provide an analysis of our cash flows, including the impact on cash of important balance sheet changes, and discuss our financial commitments in the sections entitled
Liquidity and Capital Resources and Contractual Obligations.

Company Overview

We are a supplier of RF components for the commercial communications, consumer and A&D equipment markets. Our products are designed to optimize the reception and
transmission of voice and data signals in mobile wireless communications networks and in other wireless and wireline applications. Our commercial communications applications include components for mobile wireless infrastructure applications,
wireless LANs, fixed wireless networks, broadband wireline applications such as coaxial cable and fiber optic networks, cable television set-top boxes, RFID readers, wireless video transmitters, as well as tuner ICs and receivers and tuners for HDTV
set-top boxes. Our consumer applications include antennas and receivers for satellite radio. Sales of components for the A&D end markets include components for government, military, avionics, space and homeland security systems.

We believe a fundamental value we provide to our customers is derived from our focus on the needs of customer specific applications, our array of highly engineered
products in multiple technologies, and our commitment to provide our customers with worldwide sales and application engineering support. We offer a broad line of products that range in complexity from discrete components to ICs and MCMs. Our
discrete, IC and MCM products employ numerous semiconductor process technologies, which we believe allows us to optimize our products for our customers applications.

Our annual net revenues have increased in each of 2003, 2004 and 2005, driven by new product introductions, direct sales to large mobile wireless OEM customers and the addition of complementary products through our
strategic acquisitions of other companies and assets.

In the past three years we have completed three acquisitions.

On May 5, 2003, we acquired substantially all of the assets and assumed specified liabilities of Vari-L Company, Inc., a designer and manufacturer of voltage
controlled oscillators (VCOs), phase-locked loop (PLLs) and other MCM products for the mobile wireless infrastructure market, as well as certain components for the A&D market. This acquisition strengthened our product portfolio by adding RF
signal source components while strengthening our presence in the A&D markets. The acquisition of Vari-L added a significant amount of net revenues to Sirenza subsequent to the date of the transaction. After the acquisition of Vari-L, we
relocated our corporate headquarters and consolidated our manufacturing facilities in Broomfield, Colorado, which allowed us to achieve significant operational cost synergies, primarily in operations, general and administrative and, to a more
limited degree, in sales and marketing.

On December 16, 2004, we acquired ISG Broadband (ISG), a designer of RF gateway module and IC products for
the cable TV, satellite radio and HDTV markets. This acquisition enabled us to address new end markets, including HDTV and satellite radio, and broadened our product offering in the set-top box market by adding ISGs silicon-based
receiver/tuner products to our existing product lines targeting this market. Sales of the products acquired in the ISG acquisition represented a significant amount of our net revenues in 2005 and the first quarter of 2006.

On April 3, 2006, we acquired Premier Devices, Inc. (PDI) for 7,000,000 shares of Sirenza common stock, $14.0 million in cash and $6.0 million in promissory notes
bearing 5% simple interest per annum paid monthly and maturing in one year. PDI designs, manufactures and markets complementary RF components featuring technologies common to existing and planned Sirenza products and is headquartered in San Jose,
California with significant manufacturing operations in both Shanghai,



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China and Nuremberg, Germany. This acquisition expands both the depth and breadth of our products by adding PDIs CATV amplifier, module and optical
receiver offerings as well as its line of passive RF components such as mixers, splitters, transformers, couplers isolators, circulators and amplifiers. The acquisition also brings us significant design and manufacturing capabilities in Asia and
Europe, including PDIs microwave technical solutions expertise in sourcing, integration, and board-level and subsystem assembly. We believe that these new product offerings and capabilities advance our strategic objective of diversifying and
expanding our end markets and applications. Upon the closing of this transaction, Mr. Phillip Liao, founder and president of PDI, became president of Premier Devices Inc., a wholly owned subsidiary of Sirenza, and joined the Sirenza Board of
Directors. The acquisition will be reflected in the Companys consolidated financial results beginning in the second quarter of 2006 and will be reported as a separate business segment.

Beginning in January 2006, we moved from a three segment reporting structure to a structure consisting of one RF component sales segment made up of five market-focused
strategic business units (SBUs). Sirenza was previously organized largely along product lines-amplifiers, signal source and aerospace & defense - to accelerate and facilitate our past integration plans and to maintain alignment with major
customers following acquisitions in 2003 and 2004. We modified our organizational structure at the beginning of 2006 to enhance our market focus and better leverage our personnel and resources to grow our target markets. This SBU structure also
allows us to further concentrate our efforts in strategic planning, product development, and marketing to better support our worldwide customers. We believe our reorganization to SBUs is in the best interests of our customers, stockholders and
employees to realign the Sirenza organization to better support our strategic goals.

Below is a brief description of each of our five market-focused
SBUs:



| |  |  | Aerospace and Defense Applications -the Aerospace and Defense SBU concentrates on aerospace, military/defense and homeland security applications.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Broadband and Consumer Applications -the Broadband and Consumer SBU concentrates on digital satellite radio applications, digital TV (DTV), digital satellite and CATV
set-top boxes, as well as CATV infrastructure applications.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Mobile Wireless - the Mobile Wireless SBU concentrates on global mobile wireless customers, focusing on leading standards, including GSM/EDGE WCDMA, CDMA2K, and
TD-SCDMA infrastructure opportunities.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Standard and Catalog Products -the Standard and Catalog Products SBU focuses on established and emerging mid-level to smaller customers which we largely serve through
our global sales distribution and sales representative networks.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Wireless Access Applicationsthe Wireless Access SBU focuses on the WiMAX, WLAN and emerging Ultra Wideband and Zigbee markets for infrastructure and CPE terminal
applications.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As mentioned previously, beginning in the second quarter of 2006, we will move to a two-segment reporting structure consisting
of the historical Sirenza segment consisting of the five SBUs described above as well as a new segment comprising the recently acquired PDI business. For a further description of our organizational structure, see our disclosure under Note 10:
Segments of an Enterprise and Related Information in our Notes to Condensed Consolidated Financial Statements set forth above.

Revenue
Overview

Revenue Recognition

We present our
revenue results as net revenues. Net revenues are defined as our revenues less sales discounts, rebates, returns and other pricing adjustments. Historically, these revenue-related adjustments have not typically represented a significant
percentage of our revenues.

We sell our products worldwide through a direct sales channel and a distribution sales channel.

Distributor Sales

Our distribution arrangements provide our
distributors with limited rights of return and certain price adjustments on unsold inventory held by them. We recognize revenues on sales to our distributors under such arrangements at the time our products are sold by the distributors to third
party customers. Our distribution channel, which accounted for 9% of total net revenues for the first quarter of 2006, consists of those sales made by our distribution channel partners (Avnet, Acal, RFMW, and Digi-Key) under arrangements featuring
such rights of return and price adjustment terms.

Direct and Reseller Sales

Sales to Avnet and Acal as resellers, and to other resellers of our products, are made pursuant to arrangements that do not include the limited rights of return and price adjustment terms applicable to our
distribution sales. We generally recognize revenue from these sales to these resellers of our products, and from sales to all other non-distribution customers, at the time product has shipped, title has transferred and no obligations remain. Our
direct sales channel, which accounted for 91% of total net revenues for the first quarter of 2006, consists of those sales made to all non-distributor customers and sales to resellers of our products, including sales to Avnet and Acal as resellers.

Although we have typically not experienced a delay in customer acceptance of our products, should a customer delay acceptance in the future, our policy is
to delay revenue recognition until a customer accepts the products.

Customer Concentrations

Historically, a significant percentage of our net revenues have been derived from a limited number of customers, including our distributors. Over time, both as a result
of our active sales and marketing efforts and industry-wide changes in customer buying patterns, our customer base shifted significantly toward direct sales to large wireless infrastructure original equipment manufacturers (OEMs) and their contract
manufacturers (CMs). One driver of this shift is that our OEM customers have increased their outsourcing of the manufacture of their equipment to CMs, including Celestica, Flextronics, Sanmina and Solectron. As a result, we sell directly to both
OEMs and CMs. Our OEM customers currently make the sourcing decisions for our sales to CMs. Accordingly, when we report customer net revenues in our public announcements, we typically attribute all net revenues to the ultimate OEM customer and not
the respective CM or subcontractor.

This sales trend toward large wireless infrastructure OEMs and their CMs was strengthened in 2003 by the acquisition
of Vari-L, whose customers were also large infrastructure OEMs, including Nokia, Siemens and Motorola. The addition of these customers complemented Sirenzas existing relationships with large OEM customers such as Andrew, Ericsson, Lucent and
their CMs.

In 2005 we added to this customer concentration as a significant portion of our net revenues were derived from sales of our satellite radio
antenna product to Kiryung Electronics Co., Inc., and other subcontractors of SIRIUS Satellite Radio.

We believe that our acquisition of PDI will further
increase this customer concentration as a large percentage of PDIs total revenues have historically come from relatively few customers, among them Motorola, who is also one of our largest customers.

We believe that net revenues attributable to our global OEMs and their respective CMs will continue to account for a significant portion of our net revenues in 2006, and
that net revenues attributable to our satellite radio customer and its subcontractors will also account for a significant portion of our net revenues in that same period.



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Diversification and Expansion Strategy

We continue to focus on diversification efforts in order to capitalize on new opportunities in end markets outside of the wireless infrastructure market such as cable TV, WiMax, satellite radio, HDTV, RFID and other
broadband applications. We believe that sales of our products in markets outside of wireless infrastructure will continue to account for a substantial portion of net revenues in 2006.

We are also focusing on expansion in 2006, as evidenced by our acquisition of PDI, which expands both the depth and breadth of our product lines, and extends our design and manufacturing capabilities into Asia and
Europe. We expect that the addition to our product portfolio of PDIs complementary RF components will accelerate our penetration into the cable TV infrastructure market and allow us to offer a more complete set of RF solutions to our combined
customers.

Geographic Concentrations

Sales into Asia
increased in each of the last three years as a result of OEMs increasingly outsourcing their manufacturing to CMs, primarily in China. In addition, we have increased our focus and presence in China and are experiencing increased shipments to various
Chinese OEM customers. PDI has manufacturing and sales operations in Shanghai, China, and due to this factor in combination with our increased presence in China, we anticipate that a significant percentage of our direct sales will continue to be in
the Asia region in 2006.

Competitors

We compete
primarily with other suppliers of high-performance RF components used in the infrastructure of communications networks, such as Agilent, Hittite, M/A-COM, NEC, WJ Communications, Alps and Minicircuits. For our newer broadband products, we expect our
most significant competitors will include Maxim Integrated Products, Microtune, Motorola, STMicroelectronics and Philips. With respect to our satellite antenna sales, we compete with other manufacturers of satellite antennas and related equipment,
including M/A-COM, RecepTec and Wistron NeWeb. PDIs CATV products primarily compete with those of RFHIC, Anadigics and Philips, and its wireless infrastructure products primarily compete with WJ Communications, M/A-COM and Minicircuits. We
also compete in a sense with our own large communications OEM customers, who often have a choice as to whether they design and manufacture RF components and subsystems internally for their own consumption or purchase them from third party providers
such as us.

Cost of Revenues Overview

Cost of
revenues consists primarily of costs associated with:



| | 1. | Wafers from third-party wafer fabs for our IC products;
| | -- | -------------------------------------------------------



| | 2. | Raw material components from third-party vendors, for our IC, MCM and satellite antenna products;
| | -- | -------------------------------------------------------------------------------------------------



| | 3. | Packaging for our IC products performed by third-party vendors;
| | -- | ---------------------------------------------------------------



| | 4. | Assembling and testing of our MCM products in our facility;
| | -- | -----------------------------------------------------------



| | 5. | Testing of our IC products in our facility and by third-party vendors;
| | -- | ----------------------------------------------------------------------



| | 6. | Assembling and testing of our satellite antenna products performed by a third-party vendor; and
| | -- | -----------------------------------------------------------------------------------------------



| | 7. | Costs associated with procurement, production control, quality assurance, reliability and manufacturing engineering.
| | -- | --------------------------------------------------------------------------------------------------------------------

For our IC products, we outsource our wafer manufacturing and packaging and then perform the significant majority of our final testing and tape and reel assembly at our
Colorado manufacturing facility. For our MCMs, we manufacture, assemble and test most of our products at our manufacturing facility in Colorado. For our satellite antenna products, we outsource our assembly and testing to a third-party vendor.

Historically, we have relied upon a limited number of foundries to manufacture most of our semiconductor wafers for our IC products. We have contractual
agreements with some of these suppliers in which pricing is fixed or tiered based on volume. With others, price, volume and other terms are set on a periodic basis through negotiations between the parties. We source our IC packaging assembly and
test to a limited number of established, international commercial vendors. We anticipate that we will continue to depend on a limited number of vendors for our wafer and packaging requirements.

Generally, raw materials utilized by us for our MCM and satellite antenna products are readily available from numerous sources. These vendors are competitive and we
expect that to the extent our volumes increase, we may be able to reduce costs by obtaining better volume pricing and delivery terms.

Gross Profit and
Margin Overview

Our gross profit and gross margin percent can be influenced by a number of factors, including, but not limited to:

1. Product features

Historically,
customers have been willing to pay a premium for new or different features or functionality. Therefore, increased sales of such products in a given period are likely to have an accretive effect on our gross margin percent.

2. Product type

In the markets in which we
operate, IC products have historically yielded a higher gross margin percent than MCMs and our satellite antenna products. Therefore, increased sales of IC products in a given period are likely to have an accretive effect on our gross margin
percent. Conversely, increased sales of MCMs, and in particular satellite antenna products, in a given period are likely to have a dilutive effect on our gross margin percent.

3. Market

Our products are sold into a
wide variety of markets and each of these markets has a pricing structure that is dictated by the economics of that particular market. Therefore, the gross margin percent on our products can vary by the markets into which they are sold. Increased
sales into higher margin markets in a given period will have an accretive effect on our gross margin percent, and increased sales into lower margin markets in a given period will generally have the opposite effect. This is particularly evident for
our satellite antenna product, which is sold into the consumer products, or retail, market where gross margin percentages are generally lower than those in industrial markets.

4. Sales channel

Historically, the gross
margin percent on sales to our large OEM customers has been lower than the gross margin percent on sales through our distribution channel or sales to some of our smaller direct customers. This is primarily due to the bargaining power attendant to
large OEM customers based on their higher product volumes. Therefore, increased sales to our large OEM customers in a given period may have a dilutive effect on our gross margin percent while increased sales through our distribution channel would
have the opposite effect.



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5. Level of integration of the product

We have seen a trend among our customers toward generally seeking more integrated products with enhanced functionality, which enables them to procure fewer products from
fewer suppliers. These integrated products typically command a higher average selling price than our stand-alone components. However, the manufacturing costs of these integrated products are higher, which generally results in a lower gross margin
percent on sales of our integrated products in comparison to our stand-alone components. Therefore, increased sales of our more integrated products in a given period will generally have an accretive impact on our average selling prices and a
dilutive effect on our gross margin percent.

6. The efficiency and effectiveness of our manufacturing operations

Our gross margin percent is generally lower in periods with less volume and higher in periods with increased volume. In periods in which volumes produced
internally are low, our fixed manufacturing overhead costs are allocated to fewer units, thereby diluting our gross margin percent when those products are sold. Conversely, in periods in which volumes produced internally are high, our fixed
manufacturing overhead costs are allocated to more units, thereby positively impacting gross margin percent when those products are sold. This accretive impact is primarily felt in areas where our manufacturing process is highly integrated, such as
the manufacture of MCM products.

7. Provision for excess inventories

As discussed in more detail in Critical Accounting Policies and Estimates, our cost of revenues and gross margin percent may be diluted by provisions for
excess inventories, which can have material impacts on cost of revenues, gross profit and gross margin percent.

We believe that each of the above factors
will continue to affect our cost of revenues, gross profit and gross margin percentage for the foreseeable future. In addition, the interaction of the factors listed above could have a significant period-to-period effect on our cost of revenues,
gross profit and gross margin percent.

Although gross margin differs from product to product, PDIs gross margin in prior periods has generally been
lower than Sirenzas, and we expect most PDI product gross margins to be lower than our reported gross margin in recent periods, which will likely result in lower gross margins for some time following the closing of the acquisition than we have
historically achieved.

Operating Expense Overview

Research and development expenses consist primarily of salaries and salary-related expenses for personnel engaged in R&D activities, material costs for prototype and test units and other expenses related to the design,
development and testing of our products and, to a lesser extent, fees paid to consultants and outside service providers. We expense all of our R&D costs as they are incurred. Our R&D costs can vary significantly from quarter to quarter
depending on the timing and quantities of materials bought for prototype and test units. We believe one of our key competitive advantages is our ability to offer a broad range of highly engineered products designed to meet the needs of our
customers. Our strategy is to continue to invest in R&D at levels appropriate for our overall operating plan in order to maintain our competitive advantage. From time to time we will receive funding from our customers for non-recurring
engineering (NRE) expenses to help defray the cost of work performed at their request. We record NRE funding as a reduction to research and development expenses in the period that the customer agrees that the objective(s) established for payment of
the NRE have been achieved.

We historically have performed our R&D activities in multiple, geographically dispersed locations in North America. We
believe maintaining multiple R&D design centers allows us to attract key personnel we might not otherwise be able to hire. In addition, we believe that having stand-alone R&D centers allows the personnel there to better concentrate on their
development tasks. We plan to continue our strategy of conducting our R&D activities in multiple locations, including locations outside of North America.

Sales and marketing expenses consist primarily of salaries, commissions and salary-related expenses for personnel engaged in marketing, sales and application engineering functions, as well as costs associated with trade shows,
promotional activities, advertising and public relations. We record as an expense commissions to our external, independent sales representatives when revenues from the associated sale are recognized. We record as an expense quarterly cash incentives
to internal sales employees based on the achievement of targeted net revenue and sales-related goals.

We intend to invest in increasing the number of
direct sales personnel and application engineers supporting our customers at levels appropriate for our overall operating plan. In particular, to support our customers, we have placed both sales personnel and application engineers in various time
zones around the world. We believe that our direct sales force and application engineers provide us with a key competitive advantage in our markets. We intend to maintain our investment in sales and marketing functions in order to sustain our
advantage in this area.

General and administrative expenses consist primarily of salaries and salary-related expenses for executive, finance,
accounting, information technology, and human resources personnel, as well as insurance and professional fees. We intend to invest in general and administrative expenses at levels appropriate for our overall operating plan.

Critical Accounting Policies and Estimates

The discussion and
analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these
financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that
are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate these estimates on an
ongoing basis. Actual results may differ from these estimates under different assumptions or conditions.

Management believes the following critical
accounting policies require the most significant judgments and estimates to be made in the preparation of our consolidated financial statements. We also have other policies that we consider key accounting policies, such as our policies for revenue
recognition, in particular the deferral of revenue on sales to distributors, and the valuation of long-lived assets including acquisition-related intangible assets. However, we do not believe these policies currently meet the definition of critical
accounting estimates, because they do not generally require us to make estimates or judgments that are difficult or subjective.

Non-Marketable Equity
Securities: In 2002, we acquired 12.5 million shares of GCS, a privately held semiconductor foundry. The acquired shares currently represent approximately 14% of the outstanding shares of GCS and also represented approximately 14% of the
shares outstanding at the time of the investment. The investment strengthened our supply chain for InGaP semiconductor technologies. In connection with the investment, our President and CEO joined the seven-member GCS board of directors.

We regularly evaluate our investment in GCS to determine if an other-than-temporary decline in value has occurred. Factors that may cause an other-than-temporary
decline in the value of our investment in GCS would include, but not be limited to, a degradation of the general business environment in which GCS operates, the failure of GCS to achieve certain performance milestones, a series of operating losses
in excess of GCS business plan, the inability of GCS to continue as a going concern or a reduced valuation as determined by a new financing event. Evaluating each of these factors involves a significant amount of judgment on managements
part. If we determine that an other-than-temporary decline in value has occurred, we will write down our investment in GCS to fair value. Such a write-down could have a material adverse impact on our consolidated results of operations in the period
in which it occurs. For example, in the fourth quarters of 2004 and 2002, we wrote down the value of our investment in GCS by $1.5 million and $2.9 million, respectively, after determining that GCS value had experienced an other-than-temporary
decline.



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##### Table of Contents

The ultimate realization of our investment in GCS will be dependent on the occurrence of a liquidity event for GCS,
and/or our ability to sell our GCS shares, for which there is no public market. The likelihood of any of these events occurring will depend on, among other things, the market conditions surrounding the wireless communications industry and the
related semiconductor foundry industry, as well as the public markets receptivity to liquidity events such as initial public offerings or merger and acquisition activities.

Valuation of Goodwill: Goodwill is initially recorded when the purchase price paid for an acquisition exceeds the fair value of the net identifiable tangible and intangible assets acquired. We perform an annual
review in the third quarter of each year, or more frequently if indicators of potential impairment exist, to determine if the recorded goodwill is impaired. Our impairment review process compares the fair value of the reporting unit to its carrying
value, including the goodwill related to that reporting unit.

Our fair value methodology consists of a forecasted discounted cash flow model and a market
value model. The forecasted discounted cash flow model uses estimates of revenue for the business unit, based on estimates of market segment growth rates, estimated costs, and an estimated appropriate discount rate. These estimates are based on
historical data, various internal estimates, various external market sources of information, and managements expectations of future trends. Our market value model considers our market capitalization and market multiples of revenue for
comparable companies in our industry, as determined by management. This information is derived from publicly available sources.

All of these estimates,
including the selection of comparable publicly traded companies, involve a significant amount of judgment. If the fair value of the reporting unit exceeds the carrying value of the assets assigned to that unit, goodwill is not impaired and no
further testing is performed. If the carrying value of the assets assigned to the reporting unit exceeds the fair value of the reporting unit, the implied fair value of the reporting units goodwill must be determined and compared to the
carrying value of the reporting units goodwill. If the carrying value of a reporting units goodwill exceeds its implied fair value, then an impairment loss equal to the difference will be recorded. Our expectations are that the most
important factor in our estimation will be our ability to accurately forecast the demand for our products.

We conducted our annual goodwill impairment
analysis in the third quarter of 2005. The estimates that we used assumed that the reporting units would participate in a gradually improving market for radio frequency components in the commercial communications and A&D equipment markets, that
our share of those markets would increase, and the profitability of the reporting units would increase over time. We concluded that we did not have any impairment of goodwill based on our forecasted discounted cash flows, our market capitalization
and market multiples of revenue of comparable companies in our industry.

Excess and Obsolete Inventories: Our provision for excess inventories is
based on levels of inventory exceeding the forecasted demand of such products within specific time horizons. We forecast demand for specific products based on the number of products we expect to sell, with such assumptions dependent on our
assessment of market conditions and current and expected orders from our customers, considering that orders are subject to cancellation with limited advance notice prior to shipment. If forecasted demand decreases or if inventory levels increase
disproportionately to forecasted demand, inventory write-downs may be required. Likewise, if we ultimately sell inventories that were previously written-down, we would reduce the previously recorded excess inventory provisions which would have a
positive impact on our cost of revenues, gross margin percent and operating results.

We recorded a provision for excess inventories of $7.8 million in
2001. We subsequently began selling some of these written-down inventory products. In the first quarter of 2006, we sold previously written-down inventory products with an original cost basis of approximately $90,000. As the cost basis for
written-down inventories is less than the original cost basis when such products are sold, cost of revenues associated with the sale will be lower, which results in a higher gross margin on that sale. Sales of previously written-down inventories had
a positive impact on our gross margin in the first quarter of 2006 of less than one percentage point.

The following table illustrates the impact on cost
of revenues of additions to written-down inventories and sales of previously written-down inventory products for historical Sirenza IC-based amplifier products and also provides a schedule of the activity of Sirenzas written-down inventories
(in thousands):



|                             |  |                                                               |   |                                                                     |   |     |                                                          |  |   |                                        |   |  |   |      
|---------------------------- |  | ------------------------------------------------------------- | - | ------------------------------------------------------------------- | - | --- | -------------------------------------------------------- |  | - | -------------------------------------- | - |  | - | -----
|Three Months Ended March 31, |  | Additions toWritten-DownInventoriesCharged toCost of Revenues |   | Sales of Written-Down Inventorieswith No AssociatedCost of Revenues |   |     | Disposition ofWritten-DownInventories ViaScrap and Other |  |   | Written-DownInventoriesat End ofPeriod
|2006                         |  | $                                                             |  |                                                                     | $ | (90 | )                                                        |  | $ | (35                                    | ) |  | $ | 2,527
|2005                         |  | $                                                             |  |                                                                     | $ | (65 | )                                                        |  | $ | 33                                     |   |  | $ | 3,024

The single largest factor affecting the accuracy of our provisions for excess inventories will be the accuracy of
our forecasts of end-customer demand. Affecting these forecasts will be the fidelity of the non-binding forecasts we get from our end customers, as well as the demand for RF communications components in our market segments. Also impacting it will be
the speed at which our products are designed in or out of our customers products.

We will ultimately dispose of written-down inventories by either
selling such products or scrapping them. We currently expect sales of written-down inventory products in 2006 to be approximately equivalent to 2005. Similarly, we anticipate that we will scrap additional written-down inventories in the near term.

Deferred Tax Assets: We perform quarterly and annual assessments of the realization of our deferred tax assets considering all available evidence,
both positive and negative. Assessments of the realization of deferred tax assets require that management make significant judgments about many factors, including the amount and likelihood of future taxable income. As a result of these assessments,
we previously concluded that it was more likely than not that our deferred tax assets would not be realized and have established a full valuation allowance against our deferred tax assets. The valuation allowance established in 2001 was recorded as
a result of our analysis of the facts and circumstances at that time, which led us to conclude that we could no longer forecast future U.S. taxable income under the more likely than not standard required by SFAS No. 109 Accounting for
Income Taxes.

Although we did not have taxable income in the first and second quarters of 2005, we had taxable income in each of the subsequent
quarters. We continue to evaluate the need for a valuation allowance. To the extent we are able to generate taxable income for the remainder of 2006 and if our projections indicate that we are likely to generate sufficient future taxable income, we
may determine that some, or all, of our deferred tax assets will more likely than not be realized, in which case we will reduce our valuation allowance in the quarter in which such determination is made. In the quarter in which the valuation
allowance is reduced, we may recognize a benefit from income taxes on our income statement, which may have a positive impact on our consolidated results of operations.



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Stock-Based Compensation Expense: Effective January 1, 2006, we adopted the fair value recognition provisions
of SFAS 123(R), using the modified prospective transition method, and therefore have not restated prior periods results. Under this method we recognize compensation expense for all share-based payments granted prior to, but not yet vested
as of January 1, 2006, in accordance with SFAS 123(R). Under the fair value recognition provisions of SFAS 123(R), we recognize stock-based compensation net of an estimated forfeiture rate and only recognize compensation cost for
those shares expected to vest on a straight-line basis over the associated service period of the award.

Prior to the adoption of SFAS 123(R), we accounted
for our employee stock plans in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB Opinion No. 25), as amended by Financial Accounting Standards Board (FASB) Interpretation
No. 44 (FIN 44), Accounting for Certain Transactions involving Stock Compensation an interpretation of APB Opinion No. 25, and to adopt the disclosure-only provisions as required under Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123). Under APB Opinion No. 25, as amended by FIN 44, when the exercise price of our employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.

The valuation models used under SFAS 123 were developed for use in estimating the fair value of
traded options that have no vesting restrictions and are fully transferable. In addition, valuation models require the input of highly subjective assumptions, including the expected life of the option and stock price volatility. Because our options
have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in managements opinion, the existing models do not provide a
reliable single measure of the fair value of our options. The assumptions used in calculating the fair value of share-based payment awards represent managements best estimates, but these estimates involve inherent uncertainties and the
application of management judgment. The Company has not granted any stock options subsequent to the third quarter of 2005. If we again determine to issue stock options in the future and if factors change and we use different assumptions, our
stock-based compensation expense could be materially different in the future.

In 2004, the Company began granting restricted stock purchase rights, or
stock awards, at an exercise price of par value ($0.001 per share), which are subject to a right of reacquisition by the Company at cost or for no consideration. The Company measures the fair value of the stock awards based upon the fair market
value of the Companys common stock on the dates of grant and recognizes any resulting compensation expense ratably over the associated service period, which is generally the vesting term of the stock awards. The Company recognizes these
compensation costs net of a forfeiture rate, if applicable, and recognizes the compensation costs for only those shares expected to vest. The Company typically estimates forfeiture rates based on historical experience, while also considering the
duration of the vesting term of the option or stock award. If our actual forfeiture rate is materially different from our estimate, the stock-based compensation expense could be significantly different from what we have recorded in the current
period. See Note 2 to the Condensed Consolidated Financial Statements for a further discussion on stock-based compensation.

Results of Operations

The following table shows selected consolidated statement of operations data expressed as a percentage of net revenues for the periods indicated:



|                                                      |  |                             |   |  |      |  
|----------------------------------------------------- |  | --------------------------- | - |  | ---- | -
|                                                      |  | Three Months EndedMarch 31, |  
|                                                      |  | 2006                        |   |  | 2005 |  
|Net revenues                                          |  | 100                         | % |  | 100  | %
|Total cost of revenues                                |  | 52                          | % |  | 56   | %
|                                                      |  |                             |   |  |      |  
|Gross profit                                          |  | 48                          | % |  | 44   | %
|Operating expenses:                                   |  |                             |   |  |      |  
|Research and development                              |  | 14                          | % |  | 23   | %
|Sales and marketing                                   |  | 10                          | % |  | 15   | %
|General and administrative                            |  | 15                          | % |  | 18   | %
|Amortization of acquisition-related intangible assets |  | 2                           | % |  | 4    | %
|                                                      |  |                             |   |  |      |  
|Total operating expenses                              |  | 41                          | % |  | 60   | %
|                                                      |  |                             |   |  |      |  
|Income (loss) from operations                         |  | 7                           | % |  | -16  | %
|Interest and other income, net                        |  | 1                           | % |  | 0    | %
|Provision for (benefit from) income taxes             |  |                            | % |  | -1   | %
|                                                      |  |                             |   |  |      |  
|Net income (loss)                                     |  | 8                           | % |  | -15  | %



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##### Table of Contents

Comparisons of the Three Months Ended March 31, 2006 and March 31, 2005

Net Revenues

The following table sets forth information pertaining to
our channel, geographic and SBU net revenue composition expressed as a percentage of net revenues for the periods indicated:



|                                         |  |                             |   |  |      |  
|---------------------------------------- |  | --------------------------- | - |  | ---- | -
|                                         |  | Three Months EndedMarch 31, |  
|                                         |  | 2006                        |   |  | 2005 |  
|Direct (1)                               |  | 91                          | % |  | 89   | %
|Distribution (2)                         |  | 9                           | % |  | 11   | %
|                                         |  |                             |   |  |      |  
|Total                                    |  | 100                         | % |  | 100  | %
|                                         |  |                             |   |  |      |  
|United States                            |  | 22                          | % |  | 30   | %
|Asia                                     |  | 59                          | % |  | 43   | %
|Europe                                   |  | 12                          | % |  | 23   | %
|Other                                    |  | 7                           | % |  | 4    | %
|                                         |  |                             |   |  |      |  
|Total                                    |  | 100                         | % |  | 100  | %
|                                         |  |                             |   |  |      |  
|Aerospace, Defense and Homeland Security |  | 7                           | % |  | 6    | %
|Broadband and Consumer                   |  | 25                          | % |  | 5    | %
|Mobile Wireless                          |  | 34                          | % |  | 45   | %
|Standard Products                        |  | 22                          | % |  | 42   | %
|Wireless Access                          |  | 12                          | % |  | 2    | %
|                                         |  |                             |   |  |      |  
|Total                                    |  | 100                         | % |  | 100  | %



|(1) | Net revenues from sales to Avnet and Acal to which rights of return and pricing discount programs are not applicable are included in net revenues attributable to our direct channel.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Net revenues from sales to Avnet and Acal under agreements in which rights of return and pricing discount programs are applicable are included in net revenues attributable to our
distribution channel.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Net revenues increased to $20.9 million in the first quarter of 2006 from $12.2 million in the first quarter of 2005.
The increase was primarily attributable to a substantial increase in shipments of our broadband and consumer products, in particular, satellite antenna products, which we began selling in volume in the second quarter of 2005. In addition, we
experienced stronger demand from our large OEM mobile wireless customers in the first quarter of 2006, which we believe was driven by the installation and enhancement of new and existing wireless networks. Lastly, sales to our wireless access
customers increased as a result of the initial deployment of WiMax networks and continued strong sales of our WLAN products.

Sales into Asia increased
significantly in absolute dollars and as a percentage of net revenues in the first quarter of 2006 compared to the first quarter of 2005 primarily as a result of our OEMs increasingly outsourcing their manufacturing to contract manufacturers,
primarily in China. Also contributing to the increase in sales to Asia was an increase in sales to Chinese OEM customers as a result of our continued focus on the Asia region and an increase in shipments to Asian CMs of our broadband and consumer
products, in particular, satellite antenna products. Sales into Europe decreased in absolute dollars and as a percentage of net revenues primarily as a result of the continued outsourcing of our OEM customers to their contract manufacturers.

The decrease in distribution net revenues on a percentage basis in the first quarter of 2006 compared to the first quarter of 2005 was primarily
attributable to our addition of significant revenues from direct sales of our broadband and satellite radio antenna products in the first quarter of 2006.

Cost of Revenues, Gross Margin and Gross Profit

Cost of revenues increased to $10.8 million in the first quarter of 2006 from $6.8 million
in the first quarter of 2005 primarily as a result of a higher proportion of our net revenues being attributable to our broadband consumer SBU in general, and our satellite antenna products in particular, which typically carry a higher cost-of-sales
percentage than products in our other SBUs. Cost of revenues associated with our broadband and consumer products increased by approximately $3.0 million in the first quarter of 2006 compared to the first quarter of 2005. The additional increase in
cost of revenues was primarily the result of additional costs associated with the increase in units shipped during the first quarter of 2006. Partially offsetting this increase were lower costs attributable to volume-related factory efficiencies and
the automation



17



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##### Table of Contents

of certain of our testing operations. Operations personnel decreased to 119 at March 31, 2006 from 151 at March 31, 2005, largely driven by our
manufacturing facility automation efforts.

Gross profit increased to $10.1 million in the first quarter of 2006 from $5.3 million in the first quarter of
2005. Gross margin increased to 48% in the first quarter of 2006 from 44% in the first quarter of 2005. The increase in gross profit was primarily the result of the $8.7 million increase in net revenues. The increase in gross margin was primarily
attributable to the increase in volume, which enabled us to absorb more manufacturing overhead, manufacture our products more efficiently and procure raw material inventories at lower prices. Partially offsetting the increase in gross margin was an
increase in sales of our broadband and satellite antenna products, which typically result in a lower gross margin than sales of the products of our other SBUs.

Operating Expenses

The following table sets forth information pertaining to our total stock-based compensation expense related to stock
options and stock awards recorded in research and development, sales and marketing and general and administrative expenses (in thousands):



|                           |  |                             |       |      |   |   
|-------------------------- |  | --------------------------- | ----- | ---- | - | --
|                           |  | Three Months EndedMarch 31,
|                           |  | 2006                        |       | 2005
|Research and development   |  | $                           | 252   |      | $ |  
|Sales and marketing        |  |                             | 244   |      |   |  
|General and administrative |  |                             | 611   |      |   | 19
|                           |  |                             |       |      |   |   
|Total                      |  | $                           | 1,107 |      | $ | 19

Research and Development. Research and development expenses increased to $2.9 million in the first quarter
of 2006 from $2.8 million in the first quarter of 2005. This increase was primarily attributable an increase in stock-based compensation charges of approximately $252,000 and a net increase in salaries and salary related expenses of approximately
$123,000. The net increase in salaries and salary related expenses was primarily the result of an accrual for a portion of the incentive bonus payments from our First Half 2006 Exempt Employee Bonus Plan (Bonus Plan) that is expected to be paid out
in the third quarter of 2006 subject to the achievement of board-approved performance objectives, partially offset by lower salaries and salary related expenses due to a reduction in headcount.

The overall increase in research and development expenses were partially offset by lower costs associated with purchases of engineering materials of approximately
$153,000 and depreciation, which decreased costs by approximately $92,000, as a result of certain property and equipment used in research and development activities becoming fully depreciated in 2005. Research and development personnel decreased to
54 at March 31, 2006 from 65 at March 31, 2005.

Sales and Marketing. Sales and marketing expenses increased to $2.2 million in the first quarter of
2006 from $1.8 million in the first quarter of 2005. This increase was primarily attributable an increase in stock-based compensation charges of approximately $244,000 and a net increase in salaries and salary related expenses of approximately
$200,000. The net increase in salaries and salary related expenses was primarily the result of an accrual for a portion of the incentive bonus payments from our Bonus Plan that is expected to be paid out in the third quarter of 2006 subject to the
achievement of board-approved performance objectives and to a lesser extent, an increase incentives earned by internal sales personnel due to higher sales in the first quarter of 2006.

Other contributory factors to the overall increase in sales and marketing expenses included an increase in external sales commissions as a result of higher sales in the first quarter of 2006 and higher severance
costs, which were partially offset by lower costs associated with advertising, depreciation and facilities costs. Sales and marketing and applications engineering personnel decreased to 35 at March 31, 2006 from 37 at March 31, 2005.

General and Administrative. General and administrative expenses increased to $3.1 million in the first quarter of 2006 from $2.2 million in the first quarter of
2005. This increase was primarily attributable an increase in stock-based compensation charges of approximately $592,000 and a net increase in salaries and salary related expenses of approximately $175,000. The net increase in salaries and salary
related expenses was primarily the result of an accrual for a portion of the incentive bonus payments from our Bonus Plan that is expected to be paid out in the third quarter of 2006 subject to the achievement of board-approved performance
objectives, partially offset by lower salaries and salary related expenses due to a reduction in headcount.

Other contributory factors to the overall
increase in general and administrative expenses included an increase in severance costs of approximately $139,000 and higher costs associated with professional fees (i.e. legal, accounting and public company related expenses) of approximately
$82,000, higher facility costs of $76,000 and higher travel costs of approximately $50,000. These increases were partially offset by lower costs associated with employee relocation of $105,000 and a write-off of deferred equity financing costs in
the first quarter of 2005 of approximately $215,000. General and administrative personnel decreased to 31 at March 31, 2006 from 34 at March 31, 2005.

Amortization of Acquisition-Related Intangible Assets

We recorded amortization of $449,000 in the first quarter of 2006 and $465,000 in the
first quarter of 2005 related to our acquired intangible assets.

See our disclosure under Note 3: Amortizable acquisition-related intangible
assets in our Notes to Condensed Consolidated Financial Statements set forth above for more information pertaining to the amortization of acquisition-related intangible assets.

Interest and Other Income (Expense), Net

Interest and other income (expense), net includes income from our cash and
available-for-sale securities, interest expense from capital lease financing obligations and other miscellaneous items. We had net interest and other income of $194,000 in the first quarter of 2006 and $61,000 in the first quarter of 2005. The
increase in net interest and other income in the first quarter of 2006 compared to the first quarter of 2005 was primarily attributable higher cash and cash equivalents and short-term investments and an increase in interest rates.

Provision for (Benefit from) Income Taxes

We recorded a $47,000
provision for income taxes in the first quarter of 2006. The income tax provision represents federal and state minimum taxes and income taxes on the earnings of certain foreign subsidiaries. The difference between the provision for income taxes that
would be derived by applying the statutory rate to our income before income taxes and the provision actually recorded is due primarily to the impact of state and foreign taxes including other miscellaneous non-deductible items offset by the
utilization of federal net operating losses.

We recorded a $77,000 benefit from income taxes in the first quarter of 2005. The benefit from income taxes
represented our current estimated tax rate for the full year of 2005 and consisted of federal and state minimum taxes and income taxes on the earnings of certain foreign subsidiaries. The difference between the benefit from income taxes that would
be derived by applying the statutory rate to our loss before income taxes and the benefit actually recorded is due primarily to the impact of state and foreign taxes including other miscellaneous non-deductible items offset by federal net operating
losses not utilized.



18



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##### Table of Contents

Liquidity and Capital Resources

We have financed our operations primarily through the private sale in 1999 of mandatorily redeemable convertible preferred stock (which was subsequently converted to common stock) and from the net proceeds received
upon completion of our initial public offering in May 2000. In addition, we generated cash flows from operations of $5.4 million in the first quarter of 2006 and $7.3 million in 2005. As of March 31, 2006, we had cash and cash equivalents of
$18.1 million and short-term investments of $6.8 million. At March 31, 2006, our working capital approximated $34.3 million. In addition, we had $800,000 of restricted cash as of March 31, 2006. We did not have any short-term or long-term
debt at March 31, 2006.

Net cash used in, provided by operating activities

Operating activities provided cash of $5.4 million in the first quarter of 2006. In first quarter of 2006, the primary sources of cash were net income, as adjusted for non-cash charges for depreciation and
amortization and stock-based compensation expenses, an increase in accounts payable and other changes in operating assets and liabilities.

Our accounts
receivable were $107,000 lower at the end of the first quarter of 2006 compared to the end of 2005. The decrease in accounts receivable was primarily attributable the more efficient collection of accounts receivable, as our accounts receivable
decreased even though sales increased from $19.5 million in the fourth quarter of 2005 to $20.9 million in the first quarter of 2006. As a result, our days sales outstanding was 51 days in the first quarter of 2006 compared to 55 days in the fourth
quarter of 2005.

Inventories decreased to $8.8 million at March 31, 2006 from $9.0 million at December 31, 2005. The decrease was primarily
attributable to lower finished goods inventories as a result of increased inventory turns. Our inventory turns increased to 4.9 at March 31, 2006 from 4.8 as we exited 2005.

Accounts payable increased to $5.1 million at March 31, 2006 from $5.0 million at December 31, 2005. The increase in accounts payable in the first quarter of 2006 was primarily attributable to an increase in
purchasing activity.

Net cash used in investing activities totaled $1.2 million in the first quarter of 2006. The primary use of cash in investing
activities in the first quarter of 2006 was for purchases of capital equipment and costs related to the acquisition of PDI.

As a result of our acquisition
of ISG at the end of 2004, additional cash consideration of up to $7,150,000 may become due and payable for the achievement of margin contribution objectives attributable to sales of selected products for periods through December 31, 2007. The
first installment of any such payments was earned in 2005 and paid in the second quarter of 2006. The amount paid totaled $1.15 million. Additional payments of up to $3.0 million each may be paid in 2007 and 2008.

Cash provided by financing activities totaled $2.5 million in the first quarter of 2006. The major financing inflow of cash related to proceeds from employee
stock plans.

On April 3, 2006, we completed our acquisition of Premier Devices, Inc. (PDI) for 7,000,000 shares of Sirenza common stock, $14.0
million in cash and $6.0 million in promissory notes bearing 5% simple interest per annum paid monthly and maturing in one year. We paid the $14.0 million in cash in the second quarter of 2006. We expect to pay the $6.0 million in promissory notes
from our current cash and investments and cash generated from our future operations. The PDI acquisition significantly reduced our cash and investments in second quarter of 2006 and will also reduce our cash and investments in the quarter in which
the notes are repaid.

Based on current macro-economic conditions and conditions in the commercial communications, consumer and A&D equipment markets,
our current company structure following the acquisition of PDI and our current outlook for 2006, we expect that we will be able to fund our working capital and capital expenditure needs from cash generated from operations and proceeds generated from
employee stock plans for at least the next 12 months. Other sources of liquidity that may be available to us are the leasing of capital equipment, a line of credit at a commercial bank, or the sale of our securities. The issuance of any additional
shares would result in dilution to our existing stockholders. If we draw on the other sources of liquidity and capital resources noted above to grow our business, execute our operating plans, or acquire complementary technologies or businesses, it
could result in increased expense and lower profitability.

Contractual Obligations

As of March 31, 2006, our contractual obligations, including payments due by period, were as follows (in thousands):



|                                                                                |  |                        |       |                 |   |           |  |           |     |                  |   |   |  |   |  
|------------------------------------------------------------------------------- |  | ---------------------- | ----- | --------------- | - | --------- |  | --------- | --- | ---------------- | - | - |  | - | -
|                                                                                |  | Payments Due by Period
|                                                                                |  | Total                  |       | Less Than1 year |   | 1-3 Years |  | 3-5 Years |     | More Than5 Years
|Operating lease commitments                                                     |  | $                      | 1,658 |                 | $ | 1,000     |  | $         | 658 |                  | $ |  |  | $ | 
|Additional cash consideration related to the acquisition of ISG Broadband, Inc. |  | $                      | 1,150 |                 | $ | 1,150     |  | $         |    |                  | $ |  |  | $ | 
|Unconditional purchase obligations                                              |  | $                      | 1,803 |                 | $ | 1,803     |  | $         |    |                  | $ |  |  | $ | 
|                                                                                |  |                        |       |                 |   |           |  |           |     |                  |   |   |  |   |  
|Total (1)                                                                       |  | $                      | 4,611 |                 | $ | 3,953     |  | $         | 658 |                  | $ |  |  | $ | 

---

|(1) | Total does not include certain purchase obligations as discussed in the three paragraphs immediately below.
|--- | -----------------------------------------------------------------------------------------------------------



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##### Table of Contents

Unconditional purchase obligations are defined as agreements to purchase goods or services that are enforceable and
legally binding and that specify all significant terms, including open purchase orders. We include in unconditional purchase obligations contractual obligations we have with our vendors who supply us with our wafer requirements for IC-based
products. Because the wafers we purchase are unique to these suppliers and involve significant expense, our agreements with these suppliers prohibit cancellation subsequent to the production release of the products in our suppliers
manufacturing facilities, regardless of whether our end customers cancel orders with us or our requirements are reduced. Purchase orders or contracts for the purchase of raw materials, other than wafer requirements for IC-based products, and other
goods and services are not included in the table above. We are not able to determine the aggregate amount of such purchase orders that represent contractual obligations, as purchase orders may represent authorizations to purchase rather than binding
agreements. Our purchase orders are based on our current manufacturing needs and are generally fulfilled by our vendors within short time horizons. Except for wafers for our IC-based products, we do not have significant agreements for the purchase
of raw materials or other goods specifying minimum quantities or set prices that exceed our expected requirements for three months.

The total indicated in
the table above does not include the $14.0 million in cash paid in the second quarter of 2006 to the shareholders of PDI or the $6.0 million in promissory notes issued to shareholders of PDI in connection with our acquisition of PDI in the second
quarter of 2006. It also does not include any earn-out payments related to our 2004 acquisition of ISG that may subsequently become payable in 2007 and 2008 if contractually earned.

We expect to fund these contractual obligations with cash and cash equivalents and short-term investments on hand, cash flows from operations and proceeds received from employee stock plans. The expected timing of
payments of the obligations discussed above is based upon current information. Timing and actual amounts paid may be different depending on the time of receipt of goods, changes to agreed-upon amounts for some obligations and the closing of the
transaction with PDI.

Off-Balance-Sheet Arrangements

As of March 31, 2006 we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Recent Accounting Pronouncements

There have been no material changes to the recent accounting pronouncements as previously reported in the
Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2005.



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

Although 78% of our sales were to non-U.S. based customers and distributors in the first quarter of 2006, all sales continue to be denominated in U.S. dollars. As a result, we have not had any material exposure to
factors such as changes in foreign currency exchange rates. We expect sales into foreign markets to continue at current levels or increase in future periods, particularly in Europe and Asia. Because Sirenzas sales are denominated in U.S.
dollars, a strengthening of the U.S. dollar could make its products less competitive in foreign markets. Alternatively, if the U.S. dollar were to weaken, it would make our products more competitive in foreign markets, but could result in higher
prices from our foreign vendors.

At March 31, 2006, our cash and cash equivalents consisted primarily of bank deposits, federal agency and related
securities and money market funds issued or managed by large financial institutions in the United States. We did not hold any derivative financial instruments. Our interest income and expense are sensitive to changes in the general level of interest
rates. In this regard, changes in interest rates can affect the interest earned on our cash equivalents and available-for-sale investments. For example, , a one percent increase or decrease in interest rates would increase or decrease Sirenzas
annual interest income by approximately $249,000, based on our cash and available-for-sale investments balance at March 31, 2006.



|Item 4. | Controls and Procedures
|------- | -----------------------

Evaluation of
Disclosure Controls and Procedures

Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer,
the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our
disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and forms.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting

Part II. Other Information



|Item 1. | Legal Proceedings
|------- | -----------------

In November 2001, we, various officers and
certain underwriters of the Companys initial public offering of securities were named in a purported class action lawsuit filed in the United States District Court for the Southern District of New York. The suit, In re Sirenza Microdevices,
Inc. Initial Public Offering Securities Litigation, Case No. 01-CV-10596, alleges improper and undisclosed activities related to the allocation of shares in our initial public offering, including obtaining commitments from investors to purchase
shares in the aftermarket at pre-arranged prices. Similar lawsuits concerning more than 300 other companies initial public offerings were filed during 2001, and this lawsuit is being coordinated with those actions (the coordinated
litigation). Plaintiffs filed an amended complaint on or about April 19, 2002, bringing claims for violation of several provisions of the federal securities laws and seeking an unspecified amount of damages. On or about July 1, 2002,
an omnibus motion to dismiss was filed in the coordinated litigation on behalf of the issuer defendants, of which we and our named officers and directors are a part, on common pleadings issues. On October 8, 2002, pursuant to stipulation by the
parties, the court dismissed the officer and director defendants from the action without prejudice. On February 19, 2003, the court granted in part and denied in part a motion to dismiss filed on behalf of defendants, including us. The
courts order dismissed all claims against us except for a claim brought under Section 11 of the Securities Act of 1933.

In June 2004, a
stipulation of settlement and release of claims against the issuer defendants, including us, was submitted to the court for approval. The terms of the settlement, if approved, would dismiss and release all claims against the participating defendants
(including us). In exchange for this dismissal, D&O insurance carriers would agree to guarantee a recovery by the plaintiffs from the underwriter defendants of at least $1 billion, and the issuer defendants would agree to an assignment or
surrender to the plaintiffs of certain claims the issuer defendants may have against the underwriters. On August 31, 2005, the court granted preliminary approval of the settlement. The settlement is subject to a number of conditions, including
final court approval. On April 24, 2006, the court held a hearing regarding the possible final approval of the previously described preliminary settlement between the 300 issuers and the plaintiffs. After hearing arguments from a number of
interested parties, the court adjourned the hearing to consider its ruling on the matter, without giving an expected date at which such ruling will be handed down. If the settlement does not occur, and litigation against us continues, we believe we
have meritorious defenses and intend to defend the case vigorously.



20



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##### Table of Contents

On April 16, 2003, Scientific Components Corporation d/b/a Mini-Circuits Laboratory (Mini-Circuits)
filed a complaint against us in the United States District Court for the Eastern District of New York alleging, among other things, breach of warranty by us for alleged defects in certain goods sold to Mini-Circuits. Mini-Circuits seeks compensatory
damages plus interest, costs and attorneys fees. On July 30, 2003, we filed an answer to the complaint and asserted counterclaims against Mini-Circuits. Even though we believe Mini-Circuits claims to be without merit and we intend
to defend the case and assert our claims vigorously, if we ultimately lose or settle the case, we may be liable for monetary damages and other costs of litigation. Even if we are entirely successful in the lawsuit, we may incur significant legal
expenses and our management may expend significant time in the defense.

In addition, we currently are involved in litigation and regulatory proceedings
incidental to the conduct of our business and expect that we will be involved in other litigation and regulatory proceedings from time to time. While we currently believe that an adverse outcome with respect to such pending matters would not
materially affect our business or financial condition, there can be no assurance that this will ultimately be the case.



|Item 1A. | Risk Factors
|-------- | ------------

Set forth below and elsewhere in this
Quarterly Report on Form 10-Q and in other documents we file with the SEC are risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this Quarterly
Report on Form 10-Q.

Our recent acquisition of PDI may not be successfully integrated or produce the results we anticipate.

The PDI acquisition we closed in April 2006 is the largest Sirenza has ever undertaken by many metrics, including the dollar value paid, the size, complexity, number of
locations and geographic footprint of the operations to be integrated, and the number of employees joining us, which roughly tripled our employee base. It is also our first acquisition involving international operations, as most of PDIs
employees and manufacturing are based in Shanghai and Nuremberg. We expect that the integration of PDIs operations with our own will be a complex, time-consuming and costly process involving each of the typical acquisition risks we discuss
below in our risk factor entitled We expect to make future acquisitions, which involve numerous risks. In addition we will face, among others, the following related challenges and risks:



| |  |  | operating a much larger combined company with operations in China and Germany, where we have limited operational experience;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | managing personnel with diverse cultural backgrounds and organizational structures;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | the greater cash management, exchange rate, legal and income taxation risks associated with the combined companys new multinational character and the movement of cash between
Sirenza and its domestic and foreign subsidiaries;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | managing our lower cash balance immediately following the payment of the purchase price at closing while attempting to integrate and grow the combined company;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | assessing and maintaining the combined companys internal control over financial reporting and disclosure controls and procedures as required by U.S. securities laws;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increased professional adviser fees related to the new profile of the combined company;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | unanticipated expenses or tax, environmental or other liabilities associated with the acquired business or its facilities;
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | possible related restructuring expense, severance pay, and charges to earnings from the elimination of redundancies;
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | increased difficulty in financial forecasting for the new combined operation due to unfamiliarity with PDIs operations, customers and markets or their impact on the overall
results of operations of the combined company.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Failure to successfully address one or more of the above risks may result in unanticipated
liabilities, lower than expected net revenue, losses from operations, failure to realize any of the expected benefits of the acquisition, and /or related declines in our stock price.

We have a history of significant operating losses. If we are unable to increase our gross profit sufficiently to offset our operating expenses, we may be unable to maintain our profitability.

Although our income from operations approximated $1.4 million for the three months ended March 31, 2006, $1.2 million for 2005 and $186,000 for 2004, we incurred
significant losses from operations in each of the preceding two fiscal years. Losses from operations approximated $6.7 million in 2003 and $11.4 million in 2002. As of March 31, 2006, our accumulated deficit was approximately $86.1 million. It
is possible that we will not generate a sufficient level of gross profit to maintain our profitability.

Our gross profit depends on a number of factors,
some of which are not within our control, including:



| |  |  | changes in our product mix and in the markets in which our products are sold, and particularly in the relative mix of IC, satellite antennae and MCM products sold;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in the relative percentage of products sold through distributors as compared to direct sales;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | the cost, quality and efficiency of outsourced manufacturing, packaging and testing services used in producing our products; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | the cost, availability and reliability of raw materials and equipment used in producing our products.
| | - |  | -----------------------------------------------------------------------------------------------------

As a result of these factors, we may be unable to maintain or increase our gross profit in future periods. If we are unable to increase our gross profit sufficiently to offset our operating expenses, we may be unable
to maintain our profitability.

Even if we do achieve significant gross profit from our product sales, our operating expenses may increase over the next
several quarters, as we may, among other things:



| |  |  | expand our selling and marketing activities;
| | - |  | --------------------------------------------



| |  |  | further build out PDIs infrastructure, rationalize our manufacturing operations and otherwise integrate the PDI acquisition;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | experience increases in general and administrative expense related to corporate governance and accounting rule pronouncements or potential or completed acquisitions, capital raising
or other strategic transactions; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increase our research and development activities for both existing and new products and technologies.
| | - |  | -----------------------------------------------------------------------------------------------------

As a result, we may need to significantly increase our gross profit to the extent we experience an increase in operating expenses. We may be unable to do so, and therefore, we cannot be certain that we will be able to
achieve profitability in current or future periods.



21



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Our operating results will fluctuate and we may not meet quarterly financial expectations, which could cause our
stock price to decline.

Our quarterly operating results have varied significantly in the past and are likely to vary significantly in the future
based upon a number of factors, many of which we have little or no control over. Factors that could cause our operating results to fluctuate include:



| |  |  | the reduction, rescheduling or cancellation of orders by customers, whether as a result of slowing demand for our products or our customers products, over-ordering of our
products or otherwise;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | general economic growth or decline;
| | - |  | -----------------------------------



| |  |  | fluctuations in manufacturing output, yields, quality control or other potential problems or delays we or our subcontractors may experience in the fabrication, assembly, testing or
delivery of our products;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | telecommunications, consumer or A&D industry conditions generally and demand for products containing RF components specifically;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | the timing and success of new product and technology introductions by us or our customers or competitors;
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | the effects of changes in accounting standards, in particular the increased expense we anticipate we will recognize related to equity awards in future periods based on our 2006
adoption of SFAS123R;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | market acceptance of our products;
| | - |  | ----------------------------------



| |  |  | availability, quality and cost of raw materials, equipment, components, semiconductor wafers and internal or outsourced manufacturing, packaging and test capacity;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in customer purchasing cycles and component inventory levels;
| | - |  | ---------------------------------------------------------------------



| |  |  | changes in selling prices for our RF components due to competitive or currency exchange rate pressures;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | the gain or loss of a key customer or significant changes in the financial condition of one or more key customers;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | amounts and timing of investments in R&D;
| | - |  | -----------------------------------------



| |  |  | costs and the effects of purchase accounting associated with acquisitions and the integration of acquired companies such as PDI;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | impairment charges associated with our intangible assets, including goodwill, acquisition-related intangible assets and our investment in GCS;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | factors affecting our reported domestic and foreign income taxes and income tax rate; and
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | the effects of war, acts of terrorism or geo-political unrest, such as disruption in general economic activity, and the effects on the economy and our business due to increasing oil
prices.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The occurrence of these and other factors could cause us to fail to meet quarterly financial expectations, which could cause our
stock price to decline. For example, in the first quarter of 2005 and the fourth quarter of 2004, our financial results were below investment community expectations, in part due to rescheduling of customer orders, and our stock price subsequently
declined.

Our gross margin will fluctuate from period to period, and such fluctuation could affect our financial performance, particularly earnings
and/or loss per share, in turn potentially decreasing our stock price.

Numerous factors will cause our gross margin to fluctuate from period to
period. For example, the gross margin on sales to our large OEM customers has historically been lower than on sales through our distribution channel or sales to some of our smaller direct customers, primarily due to the bargaining power attendant
with large OEM customers and their higher product volumes. If, as we expect, these large OEMs continue to account for a majority of our net revenues for the foreseeable future, the continuance of this trend will likely have a dilutive impact on our
gross margins in future periods. In addition, sales of our IC products have historically yielded a higher gross margin than our MCM products. Therefore, increased sales of MCM products in a given period will likely have a dilutive effect on our
gross margin. In addition, sales of certain of our broadband products, in particular satellite radio antennas, have historically had lower gross margins than sales of our wireless infrastructure products. Therefore, increased sales of satellite
radio antenna products in a given period will likely have a dilutive effect on our gross margin. In 2005, sales of antennae products increased significantly as a percentage of our total sales, which had a dilutive effect on our gross margin.
Although gross margin differs from product to product, PDIs gross margin in prior periods has generally been lower than Sirenzas, and we expect most PDI product gross margins to be lower than our reported gross margin in recent periods,
which will likely result in lower gross margins for some time following the closing of the acquisition than we have historically achieved. Other factors that could cause our gross margin to fluctuate include the features of the products we sell, the
markets into which we sell our products, the level of integration of our products, the efficiency and effectiveness of our internal and outsourced manufacturing, packaging and test operations, product quality issues, provisions for excess
inventories and sales of previously written-down inventories. As a result of these or other factors, we may be unable to maintain or increase our gross margin in future periods.

Our results may suffer if we are not able to accurately forecast demand for our products.

Our business is
characterized by short-term orders and shipment schedules. Customer orders can typically be cancelled or rescheduled without significant penalty to the customer. Because we do not have substantial non-cancelable backlog, we typically plan our
production and inventory levels based on internal forecasts of customer demand, which can be highly unpredictable and can fluctuate substantially.

During
periods of industry downturn such as we have experienced in the past, customer order lead times and our resulting order backlog typically shrink even further, making it more difficult for us to forecast production levels, capacity and net revenues.
We frequently find it difficult to accurately predict future demand in the markets we serve, making it more difficult to estimate requirements for production capacity. If we are unable to plan inventory and production levels effectively, our
business, financial condition and results of operations could be materially adversely affected.

From time to time, in response to anticipated long lead
times to obtain inventory and materials from our outside suppliers and foundries, we may order materials in advance of customer demand. This advance ordering has in the past and may in the future result in excess inventory levels or unanticipated
inventory write-downs if expected orders fail to materialize, or other factors make our products less saleable.

In periods of high demand, customers often
attempt to pull-in the proposed delivery dates of products they have previously ordered from us, which can also make it difficult for us to forecast production levels, capacity and net revenues. While we strive to meet our
customers changing requirements, if we are unsuccessful in this regard these customers may shift future orders or market share to competitors in response.

We depend on a relatively small number of customers for a significant portion of our net revenues. The loss of any of these customers could materially and adversely affect our net revenues.

A relatively small number of customers account for a significant portion of our net revenues in any particular period. For example, in the first quarter of 2006, both
Motorola and Sirius individually accounted for, directly or indirectly, more than 10% of our net revenues and our top ten customers accounted for more than 60% of net



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revenues. PDI also typically has had a high level of customer concentration, and Motorola is one of its largest customers, so we expect that our history of
high customer concentration and attendant risk will continue in future periods. While we do enter into long-term supply agreements with customers from time to time, these contracts typically do not require the customer to buy any minimum amount of
our products, and orders are typically handled on a purchase order by purchase order basis. The loss of any one of these customers could limit our ability to sustain and grow our net revenues.

If the satellite radio market does not grow or grows at a slow rate, or if our relationship with Sirius weakens, our results of operations may suffer.

More than 10% of our net revenues in the first quarter of 2006 were to Sirius or its subcontractors or CMs. These sales are dependant to a large
degree on the continued growth of the aftermarket subscriber base for Sirius satellite radio service. We cannot assure you that the market for satellite radio will grow in the future, or that the Sirius subscriber base or the aftermarket
segment thereof will increase. Further, we compete with a number of established producers of satellite radio antennae and related equipment for sales to Sirius. Sirius periodically introduces new products and new generations of existing products,
including satellite radio antennas, and there can be no guarantee that we will continue to successfully compete to supply such products to Sirius and its contract manufacturers on favorable terms or at all. If the satellite radio market in general
or Sirius business in particular does not grow or experiences a downturn, or if we fail to compete successfully for Sirius business at any point, our revenues may fail to grow or be materially reduced, and our stock price may decline.

Our growth depends on the growth of the wireless and wireline communications infrastructure market. If this market does not grow, or if it grows at
a slow rate, demand for our products may fail to grow or diminish.

Our growth will depend on the growth of the telecommunications industry in
general and, in particular, the market for wireless and wireline infrastructure components. We cannot assure you that the market for these products will grow at all. If the market does not grow or experiences a downturn, our revenues may be
materially reduced. In the past, there have been reductions throughout the worldwide telecommunications industry in component inventory levels and equipment production volumes, and delays in the build-out of new wireless and wireline infrastructure.
These events have had an adverse effect on our operations and caused us, in the past, to lower our previously announced expectations for our financial results, which caused the market price of our common stock to decrease. The occurrence of the
events described above could result in lower or erratic sales for our products and could have a material adverse effect on our business, financial condition and results of operations. A substantial portion of our net revenues are currently derived
from sales of components for wireless infrastructure applications. PDI has a strong presence in the cable television infrastructure market. As a result, downturns in either the wireline or the wireless communications market, such as the significant
downturn beginning in 2001, could have a material adverse effect on our business, financial condition and results of operations.

Sales of our
products have been affected by a pattern of product price decline, which can harm our business.

The market for our wireless and wireline
communications products is characterized by rapid technological change, evolving industry standards, product obsolescence, and significant price competition, and, as a result, is subject to regular decreases in product average selling prices over
time. We are unable to predict future prices for our products, but we expect that prices for products that we sell to our large wireless and wireline infrastructure OEM customers in particular, who we expect to continue to account for a majority of
our net revenues for the foreseeable future, will continue to be subject to downward pressure. These OEMs continue to require components from their suppliers, including us, to deliver improved performance at lower prices. We also anticipate that a
similar pattern may develop in our sales of satellite radio antennas and related products, although these products are at an earlier stage in their life cycle than many of our traditional wireless infrastructure products. Accordingly, our ability to
maintain or increase net revenues will be dependent on our ability to increase unit sales volumes of existing products and to successfully develop, introduce and sell new products with higher prices into both the wireless infrastructure and other
markets. We are also making a significant effort to develop new sales channels and customer bases in which we hope price competition will not be as significant. There can be no assurance that we will be able to develop significant new customers with
less price sensitivity, increase unit sales volumes of existing products, or develop, introduce and/or sell new products not affected by a pattern of steady average selling price declines.

The declining selling prices we have experienced in the past and the pricing pressure we continue to face have also diluted our gross margins and may continue to do so
in the future. To maintain or increase our gross margins, we must continue to meet our customers design and performance needs while reducing our costs through efficient raw material procurement, low-cost internal and outsourced manufacturing
and test operations and continuous process and product improvements. Even if we are able to increase unit sales volumes and reduce our costs per unit, there can be no assurance that we will be able to maintain or increase net revenues or profits.

Product quality, performance and reliability problems could disrupt our business and harm our financial condition and results of operations.

Our customers demand that our products meet stringent quality, reliability and performance standards. Despite standard testing performed by us, our
suppliers and our customers, RF components such as those we produce may contain undetected defects or flaws that may only be discovered after commencement of commercial shipments. As a result, defects or failures have in the past, and may in the
future impact our product quality, performance and reliability, leading to:



| |  |  | loss of net revenues and gross profit, and lower margins;
| | - |  | ---------------------------------------------------------



| |  |  | delays in, or cancellations or rescheduling of, orders or shipments;
| | - |  | --------------------------------------------------------------------



| |  |  | loss of, or delays in, market acceptance of our products;
| | - |  | ---------------------------------------------------------



| |  |  | significant expenditures of capital and resources to resolve such problems;
| | - |  | ---------------------------------------------------------------------------



| |  |  | other costs including inventory write-offs and costs associated with customer support;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | product returns, discounts, credits issued, or cash payments to resolve such problems;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | diversion of technical and other resources from our other development efforts;
| | - |  | ------------------------------------------------------------------------------



| |  |  | warranty and product liability claims, lawsuits and liability for damages caused by such defects; and
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | loss of customers, or loss of credibility with our current and prospective customers.
| | - |  | -------------------------------------------------------------------------------------

New accounting standards related to equity compensation are expected to adversely affect our earnings and could have other adverse impacts.

We have historically used stock options and other equity awards as a fundamental component of our employee compensation packages. We believe that our employee equity plans are an essential tool to link the long-term
interests of stockholders and employees, especially executive management, and serve to motivate our employees to make decisions that will, in the long run, give the best returns to stockholders. The Financial Accounting Standards Board (FASB) has
announced changes to accounting principles generally accepted in the United States that require us to record a charge to earnings for employee stock option grants and other equity awards for all future periods beginning on January 1, 2006. The
adoption of this standard has significantly reduced our net income and earnings per share thus far in 2006, and we expect that this trend will continue in future periods. Lower earnings may cause our stock price to fall and may affect our ability to
raise capital on acceptable terms. The new accounting standards will reduce our net income, make it more expensive for us to grant options and other equity awards to employees in the future, and are already driving changes in our equity compensation
strategy. An example would be our recently reduced use of stock option grants in favor of restricted stock awards, for which the calculation of related compensation expense is more predictable and less volatile. We may need to increase our use of
other equity incentives, or other forms of compensation, to adequately motivate and retain our employees. These efforts may be viewed as dilutive to our stockholders or may increase our compensation costs, and if such efforts are unsuccessful, we
may have difficulty attracting, retaining and motivating employees.



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Our strategic investment in GCS, a privately held semiconductor foundry, could be further impaired or never
redeemed, which could have a material adverse impact on our results of operations

In the first quarter of 2002, we invested $7.5 million in GCS, a
privately held semiconductor foundry. We regularly evaluate our investment in GCS to determine if an other-than-temporary decline in value has occurred. Factors that may cause an other-than-temporary decline in the value of our investment in GCS
would include, but not be limited to, a degradation of the general business environment in which GCS operates, the failure of GCS to achieve certain performance milestones, a series of operating losses in excess of GCS business plan, the
inability of GCS to continue as a going concern or a reduced valuation as determined by a new financing event. If we determine that an other-than-temporary decline in value has occurred, we will write-down our investment in GCS to its estimated fair
value. Such a write-down could have a material adverse impact on our consolidated results of operations in the period in which it occurs. For example, in the fourth quarter of 2004 and 2002, we wrote down the value of our investment in GCS by
approximately $1.5 million and $2.9 million, respectively, after determining that GCS had experienced an other-than-temporary decline in value.

The
ultimate realization of our investment in GCS will be dependent on the occurrence of a liquidity event for GCS, and/or our ability to sell our GCS shares, for which there is no public market. The likelihood of any of these events occurring will
depend on, among other things, market conditions surrounding the wireless communications industry and the related semiconductor foundry industry, as well as the public markets receptivity to liquidity events such as initial public offerings or
merger and acquisition activities. Even if we are able to sell these shares, the sale price may be less than our carrying value, which could materially and adversely affect our results of operations.

Our reliance on foreign suppliers and manufacturers and our acquisition of PDI exposes us to the economic and political risks of the countries in which they are
located.

Independent third parties in other countries, primarily in Thailand, Malaysia, South Korea, Taiwan and the Philippines, package
substantially all of our semiconductor products. In addition, all of our satellite antennae manufacturing is outsourced to a subcontractor in the Philippines, and we obtain some of our semiconductor wafers from one supplier located in Germany. Due
to our reliance on foreign suppliers and packagers, we are subject to the risks of conducting business outside the United States. PDI also has sizeable manufacturing operations in China and Germany which subject us to similar risks. These risks
include:



| |  |  | unexpected changes in, or impositions of, legislative or regulatory requirements;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | shipment delays, including delays resulting from difficulty in obtaining export licenses;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | tariffs and other trade barriers and restrictions;
| | - |  | --------------------------------------------------



| |  |  | political, social and economic instability; and
| | - |  | -----------------------------------------------



| |  |  | potential hostilities and changes in diplomatic and trade relationships.
| | - |  | ------------------------------------------------------------------------

The Chinese legal system lacks transparency, which gives the Chinese central and local government authorities a higher degree of control over business in China than is customary in the United States and makes the process of obtaining
necessary regulatory approval in China inherently somewhat unpredictable. In addition, the protection accorded our proprietary technology and know-how under both the Chinese and German legal systems is not as strong as in the United States and, as a
result, we may lose valuable trade secrets and competitive advantage. Also, manufacturing our products and utilizing contract manufacturers, as well as other suppliers throughout the Asia region, exposes our business to the risk that our proprietary
technology and ownership rights may not be protected or enforced to the extent that they may be in the United States. The cost of doing business in Germany can be higher than in the U.S. due to German legal requirements regarding employee benefits
and employer-employee relations, in particular. Although the Chinese government has been pursuing economic reform and a policy of welcoming foreign investments, it is possible that the Chinese government will change its current policies in the
future, making continued business operations in China difficult or unprofitable.

In addition, we currently transact business with our foreign suppliers
and packagers in U.S. dollars. Consequently, if the currencies of our suppliers countries were to increase in value against the U.S. dollar, our suppliers may attempt to raise the cost of our semiconductor wafers, packaging materials and
services, and other materials, which could have a material adverse effect on our business, financial condition and results of operations. We expect the acquisition of PDI to materially increase our risks from conducting business outside the U.S.,
both due to their substantial operations in China and Germany, and their higher proportion of sales and expenses denominated in foreign currency, which will increase our exposure to the risk of exchange rate fluctuations.

Failure to maintain effective internal controls over financial reporting could adversely affect our business and the market price of our stock.

Pursuant to rules adopted by the SEC implementing Section 404 of the Sarbanes-Oxley Act of 2002, we are required to assess the effectiveness of our internal
controls over financial reporting and provide a management report on our internal controls over financial reporting in all annual reports. While we currently believe our internal controls over financial reporting are effective, we are required to
comply with Section 404 on an annual basis. If, in the future, we identify one or more material weaknesses in our internal controls over financial reporting during this continuous evaluation process, our management will be unable to assert such
internal controls are effective. Although we currently anticipate being able to continue to satisfy the requirements of Section 404 in a timely fashion, we cannot be certain as to the timing of completion for our future evaluation, testing and
any required remediation. If we are unable to assert that our internal controls over financial reporting are effective in the future, or if our auditors are unable to attest that our managements report is fairly stated or they are unable to
express an opinion on the effectiveness of our internal controls, we could lose investor confidence in the accuracy and completeness of our financial reports, which would have an adverse effect on our business and the market price of our common
stock.

We expect to make future acquisitions, which involve numerous risks.

We have in the past and will continue to evaluate potential acquisitions of, and investments in, complementary businesses, technologies, services or products, and expect to pursue such acquisitions and investments if
appropriate opportunities arise. However, we may not be able to identify suitable acquisition or investment candidates in the future, or if we do identify suitable candidates, may not be able to make such acquisitions or investments on commercially
acceptable terms, or at all. In the event we pursue acquisitions, we will face numerous risks including:



| |  |  | difficulties in integrating the personnel, operations, technology or products and service offerings of the acquired company;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | diversion of managements attention from normal daily operations of our business;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | difficulties in entering markets where competitors have stronger market positions;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | difficulties in managing and integrating operations in geographically dispersed locations;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | difficulties in improving the internal controls, disclosure controls and procedures and financial reporting capabilities of any acquired operations (particularly foreign and
formerly private operations) as needed to meet the high standards U.S. public companies are held to in this regard;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the loss of any key personnel of the acquired company as well as their know-how, relationships and expertise;
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | maintaining customer, supplier or other favorable business relationships of acquired operations;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | insufficient net revenues to offset increased expenses associated with any abandoned or realized acquisitions; and
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | additional expense associated with amortization or depreciation of acquired tangible and intangible assets.
| | - |  | -----------------------------------------------------------------------------------------------------------



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Even if a proposed acquisition or alliance is successfully realized and integrated, we may not receive the expected
benefits or synergies of the transaction. Past transactions have resulted, and future transactions may result, in significant costs and expenses and charges to earnings. The accounting treatment for any acquisition may result in significant
amortizable intangible assets, which when amortized, will negatively affect our consolidated results of operations. The accounting treatment for any acquisition may result in significant goodwill, which, if impaired, will negatively affect our
consolidated results of operations. The accounting treatment for any acquisition may also result in significant in-process research and development charges, which will negatively affect our consolidated results of operations in the period in which
an acquisition is consummated. In addition, any completed, pending or future transactions may result in unanticipated expenses or tax or other liabilities associated with the acquired assets or businesses. Furthermore, we may incur indebtedness or
issue equity securities to pay for any future acquisitions. The incurrence of indebtedness could limit our operating flexibility and be detrimental to our results of operations, and the issuance of equity securities could be dilutive to our existing
stockholders. Any or all of the above factors may differ from the investment communitys expectations in a given quarter, which could negatively affect our stock price.

If we fail to introduce new products in a timely and cost-effective manner, our ability to sustain and increase our net revenues could suffer.

The markets for our products are characterized by new product introductions, evolving industry standards and changes in manufacturing technologies. Because of this, our
future success will in large part depend on our ability to:



| |  |  | continue to introduce new products in a timely fashion;
| | - |  | -------------------------------------------------------



| |  |  | gain market acceptance of our products;
| | - |  | ---------------------------------------



| |  |  | improve our existing products to meet customer requirements;
| | - |  | ------------------------------------------------------------



| |  |  | adapt our products to support established and emerging industry standards;
| | - |  | --------------------------------------------------------------------------



| |  |  | adapt our products to support evolving wireless and wireline equipment architectures; and
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | access new process and product technologies.
| | - |  | --------------------------------------------

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

Our efforts to diversify our product portfolio and expand into new
markets have attendant execution risk.

While historically we have derived most of our net revenues from the sale of products to the mobile wireless
infrastructure market, one of our corporate strategies involves leveraging our core strengths in high-performance RF component design, modular design process technology and wireless systems application knowledge to expand into new markets which have
similar product performance requirements, such as the broadband wireless access, VoIP, cable, satellite radio and RFID markets. We do not have a long history in many of these markets or in consumer-oriented markets generally, and our lack of market
knowledge relative to other participants in such markets may prevent us from competing effectively in them. It is possible that our competitive strengths will not translate effectively into these markets, or that these markets will not develop at
the rates we anticipate. Any of these events could negatively affect our future operating results.

Our reliance on third-party wafer fabs to
manufacture our semiconductor wafers may cause a significant delay in our ability to fill orders and limits our ability to assure product quality and to control costs.

We do not own or operate a semiconductor fabrication facility (fab). We currently rely on five third-party wafer fabs to manufacture most of our semiconductor wafers. These fabs include RF Micro Devices (RFMD) for
GaAs devices, Atmel for SiGe devices, TriQuint Semiconductors for our discrete devices, GCS for our InGaP devices, and an Asian foundry that supplies us with LDMOS devices. In 2005, a majority of our semiconductors in terms of both volume and
revenue were provided by Atmel, GCS and Northrop Grumman (NG) (formerly TRW).

The loss of one of our third-party wafer fabs, or any reduction of capacity,
manufacturing disruption, or delay or reduction in wafer supply, would negatively impact our ability to fulfill customer orders, perhaps materially, and has in the past and could in the future damage our relationships with our customers, either of
which could significantly harm our business and operating results.

Some of our contracts with these foundries feature last-time buy (LTB)
arrangements. An LTB arrangement typically provides that, if the vendor decides to obsolete or materially change the process by which our products are made, we will be given prior notice and opportunity to make a last purchase of wafers in volume.
While the goal of the LTB arrangement is to allow us a sufficient supply of wafers in such instances to either meet our future needs or give us time to transition our products to, and qualify, another supply source, there can be no assurance that
the volume of wafers provided for under any LTB arrangement will adequately meet our future requirements.

NG has discontinued the operation of the
fabrication line on which our GaAs products have historically been made, and we made a last-time buy of wafers in connection with the line shutdown. We believe that through a combination of our current inventory and our efforts to transition
customers to products using semiconductors produced by our other foundry partners, we will have a sufficient wafer supply to meet our currently anticipated customer needs. However, there can be no assurance that sufficient supplies of such wafers
will become available to the Company, or that our transitioning efforts will be successful and will not result in lost market share.

Atmel, GCS, RFMD,
TriQuint and our Asian foundry are each our sole source for parts in the particular fabrication technology manufactured at their facility. GCS is a private company with limited capital resources and operating history. Because there are limited
numbers of third-party wafer fabs that use the particular process technologies we select for our products and that have sufficient capacity to meet our needs, it would be difficult to find an alternative source of supply. Even if we were able to
find an alternative source, using alternative or additional third-party wafer fabs would require an extensive qualification process that could prevent or delay product shipments, which could have a material adverse effect on our business, financial
condition and results of operations.

Our reliance on these third-party wafer fabs involves several additional risks, including reduced control over the
manufacturing costs, delivery times, reliability and quality of our components produced from these wafers. The fabrication of semiconductor wafers is a highly complex and precise process. We expect that our customers will continue to establish
demanding specifications for quality, performance and reliability that must be met by our products. Our third-party wafer fabs may not be able to achieve and maintain acceptable production yields in the future. To the extent our third-party wafer
fabs suffer failures or defects, we have in the past and could in the future experience warranty and product liability claims, lost net revenues, increased costs, and/or delays in, cancellations or rescheduling of orders or shipments, any of which
could have a material adverse effect on our business, financial condition and results of operations.

In the past, we have at times experienced delays in
product shipments, quality issues and poor manufacturing yields from our third-party wafer fabs, which in turn delayed product shipments to our customers or resulted in product returns and related expense, higher costs of production and lower gross
margins. We may in the future experience similar delays or other problems, such as inadequate wafer supply.

Our reliance on subcontractors to
package our products could cause a delay in our ability to fulfill orders or could increase our cost of revenues.

We do not package the RF
semiconductor components that we sell but rather rely on subcontractors to package our products. Packaging is the procedure of electrically bonding and encapsulating the IC into its final protective plastic or ceramic casing. We provide the wafers
containing the ICs to third-party packagers. Although we



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currently work with five packagers, substantially all of our amplifier product net revenues in 2005 were attributable to products packaged by two
subcontractors. We do not have long-term contracts with our third-party packagers stipulating fixed prices or packaging volumes. Therefore, in the future, we may be unable to obtain sufficiently high quality or timely packaging of our products. The
loss or reduction in packaging capacity of any of our current packagers, particularly Unisem, our current primary source for a particular, high-volume commercial package type and Circuit Electronic Industries Public Co., Ltd. (CEI), our second
source for this particular package type, would significantly damage our business. In addition, increased packaging costs would adversely affect our gross margins and profitability.

The fragile nature of the semiconductor wafers that we use in our components requires sophisticated packaging techniques and has in the past resulted in low packaging yields. If our packaging subcontractors fail to
achieve and maintain acceptable production yields in the future, we could experience increased costs, including warranty and product liability expense and costs associated with customer support, delays in or cancellations or rescheduling of orders
or shipments, product returns or discounts and lost net revenues, any of which could have a material adverse effect on our business, financial condition and results of operations.

We may not be able to outsource the manufacture and test of our products on favorable terms, or at all, and even successful outsourcing creates risk due to our resulting reliance on vendors.

We currently outsource a portion of our product manufacturing and testing function, and may do so again where economically advantageous for both the vendor and us. For
example, we rely on one manufacturing partner to produce all of our satellite radio antenna products and a significant majority of our broadband products. However, we may be unable to successfully outsource additional manufacturing and testing in
the near term, or at all. The selection and ultimate qualification of subcontractors to manufacture and test our products could be costly and increase our cost of revenues. In addition, we also do not know if we will be able to negotiate long-term
contracts with subcontractors to manufacture and test our products at acceptable prices or volumes. Further, outsourcing the manufacture of a substantial amount of our products may result in underutilization of our existing manufacturing facility,
which could in turn result in a higher cost structure and lower gross margins than if we did not outsource such functions.

Even if we find suitable
vendors for an outsourced manufacture or test relationship, creation of such arrangements carries risks since we have to rely on the vendor to provide an uninterrupted source of high quality product. Because our customers have high quality and
reliability standards and our components require sophisticated testing techniques, we have had problems in the past and may have difficulty in the future in obtaining sufficiently high quality or timely manufacture and testing of our products.
Whenever a subcontractor is not successful in adopting such techniques, we may experience increased costs, including warranty and product liability expense and costs associated with customer support, delays in or cancellations or rescheduling of
orders or shipments, damage to customer relationships, delayed qualification of new products with our customers, product returns or discounts and lost net revenues, any of which could have a material adverse effect on our business, financial
condition and results of operations.

Intense competition in our industry could prevent us from increasing net revenues and sustaining profitability.

The RF component industry is intensely competitive in each of the markets we serve and is characterized by the following:



| |  |  | rapid technological change;
| | - |  | ---------------------------



| |  |  | rapid product obsolescence;
| | - |  | ---------------------------



| |  |  | limited number of wafer fabs for particular process technologies;
| | - |  | -----------------------------------------------------------------



| |  |  | price erosion; and
| | - |  | ------------------



| |  |  | unforeseen manufacturing yield and quality control problems.
| | - |  | ------------------------------------------------------------

With
respect to our amplifier products, we compete primarily with other suppliers of high-performance RF components used in the infrastructure of communications networks such as Agilent, Hittite, M/A-COM, NEC and WJ Communications. With respect to our
satellite antenna sales, we compete with other manufacturers of satellite antennas and related equipment, including M/A-COM, RecepTec and Wistron NeWeb. For our newer broadband products, we expect our most significant competitors will include Maxim
Integrated Products, Microtune, Motorola, STMicroeletronics and Philips. With respect to our signal source products, our primary competitors are Alps, M/A-COM and Minicircuits. With respect to our aerospace, defense and homeland security products,
our primary competitors are Hittite, M/A-COM, Spectrum Control and Teledyne. PDIs CATV products primarily compete with those of RFHIC, Anadigics and Philips, and its wireless infrastructure products primarily compete with WJ Communications,
M/A-COM and Minicircuits. We also compete in a sense with our own large communications OEM customers, who often have a choice as to whether they design and manufacture RF components and subsystems internally for their own consumption or purchase
them from third party providers such as us. Competition in each of our markets is typically based on a combination of price, performance, product quality and reliability, customer support and the ability of each supplier to meet production deadlines
and provide a steady source of supply. Market share at our large OEM customers in particular tends to fluctuate from year to year based not only on our relative success compared to our competitors in finding the right balance of these factors, but
also based on changes in the willingness of customers to have only one source of supply. For example, we may have a 100% share of the supply of a particular product to a customer one year and only 50% the next based on the customer deciding to
employ a second source for risk management or other reasons not related to our performance as a supplier.

We expect continuing competition both from
existing competitors and from a number of companies that may enter the RF component market and we may see future competition from companies that may offer new or emerging technologies. In addition, future competition may come from component
suppliers based in countries with lower production costs, or IC manufacturers as they add additional integrated functionality at the chip level that could supplant our products. Many of our current and potential competitors have significantly
greater financial, technical, manufacturing and marketing resources than we have. As a result, prospective customers may decide not to buy from us due to their concerns about our size, financial stability or ability to interact with their logistics
systems. Our failure to successfully compete in our markets would have a material adverse effect on our business, financial condition and results of operations.

A substantial portion of our products are sold to international customers, which exposes us to numerous risks.

A substantial portion
of our direct sales and sales through our distributors are to foreign purchasers, particularly in China, Korea, Singapore, Philippines, Finland, Germany and Sweden. International sales approximated 78% of our net revenues in the first quarter of
2006, the majority of which was attributable to CMs and OEMs located in Asia. Demand for our products in foreign markets could decrease, which could have a material adverse effect on our business, financial condition and results of operations.
Moreover, sales to international customers may be subject to numerous risks, including:



| |  |  | changes in trade policy and regulatory requirements;
| | - |  | ----------------------------------------------------



| |  |  | duties, tariffs and other trade barriers and restrictions;
| | - |  | ----------------------------------------------------------



| |  |  | timing and availability of export licenses;
| | - |  | -------------------------------------------



| |  |  | delays in placing orders;
| | - |  | -------------------------



| |  |  | difficulties in managing distributors sales to foreign countries;
| | - |  | ------------------------------------------------------------------



| |  |  | the complexity and necessity of using foreign representatives;
| | - |  | --------------------------------------------------------------



| |  |  | compliance with a variety of foreign and U.S. laws affecting activities abroad;
| | - |  | -------------------------------------------------------------------------------



| |  |  | potentially adverse tax consequences;
| | - |  | -------------------------------------



| |  |  | trade disputes; and
| | - |  | -------------------



| |  |  | political, social and economic instability.
| | - |  | -------------------------------------------



26



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##### Table of Contents

We are also subject to risks associated with the imposition of legislation and regulations relating to the import or
export of high technology products. We cannot predict whether quotas, duties, taxes or other charges or restrictions upon the importation or exportation of our products will be implemented by the United States or other countries.

Because sales of our products have been denominated to date in United States dollars, increases in the value of the United States dollar could increase the price of our
products so that they become relatively more expensive to customers in the local currency of a particular country, leading our customers to order fewer of our products, thereby reducing our sales and profitability in that country. Some of our
customer purchase orders and agreements are governed by foreign laws, which may differ significantly from United States laws; therefore, we may be limited in our ability to enforce our rights under such agreements and to collect damages, if awarded.

Sources for certain components and materials are limited, which could result in delays or reductions in product shipments.

The semiconductor industry from time to time is affected by limited supplies of certain key components and materials. For example, we rely on Analog Devices for the ICs
utilized in the manufacture of our PLL products, and we also rely on limited sources for certain packaging materials. If we, or our packaging subcontractors, are unable to obtain these or other materials in the required quantity and quality, we
could experience delays or reductions in product shipments, which would materially and adversely affect our profitability. Although we have not experienced any significant difficulty to date in obtaining these materials, temporary shortages and low
manufacturing yields have arisen in the past and may arise in the future. If key components or materials are unavailable, while we would hope to be able to remedy through cooperation with the suppliers, locating alternate sources of supply or
otherwise, our costs could increase and our net revenues could decline.

We may experience difficulties in managing any future growth.

Our ability to successfully manage our business plan in a rapidly evolving market requires us to effectively plan and manage any future growth. Our
ability to manage future growth will be dependent in large part on a number of factors, including:



| |  |  | maintaining access to sufficient manufacturing capacity to meet customer demands;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | arranging for sufficient supply of key components to avoid shortages of components that are critical to our products;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | hiring additional skilled technical, marketing and managerial personnel;
| | - |  | ------------------------------------------------------------------------



| |  |  | adhering to our high quality and process execution standards, particularly as we hire and train new employees and during periods of high volume;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | managing the various components of our working capital effectively in periods where cash on hand is limited;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | upgrading our operational and financial systems, procedures and controls, including possible improvement of our accounting and internal management systems; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | maintaining high levels of customer satisfaction.
| | - |  | -------------------------------------------------

If we are unable to
effectively manage any future growth, our operations may be impacted and we may experience delays in delivering products to our customers. Any such delays could affect our customers ability to deliver products in accordance with their planned
manufacturing schedules, which could adversely affect our customer relationships. We may also be required to build additional component inventory in order to offset expected future component shortages. If we do not manage any future growth properly,
our business, financial condition and results of operations could be materially adversely affected.

If we lose our key personnel or are unable to
attract and retain key personnel, we may be unable to pursue business opportunities or develop our products.

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

Our products could infringe the intellectual property rights of others, and resulting claims against us could be costly and
require us to enter into disadvantageous license or royalty arrangements.

Our industry is characterized by the existence of a large number of
patents and litigation based on allegations of patent infringement and the violation of intellectual property rights. Although we attempt to avoid infringing known proprietary rights of third parties in our product development efforts, we may be
subject to legal proceedings and claims for alleged infringement by us or our licensees of third-party proprietary rights, such as patents, trade secrets, trademarks or copyrights, from time to time in the ordinary course of business. In addition,
our sales agreements often contain intellectual property indemnities, such as patent and copyright indemnities, and our customers may assert claims against us for indemnification if they receive claims alleging that their products infringe
others intellectual property rights.

Any claims relating to the infringement of third-party proprietary rights, even if not meritorious, could
result in costly litigation, divert managements attention and resources, or require us to enter into royalty or license agreements which are not advantageous to us or pay material amounts of damages. In addition, parties making these claims
may be able to obtain an injunction, which could prevent us from selling our products. We may increasingly be subject to infringement claims as the number of our products grows and as we move into new markets, and in particular in consumer markets
where there are many entrenched competitors and we are less familiar with the competitive landscape and prior art.

Recent changes in environmental
laws and regulations applicable to manufacturers of electrical and electronic equipment have required us to redesign some of our products, and may increase our costs and expose us to liability.

The implementation of new technological or legal requirements, such as recycling requirements and lead-free initiatives, has impacted our products and manufacturing
processes, and could affect the timing of product introductions, the cost and commercial success of our products and our overall profitability. For example, a directive in the European Union bans the use of lead, other heavy metals and certain flame
retardants in electrical and electronic equipment beginning in 2006. As a result, in advance of this deadline, many of our customers have begun demanding products that do not contain these banned substances and have indicated that they will no
longer design in non-compliant components. Because many of our IC products utilize a tin-lead alloy as a soldering material in the manufacturing process, our MCM products contain circuit boards plated with a tin-lead surface and certain molded
active components in our MCM products are molded with a banned substance, we must redesign our products and obtain compliant raw materials from our suppliers to respond to the new legislation and to meet customer demand.

Although we began this process in the first quarter of 2004 and have released many compliant products to date, we have products that remain noncompliant. Due to the
limited geographic coverage of the regulations and our worldwide customer base, the different rates at which various customers are moving to lead-free components,



27



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##### Table of Contents

and the fact that some leaded components remain exempt from the regulations for particular customer applications, we are not stopping all production of
leaded parts on a particular scheduled date, but are making the move gradually as customer demand dictates. We anticipate selling leaded products for some time. We may be left with excess inventory of certain leaded parts if customers for those
parts move to lead-free only consumption without giving us sufficient notice. In addition, our industry has no long-term data to assess the effectiveness, shelf-life, moisture sensitivity, and thermal tolerance of alternative materials, so we may
experience product quality and performance issues as we transition our products to such materials.

Further, for our MCM products we rely on third party
suppliers, over which we have little or no control, to provide certain of the components needed for our products to meet applicable standards. In addition, this redesign is resulting in increased research and development and manufacturing and
quality control costs. If we are unable to redesign existing products and introduce new products to meet the standards set by environmental regulation and our customers, sales of our products could decline, which could materially adversely affect
our business, financial condition and results of operations. Failure to comply with any applicable environmental regulations could result in a range of consequences, including loss of sales, fines, suspension of production, excess inventory, and
criminal and civil liabilities.

Another recent directive in the European Union imposes a take-back obligation on manufacturers of electrical
and electronic equipment. This obligation requires manufacturers of electrical or electronic equipment to finance the collection, recovery and disposal of the electrical or electronic equipment that they produce. At this time, we are not aware of
adopted legislation implementing this directive. In addition, methods of complying with these potential take-back obligations have not been developed by our industry. Even if the specific legislation does not directly apply to us or our products and
solutions, our customers could potentially shift some of their costs to us through contractual provisions. We are unable to assess the impact of this proposed legislation on us at this time but it could result in increased costs to us, which could
materially adversely affect our business, financial condition and results of operations.

Environmental regulations could subject us to substantial
costs or fines, or require us to suspend production, alter manufacturing processes or cease operations at one or more sites.

The manufacture,
assembly and testing of our products requires the use of hazardous materials that are subject to a broad array of environmental, health and safety laws and regulations governing the use, transportation, emission, discharge, storage, recycling or
disposal of such materials. Failure to comply with any such laws or regulations could result in fines, suspension of production, alteration of fabrication and assembly processes, curtailment of operations or sales, requirements to remediate land,
air or groundwater and other legal liability. Some domestic and foreign environmental regulations allow regulating authorities to impose cleanup liability on a company that leases or otherwise becomes associated with a contaminated site even though
that company had nothing to do with the acts that gave rise to the contamination. Accordingly, even if our own operations are conducted in accordance with these laws, we may incur environmental liability based on the actions of prior owners, lessees
or neighbors of sites we lease now or in the future, or sites we become associated with due to acquisitions. For example, PDIs manufacturing site in Nuremberg occupies a small portion of a large parcel formerly occupied by Alcatel and other
manufacturers dating back to the early 1900s. Chlorinated solvent and heavy metal contamination in air, soil and groundwater were identified on the former Alcatel site in the late 1980s, and pump-and-treat remediation systems have been implemented
on portions of the site. While we do not believe that this contamination resulted from the operation of PDIs business, that any additional remediation is required on the PDI site or that we or PDI have any material related liability, currently
there can be no assurance that such liability will not arise in the future.

We have a material amount of goodwill and long-lived assets, including
finite-lived acquired intangible assets, which, if impaired, could materially and adversely affect our results of operations.

We have a material
amount of goodwill, which is the amount by which the cost of an acquisition accounted for using the purchase method exceeds the fair value of the net assets acquired. Goodwill is subject to a periodic impairment evaluation based on the fair value of
the reporting unit. We also have a material amount of long-lived assets, including finite-lived acquired intangible assets recorded on our balance sheet.

These assets are evaluated for impairment annually or whenever events or changes in circumstances indicate the carrying value of the related assets may not be recoverable. Any impairment of our goodwill or long-lived assets, including
finite-lived acquired intangible assets, could have a material adverse effect on our business, financial condition and results of operations.

The
outcome of litigation in which we have been named as a defendant is unpredictable and an adverse decision in any such matter could have a material adverse effect on our business, financial position and results of operations.

We are defendants in litigation matters that are described under the heading Legal Proceedings in this Quarterly Report on Form 10-Q. These claims may divert
financial and management resources that would otherwise be used to benefit our operations. Although we believe that we have meritorious defenses to the claims made in each and all of the litigation matters to which we have been named a party, and
intend to contest each lawsuit vigorously, no assurances can be given that the results of these matters will be favorable to us. An adverse resolution of any of these lawsuits, including the results of any amicable settlement, could have a material
adverse effect on our business, financial condition and results of operations.

The timing of the adoption of industry standards may negatively
impact widespread market acceptance of our products.

The markets in which we and our customers compete are characterized by rapidly changing
technology, evolving industry standards and continuous improvements in products and services. If technologies or standards supported by us or our customers products, such as 2.5G and 3G, fail to gain widespread commercial acceptance, our
business will be significantly impacted. For example, the worldwide installation of 2.5G and 3G equipment has occurred at a much slower rate than was initially expected. In addition, while historically the demand for wireless and wireline
communications has exerted pressure on standards bodies worldwide to adopt new standards for these products, such adoption generally only occurs following extensive investigation of, and deliberation over, competing technologies. The delays inherent
in the standards approval process have in the past and may in the future cause the cancellation, postponement or rescheduling of the installation of communications systems by our customers. If further delays in adoption of industry standards were to
occur, in particular with respect to the anticipated rollout of 3G technology in China, it could result in lower sales of our products and worse than expected results of operations in one or more periods.

Our limited ability to protect our proprietary information and technology may adversely affect our ability to compete.

Our future success and ability to compete is dependent in part upon our proprietary information and technology. Although we have patented technology and have patent
applications pending, we primarily rely on a combination of contractual rights and copyright, trademark and trade secret laws and practices to establish and protect our proprietary technology. We generally enter into confidentiality agreements with
our employees, consultants, resellers, wafer suppliers, vendors, customers and potential customers, and strictly limit the disclosure and use of our proprietary information. The steps taken by us in this regard may not be adequate to prevent
misappropriation of our technology. Additionally, our competitors may independently develop technologies that are substantially equivalent or superior to our technology.

Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain or use our products or technology. Our ability to enforce our patents, copyrights, software licenses
and other intellectual property is limited by our financial resources and is subject to general litigation risks, as well as uncertainty as to the enforceability of various intellectual property rights in various countries. If we seek to enforce our
rights, we may be subject to claims that the intellectual property right is invalid, is otherwise not enforceable or is licensed to the party against whom we are asserting a claim. In addition, our assertion of intellectual property rights could
result in the other party seeking to assert alleged intellectual property rights of its own against us.

Some of our stockholders can exert control
over us, and they may not make decisions that reflect our interests or those of other stockholders.

Our founding stockholders control a significant
amount of our outstanding common stock. In addition, in connection with the closing of the PDI acquisition, we issued 7,000,000 shares of our common stock to Phillip Liao and his spouse, and Mr. Liao became an officer and director of Sirenza.
As a result, these stockholders will be



28



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##### Table of Contents

able to exert a significant degree of influence over our management and affairs and control over matters requiring stockholder approval, including the
election of our directors and approval of significant corporate transactions. In addition, this concentration of ownership may delay or prevent a change in control of us and might affect the market price of our securities. In addition, the interests
of these stockholders may not always coincide with our interests or the interests of other stockholders.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

The
effective date of our Registration Statement filed on Form S-1 under the Securities Act of 1933 (File No. 333-31382), relating to our initial public offering of our common stock was May 24, 2000. Public trading commenced on May 25,
2000. The offering closed on May 31, 2000. The managing underwriters of the public offering were Deutsche Banc Alex. Brown, Banc of America Securities LLC, CIBC World Markets and Robertson Stephens. In the offering (including the exercise of
the underwriters overallotment option on June 16, 2000), we sold an aggregate of 4,600,000 shares of our common stock for an initial price of $12.00 per share.

The aggregate proceeds from the offering were $55.2 million. We paid expenses of approximately $5.4 million, of which approximately $3.9 million represented underwriting discounts and commissions and approximately
$1.5 million represented expenses related to the offering. Net proceeds from the offering were approximately $49.8 million. As of March 31, 2006 approximately $47.9 million of the net proceeds have been used to purchase property and equipment,
make capital lease payments, fund our operating activities, and fund our acquisitions of Xemod, Vari-L and ISG and investment in GCS. The remaining $1.9 million of net proceeds have been invested in interest bearing cash equivalents and investments.

Repurchase of Equity Securities

The table below
summarizes our repurchases of our common stock in the first quarter of 2006:



|              |  |                                 |  |                             |      
|------------- |  | ------------------------------- |  | --------------------------- | -----
|Period        |  | Total Number ofShares Purchased |  | Average PricePaid Per Share
|January 2006  |  | 7,000                           |  | $                           | 0.001
|February 2006 |  |                                |  |                             |     
|March 2006    |  | 1,386                           |  |                             |     

None of the shares were repurchased as part of publicly announced plans or programs. All such purchases were
ordinary course of business reacquisitions at cost or forfeitures at no cost of unvested common stock previously issued pursuant to restricted stock purchase rights issued to employees under our 1998 Stock Plan in connection with the termination of
their employment with Sirenza.



|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------

None



|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

None



|Item 5. | Other Information
|------- | -----------------

None



|Item 6. | Exhibits
|------- | --------

EXHIBIT INDEX



|              |  |                                                                                                                                                                                                  
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                      
|              | 
|2.1           |  | Agreement and Plan of Merger dated as of February 4, 2006, by and among the Registrant, Premier Devices, Inc., Penguin Acquisition Corporation, Phillip Chuanze Liao and Yeechin Shiong Liao.
(0)
|              | 
|3.1           |  | Restated Certificate of Incorporation of Registrant. (1)                                                                                                                                         
|              | 
|3.2           |  | Certificate of Ownership and Merger of SMDI Sub, Inc. into Stanford Microdevices, Inc. (effecting corporate name change of Registrant to Sirenza Microdevices, Inc.).
(2)                      
|              | 
|3.3           |  | Bylaws of Registrant, as amended, as currently in effect. (3)                                                                                                                                    
|              | 
|4.1           |  | Form of Registrants Common Stock certificate. (4)                                                                                                                                               
|              | 
|4.2           |  | Registration Rights Agreement by and Among the Registrant, Phillip Liao and Yeechin Liao, effective as of April 3, 2006. (5)                                                                     
|              | 
|10.1**        |  | Form of Indemnification Agreement entered into by Registrant with each of its directors and executive officers. (1)                                                                              
|              | 
|10.2          |  | Form of Promissory Note issued by the Registrant to each of Phillip Liao and Yeechin Liao on April 3, 2006. (5)                                                                                  



29



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##### Table of Contents

|        |  |                                                                                                                                                
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------
|        | 
|10.3**  |  | Executive Employment Agreement by and between the Registrant and Phillip Liao, effective as of April 3, 2006. (5)                              
|        | 
|10.4**  |  | Non-Competition Agreement by and between the Registrant and Phillip Liao, effective as of April 3, 2006. (5)                                   
|        | 
|10.5    |  | Escrow Agreement by and among the Registrant, Phillip Liao, Yeechin Liao and U.S. Bank National Association, effective as of April 3, 2006. (5)
|        | 
|10.6**  |  | Amended and Restated 1998 Stock Plan, as amended January 19, 2006. (6)                                                                         
|        | 
|10.7**  |  | Employee Stock Purchase Plan, as amended October 27, 2005. (7)                                                                                 
|        | 
|10.8**  |  | Description of First Half 2006 Cash Incentive Plan                                                                                             
|        | 
|10.9**  |  | Form of Restricted Stock Purchase Right. (8)                                                                                                   
|        | 
|10.10** |  | General Incentive Plan Terms and Conditions. (8)                                                                                               
|        | 
|11.1    |  | Statement regarding computation of per share earnings. (9)                                                                                     
|        | 
|31.1    |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a).                                                                           
|        | 
|31.2    |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a).                                                                           
|        | 
|32.1    |  | Certification of Chief Executive Officer pursuant to Section 1350.                                                                             
|        | 
|32.2    |  | Certification of Chief Financial Officer pursuant to Section 1350.                                                                             

---

|** | Management contract or compensation plan or arrangement in which directors and/or executive officers are eligible to participate.
|-- | ---------------------------------------------------------------------------------------------------------------------------------



|(0) | This exhibit is incorporated by reference to the Registrants Current Report on Form 8-K dated February 4, 2006, filed with the Securities and Exchange Commission on
February 6, 2006.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(1) | This exhibit is incorporated by reference to the Registrants Registration Statement on Form S-1 and all amendments thereto, Registration No. 333-31382, initially filed
with the Securities and Exchange Commission on March 1, 2000.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | This exhibit is incorporated by reference to the Registrants Annual Report on Form 10-K for its fiscal year ended December 31, 2001, filed with the Securities and
Exchange Commission on March 27, 2002.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | This exhibit is incorporated by reference to the Registrants Annual Report on Form 10-K for its fiscal year ended December 31, 2000, filed with the Securities and
Exchange Commission on March 29, 2001.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | This exhibit is incorporated by reference to the Registrants Registration Statement on Form S-3 and all amendments thereto, Registration No. 333-112382, initially filed
with the Securities and Exchange Commission on January 30, 2004.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | This exhibit is incorporated by reference to the Registrants Current Report on Form 8-K dated April 3, 2006, filed with the Securities and Exchange Commission on
April 6, 2006.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | This exhibit is incorporated by reference to the Registrants Current Report on Form 8-K dated January 19, 2006, filed with the Securities and Exchange Commission on
January 20, 2006.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(7) | This exhibit is incorporated by reference to the Registrants Current Report on Form 8-K dated October 27, 2005, filed with the Securities and Exchange Commission on
November 1, 2005.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(8) | This exhibit is incorporated by reference to the Registrants Current Report on Form 8-K dated January 28, 2006, filed with the Securities and Exchange Commission on
February 2, 2006.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(9) | This exhibit has been omitted because the information is shown in the Consolidated Financial Statements or Notes thereto.
|--- | -------------------------------------------------------------------------------------------------------------------------



30



---

##### Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.



|                   |  |  |  |                                                                   
|------------------ |  |  |  | ------------------------------------------------------------------
|DATE: May 10, 2006 |  |  |  | SIRENZA MICRODEVICES, INC.                                        
|                   |  | 
|                   |  |  |  | /s/ Robert Van Buskirk                                            
|                   |  |  |  | ROBERT VAN BUSKIRK President, Chief Executive Officer
and Director
|                   |  | 
|DATE: May 10, 2006 |  |  |  | /s/ Charles R. Bland                                              
|                   |  |  |  | CHARLES R. BLAND Chief Financial
Officer                          



31



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##### Table of Contents

EXHIBIT INDEX



|              |  |                                                                                                                                                                                                  
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                      
|              | 
|2.1           |  | Agreement and Plan of Merger dated as of February 4, 2006, by and among the Registrant, Premier Devices, Inc., Penguin Acquisition Corporation, Phillip Chuanze Liao and Yeechin Shiong Liao.
(0)
|              | 
|3.1           |  | Restated Certificate of Incorporation of Registrant. (1)                                                                                                                                         
|              | 
|3.2           |  | Certificate of Ownership and Merger of SMDI Sub, Inc. into Stanford Microdevices, Inc. (effecting corporate name change of Registrant to Sirenza Microdevices, Inc.).
(2)                      
|              | 
|3.3           |  | Bylaws of Registrant, as amended, as currently in effect. (3)                                                                                                                                    
|              | 
|4.1           |  | Form of Registrants Common Stock certificate. (4)                                                                                                                                               
|              | 
|4.2           |  | Registration Rights Agreement by and Among the Registrant, Phillip Liao and Yeechin Liao, effective as of April 3, 2006. (5)                                                                     
|              | 
|10.1**        |  | Form of Indemnification Agreement entered into by Registrant with each of its directors and executive officers. (1)                                                                              
|              | 
|10.2          |  | Form of Promissory Note issued by the Registrant to each of Phillip Liao and Yeechin Liao on April 3, 2006. (5)                                                                                  
|              | 
|10.3**        |  | Executive Employment Agreement by and between the Registrant and Phillip Liao, effective as of April 3, 2006. (5)                                                                                
|              | 
|10.4**        |  | Non-Competition Agreement by and between the Registrant and Phillip Liao, effective as of April 3, 2006. (5)                                                                                     
|              | 
|10.5          |  | Escrow Agreement by and among the Registrant, Phillip Liao, Yeechin Liao and U.S. Bank National Association, effective as of April 3, 2006. (5)                                                  
|              | 
|10.6**        |  | Amended and Restated 1998 Stock Plan, as amended January 19, 2006. (6)                                                                                                                           
|              | 
|10.7**        |  | Employee Stock Purchase Plan, as amended October 27, 2005. (7)                                                                                                                                   
|              | 
|10.8**        |  | Description of First Half 2006 Cash Incentive Plan                                                                                                                                               
|              | 
|10.9**        |  | Form of Restricted Stock Purchase Right. (8)                                                                                                                                                     
|              | 
|10.10**       |  | General Incentive Plan Terms and Conditions. (8)                                                                                                                                                 
|              | 
|11.1          |  | Statement regarding computation of per share earnings. (9)                                                                                                                                       
|              | 
|31.1          |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a).                                                                                                                             
|              | 
|31.2          |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a).                                                                                                                             
|              | 
|32.1          |  | Certification of Chief Executive Officer pursuant to Section 1350.                                                                                                                               
|              | 
|32.2          |  | Certification of Chief Financial Officer pursuant to Section 1350.                                                                                                                               

---

|** | Management contract or compensation plan or arrangement in which directors and/or executive officers are eligible to participate.
|-- | ---------------------------------------------------------------------------------------------------------------------------------



|(0) | This exhibit is incorporated by reference to the Registrants Current Report on Form 8-K dated February 4, 2006, filed with the Securities and Exchange Commission on
February 6, 2006.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(1) | This exhibit is incorporated by reference to the Registrants Registration Statement on Form S-1 and all amendments thereto, Registration No. 333-31382, initially filed
with the Securities and Exchange Commission on March 1, 2000.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | This exhibit is incorporated by reference to the Registrants Annual Report on Form 10-K for its fiscal year ended December 31, 2001, filed with the Securities and
Exchange Commission on March 27, 2002.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | This exhibit is incorporated by reference to the Registrants Annual Report on Form 10-K for its fiscal year ended December 31, 2000, filed with the Securities and
Exchange Commission on March 29, 2001.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | This exhibit is incorporated by reference to the Registrants Registration Statement on Form S-3 and all amendments thereto, Registration No. 333-112382, initially filed
with the Securities and Exchange Commission on January 30, 2004.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | This exhibit is incorporated by reference to the Registrants Current Report on Form 8-K dated April 3, 2006, filed with the Securities and Exchange Commission on
April 6, 2006.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | This exhibit is incorporated by reference to the Registrants Current Report on Form 8-K dated January 19, 2006, filed with the Securities and Exchange Commission on
January 20, 2006.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(7) | This exhibit is incorporated by reference to the Registrants Current Report on Form 8-K dated October 27, 2005, filed with the Securities and Exchange Commission on
November 1, 2005.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(8) | This exhibit is incorporated by reference to the Registrants Current Report on Form 8-K dated January 28, 2006, filed with the Securities and Exchange Commission on
February 2, 2006.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(9) | This exhibit has been omitted because the information is shown in the Consolidated Financial Statements or Notes thereto.
|--- | -------------------------------------------------------------------------------------------------------------------------



32