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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 June 30, 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)



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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 June 30, 2006 there were 45,176,312 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 |  | 13  
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 24  
|Item 4.                       |  | Controls and Procedures                                                               |  | 25  
|Part II. Other Information    |  |                                                                                      
|Item 1.                       |  | Legal Proceedings                                                                     |  | 25  
|Item 1A.                      |  | Risk Factors                                                                          |  | 26  
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 38  
|Item 3.                       |  | Defaults Upon Senior Securities                                                       |  | 38  
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                   |  | 38  
|Item 5.                       |  | Other Information                                                                     |  | 39  
|Item 6.                       |  | Exhibits                                                                              |  | 39  
|Signatures                    |  |                                                                                       |  | 41  



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##### Table of Contents

Part I. Financial Information



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

SIRENZA MICRODEVICES, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)



|                                                        |  |                         |         |   |                  |   |         |  
|------------------------------------------------------- |  | ----------------------- | ------- | - | ---------------- | - | ------- | -
|                                                        |  | June 30,2006(unaudited) |         |   | December 31,2005 |  
|ASSETS                                                  |  |                         |         |   |                  |   |         |  
|Current assets:                                         |  |                         |         |   |                  |   |         |  
|Cash and cash equivalents                               |  | $                       | 11,065  |   |                  | $ | 11,266  |  
|Short-term investments                                  |  |                         | 4,004   |   |                  |   | 6,979   |  
|Accounts receivable, net                                |  |                         | 21,298  |   |                  |   | 11,856  |  
|Inventories                                             |  |                         | 20,313  |   |                  |   | 8,961   |  
|Other current assets                                    |  |                         | 2,057   |   |                  |   | 1,338   |  
|                                                        |  |                         |         |   |                  |   |         |  
|Total current assets                                    |  |                         | 58,737  |   |                  |   | 40,400  |  
|Property and equipment                                  |  |                         | 13,611  |   |                  |   | 6,013   |  
|Investment in GCS                                       |  |                         | 3,065   |   |                  |   | 3,065   |  
|Other non-current assets                                |  |                         | 1,162   |   |                  |   | 1,515   |  
|Acquisition-related intangibles                         |  |                         | 40,052  |   |                  |   | 5,083   |  
|Goodwill                                                |  |                         | 43,603  |   |                  |   | 6,413   |  
|                                                        |  |                         |         |   |                  |   |         |  
|Total assets                                            |  | $                       | 160,230 |   |                  | $ | 62,489  |  
|                                                        |  |                         |         |   |                  |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                    |  |                         |         |   |                  |   |         |  
|Current liabilities:                                    |  |                         |         |   |                  |   |         |  
|Accounts payable                                        |  | $                       | 13,424  |   |                  | $ | 4,999   |  
|Accrued compensation and other expenses                 |  |                         | 6,534   |   |                  |   | 4,822   |  
|Other accrued liabilities                               |  |                         | 1,457   |   |                  |   | 586     |  
|Deferred margin on distributor inventory                |  |                         | 1,225   |   |                  |   | 950     |  
|Notes payable in connection with the acquisition of PDI |  |                         | 6,000   |   |                  |   |        |  
|Deferred tax liabilities                                |  |                         | 1,420   |   |                  |   |        |  
|Capital lease obligations                               |  |                         | 396     |   |                  |   |        |  
|                                                        |  |                         |         |   |                  |   |         |  
|Total current liabilities                               |  |                         | 30,456  |   |                  |   | 11,357  |  
|Capital lease obligations, long term portion            |  |                         | 528     |   |                  |   |        |  
|Deferred tax liabilities, non-current                   |  |                         | 10,429  |   |                  |   |        |  
|Accrued pension                                         |  |                         | 2,689   |   |                  |   |        |  
|Other liabilities, non-current                          |  |                         | 242     |   |                  |   | 391     |  
|Commitments and contingencies                           |  |                         |         |   |                  |   |         |  
|Stockholders equity:                                   |  |                         |         |   |                  |   |         |  
|Common stock                                            |  |                         | 44      |   |                  |   | 37      |  
|Additional paid-in capital                              |  |                         | 198,230 |   |                  |   | 138,660 |  
|Treasury stock, at cost                                 |  |                         | (165    | ) |                  |   | (165    | )
|Accumulated other comprehensive income (loss)           |  |                         | 1,801   |   |                  |   | (65     | )
|Accumulated deficit                                     |  |                         | (84,024 | ) |                  |   | (87,726 | )
|                                                        |  |                         |         |   |                  |   |         |  
|Total stockholders equity                              |  |                         | 115,886 |   |                  |   | 50,741  |  
|                                                        |  |                         |         |   |                  |   |         |  
|Total liabilities and stockholders equity              |  | $                       | 160,230 |   |                  | $ | 62,489  |  
|                                                        |  |                         |         |   |                  |   |         |  

See accompanying notes.



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##### Table of Contents

SIRENZA MICRODEVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per
share data)



|                                                           |  |                            |        |      |                          |        |      |  |      |        |  |   |        |  
|---------------------------------------------------------- |  | -------------------------- | ------ | ---- | ------------------------ | ------ | ---- |  | ---- | ------ |  | - | ------ | -
|                                                           |  | Three Months EndedJune 30, |        |      | Six Months EndedJune 30, |       
|                                                           |  | 2006                       |        | 2005 |                          |        | 2006 |  | 2005 |       
|Net revenues                                               |  | $                          | 39,033 |      | $                        | 15,267 |      |  | $    | 59,925 |  | $ | 27,434 |  
|Cost of revenues                                           |  |                            | 24,507 |      |                          | 8,667  |      |  |      | 35,320 |  |   | 15,508 |  
|                                                           |  |                            |        |      |                          |        |      |  |      |        |  |   |        |  
|Gross profit                                               |  |                            | 14,526 |      |                          | 6,600  |      |  |      | 24,605 |  |   | 11,926 |  
|Operating expenses:                                        |  |                            |        |      |                          |        |      |  |      |        |  |   |        |  
|Research and development                                   |  |                            | 3,233  |      |                          | 2,563  |      |  |      | 6,109  |  |   | 5,374  |  
|Sales and marketing                                        |  |                            | 3,013  |      |                          | 1,872  |      |  |      | 5,239  |  |   | 3,703  |  
|General and administrative                                 |  |                            | 4,332  |      |                          | 2,164  |      |  |      | 7,424  |  |   | 4,364  |  
|Amortization of acquisition-related intangible assets      |  |                            | 1,503  |      |                          | 465    |      |  |      | 1,952  |  |   | 930    |  
|Restructuring                                              |  |                            |       |      |                          | (33    | )    |  |      |       |  |   | (33    | )
|                                                           |  |                            |        |      |                          |        |      |  |      |        |  |   |        |  
|Total operating expenses                                   |  |                            | 12,081 |      |                          | 7,031  |      |  |      | 20,724 |  |   | 14,338 |  
|                                                           |  |                            |        |      |                          |        |      |  |      |        |  |   |        |  
|Income (loss) from operations                              |  |                            | 2,445  |      |                          | (431   | )    |  |      | 3,881  |  |   | (2,412 | )
|Interest and other income (expense), net                   |  |                            | 28     |      |                          | (122   | )    |  |      | 222    |  |   | (61    | )
|                                                           |  |                            |        |      |                          |        |      |  |      |        |  |   |        |  
|Income (loss) before income taxes                          |  |                            | 2,473  |      |                          | (553   | )    |  |      | 4,103  |  |   | (2,473 | )
|Provision for (benefit from) income taxes                  |  |                            | 353    |      |                          | (22    | )    |  |      | 400    |  |   | (99    | )
|                                                           |  |                            |        |      |                          |        |      |  |      |        |  |   |        |  
|Net income (loss)                                          |  | $                          | 2,120  |      | $                        | (531   | )    |  | $    | 3,703  |  | $ | (2,374 | )
|                                                           |  |                            |        |      |                          |        |      |  |      |        |  |   |        |  
|Basic net income (loss) per share                          |  | $                          | 0.05   |      | $                        | (0.01  | )    |  | $    | 0.09   |  | $ | (0.07  | )
|                                                           |  |                            |        |      |                          |        |      |  |      |        |  |   |        |  
|Diluted net income (loss) per share                        |  | $                          | 0.05   |      | $                        | (0.01  | )    |  | $    | 0.09   |  | $ | (0.07  | )
|                                                           |  |                            |        |      |                          |        |      |  |      |        |  |   |        |  
|Shares used to compute basic net income (loss) per share   |  |                            | 44,444 |      |                          | 35,722 |      |  |      | 40,681 |  |   | 35,593 |  
|                                                           |  |                            |        |      |                          |        |      |  |      |        |  |   |        |  
|Shares used to compute diluted net income (loss) per share |  |                            | 46,360 |      |                          | 35,722 |      |  |      | 42,620 |  |   | 35,593 |  
|                                                           |  |                            |        |      |                          |        |      |  |      |        |  |   |        |  

See accompanying notes.



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SIRENZA MICRODEVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



|                                                                                         |  |                          |         |   |      |   |        |  
|---------------------------------------------------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------ | -
|                                                                                         |  | Six Months EndedJune 30, |        
|                                                                                         |  | 2006                     |         |   | 2005 |  
|Operating Activities                                                                     |  |                          |         |   |      |   |        |  
|Net income (loss)                                                                        |  | $                        | 3,703   |   |      | $ | (2,374 | )
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                          |         |   |      |   |        |  
|Depreciation and amortization                                                            |  |                          | 4,126   |   |      |   | 3,114  |  
|Compensation expense related to employee equity awards                                   |  |                          | 2,457   |   |      |   | 65     |  
|Other                                                                                    |  |                          | 20      |   |      |   | 16     |  
|Changes in operating assets and liabilities:                                             |  |                          |         |   |      |   |        |  
|Accounts receivable                                                                      |  |                          | (3,569  | ) |      |   | 2,419  |  
|Inventories                                                                              |  |                          | 594     |   |      |   | 187    |  
|Other assets                                                                             |  |                          | 5       |   |      |   | (299   | )
|Accounts payable                                                                         |  |                          | 535     |   |      |   | 171    |  
|Accrued expenses                                                                         |  |                          | 840     |   |      |   | (1,060 | )
|Accrued pension                                                                          |  |                          | 131     |   |      |   |       |  
|Other liabilities                                                                        |  |                          |        |   |      |   | 174    |  
|Accrued restructuring                                                                    |  |                          |        |   |      |   | (426   | )
|Deferred margin on distributor inventory                                                 |  |                          | 275     |   |      |   | (232   | )
|                                                                                         |  |                          |         |   |      |   |        |  
|Net cash provided by operating activities                                                |  |                          | 9,117   |   |      |   | 1,755  |  
|Investing Activities                                                                     |  |                          |         |   |      |   |        |  
|Sales/maturities (purchases) of available-for-sale securities, net                       |  |                          | 3,015   |   |      |   | (155   | )
|Purchases of property and equipment                                                      |  |                          | (2,407  | ) |      |   | (550   | )
|Pay-out of ISG contingent consideration                                                  |  |                          | (1,150  | ) |      |   |       |  
|Purchase of PDI, net of cash acquired and acquisition costs accrued                      |  |                          | (13,300 | ) |      |   |       |  
|                                                                                         |  |                          |         |   |      |   |        |  
|Net cash used in investing activities                                                    |  |                          | (13,842 | ) |      |   | (705   | )
|Financing Activities                                                                     |  |                          |         |   |      |   |        |  
|Principal payments on capital lease obligations                                          |  |                          | (107    | ) |      |   | (37    | )
|Proceeds from exercise of stock options and employee stock plans                         |  |                          | 4,073   |   |      |   | 928    |  
|                                                                                         |  |                          |         |   |      |   |        |  
|Net cash provided by financing activities                                                |  |                          | 3,966   |   |      |   | 891    |  
|Effect of exchange rate changes on cash                                                  |  |                          | 558     |   |      |   |       |  
|Increase (decrease) in cash and cash equivalents                                         |  |                          | (201    | ) |      |   | 1,941  |  
|Cash and cash equivalents at beginning of period                                         |  |                          | 11,266  |   |      |   | 2,440  |  
|                                                                                         |  |                          |         |   |      |   |        |  
|Cash and cash equivalents at end of period                                               |  | $                        | 11,065  |   |      | $ | 4,381  |  
|                                                                                         |  |                          |         |   |      |   |        |  
|Supplemental disclosures of noncash investing and financing activities                   |  |                          |         |   |      |   |        |  
|Purchase of PDI, net of accrued amounts                                                  |  | $                        | 550     |   |      | $ |       |  
|Reclassification of property and equipment and other                                     |  | $                        | 95      |   |      | $ | 549    |  
|Issuance of common stock in connection with the acquisition of PDI                       |  | $                        | 53,000  |   |      | $ |       |  
|Issuance of note payable in connection with the acquisition of PDI                       |  | $                        | 6,000   |   |      | $ |       |  
|Purchase price adjustments                                                               |  | $                        | 1,432   |   |      | $ |       |  
|Equipment acquired under capital lease                                                   |  | $                        | 252     |   |      | $ |       |  

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 and six month periods ended June 30, 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.

The Company uses the U.S. dollar as its functional currency for its foreign wholly owned subsidiaries in Canada and the United
Kingdom and its representative offices in China and India. All monetary assets and liabilities are remeasured at the current exchange rate at the end of the period, nonmonetary assets and liabilities are remeasured at historical exchange rates and
revenues and expenses are remeasured at average exchange rates in effect during the period. Transaction gains and losses resulting from the process of remeasurement are included in net earnings.

The Company has designated the local currency as the functional currency for its foreign subsidiaries in Germany and China, which the Company acquired as part of its
acquisition of Premier Devices, Inc. (PDI). See Note 3 to the Condensed Consolidated Financial Statements for a further discussion on the PDI acquisition. These subsidiaries primarily expend cash in their local respective currencies. The assets and
liabilities of these subsidiaries are translated at current month-end exchange rates. Revenue and expenses are translated at the average monthly exchange rate. Translation adjustments are recorded in accumulated other comprehensive income (loss).

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 six months 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

In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation Number 48 (FIN 48), Accounting for Uncertainty in Income
Taxesan interpretation of FASB Statement No. 109. The interpretation contains a two step approach to recognizing and measuring uncertain tax positions accounted for in accordance with SFAS No. 109. The first step is to evaluate
the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The
second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. The provisions are effective for the Company beginning in the first quarter of 2007. The Company is evaluating
the impact this statement will have on its consolidated financial statements.

Note 2: Stock-Based Compensation

At June 30, 2006, the Companys 1998 Stock Plan (the 1998 Plan) was the only stock-based employee compensation plan impacted by the adoption of SFAS 123R 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, or stock awards. The total compensation expense related to this plan was
approximately $1.3 million and $2.5 million for the three and six months ended June 30, 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 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.



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As a result of adopting SFAS 123R, the impact to the Condensed Consolidated Financial Statements for the three and
six months ended June 30, 2006 for income before income taxes and net income was $934,000 and $1.9 million lower, respectively, than if the Company had continued to account for stock-based compensation under APB 25. The impact on basic
earnings per share for the three and six months ended June 30, 2006 was $0.02 per share and $.05 per share, respectively. The impact on diluted earnings per share for the three and six months ended June 30, 2006 was $0.02 per share and
$.04 per share, respectively. 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 and six months ended June 30, 2006 and June 30, 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 MonthsEndedJune 30, 2005 |        |   | Six MonthsEndedJune 30, 2005 |  
|Net loss - as reported                                                                                                              |  | $                              | (531   | ) |                              | $ | (2,374 | )
|Add: Stock-based employee compensation expense, included in the determination of net loss as reported, net of related tax
effects   |  |                                | 46     |   |                              |   | 65     |  
|Deduct: Stock-based employee compensation expense determined under the fair value method for all awards, net of related tax
effects |  |                                | (1,767 | ) |                              |   | (3,495 | )
|                                                                                                                                    |  |                                |        |   |                              |   |        |  
|Pro forma net loss                                                                                                                  |  | $                              | (2,252 | ) |                              | $ | (5,804 | )
|                                                                                                                                    |  |                                |        |   |                              |   |        |  
|Net loss per share:                                                                                                                 |  |                                |        |   |                              |   |        |  
|Basic and diluted - as reported                                                                                                     |  | $                              | (0.01  | ) |                              | $ | (0.07  | )
|                                                                                                                                    |  |                                |        |   |                              |   |        |  
|Basic and diluted - pro forma                                                                                                       |  | $                              | (0.06  | ) |                              | $ | (0.16  | )
|                                                                                                                                    |  |                                |        |   |                              |   |        |  

Note that the above pro forma disclosure is provided for the three and six months ended June 30, 2005 because
employee stock options were not accounted for using the fair-value method during those periods.

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 and six months ended June 30, 2005 was based on a historical-based volatility. The
expected life computation for the three and six months ended June 30, 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:



|                                     |  |                                |      |   |                              |   |      |  
|------------------------------------ |  | ------------------------------ | ---- | - | ---------------------------- | - | ---- | -
|                                     |  | Three MonthsEndedJune 30, 2005 |      |   | Six MonthsEndedJune 30, 2005 |  
|Weighted average fair value of grant |  | $                              | 2.54 |   |                              | $ | 3.40 |  
|Risk-free interest rate              |  |                                | 3.87 | % |                              |   | 3.88 | %
|Dividend yield                       |  |                                | 0    | % |                              |   | 0    | %
|Expected volatility                  |  |                                | 112  | % |                              |   | 113  | %
|Expected life (in years)             |  |                                | 5.12 |   |                              |   | 5.13 |  



5



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##### Table of Contents

A summary of stock option activity under the 1998 Plan as of June 30, 2006 and changes during the three months ended
June 30, 2006 is presented below:



|                              |  |           |   |  |                                  |      |                                                         |      |                                          |   |       
|----------------------------- |  | --------- | - |  | -------------------------------- | ---- | ------------------------------------------------------- | ---- | ---------------------------------------- | - | ------
|Stock Options                 |  | Shares    |   |  | Weighted- Average Exercise Price |      | Weighted- Average Remaining Contractual Term (in years) |      | Aggregate Intrinsic Value (in thousands)
|Outstanding at March 31, 2006 |  | 3,458,248 |   |  | $                                | 2.64 |                                                         |      |                                          |   |       
|Granted                       |  |          |   |  |                                  |      |                                                         |      |                                          |   |       
|Exercised                     |  | (457,551  | ) |  | $                                | 3.16 |                                                         |      |                                          |   |       
|Forfeited/cancelled/expired   |  | (70,949   | ) |  | $                                | 4.52 |                                                         |      |                                          |   |       
|                              |  |           |   |  |                                  |      |                                                         |      |                                          |   |       
|Outstanding at June 30, 2006  |  | 2,929,748 |   |  | $                                | 2.51 |                                                         | 6.71 |                                          | $ | 28,216
|                              |  |           |   |  |                                  |      |                                                         |      |                                          |   |       
|Exercisable at June 30, 2006  |  | 2,255,571 |   |  | $                                | 2.38 |                                                         | 6.47 |                                          | $ | 22,014
|                              |  |           |   |  |                                  |      |                                                         |      |                                          |   |       

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 second 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 June 30, 2006. This amount changes based on the fair market value of the Companys stock. The total intrinsic value of options exercised for the three months ended June 30, 2006 was $4.1 million. The
total fair value of stock options vested and expensed was approximately $927,000, net of tax, for the three months ended June 30, 2006.

As of
June 30, 2006, $2.0 million of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 0.80 years.

Cash received from stock option exercises for the three months ended June 30, 2006 was approximately $1.4 million.

Nonvested stock awards as of June 30, 2006 and changes during the three months ended June 30, 2006 were as follows:



|                            |  |         |   |  |                                         |      
|--------------------------- |  | ------- | - |  | --------------------------------------- | -----
|Stock Awards                |  | Shares  |   |  | Weighted- Average Grant Date Fair Value
|Nonvested at March 31, 2006 |  | 370,992 |   |  | $                                       | 4.55 
|Granted                     |  | 24,750  |   |  | $                                       | 12.57
|Vested                      |  |        |   |  | $                                       |     
|Forfeited/cancelled/expired |  | (1,813  | ) |  | $                                       | 6.87 
|                            |  |         |   |  |                                         |      
|Nonvested at June 30, 2006  |  | 393,929 |   |  | $                                       | 5.04 
|                            |  |         |   |  |                                         |      

As of June 30, 2006, there was $1.1 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 0.99 years.

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



|                                           |  |                                 |     |                               |   |       |  |              |       |             |   |       |  |   |     |  |   |      
|------------------------------------------ |  | ------------------------------- | --- | ----------------------------- | - | ----- |  | ------------ | ----- | ----------- | - | ----- |  | - | --- |  | - | -----
|                                           |  | Three Months EndedJune 30, 2006 |     | Six Months EndedJune 30, 2006
|                                           |  | (in thousands)                  |     | (in thousands)               
|                                           |  | StockOptions                    |     | StockAwards                   |   | Total |  | StockOptions |       | StockAwards |   | Total
|Cost of sales                              |  | $                               | 132 |                               | $ | 53    |  | $            | 185   |             | $ | 192   |  | $ | 80  |  | $ | 272  
|Research and development                   |  |                                 | 175 |                               |   | 91    |  |              | 266   |             |   | 363   |  |   | 155 |  |   | 518  
|Sales and marketing                        |  |                                 | 203 |                               |   | 51    |  |              | 254   |             |   | 407   |  |   | 86  |  |   | 493  
|General and administrative                 |  |                                 | 424 |                               |   | 139   |  |              | 563   |             |   | 948   |  |   | 230 |  |   | 1,178
|                                           |  |                                 |     |                               |   |       |  |              |       |             |   |       |  |   |     |  |   |      
|Total stock-based compensation expense (1) |  | $                               | 934 |                               | $ | 334   |  | $            | 1,268 |             | $ | 1,910 |  | $ | 551 |  | $ | 2,461
|                                           |  |                                 |     |                               |   |       |  |              |       |             |   |       |  |   |     |  |   |      



|(1) | Stock-based compensation costs capitalized into inventory of approximately $46,000 are not included in the table above.
|--- | -----------------------------------------------------------------------------------------------------------------------

Note 3: PDI Acquisition

On April 3, 2006 (the closing
date), Sirenza acquired Premier Devices, Inc. (PDI) in exchange for 7.0 million shares of Sirenza common stock, valued at approximately $53.0 million, $14.0 million in cash and $6.0 million in promissory notes bearing 5%
simple interest per annum paid monthly and maturing one year from the date of issuance, and approximately $2.1 million in estimated direct transaction costs for a preliminary purchase price of $75.1 million. The fair value of the Companys
common stock issued in connection with the PDI acquisition was derived using an average market price per share of Sirenza common stock of $7.58, based on the average of the closing prices for a range of trading days commencing February 2, 2006
and ending February 8, 2006 around the announcement date (February 6, 2006) of the acquisition. PDI is a designer, manufacturer and marketer of RF components headquartered in San Jose, California with manufacturing operations in Shanghai, China
and Nuremberg, Germany. This acquisition expanded both the depth and breadth of Sirenzas 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 brought Sirenza design and manufacturing capabilities in Asia and Europe, including PDIs passive component manufacturing and engineered technical
solutions expertise in sourcing, integration, and board-level and subsystem assembly. Sirenza believes that these new product offerings and capabilities advance its strategic objective of diversifying and expanding its end markets and applications.
The Companys results of operations include the effect of the PDI acquisition from the date of acquisition (April 3, 2006) and are being reported as a separate business segment.



6



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##### Table of Contents

Sirenza, Phillip Chuanze Liao and Yeechin Shiong Liao (the Liaos) (the sole shareholders of PDI) and U.S.
Bank National Association (the Escrow Agent) entered into an Escrow Agreement dated as of February 4, 2006 (the Escrow Agreement) which became effective at closing. Pursuant to the Escrow Agreement, upon the closing of
the merger, 3.5 million of the 7.0 million shares of Sirenza common stock to be issued to the Liaos as consideration in the merger were placed in a 2-year escrow as security for their indemnification obligations pursuant to the merger
agreement. The Liaos retain voting rights with respect to their stock held in escrow. The Liaos may release the shares from escrow earlier by depositing in the escrow in lieu of the shares $7.215 million in cash less the amount of any indemnity
payments made from the escrow through that date. The Liaos may also arrange for sales of the escrowed shares with the proceeds of such sales being deposited in the escrow until the amount specified in the immediately preceding sentence has been
deposited, at which time any remaining shares will be released. Any indemnification claims made by Sirenza against the escrow may be paid in cash or in escrowed shares, with such shares being valued at the closing price of Sirenzas common
stock as reported on the Nasdaq National Market on the date such claim is finally resolved.

The aggregate purchase price is estimated to be $75.1 million
as follows (in thousands):



|                                                                    |  |   |       
|------------------------------------------------------------------- |  | - | ------
|Cash consideration including promissory notes                       |  | $ | 20,000
|Sirenza common stock issued to PDI, net of estimated issuance costs |  |   | 53,000
|Acquisition related costs                                           |  |   | 2,100 
|                                                                    |  |   |       
|Aggregate purchase price                                            |  | $ | 75,100
|                                                                    |  |   |       

The acquisition has been accounted for utilizing the purchase method of accounting in accordance with Statement of
Financial Accounting Standards No. 141, Business Combinations. Under the purchase method of accounting, the purchase price is allocated to the assets acquired and liabilities assumed based on their estimated fair values. The
allocation of the purchase price has been prepared based on preliminary estimates of fair values.

Due to a series of transactions that occurred prior to
the date that Sirenza acquired the stock of PDI, PDI may have realized certain contingent income tax liabilities that were not recorded in its financial statements. Sirenza is in the process of evaluating the likelihood that these liabilities would
be assessed as well as the amount of such liabilities. Sirenzas preliminary estimate of any contingent tax liabilities is between zero and $17.0 million. Any adjustments to record a liability or cash payout related to the aforementioned tax
contingencies will be recorded as additional goodwill and are not expected to affect Sirenzas reported operating results. Sirenza cannot assure you that the portion of the PDI purchase price held in escrow to secure indemnification obligations
of the former PDI shareholders will be sufficient to offset any amounts that Sirenza may be obligated to pay related to such tax contingencies, or that such indemnification obligations will not expire prior to the time that Sirenza becomes obligated
to pay such amounts, if any.

Sirenza does not anticipate direct transaction costs to be materially different than the current estimate of $2.1 million.

The preliminary allocation of the purchase price is summarized below (in thousands):



|                                                  |  |   |         |  
|------------------------------------------------- |  | - | ------- | -
|Cash                                              |  | $ | 2,089   |  
|Accounts Receivable                               |  |   | 5,873   |  
|Inventory                                         |  |   | 11,900  |  
|Prepaid and other current assets                  |  |   | 764     |  
|Deferred tax assets, current                      |  |   | 24      |  
|Property, plant and equipment                     |  |   | 7,015   |  
|Other non-current assets                          |  |   | 50      |  
|Deferred tax assets, non-current                  |  |   | 122     |  
|Amortizable intangible assets:                    |  |   |         |  
|Developed product technology                      |  |   | 10,800  |  
|Customer relationships                            |  |   | 25,500  |  
|Goodwill                                          |  |   | 34,985  |  
|Accounts payable                                  |  |   | (4,772  | )
|Income taxes payable                              |  |   | (2,150  | )
|Accrued liabilities and other                     |  |   | (1,884  | )
|Deferred tax liabilities, current and non-current |  |   | (11,564 | )
|Notes payable                                     |  |   | (343    | )
|Capital lease obligations, current                |  |   | (271    | )
|Accrued pension                                   |  |   | (2,530  | )
|Capital lease obligations, non-current            |  |   | (508    | )
|                                                  |  |   |         |  
|                                                  |  | $ | 75,100  |  
|                                                  |  |   |         |  

Developed product technology consists of CATV, passive RF components and engineered technical solution products
and capabilities for use in the communications market that are technologically feasible. The developed product technology expanded the depth and breadth of Sirenzas products and increased Sirenzas design and manufacturing capabilities in
Asia and Europe. Sirenza is amortizing the fair value of developed product technology on a straight-line basis over a period of 6.75 years, or 81 months, which management believes to reasonably reflect the pattern over which the economic benefits
are being derived.

Customer relationships represent PDIs relationships with its CATV, passive RF component and engineered technical solution
customers. Sirenza is amortizing the fair value of customer relationships on a straight-line basis over a period of 9.75 years, or 117 months, which management believes to reasonably reflect the pattern over which the economic benefits are being
derived.

Of the total estimated purchase price, approximately $35.0 million has preliminarily been allocated to goodwill. Goodwill represents the excess
of the purchase price of an acquired business over the fair value of the underlying net tangible and intangible assets. The goodwill resulting from this acquisition is not deductible for tax purposes.

In accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, goodwill will not be amortized but instead
will be tested for impairment at least annually (more frequently if certain indicators are present). In the event that Sirenza management determines that the goodwill has become impaired, Sirenza will incur an accounting charge for the amount of
impairment during the period in which the determination is made.

Pro forma results

The following unaudited pro forma financial information presents the combined results of operations of Sirenza and PDI as if the acquisition had occurred on January 1, 2005. The reported results for the three and
six-month periods ended June 30, 2006 include the results of PDI from April 3, 2006 (the acquisition date). Adjustments of $1.1 million, $1.1 million, $1.1 million and $2.1 million have been made to the combined results of operations for
the three and six-month periods ended June 30, 2006 and 2005, respectively, reflecting amortization of acquisition-related intangible assets, as if the acquisition had occurred on January 1, 2005. The unaudited pro forma financial
information is not intended to represent or be indicative of the consolidated results of operations or financial condition of the Company that would have been reported had



7



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##### Table of Contents

the acquisition been completed as of the dates presented, and should not be taken as representative of the future consolidated results of operations or
financial condition of the Company.



|                                                                                                |  |                                       |        |      |                          |        |      |  |      |        |  |   |        |  
|----------------------------------------------------------------------------------------------- |  | ------------------------------------- | ------ | ---- | ------------------------ | ------ | ---- |  | ---- | ------ |  | - | ------ | -
|                                                                                                |  | Three MonthsEnded June 30,            |        |      | Six MonthsEnded June 30, |       
|                                                                                                |  | 2006                                  |        | 2005 |                          |        | 2006 |  | 2005 |       
|                                                                                                |  | (in thousands, except per share data) |       
|Net revenues                                                                                    |  | $                                     | 39,033 |      | $                        | 27,348 |      |  | $    | 68,600 |  | $ | 49,514 |  
|Income (loss) before extraordinary item and cumulative effect of change in accounting principle |  |                                       | 2,120  |      |                          | (2,291 | )    |  |      | 1,337  |  |   | (3,984 | )
|Net income (loss)                                                                               |  |                                       | 2,120  |      |                          | (2,291 | )    |  |      | 1,337  |  |   | (3,984 | )
|Basic net income (loss) per share:                                                              |  |                                       |        |      |                          |        |      |  |      |        |  |   |        |  
|Income (loss) before extraordinary item and cumulative effect of change in accounting principle |  | $                                     | 0.05   |      | $                        | (0.05  | )    |  | $    | 0.03   |  | $ | (0.09  | )
|Net income (loss)                                                                               |  | $                                     | 0.05   |      | $                        | (0.05  | )    |  | $    | 0.03   |  | $ | (0.09  | )
|Diluted net income (loss) per share:                                                            |  |                                       |        |      |                          |        |      |  |      |        |  |   |        |  
|Income (loss) before extraordinary item and cumulative effect of change in accounting principle |  | $                                     | 0.05   |      | $                        | (0.05  | )    |  | $    | 0.03   |  | $ | (0.09  | )
|Net income (loss)                                                                               |  | $                                     | 0.05   |      | $                        | (0.05  | )    |  | $    | 0.03   |  | $ | (0.09  | )

The unaudited pro forma financial information above includes the following material, unusual, infrequent or
non-recurring charges related to Sirenza: the write-off of costs associated with abandoned merger and acquisition activities of $275,000 in the three and six-month periods ended June 30, 2005, costs associated with a litigation settlement of
$201,000 in the three and six-month periods ended June 30, 2005, the write-off of deferred equity financing costs of $215,000 in the six-month period ended June 30, 2005 and severance costs of $216,000 in the six-month period ended
June 30, 2006.

Note 4: Amortizable acquisition-related intangible assets

Amortization of acquisition-related intangible assets totaled $1.5 million and $465,000 for the three-month periods ended June 30, 2006 and 2005, respectively, and $2.0 million and $930,000 for the six-month
periods ended June 30, 2006 and 2005, respectively. The amortization of acquisition-related intangible assets in the three and six month periods ended June 30, 2006 included amortization associated with the Companys prior
acquisitions, including PDI. The amortization of acquisition-related intangible assets in the three and six month periods ended June 30, 2005 included amortization associated with the Companys prior acquisitions. 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 Companys prior acquisitions,
other than ISG, 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):



|                                                   |  |                       |        |                          |   |                                      |  |     |     |                       |   |                          |  |     |       |  |   |       |  |   |      
|-------------------------------------------------- |  | --------------------- | ------ | ------------------------ | - | ------------------------------------ |  | --- | --- | --------------------- | - | ------------------------ |  | --- | ----- |  | - | ----- |  | - | -----
|                                                   |  | June 30, 2006         |        | December 31, 2005       
|                                                   |  | Gross Carrying Amount |        | Accumulated Amortization |   | Effect ofForeign CurrencyRate
Change |  | Net |     | Gross Carrying Amount |   | Accumulated Amortization |  | Net
|Amortizable acquisition-related intangible assets: |  |                       |        |                          |   |                                      |  |     |     |                       |   |                          |  |     |       |  |   |       |  |   |      
|Customer Relationships                             |  | $                     | 26,470 |                          | $ | 1,595                                |  | $   | 451 |                       | $ | 25,326                   |  | $   | 970   |  | $ | 921   |  | $ | 49   
|Developed Product Technology                       |  |                       | 17,610 |                          |   | 3,883                                |  |     | 170 |                       |   | 13,897                   |  |     | 6,810 |  |   | 2,793 |  |   | 4,017
|Core Technology Leveraged                          |  |                       | 860    |                          |   | 156                                  |  |     |    |                       |   | 704                      |  |     | 860   |  |   | 18    |  |   | 842  
|Patented Core Technology                           |  |                       | 700    |                          |   | 575                                  |  |     |    |                       |   | 125                      |  |     | 700   |  |   | 525   |  |   | 175  
|                                                   |  |                       |        |                          |   |                                      |  |     |     |                       |   |                          |  |     |       |  |   |       |  |   |      
|Total                                              |  | $                     | 45,640 |                          | $ | 6,209                                |  | $   | 621 |                       | $ | 40,052                   |  | $   | 9,340 |  | $ | 4,257 |  | $ | 5,083
|                                                   |  |                       |        |                          |   |                                      |  |     |     |                       |   |                          |  |     |       |  |   |       |  |   |      

The weighted average amortization period of the Companys acquisition-related intangible assets is as follows
(in months):



|                             |  |    
|---------------------------- |  | ---
|Developed Product Technology |  | 75 
|Customer Relationships       |  | 114
|Core Technology Leveraged    |  | 60 
|Patented Core Technology     |  | 53 

As of June 30, 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 6 months) |  | $ | 3,008 
|2007                      |  |   | 5,824 
|2008                      |  |   | 5,442 
|2009                      |  |   | 4,533 
|2010                      |  |   | 4,347 
|Thereafter                |  |   | 16,277
|                          |  |   |       
|                          |  | $ | 39,431

Amortization expense included in the table above is subject to change due to foreign currency fluctuations as a
significant portion of the Companys acquisition-related intangible assets are related to foreign subsidiaries.



8



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##### Table of Contents

Note 5: Goodwill

The changes in the carrying amount of goodwill during six months ended June 30, 2006 are as follows (in thousands):



|                                       |  |              |       |             |   |        |       |  |   |       
|-------------------------------------- |  | ------------ | ----- | ----------- | - | ------ | ----- |  | - | ------
|                                       |  | SMDI Segment |       | PDI Segment |   |        | Total
|Balance as of December 31, 2005        |  | $            | 6,413 |             | $ |       |       |  | $ | 6,413 
|Goodwill acquired during the period    |  |              |      |             |   | 34,985 |       |  |   | 34,985
|Goodwill adjustments                   |  |              | 1,457 |             |   | (25    | )     |  |   | 1,432 
|Effect of foreign currency rate change |  |              |      |             |   | 773    |       |  |   | 773   
|                                       |  |              |       |             |   |        |       |  |   |       
|Balance as of June 30, 2006            |  | $            | 7,870 |             | $ | 35,733 |       |  | $ | 43,603
|                                       |  |              |       |             |   |        |       |  |   |       

The SMDI segment goodwill adjustment above relates to the accrual of $1.5 million for the 2006 ISG earn-out in the
second quarter of 2006.

Note 6: 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 $79,000 in the first and second quarters of 2006, respectively, and $259,000 for the year ended
December 31, 2005. 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 June 30, 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):



|                |  |               |        |                   |   |      
|--------------- |  | ------------- | ------ | ----------------- | - | -----
|                |  | June 30, 2006 |        | December 31, 2005
|Raw materials   |  | $             | 10,393 |                   | $ | 3,740
|Work-in-process |  |               | 2,638  |                   |   | 1,422
|Finished goods  |  |               | 7,282  |                   |   | 3,799
|                |  |               |        |                   |   |      
|                |  | $             | 20,313 |                   | $ | 8,961
|                |  |               |        |                   |   |      

Note 7: 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 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 |  | Six Months Ended
|                                                              |  | June 30, 2006      |  | June 30, 2005    |  | June 30, 2006 |  | June 30, 2005
|Weighted average common shares outstanding                    |  | 44,444             |  | 35,722           |  | 40,681        |  | 35,593       
|Dilutive effect of employee stock options and awards          |  | 1,916              |  |                 |  | 1,939         |  |             
|                                                              |  |                    |  |                  |  |               |  |              
|Weighted average common shares outstanding, assuming dilution |  | 46,360             |  | 35,722           |  | 42,620        |  | 35,593       
|                                                              |  |                    |  |                  |  |               |  |              



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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 5,000 shares of common stock have not been included in
the computation of diluted net loss per share for the quarter ended June 30, 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 4,993,877 shares of common stock at an average exercise price of $2.69 for the three and
six months ended June 30, 2005 have not been included in the computation of diluted net loss per share as the effect would have been antidilutive. In addition, the effect of 210,000 shares of non-vested common stock issued or issuable at a
purchase price of $0.001 pursuant to restricted stock purchase rights have not been included in the computation of diluted net loss per share as the effect would have been antidilutive.

Note 9: Retirement Benefit Plan

As a result of the acquisition of PDI, the Company now maintains a qualified defined
benefit pension plan for its German subsidiary. The plan is unfunded with an unfunded obligation of approximately $2.6 million.

The components of the net
periodic benefit cost for the defined benefit pension plan were as follows (in thousands):



|                               |  |                                        |   
|------------------------------ |  | -------------------------------------- | --
|                               |  | Three and SixMonths EndedJune 30, 2006
|Service cost                   |  | $                                      | 30
|Interest cost                  |  |                                        | 30
|Expected return on plan assets |  |                                        |  
|Recognized actuarial loss      |  |                                        |  
|                               |  |                                        |   
|Net periodic benefit cost      |  | $                                      | 60
|                               |  |                                        |   

The actuarial assumptions used to calculate the net periodic benefits cost for the defined benefit pension plan
were as follows:



|                              |  |      |  
|----------------------------- |  | ---- | -
|                              |  | 2006 |  
|Discount rate                 |  | 4.8  | %
|Rate of compensation increase |  | 2.5  | %

Note 10: Derivatives

As a result of the acquisition of PDI, the Company now conducts a significant portion of its business in currencies other than the U.S. dollar, the currency in which the condensed consolidated financial statements are reported.
Correspondingly, the Companys operating results could be adversely affected by foreign currency exchange rate volatility relative to the U.S. dollar. The Companys subsidiaries in Germany and China use the local currency as their
functional currency as the majority of their purchases are transacted in the local currency. However, revenue for these foreign subsidiaries is invoiced and collected in both the local currency and in U.S. dollars, typically depending on the
preference of the customer. To hedge against the risk of Euro to U.S. dollar exchange rate fluctuations, the Companys German subsidiary has contracted with a financial institution to sell U.S. dollars and buy Euros at fixed exchange rates at
specific dates in the future. While the Company continues to evaluate strategies to mitigate risks related to the impact of fluctuations in currency exchange rates, it cannot ensure that it will not recognize gains or losses from international
transactions. Not every exposure is or can be hedged, and, where hedges are put in place based on expected foreign exchange exposure, they are based on forecasts which may vary or which may later prove to be inaccurate. Failure to successfully hedge
or anticipate currency risks properly could adversely affect the Companys operating results.

As of June 30, 2006, the notional amount of these
short-term foreign currency forward contracts totaled $6.0 million. The fair market value of these forward contracts was $244,000 as of June 30, 2006 and is currently classified as Other current assets. The Company elected not to
classify the hedge for hedge accounting treatment and as a result all gains and losses are recognized in earnings. Foreign currency forward contract gains, net of foreign currency transaction losses, approximated $153,000 during the three months
ended June 30, 2006.

Note 11: Comprehensive Income (Loss)

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



|                                                                          |  |                    |       |              |                  |      |              |  |              |       |  |   |        |  
|------------------------------------------------------------------------- |  | ------------------ | ----- | ------------ | ---------------- | ---- | ------------ |  | ------------ | ----- |  | - | ------ | -
|                                                                          |  | Three Months Ended |       |              | Six Months Ended |     
|                                                                          |  | June 30,2006       |       | June 30,2005 |                  |      | June 30,2006 |  | June 30,2005 |      
|Net income (loss)                                                         |  | $                  | 2,120 |              | $                | (531 | )            |  | $            | 3,703 |  | $ | (2,374 | )
|Change in net unrealized gains (losses) on available-for-sale investments |  |                    | 22    |              |                  | 29   |              |  |              | 40    |  |   | (25    | )
|Change in cumulative translation adjustment                               |  |                    | 1,826 |              |                  |     |              |  |              | 1,826 |  |   |       |  
|                                                                          |  |                    |       |              |                  |      |              |  |              |       |  |   |        |  
|Total comprehensive income (loss)                                         |  | $                  | 3,968 |              | $                | (502 | )            |  | $            | 5,569 |  | $ | (2,399 | )
|                                                                          |  |                    |       |              |                  |      |              |  |              |       |  |   |        |  



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



|                                                                   |  |              |       |   |                  |   |     |  
|------------------------------------------------------------------ |  | ------------ | ----- | - | ---------------- | - | --- | -
|                                                                   |  | June 30,2006 |       |   | December 31,2005 |  
|Accumulated net unrealized loss on available-for-sales investments |  | $            | (25   | ) |                  | $ | (65 | )
|Cumulative translation adjustment                                  |  |              | 1,826 |   |                  |   |    |  
|                                                                   |  |              |       |   |                  |   |     |  
|Total accumulated other comprehensive income (loss)                |  | $            | 1,801 |   |                  | $ | (65 | )
|                                                                   |  |              |       |   |                  |   |     |  

Note 12: Segments of an Enterprise and Related Information

In 2005, the Company operated in three product-oriented business segments, our Amplifier division, which consisted of our amplifier, power amplifier, power module,
transceiver, discrete and active antenna product lines, our Signal Source division, which consisted of our voltage controlled oscillator, or VCO, phase-locked loop, or PLL, and other MCM products, and our A&D division, which used resources and
technologies from our Amplifier and Signal Source divisions for specific applications in the A&D and homeland security end markets. In the first quarter of 2006, in conjunction with the revision of our organizational structure from a
product-oriented focus to an end-market focus, we moved from a three-segment reporting structure to a structure consisting of one RF component sales segment. 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.

As a result of the acquisition of PDI in April 2006, we
currently operate in two business segments: the PDI segment, consisting of the business and product lines we acquired from PDI, and the SMDI segment, consisting of Sirenzas pre-existing RF component sales business.

SMDI Segment:

The SMDI segment consists of the Companys RF
component sales business predating the acquisition of PDI in April 2006. The products of the SMDI segment currently serve five principal end markets noted below:



| |  |  | Mobile Wirelessthis market includes global mobile wireless infrastructure applications, with particular focus on leading standards, including GSM, WCDMA, CDMA,
and TD-SCDMA infrastructure opportunities.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Broadband and Consumer Applicationsthis market includes digital satellite radio applications, digital TV, or DTV, CATV set-top boxes, as well as CATV
infrastructure applications.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Standard and Catalog Productsthis market includes established and emerging mid-level to smaller customers in a variety of end markets, such as point-to-point,
network repeaters, and RFID, to which the Company largely markets catalog products through its global sales distribution and sales representative networks.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Wireless Access Applicationsthis market includes the WiMAX, WiFi and emerging Ultra Wideband and Zigbee markets for infrastructure and CPE terminal applications.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Aerospace and Defense Applicationsthis market includes aerospace, military/defense and homeland security applications.
| | - |  | -----------------------------------------------------------------------------------------------------------------------

Within the SMDI segments marketing function the Company has established five market-facing strategic business units, or SBUs, which allow the segment to further
concentrate and prioritize its efforts in strategic planning, product development, and marketing of the segments products to better support its worldwide customers. Although the Companys chief operating decision maker reviews
disaggregated revenue information by SBU with the SMDI segment, the SBUs do not have separate profit and loss statements reviewed by the Companys chief operating decision maker, and accordingly are aggregated and reported within the single
SMDI segment.

PDI Segment:

The PDI segment consists
of the business acquired on April 3, 2006 from Premier Devices, Inc. The PDI segment designs and manufactures RF components and consists of CATV amplifier, module and optical receiver products, a line of passive RF components such as mixers,
splitters, transformers, couplers, isolators, circulators and amplifiers, as well as passive component manufacturing and engineered technical solutions expertise in sourcing, integration, and board-level and subsystem assembly. The majority of the
PDI segments manufacturing operations is conducted in Shanghai, China and Nuremberg, Germany.

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 within the SMDI segment. Revenue is defined as revenues from external customers.



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Segment information is summarized as follows (in thousands):



|                                         |  |      |        |   |     |   |        |              |  |   |        |  
|---------------------------------------- |  | ---- | ------ | - | --- | - | ------ | ------------ |  | - | ------ | -
|                                         |  | SMDI |        |   | PDI |   |        | TotalCompany | 
|For the three months ended June 30, 2006 |  |      |        |   |     |   |        |              |  |   |        |  
|Net revenues from external customers     |  | $    | 25,018 |   |     | $ | 14,015 |              |  | $ | 39,033 |  
|Operating income (loss)                  |  | $    | 3,298  |   |     | $ | (853   | )            |  | $ | 2,445  |  
|For the six months ended June 30, 2006   |  |      |        |   |     |   |        |              |  |   |        |  
|Net revenues from external customers     |  | $    | 45,910 |   |     | $ | 14,015 |              |  | $ | 59,925 |  
|Operating income (loss)                  |  | $    | 4,734  |   |     | $ | (853   | )            |  | $ | 3,881  |  
|For the three months ended June 30, 2005 |  |      |        |   |     |   |        |              |  |   |        |  
|Net revenues from external customers     |  | $    | 15,267 |   |     | $ |       |              |  | $ | 15,267 |  
|Operating income (loss)                  |  | $    | (431   | ) |     | $ |       |              |  | $ | (431   | )
|For the six months ended June 30, 2005   |  |      |        |   |     |   |        |              |  |   |        |  
|Net revenues from external customers     |  | $    | 27,434 |   |     | $ |       |              |  | $ | 27,434 |  
|Operating income (loss)                  |  | $    | (2,412 | ) |     | $ |       |              |  | $ | (2,412 | )

The disaggregated revenue information reviewed by the CODM within the SMDI segment is as follows (in thousands):



|                                         |  |                            |        |                          |   |        |  |      |        |  |   |       
|---------------------------------------- |  | -------------------------- | ------ | ------------------------ | - | ------ |  | ---- | ------ |  | - | ------
|                                         |  | Three Months EndedJune 30, |        | Six Months EndedJune 30,
|                                         |  | 2006                       |        | 2005                     |   | 2006   |  | 2005
|Aerospace, Defense and Homeland Security |  | $                          | 1,814  |                          | $ | 744    |  | $    | 3,312  |  | $ | 1,471 
|Broadband and Consumer                   |  |                            | 5,650  |                          |   | 3,615  |  |      | 10,842 |  |   | 4,199 
|Mobile Wireless                          |  |                            | 9,336  |                          |   | 5,639  |  |      | 16,522 |  |   | 11,135
|Standard Products                        |  |                            | 4,914  |                          |   | 5,003  |  |      | 9,408  |  |   | 10,160
|Wireless Access                          |  |                            | 3,304  |                          |   | 266    |  |      | 5,826  |  |   | 469   
|                                         |  |                            |        |                          |   |        |  |      |        |  |   |       
|Total SMDI segment net revenues          |  | $                          | 25,018 |                          | $ | 15,267 |  | $    | 45,910 |  | $ | 27,434
|                                         |  |                            |        |                          |   |        |  |      |        |  |   |       

The segment information above has been restated to reflect the change in the number of the Companys segments
from three in 2005 to two in the second quarter of 2006.

Note 13: 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. 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



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expected date at which such ruling will be handed down. The settlement remains subject to a number of conditions, including final court approval. 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. In December 2005, we moved for summary judgment dismissing Mini-Circuits
claims, and Mini-Circuits cross-moved for summary judgment dismissing Sirenzas counterclaims. After the summary judgment motions were filed, Mini-Circuits voluntarily withdrew its claim for breach of the implied warranty of fitness for a
particular purpose, and we voluntarily withdrew our counterclaim for tortious interference. A preliminary ruling by a Magistrate Judge assigned to the case determined that factual issues requiring a trial preclude dismissal of Mini-Circuits
claims on our summary judgment motion, and recommended dismissal of our remaining counterclaims. The Courts review of the Magistrates recommendation is pending. Even though we believe Mini-Circuits claims to be without merit and we
intend to defend the case and to assert our remaining counterclaims vigorously to the extent we are allowed to do so by the Court, 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 June 30, 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, we acquired ISG Broadband, Inc., or ISG,
for an aggregate purchase price of $7.7 million, consisting of $6.9 million in cash and $789,000 in direct transaction costs incurred. Additional cash consideration of up to $7.15 million was also provided for subject to 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 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 had 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.

As of June 30, 2006, the Company determined it to be probable that at least $1.5 million related to the year ended December 31, 2006
would be paid. Accordingly, the Company has accrued for the expected payment of this portion of the potential earn-out on its consolidated balance sheet in Other accrued liabilities and correspondingly increased goodwill by $1.5 million.
The $1.5 million earn-out related to the year ended December 31, 2006 is expected to be paid in the second quarter of 2007.

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



|                              |  |                        |       |                   |   |      
|----------------------------- |  | ---------------------- | ----- | ----------------- | - | -----
|                              |  | Possible Payment Range
|Earn-out Period               |  | Low End of Range       |       | High End of Range
|Year ending December 31, 2006 |  | $                      | 1,457 |                   | $ | 3,000
|Year ending December 31, 2007 |  |                        |      |                   |   | 3,000
|                              |  |                        |       |                   |   |      
|                              |  | $                      | 1,457 |                   | $ | 6,000
|                              |  |                        |       |                   |   |      



|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, or MD&A, 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 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 us to make the most significant judgments in the preparation of
our consolidated financial statements. In the next section we discuss the results of our operations for the three and six month periods ended June 30, 2006 compared to the three and six month periods ended June 30, 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

Sirenza Microdevices is a supplier
of radio frequency, or RF, components for the commercial communications, consumer and aerospace, defense and homeland security equipment markets. Our products are designed to optimize the reception and transmission of voice, video and data signals
in mobile wireless communications networks and in other wireless and wire-line applications.

Commercial communications applications for our RF components
include mobile wireless infrastructure networks, wireless local area networks, or WiFi, fixed wireless networks, broadband wireline applications such as coaxial cable and fiber optic networks, cable television, or CATV, set-top boxes and radio
frequency identification, or RFID, readers. We also supply components to



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consumer-oriented end markets including antennae and receivers for satellite radio, as well as tuner-related integrated circuits, or ICs, for high-definition
television, or HDTV. Our aerospace, defense and homeland security, or A&D, products include RF components for government, military, avionics, space and homeland security systems.

We believe that our customers value 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 specified liabilities of Vari-L Company, Inc., or Vari-L, for an aggregate purchase price of $16.2 million, consisting of approximately 3.3 million shares of the Companys
common stock, valued at approximately $4.7 million, approximately $9.1 million in cash and $2.4 million in estimated direct transaction costs. Vari-L designed and manufactured voltage controlled oscillators (VCOs), phase-locked loop (PLLs), and
other multi-component modules (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 and
established our presence in the A&D market. 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, Inc., or ISG, for an aggregate purchase price of $7.7 million, consisting of $6.9 million in cash
and $789,000 in direct transaction costs. Additional cash consideration of up to $7.15 million was also provided for subject to the achievement of margin contribution objectives attributable to sales of selected products for periods through
December 31, 2007. The first installment of 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. ISG
designed 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 and
second quarters of 2006.

On April 3, 2006, we acquired Premier Devices, Inc., or 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 designed, manufactured and marketed complementary RF components featuring technologies common to existing and planned Sirenza
products. PDI is headquartered in San Jose, California with manufacturing operations in both Shanghai, China and Nuremberg, Germany. This acquisition expanded 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 design and manufacturing capabilities in Asia and Europe,
including PDIs passive component manufacturing and engineered 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. Our results of operations include the effect of the PDI acquisition from the date of acquisition (April 3, 2006) and are being reported as a separate business segment.

In 2005, we operated in three product-oriented business segments, our Amplifier division, which consisted of our amplifier, power amplifier, power module,
transceiver, discrete and active antenna product lines, our Signal Source division, which consisted of our voltage controlled oscillator, or VCO, phase-locked loop, or PLL, and other MCM products, and our A&D division, which used resources and
technologies from our Amplifier and Signal Source divisions for specific applications in the A&D and homeland security end markets. In the first quarter of 2006, in conjunction with the revision of our organizational structure from a
product-oriented focus to an end-market focus, we moved from a three-segment reporting structure to a structure consisting of one RF component sales segment. As a result of the acquisition of PDI in April 2006, we currently operate in two business
segments: the PDI segment, consisting of the business and product lines we acquired from PDI, and the SMDI segment, consisting of Sirenzas pre-existing RF component sales business.

The revision of our organizational structure was intended to enhance our market focus and better use our personnel and resources to grow our target markets. To advance these goals we centralized our engineering and
research and development functions, and within our marketing function established five market-facing strategic business units, or SBUs, which allowed us to further concentrate and prioritize our efforts in strategic planning, product development,
and marketing to better support our worldwide customers. The SBUs do not have separate profit and loss statements reviewed by our chief operating decision maker, and accordingly are aggregated and reported within the single SMDI segment.

Below is a brief description of the markets targeted by the marketing SBUs within our SMDI segment:



| |  |  | Mobile Wirelessthis market includes global mobile wireless infrastructure applications, with particular focus on leading standards, including GSM, WCDMA, CDMA,
and TD-SCDMA infrastructure opportunities.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Broadband and Consumer Applicationsthis market includes digital satellite radio applications, digital TV, or DTV, CATV set-top boxes, as well as CATV
infrastructure applications.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Standard and Catalog Productsthis market includes established and emerging mid-level to smaller customers in a variety of end markets, such as point-to-point,
network repeaters, and RFID, to which we largely market catalog products through our global sales distribution and sales representative networks.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Wireless Access Applicationsthis market includes the WiMAX, WiFi and emerging Ultra Wideband and Zigbee markets for infrastructure and CPE terminal applications.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Aerospace and Defense Applicationsthis market includes aerospace, military/defense and homeland security applications.
| | - |  | -----------------------------------------------------------------------------------------------------------------------

Revenue Overview

Revenue Recognition.

We present our revenue results as net revenues. Net revenues are defined as our revenues less sales discounts, rebates and returns. Historically, these
revenue-related adjustments have not 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 at the time our products are sold by the distributors to
third-party customers. Our distribution channel, which accounted for 5% of total net revenues for the second 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. If one of our distribution channel partners makes a sale of our products under an arrangement that does not include rights of return or price adjustment terms, we consider them a reseller
of our products and include the revenue from such sales in our direct sales.

Direct Sales.

We recognize revenue from direct sales at the time product has shipped, title has transferred and no obligations remain. Direct sales, which accounted for 95% of total
net revenues for the second quarter of 2006, include our sales to resellers but do not include our sales pursuant to distribution arrangements.

When our
products are sold subject to acceptance criteria, our policy is to delay revenue recognition until the customer accepts the products. Historically, we have not experienced a delay in customer acceptance of our products.

Customer Concentration.

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 original equipment manufacturers, or OEMs, and their contract manufacturers, or CMs. 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 their CMs or suppliers. 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 supplier.

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 respective CMs. In 2005 this customer concentration increased 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 suppliers to Sirius Satellite Radio. Our acquisition of PDI has also contributed to this customer concentration as a large percentage of PDIs total revenues have historically come
from relatively few customers, among them Motorola, which is also one of SMDIs largest customers.

Market share at our large OEM customers in
particular tends to fluctuate from year to year based not only on our success in competing with our competitors, 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.

Diversification and Expansion Strategy.

We have historically focused
on RF components for the wireless infrastructure market. We are now focusing on diversification efforts in order to capitalize on new opportunities in end markets outside of the wireless infrastructure market such as CATV, WiMAX, satellite



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radio, HDTV, RFID and other broadband applications. We believe that sales of our products in markets outside of wireless infrastructure will account for a
majority of net revenues in 2006.

We are also focusing on expansion through a combination of in house development of new products and acquisitions, 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. The addition to our product portfolio of PDIs complementary RF
components is intended to accelerate our penetration into the CATV infrastructure market and to allow us to offer a more complete set of RF solutions to our combined customers.

Geographic Concentration.

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. As a result of the PDI acquisition, we believe that
sales into Asia, as a percentage of total net revenues, will decrease, as a significant portion of PDI sales are to customers located in the United States. However, we continue to expect that a significant portion of our sales in 2006 will be in the
Asia region.

Competitors.

We compete primarily with
other suppliers of high-performance RF components used in the infrastructure of communications networks, such as Alps, Avago, Hittite, M/A-COM, Minicircuits, NEC, TRAK Microwave Corporation and WJ Communications. For our newer broadband products, we
expect our most significant competitors will include Analog Devices, Maxim Integrated Products, Microtune, National Semiconductor, and STMicroelectronics. With respect to our satellite antenna sales, we compete with other manufacturers of satellite
antennae and related equipment, including RecepTec and Wistron NeWeb. PDIs CATV products primarily compete with those of Anadigics, Philips and RFHIC, and its wireless infrastructure products primarily compete with WJ Communications, M/A-COM
and Minicircuits. We also indirectly compete with our own large communications OEM customers, which 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 SMDI segment 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. We build a significant majority of our PDI segment products in our manufacturing and test facilities in Shanghai, China and Nuremberg, Germany.

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.

While the raw materials we use in our MCM and
satellite antenna products are generally available from numerous sources, we tend to use a single source of supply for each item, either because the performance characteristics of a given suppliers product are particularly favorable or to
enhance our ability to drive volume pricing by limiting our supplier base. While we believe we can find alternate sources of supply on reasonable terms, delay, redesigns and increased costs could result if we seek to qualify a new supplier.



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Gross Profit and Margin Overview

Our gross profit and gross margin are influenced by a number of factors including the following:

1. Product features

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

2. Product type

In the markets in which we operate, IC products have historically yielded a higher gross margin than MCMs, satellite antenna products and most of the products
manufactured and sold by PDI. Therefore, an increased percentage of sales of IC products in a given period is likely to have an accretive effect on our gross margin. Conversely, an increased percentage of sales of PDI products or MCMs, and in
particular satellite antenna products, in a given period is likely to have a dilutive effect on our gross margin.

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 on our products can vary by the markets into which they are sold. An increased percentage of sales into higher margin markets in a given period will have an accretive effect on our gross margin, and an
increased percentage of 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 margins are generally lower than those in industrial markets.

4. Sales channel

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

5. Level of integration of the product

We have seen a general trend among our customers toward 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 on sales of our integrated products in comparison to our stand-alone components. Therefore, an increased percentage of 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.

6. The
efficiency and effectiveness of our manufacturing operations

Our gross margin 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 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 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, gross profit and gross margin may be materially impacted by
provisions for excess inventories.

We believe that each of the above factors will continue to affect our cost of revenues, gross profit and gross margin
for the foreseeable future and that 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.

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 compete in part based
on our ability to offer a broad range of highly engineered products designed to meet the needs of our customers, and accordingly we intend to continue to invest in R&D. From time to time we will receive funding from our customers for
non-recurring engineering, or 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 objectives established
for payment of the NRE have been achieved. Historically, we have not received a significant amount of NRE funding.



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We historically have performed our R&D activities in multiple, geographically dispersed locations in North America.
We believe maintaining multiple standalone R&D design centers allows us to attract key personnel we might not otherwise be able to hire and 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 expense commissions to our external, independent sales representatives when revenues from the associated sale are recognized. We expense quarterly cash incentives to internal sales employees based on the achievement of targeted net
revenue and sales-related goals.

We intend to increase the number of direct sales personnel and application engineers supporting our customers at levels
appropriate for our overall operating plan. In particular, we have placed both sales personnel and application engineers in various time zones around the world to support our customers. We believe that the combination of our direct sales force and
application engineers provides us with an important advantage over any competitors which do not maintain support personnel locally in our markets.

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

Our 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.

While we also have other policies that we consider key accounting policies, management believes the following critical accounting policies require us to make the most
significant judgments and estimates in the preparation of our consolidated financial statements:

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 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 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 harm 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.

The realization of our investment in GCS will be dependent on the occurrence of a liquidity event for GCS 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 we determine that 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 within the meaning of accounting principles generally accepted in the United States 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



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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 RF 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 of up to twelve months. 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 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. 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 products and also provides a schedule of the activity of Sirenzas written-down inventories (in thousands):



|                            |  |                                                              |   |                                                                  |   |     |                                                         |  |   |                                         |   |  |   |      
|--------------------------- |  | ------------------------------------------------------------ | - | ---------------------------------------------------------------- | - | --- | ------------------------------------------------------- |  | - | --------------------------------------- | - |  | - | -----
|Three Months Ended June 30, |  | Additions toWritten-DownInventoriesCharged toCost ofRevenues |   | Sales ofWritten-DownInventorieswith NoAssociated Costof Revenues |   |     | Disposition ofWritten-DownInventories ViaScrap andOther |  |   | Written-DownInventories atEnd of Period
|2006                        |  | $                                                            |  |                                                                  | $ | (79 | )                                                       |  | $ | (9                                      | ) |  | $ | 2,439
|2005                        |  | $                                                            |  |                                                                  | $ | (58 | )                                                       |  | $ | (99                                     | ) |  | $ | 2,867

The single largest factor affecting the accuracy of our provisions for excess inventories is the accuracy of our
forecasts of end-customer demand. The accuracy of our forecasts depends in part on the accuracy of the non-binding forecasts we get from our end customers, the demand for RF communications components in our market segments and 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 109 Accounting for Income
Taxes.

Although we did not have taxable income in the first and second quarters of 2005, we have 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 in future periods 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 and we may recognize a benefit from income taxes
on our income statement, which would have a positive impact on our consolidated results of operations. In periods following a reduction of our valuation allowance, our effective tax rate used to calculate our provision for income taxes on our
statement of operations is expected to increase significantly.

As of December 31, 2005, we had deferred tax assets of approximately $37.7 million. We
have evaluated the need for a valuation allowance for the deferred tax assets in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. As of December 31, 2005, we had no ability to
realize our deferred tax assets through carrybacks or available tax planning strategies. Additionally, based on the current economic uncertainty in our industry that limits our ability to generate verifiable forecasts of future domestic taxable
income, a valuation allowance in an amount equal to our net deferred tax assets was recorded as of December 31, 2005. The valuation allowance increased by approximately $1.1 million in 2005, decreased by approximately $4.7 million in 2004 and
increased by $4.9 million in 2003.



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Approximately $5.7 million of the valuation allowance is attributable to acquisition-related items which, if and to the
extent realized in future periods, will first reduce the carrying value of goodwill, next reduce the carrying value of other long-lived intangible assets of our acquired subsidiary and lastly reduce income tax expense. The valuation allowance also
includes approximately $15.6 million of a tax benefit associated with stock option deductions. This amount will be credited to paid-in capital when and if the benefit is realized.

As of December 31, 2005, we had net operating loss carryforwards for federal income tax purposes of approximately $69.8 million, which expire beginning in 2019. We also had state net operating loss carryforwards
of approximately $17.9 million, which expire beginning in 2006. We also have federal and California research and development tax credits of $1.3 million and $729,000. The federal research credits will begin to expire in 2011 and the California
research credits have no expiration date.

Utilization of the net operating loss carryforwards and tax credit carryforwards may be subject to a substantial
annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of net operating loss carryforwards and tax credit
carryforwards before utilization.

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
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. We have 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, we 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 us at cost or for no consideration. We measure the fair value of the stock awards based upon the fair market value of our common stock on the dates of
grant and recognize any resulting compensation expense ratably over the associated service period, which is generally the vesting term of the stock awards. We recognize these compensation costs net of a forfeiture rate, if applicable, and recognize
the compensation costs for only those shares expected to vest. We typically estimate 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.

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 EndedJune 30, |   |  | Six Months EndedJune 30, |   
|                                                      |  | 2006                       |   |  | 2005                     |    |  | 2006 |   |  | 2005 |   
|Net revenues                                          |  | 100                        | % |  | 100                      | %  |  | 100  | % |  | 100  | % 
|Cost of revenues                                      |  | 63                         | % |  | 57                       | %  |  | 59t  | % |  | 57   | % 
|                                                      |  |                            |   |  |                          |    |  |      |   |  |      |   
|Gross profit                                          |  | 37                         | % |  | 43                       | %  |  | 41   | % |  | 43   | % 
|Operating expenses:                                   |  |                            |   |  |                          |    |  |      |   |  |      |   
|Research and development                              |  | 8                          | % |  | 17                       | %  |  | 10   | % |  | 20   | % 
|Sales and marketing                                   |  | 8                          | % |  | 12                       | %  |  | 9    | % |  | 13   | % 
|General and administrative                            |  | 11                         | % |  | 14                       | %  |  | 13   | % |  | 16   | % 
|Amortization of acquisition-related intangible assets |  | 4                          | % |  | 3                        | %  |  | 3    | % |  | 3    | % 
|                                                      |  |                            |   |  |                          |    |  |      |   |  |      |   
|Total operating expenses                              |  | 31                         | % |  | 46                       | %  |  | 35   | % |  | 52   | % 
|                                                      |  |                            |   |  |                          |    |  |      |   |  |      |   
|Income (loss) from operations                         |  | 6                          | % |  | (3                       | %) |  | 6    | % |  | (9   | %)
|Interest and other income (expense), net              |  | 0                          | % |  | (1                       | %) |  | 1    | % |  | 0    | % 
|                                                      |  |                            |   |  |                          |    |  |      |   |  |      |   
|Income (loss) before income taxes                     |  | 6                          | % |  | (4                       | %) |  | 7    | % |  | (9   | %)
|Provision for (benefit from) income taxes             |  | 1                          | % |  | 0                        | %  |  | 1    | % |  | 0    | % 
|                                                      |  |                            |   |  |                          |    |  |      |   |  |      |   
|Net income (loss)                                     |  | 5                          | % |  | (3                       | %) |  | 6    | % |  | (9   | %)
|                                                      |  |                            |   |  |                          |    |  |      |   |  |      |   



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Comparisons of the Three and Six Months Ended June 30, 2006 and June 30, 2005

Net Revenues

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



|                 |  |                            |   |  |                          |   |  |      |   |  |      |  
|---------------- |  | -------------------------- | - |  | ------------------------ | - |  | ---- | - |  | ---- | -
|                 |  | Three Months EndedJune 30, |   |  | Six Months EndedJune 30, |  
|                 |  | 2006                       |   |  | 2005                     |   |  | 2006 |   |  | 2005 |  
|Direct (1)       |  | 95                         | % |  | 90                       | % |  | 93   | % |  | 89   | %
|Distribution (2) |  | 5                          | % |  | 10                       | % |  | 7    | % |  | 11   | %
|                 |  |                            |   |  |                          |   |  |      |   |  |      |  
|Total            |  | 100                        | % |  | 100                      | % |  | 100  | % |  | 100  | %
|                 |  |                            |   |  |                          |   |  |      |   |  |      |  
|United States    |  | 41                         | % |  | 29                       | % |  | 34   | % |  | 29   | %
|Asia             |  | 46                         | % |  | 56                       | % |  | 51   | % |  | 51   | %
|Europe           |  | 8                          | % |  | 11                       | % |  | 9    | % |  | 16   | %
|Other            |  | 5                          | % |  | 4                        | % |  | 6    | % |  | 4    | %
|                 |  |                            |   |  |                          |   |  |      |   |  |      |  
|Total            |  | 100                        | % |  | 100                      | % |  | 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 $39.0 million in the second quarter of 2006 from $15.3 million in the second quarter of 2005
and to $60.0 million for the first six months of 2006 compared to $27.4 million for the first six months of 2005. The increases were primarily attributable to $14.0 million of revenue generated from sales of PDI products in the second quarter of
2006 subsequent to the closing of our PDI acquisition on April 3, 2006. In addition, we experienced an increase in shipments within our SMDI segment, as sales of our mobile wireless, wireless access and broadband and consumer products
significantly increased the first and second quarters of 2006 compared to the same period in 2005. The increase in sales of our mobile wireless products was driven primarily by the installation and enhancement of new and existing wireless networks.
Sales to our wireless access customers increased as a result of the initial deployment of WiMAX networks and continued strong sales of our WiFi products. Sales of broadband and consumer products increased driven by increased demand for our satellite
radio antenna and VOIP products.

Sales into Asia increased significantly in absolute dollars primarily as a result of our OEMs increasingly outsourcing
their manufacturing to CMs, primarily in China. Also contributing to the increase in sales to Asia was an increase in sales to Chinese OEM customers from both the SMDI and PDI segments and an increase in shipments to Asian CMs of our broadband and
consumer products. Sales into Asia as a percentage of net revenues decreased primarily as a result of the impact of PDI sales, as the majority of its sales are to customer located in the United States.

The decrease in distribution net revenues on a percentage basis was primarily attributable to the significant net revenues from our direct sales of our broadband and
satellite radio antenna products and to the sales contributed by our new PDI segment, which were predominantly direct sales.

Cost of Revenues

Cost of revenues increased to $24.5 million in the second quarter of 2006 from $8.7 million in the second quarter of 2005 and to $35.3 million for the
first six months of 2006 compared to $15.5 million for the first six months of 2005. These increases were primarily the result of $11.2 million of additional costs associated with sales of our PDI products in the second quarter of 2006. Within our
SMDI segment, cost of revenues increased primarily as a result of costs associated with a higher sales volume and also due to a higher proportion of our net revenues being attributable to our broadband consumer products in general, and our satellite
antenna products in



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##### Table of Contents

particular, which typically carry a higher cost-of-sales percentage than our other products. Cost of revenues associated with our broadband and consumer
products increased by approximately $1.3 million in the second quarter of 2006 compared to the second quarter of 2005. Cost of revenues associated with our broadband and consumer products increased by approximately $4.3 million in the first six
months of 2006 compared to the first six months of 2005. Operations personnel increased to 571 at June 30, 2006 from 130 at June 30, 2005. The acquisition of PDI resulted in the addition of 449 operations employees at June 30, 2006.

Gross Profit and Gross Margin

Gross profit increased
to $14.5 million in the second quarter of 2006 from $6.6 million in the second quarter of 2005 and to $24.6 million for the first six months of 2006 compared to $11.9 million for the first six months of 2005. Gross profit in the second quarter of
2006 for the SMDI segment was $11.7 million, and was $2.8 million for the PDI segment. Gross margin decreased to 37% in the second quarter of 2006 from 43% in the second quarter of 2005. The decrease in gross margin was primarily caused by a
one-time $2.3 million charge to costs of goods sold for the full amortization of a step-up in the value of PDIs inventory in connection with the closing of the PDI acquisition.

Our gross margin for the first six months of 2006 declined relative to the same period in 2005 primarily due to the sales contributed by our PDI products, which typically have lower gross margins than average for our
products, and also by increased sales of our broadband and satellite antenna products, which also generally result in a lower gross margin than sales of our other products. This negative impact was partially offset by an increase in volume, which
enabled us to absorb more manufacturing overhead, manufacture our products more efficiently and procure raw material inventories at lower prices.

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 EndedJune 30, |       | Six Months EndedJune 30,
|                           |  | 2006                       |       | 2005                     |   | 2006 |  | 2005
|Research and development   |  | $                          | 266   |                          | $ | 5    |  | $    | 518   |  | $ | 5 
|Sales and marketing        |  |                            | 254   |                          |   | 6    |  |      | 493   |  |   | 6 
|General and administrative |  |                            | 563   |                          |   | 28   |  |      | 1,178 |  |   | 47
|                           |  |                            |       |                          |   |      |  |      |       |  |   |   
|Total                      |  | $                          | 1,083 |                          | $ | 39   |  | $    | 2,189 |  | $ | 58

Research and Development. Research and development expenses increased to $3.2 million in the second
quarter of 2006 from $2.6 million in the second quarter of 2005 and to $6.1 million for the first six months of 2006 from $5.4 million for the first six months of 2005. These increases were the result of $452,000 of additional costs in the second
quarter of 2006 associated with research and development activities performed by our PDI segment, the increases in stock-based compensation noted in the table above and costs of $218,000 in the second quarter and $443,000 in the six month-period
ended June 30, 2006 as a result of the accrual for our First Half 2006 Exempt Employee Bonus Plan, which we refer to as our Bonus Plan, based upon the achievement of board-approved performance objectives. The overall increase in research and
development expenses was partially offset by lower costs associated with purchases of engineering materials and reduced depreciation, as a result of certain property and equipment used in research and development activities becoming fully
depreciated in latter half of 2005. Research and development personnel increased to 86 at June 30, 2006 from 60 at June 30, 2005. The acquisition of PDI resulted in the addition of 30 research and development employees at June 30,
2006.

Sales and Marketing. Sales and marketing expenses increased to $3.0 million in the second quarter of 2006 from $1.9 million in the
second quarter of 2005 and to $5.2 million for the first six months of 2006 from $3.7 million in the first six months of 2005. These increases were the result of $585,000 of additional costs associated with sales and marketing activities performed
by our PDI segment, the increase in stock-based compensation noted in the table above and costs of $128,000 in the second quarter and $259,000 in the six month-period ended June 30, 2006 as a result of the accrual for our Bonus Plan. Sales and
marketing and applications engineering personnel increased to 53 at June 30, 2006 from 36 at June 30, 2005. The acquisition of PDI resulted in the addition of 14 sales and marketing employees at June 30, 2006.

General and Administrative. General and administrative expenses increased to $4.3 million in the second quarter of 2006 from $2.2 million in the second
quarter of 2005 and to $7.4 million in the first six months of 2006 from $4.4 million in the first six months of 2005. These increases were the result of $1.6 million of additional costs associated with general and administrative activities
performed by our PDI segment, the increases in stock-based compensation noted in the table above and costs of $252,000 in the second quarter and $512,000 in the six month-period ended June 30, 2006 as a result of the accrual for our Bonus Plan.
General and administrative personnel increased to 83 at June 30, 2006 from 33 at June 30, 2005. The acquisition of PDI resulted in the addition of 46 general and administrative employees at June 30, 2006.



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Amortization of Acquisition-Related Intangible Assets

We recorded amortization expense of $1.5 million in the second quarter of 2006 and $465,000 in the second quarter of 2005 related to our acquired intangible assets. We
recorded amortization expense of $2.0 million in the first six months of 2006 and $930,000 in the first six months of 2005 related to our acquired intangible assets. The 2006 increases in amortization of intangibles related to our acquisition of
PDI.

See Note 3 PDI Acquisition and Note 4 Amortizable acquisition-related intangible assets of our Notes to Condensed
Consolidated Financial Statements 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 $28,000 in the second quarter of 2006 and net interest and other expense $122,000 in the second quarter of 2005. We had net interest and
other income of $222,000 in the first six months of 2006 and net interest and other expense $61,000 in the first six months of 2005. The increases in net interest and other income were primarily attributable to non-recurring costs incurred in the
second quarter of 2005 related to legal dispute settlement, as well as an increase in interest income in 2006 due to higher interest rates.

Provision
for (Benefit from) Income Taxes

We recorded a $353,000 provision for income taxes in the second quarter of 2006. The income tax provision represents
federal and state 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 and state net operating losses.

We recorded a $22,000 benefit from income taxes in the second 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 and state net operating losses not utilized.

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 of approximately $49.8 million received upon completion of our initial
public offering in May 2000. In addition, we generated cash flows from operations of $9.1 million in the first six months of 2006 and $7.3 million in 2005. As of June 30, 2006, we had cash and cash equivalents of $11.1 million and short-term
investments of $4.0 million. At June 30, 2006, our working capital approximated $29.7 million. We have $6.0 million in short-term debt at June 30, 2006 consisting of notes payable issued in connection with the acquisition of PDI.

Net cash used in, provided by operating activities

Operating activities provided cash of $9.1 million in the first six months of 2006. The primary sources of cash were $3.7 million of net income, as adjusted for non-cash charges of $4.1 million for depreciation and amortization and $2.5
million for stock-based compensation expenses and other changes in operating assets and liabilities.

Our accounts receivable were $9.4 million higher at
the end of the second quarter of 2006 compared to the end of 2005. The increase in accounts receivable was primarily attributable to the $5.9 million of accounts receivable acquired in connection with the PDI acquisition, as well as an increase in
sales within our SMDI segment. Our days sales outstanding, or DSOs, were 49 days in the second quarter of 2006, down from 55 days in the fourth quarter of 2005.

Inventories increased to $20.3 million at the end of the second quarter of 2006 compared to 9.0 million at the end of 2005. The increase in inventories was primarily attributable to the $11.9 million of inventory
acquired in connection with the PDI acquisition. Our inventory turns were 4.8 in both the second quarter of 2006 and the fourth quarter of 2005.

Accounts
payable increased to $13.4 million at the end of the second quarter of 2006 from $5.0 million at the end of 2005. The increase in accounts payable was primarily attributable to the $7.3 million of accounts payable, income taxes payable and notes
payable acquired in connection with the PDI acquisition and to increased sales in our SMDI segment.

Net cash used in investing activities totaled
$13.8 million in the first six months of 2006. Cash used in investing activities in the first six months of 2006 was for the purchase of PDI ($13.3 million), purchases of capital equipment ($2.4 million), the pay-out of ISG contingent consideration
($1.2 million), partially offset by sales of available-for-sale securities ($3.0 million).

As a result of an earn-out related to our acquisition of ISG at
the end of 2004, additional cash consideration may become due and payable based on achievement of margin contribution objectives attributable to sales of selected products for periods through December 31, 2007. The first installment of such
payments was earned in 2005 and paid in the second quarter of 2006. The amount paid totaled $1.15 million.



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Additional payments of up to $3.0 million each may be paid in 2007 and 2008 based on achievement of objectives. As of June 30, 2006, the Company
determined it to be probable that at least $1.5 million related to the 2006 earn-out period would be paid. Accordingly, the Company has accrued for the expected payment of this portion of the potential earn-out on its consolidated balance sheet in
Other accrued liabilities and correspondingly increased goodwill by $1.5 million. The $1.5 million earn-out related to the year ended December 31, 2006 is expected to be paid in the second quarter of 2007.

Cash provided by financing activities totaled $4.0 million in the first six months of 2006. The major financing inflow of cash related to proceeds from the
exercise of options by employees under employee stock plans.

On April 3, 2006, we completed our acquisition of 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.

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 for at least the next 12 months. Other sources of
liquidity that may be available to us are the leasing of capital equipment, commercial lines of credit at a commercial bank, or sales of our securities.

Contractual Obligations

As of June 30, 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                                                |  | $                      | 3,052  |                 | $ | 1,452     |  | $         | 1,576 |                  | $ | 24 |  | $ | 
|Capital lease commitments                                                  |  | $                      | 1,013  |                 | $ | 480       |  | $         | 533   |                  | $ |   |  | $ | 
|Additional consideration related to the acquisition of ISG Broadband, Inc. |  | $                      | 1,457  |                 | $ | 1,457     |  | $         |      |                  | $ |   |  | $ | 
|Unconditional purchase obligations                                         |  | $                      | 2,348  |                 | $ | 2,348     |  | $         |      |                  | $ |   |  | $ | 
|Promissory note due to shareholders of PDI                                 |  | $                      | 6,000  |                 | $ | 6,000     |  | $         |      |                  | $ |   |  | $ | 
|                                                                           |  |                        |        |                 |   |           |  |           |       |                  |   |    |  |   |  
|Total (1)                                                                  |  | $                      | 13,870 |                 | $ | 11,737    |  | $         | 2,109 |                  | $ | 24 |  | $ | 



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

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 as such
purchase orders and contracts are generally cancelable by us with limited prior notice. 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 includes $1.5 million of additional cash consideration that we estimate will become due and payable in connection with our
acquisition of ISG Broadband, Inc. The total indicated in the table above does not include any amounts above $1.5 million that may that may become due and payable in connection with our acquisition of ISG Broadband, Inc.

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.

Off-Balance-Sheet Arrangements

As of June 30, 2006 we did not have any off-balance sheet arrangements, as
defined in Item 303(a)(4)(ii) of SEC Regulation S-K.



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

We are exposed to foreign currency exchange
rate and interest rate risk that could impact our financial position and results of operations. To mitigate some of these risks, we utilize currency forward contracts. We do not use derivative financial instruments for speculative or trading
purposes.



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Interest Rate Risk

We place our cash equivalents, short-term investments and restricted cash with high-credit-quality financial institutions, investing primarily in money market accounts and federal agency related securities. We have established guidelines
relative to credit ratings, diversification and maturities that seek to maintain safety and liquidity. 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 our annual interest income by approximately $151,000, based on our
cash and available-for-sale investments balance at June 30, 2006.

Foreign Currency Exchange Rate Risk

As a result of the acquisition of PDI, we now conduct a significant portion of our business in currencies other than the U.S. dollar, the currency in which the condensed
consolidated financial statements are reported. Correspondingly, our operating results could be adversely affected by foreign currency exchange rate volatility relative to the U.S. dollar. Our subsidiaries in Germany and China use the local currency
as their functional currency as the majority of their purchases are transacted in the local currency. However, revenue for these foreign subsidiaries is invoiced and collected in both the local currency and in U.S. dollars, typically depending on
the preference of the customer. To hedge against the risk of Euro to U.S. dollar exchange rate fluctuations, our German subsidiary has contracted with a financial institution to sell U.S. dollars and buy Euros at fixed exchange rates at specific
dates in the future. While we continue to evaluate strategies to mitigate risks related to the impact of fluctuations in currency exchange rates, we cannot ensure that we will not recognize gains or losses from international transactions. Not every
exposure is or can be hedged, and, where hedges are put in place based on expected foreign exchange exposure, they are based on forecasts which may vary or which may later prove to be inaccurate. Failure to successfully hedge or anticipate currency
risks properly could adversely affect our operating results.

As of June 30, 2006, the notional amount of these short-term foreign currency forward
contracts totaled $6.0 million. The fair market value of these forward contracts was $244,000 as of June 30, 2006, and is currently classified as Other current assets. We elected not to classify the hedge for hedge accounting treatment
and as a result all gains and losses are recognized in earnings. Foreign currency forward contract gains, net of foreign currency transaction losses, approximated $153,000 during the three months ended June 30, 2006. A hypothetical 10% favorable or
unfavorable change in the Euro to U.S. dollar exchange rate would increase or decrease the fair market value of our foreign currency forward contacts by approximately $777,000 at June 30, 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

As a result of our acquisition of PDI in the second quarter of 2006, our organizational structure and consequently our consolidation process is now more complex, as we have significant international operations,
multiple functional currencies and foreign currency denominated transactions. There were no other changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that materially
affected, or are 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. 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. The settlement remains subject to a number of conditions, including final court approval. If the settlement does not occur, and litigation against us continues, we believe we have meritorious defenses and intend to defend
the case vigorously.

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. In December 2005, we moved for summary judgment dismissing Mini-Circuits claims, and
Mini-Circuits cross-moved for summary judgment dismissing Sirenzas counterclaims. After the summary judgment motions were filed, Mini-Circuits voluntarily withdrew its claim for breach of the implied warranty of fitness for a particular
purpose, and we voluntarily withdrew our counterclaim for tortious interference. A preliminary ruling by a Magistrate Judge assigned to the case determined that factual issues requiring a trial preclude dismissal of Mini-Circuits claims on our
summary judgment motion, and recommended dismissal of our remaining counterclaims. The Courts review of the Magistrates recommendation is pending. Even though we believe Mini-Circuits claims to be without merit and we intend to
defend the case and to



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assert our remaining counterclaims vigorously to the extent we are allowed to do so by the Court, 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.

Risks Related to Our Business

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 we have 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, China and Nuremberg, Germany. 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;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | the possibility that we may incur unanticipated expenses in connection with the transaction or be required to expend material sums on potential contingent tax, environmental or
other liabilities associated with PDIs prior operations or facilities;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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

The costs and effects of the purchase accounting associated with the PDI acquisition also present us
with challenges and risks. Although the time required will vary with circumstances, the allocation period in a business combination typically will not exceed one year from the consummation of the business combination. For example, on July 26, 2006
we issued a press release announcing our results for the second quarter of 2006, which included the impact of our preliminary allocation of the PDI purchase price. As a result of our continued efforts to identify and measure the fair value of the
assets acquired and liabilities assumed in the allocation of the PDI purchase price, significant changes were made to various balance sheet items as reflected in this Quarterly Report on Form 10-Q, in particular the recording of deferred tax
liabilities of approximately $11.9 million and a corresponding increase to goodwill to reflect our current estimates of the fair value of assets acquired and liabilities assumed. As we continue to refine the allocation of the purchase price,
additional changes to the current preliminary allocation may be required.

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

Our operating results will fluctuate and we may not meet quarterly or annual 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 a loss of market share by us or our customers, slowing demand for our products or our
customers products, over-ordering of our products or otherwise;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | 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;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | general economic growth or decline, or changing conditions in the telecommunications, consumer or A&D industries generally or the market for products containing RF components
specifically;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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| |  |  | 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 SFAS 123(R);
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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;
| | - |  | -------------------------------------------------------------------------------------------------------



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



| |  |  | the 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 Global Communication Semiconductors, Inc.,
or GCS;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | the effects of war, acts of terrorism or geopolitical 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 or annual 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 operating 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 suffer.

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 our 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 reduce 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 second quarter of 2006, both Motorola and Radio Frequency Systems, or RFS, individually accounted for, directly or indirectly,
more than 10% of our net revenues and our top ten customers accounted for more than 65% of net revenues. 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. In addition, while PDI
sells products to Motorola pursuant to a long-term supply agreement, the contract expires in May 2007, and we cannot assure you that sales to Motorola will not decline in subsequent periods or in any other period. The loss of Motorola or any other
significant customer could limit our ability to sustain and grow our net revenues.

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



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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 harm our
business, financial condition and results of operations. A substantial portion of our net revenues is currently derived from sales of components for wireless infrastructure applications. Our PDI segment also 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 harm our business, financial condition and results of operations.

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 2005 and in the first quarter of 2006 were derived from sales of
antennae products to Sirius, its suppliers or its contract manufacturers, or CMs. Our antennae sales are dependant to a large degree on the continued growth of the aftermarket subscriber base for Sirius satellite radio service, which consists
of customers who purchased the service after they purchased their car. 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 antennae. We have
not always been able to win a share of the market for such new products and new generations, and we cannot assure you that we will continue to successfully compete to supply antennae or other products to Sirius and its CMs 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 gross margin will fluctuate from period to period, and such fluctuation
could affect our financial performance, particularly earnings 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 antennae, 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 antenna products increased significantly as a percentage of
our total sales, which had a dilutive effect on our gross margin. PDIs gross margin in prior periods has generally been lower than Sirenzas, and the addition of our PDI segment following the acquisition of PDI in April 2006 will
therefore be likely to result in lower gross margins 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.

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 was $3.9 million for the six months ended
June 30, 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
June 30, 2006, our accumulated deficit was approximately $84.0 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 entirely within our control, including:



| |  |  | changes in our product mix, the markets in which our products are sold and the amount of engineered technical solutions provided, 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.



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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 cannot assure you that we will be able to achieve profitability in current or future periods.

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 have also seen a similar pattern in our sales of satellite radio antennae and related 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. We cannot assure you that we will be able to develop significant new customers with less
price sensitivity, increase unit sales volumes of existing products, or develop, introduce or sell new products not affected by a pattern of steady average selling price declines.

The declining in selling prices we have experienced in the past and the pricing pressure we continue to face have also reduced 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, we cannot assure you 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:



| |  |  | lost 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.
| | - |  | -------------------------------------------------------------------------------------

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. 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 Avago, Hittite, M/A-COM, a division of Tyco Electronics, NEC and WJ Communications. With respect to our satellite antenna sales, we compete with other manufacturers of satellite antennae and related
equipment, including RecepTec and Wistron NeWeb. For our newer broadband products, we expect our most significant competitors will include Maxim Integrated Products, Microtune and



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STMicroeletronics. With respect to our signal source products, our primary competitors are Alps, M/A-COM and Minicircuits. With respect to our A&D
products, our primary competitors are Hittite, M/A-COM, Spectrum Control and Teledyne. Our PDI segments CATV products primarily compete with those of Anadigics, Philips and RFHIC, and its wireless infrastructure products primarily compete with
WJ Communications, M/A-COM, Minicircuits and TRAK Microwave Corporation. 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, we expect that future competition will 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 harm our business, financial condition and results of operations.

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

We have in the past made, 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 completed acquisitions; and
| | - |  | -------------------------------------------------------------------------------------------------------------------



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

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.



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We may experience difficulties in managing any future growth.

Our ability to successfully do business in a rapidly evolving market requires us to effectively plan and manage any current and 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;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | building out our administrative infrastructure at the proper pace to support any current and future sales growth while maintaining operating efficiency;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 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 suffer.

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, administrative 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 harm 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 harm our business, financial condition and results of operations. We may not be successful in retaining these key
personnel.

We may incur additional costs and business disruption in transferring our manufacturing processes to new facilities.

As part of our ongoing strategy to maximize our manufacturing and production efficiency, we are evaluating opportunities for
transferring portions of our Colorado manufacturing to our overseas facilities in Nuremberg, Germany and in Shanghai, China. In addition, we anticipate that we will be transferring our existing China operations to a new Shanghai facility in the near
future. As a result of these transitions, we may need to requalify for ISO certification and also may need to re-qualify our manufacturing processes or our products with our customers. We expect to incur capital expense and wind-down costs in
connection with any of these transfers. There is also a possibility that we may not be able to accomplish the transitions as scheduled or as planned which could result in additional operating costs, loss of customers, and business disruption.

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 antenna 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 in certain respects relative to that of the United States, 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 more unpredictable. Although the Chinese



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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 more difficult or unprofitable. 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. Manufacturing our products and using CMs and 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 also be higher than in the U.S. due to German legal requirements regarding
employee benefits and employer-employee relations, in particular.

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 harm our business, financial condition and results of operations. The acquisition of PDI has materially increased our risks from conducting business outside the U.S., both due to its substantial operations
in China and Germany, and its higher proportion of sales and expenses denominated in foreign currency, which has increased our exposure to the risk of exchange rate fluctuations.

Failure to maintain effective internal control 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 new accounting standards related to equity
compensation 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 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 periods after 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 stock 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.

Our strategic investment in GCS, a privately held semiconductor foundry, could be further impaired or never redeemed, which could harm 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 harm 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 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, 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



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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 of the shares which could harm our
results of operations.

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 and an inability to successfully translate new product concepts to
production in time to meet market demands or at all. 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, Voice over Internet Protocol, or 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 reduce 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, or fab. We currently rely on six third-party wafer fabs to manufacture most of our semiconductor wafers. These fabs include RF Micro Devices, or RFMD, for
GaAs devices, Atmel for SiGe devices, TriQuint Semiconductors for our discrete devices, GCS for our indium gallium phosphide InGaP devices, IBM for SiGe BiCMOS 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, or 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, or 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, we cannot assure you 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, IBM and our Asian foundry are each our sole supplier 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



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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 harm 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, or
delays in, cancellations or rescheduling of orders or shipments, any of which could harm 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 currently work with five packagers,
substantially all of our amplifier product net revenues in 2005 were attributable to products packaged by two packagers. 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., or CEI, our second source for this particular package type, could significantly damage our business. In addition, increased packaging costs could harm 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
these 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 harm 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 59% of our net revenues in the
second 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 harm 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;
| | - |  | ----------------------------------------------------------



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| |  |  | 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.
| | - |  | -------------------------------------------

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
reduce our profitability. 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.

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 changed their equipment specifications to use only components that do not contain these banned
substances and indicated that they would 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 either have already or may need to in the future redesign our products and obtain compliant raw materials from our suppliers to
respond to the new legislation and to meet customer demand.



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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 requiring compliant components, and the fact that some
components containing banned substances remain exempt from the regulations for particular customer applications, we are not stopping all production of parts containing banned substances on a particular scheduled date, but are making the move
gradually as customer demand dictates. We anticipate selling such 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 and the methods by which our industry will attempt to comply with these take-back obligations have not been fully developed. We may have take-back obligations, and even if the specific implementing legislation eventually adopted 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 harm 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, Germany 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 we cannot assure you 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 harm 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 harm 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 harm 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, we cannot assure you 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 harm our business, financial condition and results of operations.



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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, 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 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 our 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.

Risks Related to Ownership of Our Common Stock

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 continue to control a substantial amount of our outstanding common stock, as do Phillip Liao and his spouse, the former sole stockholders of PDI. As a result, these stockholders will be able
to exert a significant degree of influence over our management and affairs and 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 common stock. The interests of these stockholders may not always coincide with our interests or the interests of other stockholders.

Future sales of our common stock could cause our stock price to decline.

In February 2004, we filed a shelf registration statement to register the offer and sale of up to $75 million of securities by us from time to time and a
registration statement to register the resale of shares of common stock by certain of our stockholders, including John and Susan Ocampo and entities affiliated with them. In addition, we are obligated to file a registration statement to register the
resale of the shares of our common stock owned by Mr. Liao and his spouse resulting from the PDI acquisition. Any future sales of substantial amounts of common stock by our stockholders or us, or the possibility of such sales, may adversely
affect the price of our common stock and impede our ability to raise capital through the issuance of equity securities.

Our charter
and bylaws and Delaware law contain provisions that may delay or prevent a change of control.

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



| |  |  | division of the board of directors into three separate classes;
| | - |  | ---------------------------------------------------------------



| |  |  | elimination of cumulative voting in the election of directors;
| | - |  | --------------------------------------------------------------



| |  |  | prohibitions on our stockholders from acting by written consent and calling special meetings;
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | procedures for advance notification of stockholder nominations and proposals; and
| | - |  | ---------------------------------------------------------------------------------



| |  |  | the ability of the board of directors to alter our bylaws without stockholder approval.
| | - |  | ---------------------------------------------------------------------------------------



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In addition, our board of directors has the authority to issue up to 5,000,000 shares of preferred stock
and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by the stockholders. The issuance of preferred stock, while providing flexibility in connection
with possible financings or acquisitions or other corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock.

We are also subject to Section 203 of the Delaware General Corporation Law that, subject to exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a period of three years following the date that this stockholder became an interested stockholder. The preceding provisions of our charter and bylaws, as well as
Section 203 of the Delaware General Corporation Law, could discourage potential acquisition proposals, delay or prevent a change of control and prevent changes in our management.



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

On April 3, 2006, we completed our acquisition
of PDI pursuant to an Agreement and Plan of Merger dated as of February 4, 2006 by and among us, Penguin Acquisition Corporation, a California corporation and our wholly owned subsidiary, PDI, Phillip Liao and Yeechin Liao. The consideration we
paid to the Liaos as PDIs sole shareholders in the merger included 7.0 million shares of our common stock. The shares were issued pursuant to the private placement exemption from registration found in Rule 506 promulgated under the
securities act, as the placement was made to two investors who constituted accredited investors within the meaning of Regulation D, no general solicitation occurred in connection with the placement and the requisite Form D was timely
filed.

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 June 30, 2006 all
$49.8 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 and investment in GCS.

Repurchase of Equity Securities

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



|           |  |                                  |  |                              |      
|---------- |  | -------------------------------- |  | ---------------------------- | -----
|Period     |  | Total Number of Shares Purchased |  | Average Price Paid Per Share
|April 2006 |  | 1,813                            |  | $                            | 0.001
|May 2006   |  |                                 |  |                              |     
|June 2006  |  |                                 |  |                              |     

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
|------- | ---------------------------------------------------

(a) The Company held its Annual Meeting of Stockholders (the
Annual Meeting) on June 1, 2006.

(b) At the Annual Meeting, the stockholders elected John Ocampo and Gil Van Lunsen as Class III
Directors to serve for a term of three years. The terms of office of the Class I Directors, Chris Crespi and Robert Van Buskirk, and Class II Directors, John Bumgarner, Jr., Phillip Liao and Casimir Skrzypczak, continued following the Annual Meeting
as well.

(c) The stockholders of the Company voted on the following matters at the Annual Meeting:

1. The election of two Class III directors to serve for a term of three years;

2. The ratification of the appointment of Ernst & Young LLP as independent auditors of the Company for the fiscal year ending
December 31, 2006; and

3. The approval of the amendments to the Companys Amended and Restated 1998 Stock Plan
described in the proxy statement previously submitted to the stockholders of the Company entitled to vote at the meeting.



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Votes were cast for the election of the Class III Directors as follows:



|               |  |            |  |               
|-------------- |  | ---------- |  | --------------
|               |  | Votes For  |  | Votes Withheld
|John Ocampo    |  | 42,068,518 |  | 588,445       
|Gil Van Lunsen |  | 42,060,500 |  | 596,463       

The ratification of the appointment of Ernst & Young LLP as auditors for the fiscal year ending
December 31, 2006 was approved as follows:



|           |  |               |  |            
|---------- |  | ------------- |  | -----------
|Votes For  |  | Votes Against |  | Abstentions
|42,136,081 |  | 507,370       |  | 13,512     

The amendments to the Companys Amended and Restated 1998 Stock Plan described in the proxy statement
previously submitted to the stockholders of the Company entitled to vote at the meeting were approved as follows:



|           |  |               |  |            
|---------- |  | ------------- |  | -----------
|Votes For  |  | Votes Against |  | Abstentions
|25,950,485 |  | 7,084,608     |  | 28,619     



|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)                                                                                  
|              | 
|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 effective June 1, 2006. (6)                                                                                                                     
|              | 
|11.1          |  | Statement regarding computation of per share earnings. (7)                                                                                                                                       
|              | 
|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.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



39



---

##### Table of Contents

|(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 June 1, 2006, filed with the Securities and Exchange Commission on
June 6, 2006.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(7) | This exhibit has been omitted because the information is shown in the Consolidated Financial Statements or Notes thereto.
|--- | -------------------------------------------------------------------------------------------------------------------------



40



---

##### 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: August 9, 2006 |  |  |  | SIRENZA MICRODEVICES, INC.                     
|                     |  | 
|                     |  |  |  | /s/ Robert Van Buskirk                         
|                     |  |  |  | ROBERT VAN BUSKIRK                             
|                     |  |  |  | President, Chief Executive Officer and Director
|                     |  | 
|DATE: August 9, 2006 |  |  |  | /s/ Charles R. Bland                           
|                     |  |  |  | CHARLES R. BLAND                               
|                     |  |  |  | Chief Financial Officer                        



41



---

##### Table of Contents

EXHIBIT INDEX



|               |  |                                                                                                                                                                                                  
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | 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 effective June 1, 2006. (6)                                                                                                                     
|               | 
|11.1           |  | Statement regarding computation of per share earnings. (7)                                                                                                                                       
|               | 
|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 June 1, 2006, filed with the Securities and Exchange Commission on
June 6, 2006.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(7) | This exhibit has been omitted because the information is shown in the Consolidated Financial Statements or Notes thereto.
|--- | -------------------------------------------------------------------------------------------------------------------------