##### Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---



FORM 10-Q



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



For the quarterly period ended June 29, 2003.



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



---



SIRENZA MICRODEVICES, INC.

(Exact name of registrant as specified in its charter)



|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)



522 Almanor Avenue, Sunnyvale, CA 94085

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



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



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



As of July 27, 2003 there were 33,490,615 shares of registrants Common Stock
outstanding.



---

##### Table of Contents

SIRENZA MICRODEVICES, INC.



INDEX



|                                 |  |                                                                                       |  | Page
|-------------------------------- |  | ------------------------------------------------------------------------------------- |  | ----
|Part I.    Financial Information |  |                                                                                      
|                                 |  |                                                                                      
|Item 1.                          |  | Financial Statements                                                                  |  | 3   
|                                 |  |                                                                                      
|Item 2.                          |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 15  
|                                 |  |                                                                                      
|Item 3.                          |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 31  
|                                 |  |                                                                                      
|Item 4.                          |  | Controls and Procedures                                                               |  | 31  
|                                 | 
|Part II.    Other Information    |  |                                                                                      
|                                 |  |                                                                                      
|Item 1.                          |  | Legal Proceedings                                                                     |  | 32  
|                                 |  |                                                                                      
|Item 2.                          |  | Changes in Securities and Use of Proceeds                                             |  | 32  
|                                 |  |                                                                                      
|Item 3.                          |  | Defaults Upon Senior Securities                                                       |  | 33  
|                                 |  |                                                                                      
|Item 4.                          |  | Submission of Matters to a Vote of Security Holders                                   |  | 33  
|                                 |  |                                                                                      
|Item 5.                          |  | Other Information                                                                     |  | 33  
|                                 |  |                                                                                      
|Item 6.                          |  | Exhibits and Reports on Form 8-K                                                      |  | 33  
|                                 | 
|Signatures                       |  | 35                                                                                   
|                                 | 
|Certifications                   |  |                                                                                      



2



---

##### Table of Contents

Part I. Financial Information



Item 1. Financial Statements



SIRENZA MICRODEVICES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)



|                                           |  | June 30, 2003 |         |   | December 31, 2002 |  
|------------------------------------------ |  | ------------- | ------- | - | ----------------- | -
|                                           |  | (unaudited)   |         |   |                   |  
|ASSETS                                     |  |               |         |   |                   |  
|Current assets:                            |  |               |         |   |                   |  
|Cash and cash equivalents                  |  | $             | 5,714   |   |                   | $
|Short-term investments                     |  |               | 6,991   |   |                   |  
|Accounts receivable, net                   |  |               | 5,326   |   |                   |  
|Inventories                                |  |               | 6,642   |   |                   |  
|Loans to Vari-L                            |  |               |        |   |                   |  
|Other current assets                       |  |               | 2,289   |   |                   |  
|                                           |  |               |         |   |                   |  
|Total current assets                       |  |               | 26,962  |   |                   |  
|Property and equipment, net                |  |               | 10,758  |   |                   |  
|Long-term investments                      |  |               | 3,522   |   |                   |  
|Investment in GCS                          |  |               | 4,600   |   |                   |  
|Vari-L acquisition costs and other assets  |  |               | 1,345   |   |                   |  
|Acquisition related intangibles, net       |  |               | 6,392   |   |                   |  
|Goodwill                                   |  |               | 4,158   |   |                   |  
|                                           |  |               |         |   |                   |  
|Total assets                               |  | $             | 57,737  |   |                   | $
|                                           |  |               |         |   |                   |  
|LIABILITIES AND STOCKHOLDERS EQUITY       |  |               |         |   |                   |  
|Current liabilities:                       |  |               |         |   |                   |  
|Accounts payable                           |  | $             | 5,564   |   |                   | $
|Accrued expenses                           |  |               | 3,025   |   |                   |  
|Deferred margin on distributor inventory   |  |               | 589     |   |                   |  
|Accrued restructuring                      |  |               | 1,455   |   |                   |  
|Capital lease obligations, current portion |  |               | 222     |   |                   |  
|                                           |  |               |         |   |                   |  
|Total current liabilities                  |  |               | 10,855  |   |                   |  
|Capital lease obligations                  |  |               | 89      |   |                   |  
|                                           |  |              
|Commitments and contigencies               |  |               |         |   |                   |  
|                                           |  |              
|Stockholders equity                       |  |               |         |   |                   |  
|Common stock                               |  |               | 34      |   |                   |  
|Additional paid-in capital                 |  |               | 133,910 |   |                   |  
|Deferred stock compensation                |  |               | (301    | ) |                   |  
|Treasury stock, at cost                    |  |               | (165    | ) |                   |  
|Accumulated deficit                        |  |               | (86,685 | ) |                   |  
|                                           |  |               |         |   |                   |  
|Total stockholders equity                 |  |               | 46,793  |   |                   |  
|                                           |  |               |         |   |                   |  
|Total liabilities and stockholders equity |  | $             | 57,737  |   |                   | $
|                                           |  |               |         |   |                   |  



See accompanying notes.



3



---

##### Table of Contents

SIRENZA MICRODEVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per
share data)



|                                                                                                                                                                                                                              |  | Three Months Ended |        |   | Six Months Ended |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------ | - | ---------------- | -
|                                                                                                                                                                                                                              |  | June 30,2003       |        |   | June 30,2002     |  
|Net revenues                                                                                                                                                                                                                  |  | $                  | 9,058  |   |                  | $
|Cost of revenues:                                                                                                                                                                                                             |  |                    |        |   |                  |  
|Cost of product revenues                                                                                                                                                                                                      |  |                    | 4,833  |   |                  |  
|Amortization of deferred stock compensation                                                                                                                                                                                   |  |                    | 23     |   |                  |  
|                                                                                                                                                                                                                              |  |                    |        |   |                  |  
|Total cost of revenues                                                                                                                                                                                                        |  |                    | 4,856  |   |                  |  
|                                                                                                                                                                                                                              |  |                    |        |   |                  |  
|Gross profit                                                                                                                                                                                                                  |  |                    | 4,202  |   |                  |  
|Operating expenses:                                                                                                                                                                                                           |  |                    |        |   |                  |  
|Research and development (exclusive of amortization of deferred stock compensation of $8, $44, $48 and $96 for the three and six
months ended June 30, 2003 and three and six months ended June 30, 2002, respectively)       |  |                    | 2,163  |   |                  |  
|Sales and marketing (exclusive of amortization of deferred stock compensation of $40, $87, $60 and $120 for the three and six
months ended June 30, 2003 and three and six months ended June 30, 2002, respectively)          |  |                    | 1,726  |   |                  |  
|General and administrative (exclusive of amortization of deferred stock compensation of $75, $156, $100 and $200 for the three and
six months ended June 30, 2003 and three and six months ended June 30, 2002, respectively) |  |                    | 1,789  |   |                  |  
|Amortization of deferred stock compensation                                                                                                                                                                                   |  |                    | 123    |   |                  |  
|Amortization of acquisition related intangible assets                                                                                                                                                                         |  |                    | 303    |   |                  |  
|Restructuring                                                                                                                                                                                                                 |  |                    | 434    |   |                  |  
|                                                                                                                                                                                                                              |  |                    |        |   |                  |  
|Total operating expenses                                                                                                                                                                                                      |  |                    | 6,538  |   |                  |  
|                                                                                                                                                                                                                              |  |                    |        |   |                  |  
|Loss from operations                                                                                                                                                                                                          |  |                    | (2,336 | ) |                  |  
|Interest expense                                                                                                                                                                                                              |  |                    | 10     |   |                  |  
|Interest and other income, net                                                                                                                                                                                                |  |                    | 165    |   |                  |  
|                                                                                                                                                                                                                              |  |                    |        |   |                  |  
|Loss before taxes                                                                                                                                                                                                             |  |                    | (2,181 | ) |                  |  
|Provision for income taxes                                                                                                                                                                                                    |  |                    |       |   |                  |  
|                                                                                                                                                                                                                              |  |                    |        |   |                  |  
|Net loss                                                                                                                                                                                                                      |  | $                  | (2,181 | ) |                  | $
|                                                                                                                                                                                                                              |  |                    |        |   |                  |  
|Basic and diluted net loss per share                                                                                                                                                                                          |  | $                  | (0.07  | ) |                  | $
|                                                                                                                                                                                                                              |  |                    |        |   |                  |  
|Shares used to compute basic and diluted net loss per share                                                                                                                                                                   |  |                    | 32,119 |   |                  |  
|                                                                                                                                                                                                                              |  |                    |        |   |                  |  



See accompanying notes



4



---

##### Table of Contents

SIRENZA MICRODEVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



|                                                                            |  | Six Months Ended |       
|--------------------------------------------------------------------------- |  | ---------------- | ------
|                                                                            |  | June 30,2003     |       
|Operating Activities                                                        |  |                  |       
|Net loss                                                                    |  | $                | (3,465
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                  |       
|Depreciation and amortization                                               |  |                  | 2,052 
|Amortization of deferred stock compensation                                 |  |                  | 333   
|Gain on the sale of property and equipment                                  |  |                  | (85   
|Changes in operating assets and liabilities:                                |  |                  |       
|Accounts receivable                                                         |  |                  | (1,547
|Inventories                                                                 |  |                  | (1,905
|Other assets                                                                |  |                  | (78   
|Accounts payable                                                            |  |                  | 927   
|Accrued expenses                                                            |  |                  | 242   
|Accrued restructuring                                                       |  |                  | (398  
|Deferred margin on distributor inventory                                    |  |                  | (1,439
|                                                                            |  |                  |       
|Net cash used in operating activities                                       |  |                  | (5,363
|Investing Activities                                                        |  |                  |       
|Sales/maturities of available-for-sale securities, net                      |  |                  | 7,508 
|Purchases of property and equipment                                         |  |                  | (1,716
|Proceeds from the sale of property and equipment                            |  |                  | 85    
|Purchase of Xemod, net of cash received                                     |  |                  | 28    
|Purchase of Vari-L                                                          |  |                  | (6,598
|Increase in restricted cash                                                 |  |                  | (1,100
|Investment in GCS                                                           |  |                  |      
|                                                                            |  |                  |       
|Net cash provided by (used in) investing activities                         |  |                  | (1,793
|Financing Activities                                                        |  |                  |       
|Principal payments on capital lease obligations                             |  |                  | (298  
|Proceeds from employee stock plans                                          |  |                  | 294   
|                                                                            |  |                  |       
|Net cash provided by (used in) financing activities                         |  |                  | (4    
|Decrease in cash and cash equivalents                                       |  |                  | (7,160
|Cash and cash equivalents at beginning of period                            |  |                  | 12,874
|                                                                            |  |                  |       
|Cash and cash equivalents at end of period                                  |  | $                | 5,714 
|                                                                            |  |                  |       
|                                                                            |  |                 
|Supplemental disclosures of noncash investing and financing activities      |  |                  |       
|Conversion of GCS loan receivable                                           |  | $                |      
|Forfeiture of deferred stock compensation                                   |  | $                | 138   
|Common stock issued in connection with Vari-L acquisition                   |  | $                | 4,654 
|Assumption of Vari-L loans receivable                                       |  | $                | 3,417 



See accompanying notes.



5



---

##### Table of Contents

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 information and
footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the three month and six month periods ended June 30, 2003 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, 2002 has been derived from the audited financial statements
at that date but does not include all of the information and footnotes 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, 2002, which are included in the Companys Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 31, 2003.



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 operates on thirteen-week fiscal quarters ending on the Sunday closest to the end of the calendar quarter, with the exception of the fourth quarter, which ends on December 31. The Companys second
quarter of fiscal year 2003 ended on June 29, 2003. The Companys second quarter of fiscal year 2002 ended on June 30, 2002. For presentation purposes, the accompanying unaudited condensed consolidated financial statements refer to the
quarters calendar month end for convenience.



Stock-Based Compensation



The Company has elected to account for its employee stock plans in
accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB Opinion No. 25), as amended by Financial Accounting Standards Board (FASB) Interpretation No. 44 (FIN 44), Accounting for
Certain Transactions involving Stock Compensation an interpretation of APB Opinion No. 25, and to adopt the disclosure-only provisions as required under Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (FAS 123). The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FAS 123 to stock-based employee compensation, as amended by Statement
of Financial Accounting Standards No. 148 Accounting for Stock Based Compensation, Transition and Disclosures (in thousands, except per share data):



|                                                                                                        |  | Three Months Ended |        |   | Six Months Ended |  
|------------------------------------------------------------------------------------------------------- |  | ------------------ | ------ | - | ---------------- | -
|                                                                                                        |  | June 30,2003       |        |   | June 30,2002     |  
|Net lossas reported                                                                                    |  | $                  | (2,181 | ) |                  | $
|Add: Stock-based employee compensation expense, included in the determination of net loss as reported   |  |                    | 146    |   |                  |  
|Deduct: Stock-based employee compensation expense determined under the fair value method for all awards |  |                    | (1,382 | ) |                  |  
|                                                                                                        |  |                    |        |   |                  |  
|Pro forma net loss                                                                                      |  | $                  | (3,417 | ) |                  | $
|                                                                                                        |  |                    |        |   |                  |  
|Loss per share:                                                                                         |  |                    |        |   |                  |  
|Basic and dilutedas reported                                                                           |  | $                  | (0.07  | ) |                  | $
|                                                                                                        |  |                    |        |   |                  |  
|Basic and dilutedpro forma                                                                             |  | $                  | (0.11  | ) |                  | $
|                                                                                                        |  |                    |        |   |                  |  



Reclassifications



Certain reclassifications have been made to the prior quarter balances in order to
conform to the current quarter presentation. The most significant reclassifications include amortization of deferred stock compensation for cost of revenues, which was included with the amortization of deferred stock compensation for research and
development, sales and marketing and general and administrative expenses as a separate line item on the condensed consolidated statements of operations in prior quarters, but has been reclassified as a separate line item within cost of revenues on
the condensed consolidated statements of operations.



Note
2:    Business Combinations



Acquisition of Vari-L



On May 5, 2003, the Company acquired substantially all of the assets of
Vari-L Company, Inc. (Vari-L) and assumed specified liabilities of Vari-L in exchange for approximately 3.3 million shares of the Companys common stock, valued at approximately $4.7 million, approximately $9.1 million in cash and incurred $2.4
million in estimated direct transaction costs for a preliminary aggregate purchase price of $16.1 million. The fair value of the Companys common stock issued in connection with the Vari-L acquisition was calculated in accordance with the
provisions of Emerging Issues Task Force Issue (EITF) No. 99-12, Determination of the Measurement Date for the Market Price of Acquirer Securities Issued in a Purchase



6



---

##### Table of Contents

Business Combinationand was derived using an average market price per share of Sirenza common stock of
$1.43, which was based on an average of the closing prices for a range of three trading days (April 30, 2003, May 1, 2003 and May 2, 2003) prior to the closing date of the acquisition. Of the $9.1 million in cash, approximately $3.8 million was paid
to Vari-L at closing and $5.3 million related to loans the Company made to Vari-L prior to the closing of the business combination. All of the $5.3 million of Vari-L loans, which included $3.4 million of Vari-L loans outstanding on the
Companys balance sheet as of December 31, 2002, have been included in the calculation of the preliminary purchase price of Vari-L. The Companys results of operations include the effect of Vari-L subsequent to May 5, 2003, the date the
acquisition closed. Vari-L was a designer and manufacturer of radio frequency (RF) and microwave components and devices for use in wireless communications. The acquisition is intended to strengthen the Companys product portfolio of RF
components, in particular, signal source processing products and enable the Company to achieve significant cost synergies in the highly competitive wireless communication RF component industry.



In accordance with Statement of Financial Accounting Standards No. 141, Business
combinations (FAS 141), the Company allocated the purchase price of its acquisition of Vari-L to the tangible assets, liabilities and intangible assets acquired, based on their estimated fair values. The excess purchase price over those fair
values has been recorded as goodwill. The fair value assigned to intangible assets acquired was determined through established valuation techniques using estimates made by management. The goodwill resulting from this acquisition has been assigned to
the Signal Source Division for segment reporting purposes and is not expected to be deductible for tax purposes. In accordance with Statement of Financial Accounting Standards No. 142 Goodwill and other intangible assets (FAS No. 142),
goodwill and purchased intangibles with indefinite lives acquired after June 30, 2001 are not amortized but will be reviewed periodically, on at least an annual basis, for impairment. Purchased intangibles with finite lives will be amortized on a
straight-line basis over their respective useful lives.



The allocation of the
purchase price is preliminary until finalization of all direct transaction costs. Although the Company does not anticipate direct transaction costs to be materially different from amounts paid and accrued, the total purchase consideration and
purchase price allocation is subject to change based on the actual amount of direct transaction costs.



The preliminary total purchase price of approximately $16.1 million has been allocated as follows (in thousands):



|Accounts receivable              |  | $ | 2,202  |  
|-------------------------------- |  | - | ------ | -
|Inventory                        |  |   | 2,018  |  
|Prepaid and other current assets |  |   | 96     |  
|Property, plant and equipment    |  |   | 3,660  |  
|Amortizable intangible assets:   |  |   |        |  
|Developed product technology     |  |   | 4,840  |  
|Customer relationships           |  |   | 870    |  
|Committed customer backlog       |  |   | 310    |  
|Goodwill                         |  |   | 3,449  |  
|Accounts payable                 |  |   | (817   | )
|Accrued liabilities              |  |   | (483   | )
|Capital lease obligations        |  |   | (7     | )
|                                 |  |   |        |  
|Total purchase price             |  | $ | 16,138 |  



Amortizable intangible assets



Of the total purchase price, approximately $6.0 million has been
allocated to amortizable intangible assets including developed product technology ($4.8 million), customer relationships ($870,000) and committed customer backlog ($310,000). Developed product technology consists of commercial signal source
component voltage-controlled oscillators (VCOs) and phase locked loop synthesisers (PLLs), high reliability (hi-rel) signal source components and other technology, all of which are technologically feasible. Vari-Ls technology is
designed for RF signal processing in the wireless communications market. This developed product technology is intended to strengthen the Companys product portfolio of RF components. The Company is amortizing the fair value of developed product
technology on a straight-line basis over a period of 44 to 68 months, which represents the estimated useful life of the developed product technology. The weighted average amortization period for developed product technology is approximately 65
months.



Customer relationships represent Vari-Ls relationships with
original equipment manufactures (OEMs) and contract manufacturers of communications equipment in the wireless communications commerical and military markets. The Company is amortizing the fair value of customer relationships on a straight-line basis
over a period of 32 months, which represents the estimated useful life of the customer relationships.



Committed customer backlog represents outstanding purchase orders placed by Vari-Ls customers that are expected to be shipped and collected during the 12 months immediately subsequent to the closing date of the
acquisition. The Company is amortizing the fair value of committed customer backlog on a straight-line basis over a period of 12 months.



The Company recorded amortization of acquisition-related intangible assets of $303,000 and $351,000 in the three and six-month periods ended June 30, 2003, which included
amortization of acquisition-related intangible assets associated with the Companys acquisition of Xemod Incorporated in September 2002.



The Companys acquisition-related intangible assets associated with completed acquisitions at June 30, 2003 and December 31, 2002 were as follows:



|                                                   |  | As of June 30, 2003
|-------------------------------------------------- |  | -------------------
|                                                   |  | GrossCarryingAmount
|                                                   |  | ($ in thousands)   
|Amortizable acquisition-related intangible assets: |  |                    
|Patented Core Technology                           |  | 700                
|Internal Use Software                              |  | 70                 
|Developed Product Technology                       |  | 4,840              
|Customer Relationship                              |  | 870                
|Comitted Customer Backlog                          |  | 310                
|                                                   |  |                    
|                                                   |  | 6,790              



|                                                   |  | As of December 31, 2002
|-------------------------------------------------- |  | -----------------------
|                                                   |  | GrossCarryingAmount    
|                                                   |  | ($ in thousands)       
|Amortizable acquisition-related intangible assets: |  |                        
|Patented Core Technology                           |  | 700                    
|Internal Use Software                              |  | 70                     
|                                                   |  |                        
|                                                   |  | 770                    



As of June 30, 2003, the
Companys estimated amortization expense of acquisition-related intangible assets over the next five years and thereafter is as follows (in thousands):



|2003 (remaining 6 months)            |  | $ | 863  
|------------------------------------ |  | - | -----
|2004                                 |  |   | 1,518
|2005                                 |  |   | 1,393
|2006                                 |  |   | 999  
|2007                                 |  |   | 922  
|Thereafter                           |  |   | 697  
|                                     |  |   |      
|Total estimated amortization expense |  | $ | 6,392



Pro forma results



The following unaudited pro forma financial information presents the combined results of
operations of the Company, Vari-L and Xemod (see Acquisiton of Xemod below) as if the acquisitions had occurred on January 1, 2002. The reported results for the three and six-month periods ended June 30, 2003 include the results of Vari-L
subsequent to May 5, 2003 (the acquisition date). Adjustments of $129,000, $513,000, $432,000 and $864,000 have been made to the combined results of operations for the three and six-month periods ended June 30, 2003 and 2002, respectively,
reflecting amortization of acquisition-related intangible assets, as if the acquisition had occurred on January 1, 2002. The unaudited pro forma financial



7



---

##### Table of Contents

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 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, |  
|-------------------------------------------------------------------------------------- |  | ------------------------------------- | ------ | - | ------------------------ | -
|                                                                                       |  | 2003                                  |        |   | 2002                     |  
|                                                                                       |  | (in thousands, except per share data) |       
|Net revenues                                                                           |  | $                                     | 10,654 |   |                          | $
|Loss before extraordinary item and cumulative effect of change in accounting principle |  |                                       | (3,092 | ) |                          |  
|Net loss                                                                               |  |                                       | (3,092 | ) |                          |  
|Basic net loss per share:                                                              |  |                                       |        |   |                          |  
|Loss before extraordinary item and cumulative effect of change in accounting principle |  | $                                     | (0.09  | ) |                          | $
|Net loss                                                                               |  | $                                     | (0.09  | ) |                          | $



The unaudited pro forma information
above includes the effects of the acquisition of Xemod by Sirenza for the three and six-month periods ended June 30, 2002, as if the acquisition occurred on January 1, 2002. The Company completed its acquisition of Xemod on September 11, 2002.
Excluding the pro forma effects of the acquisition of Xemod by Sirenza, pro forma net revenues would have totaled $9.8 million and $19.8 million for the three and six-month periods ended June 30, 2002, pro forma net loss would have totaled $4.8
million and $7.1 million for the three and six-month periods ended June 30, 2002, and pro forma basic net loss per share would have totaled $0.16 and $0.24 for the three and six-month periods ended June 30, 2002.



The unaudited pro forma financial information above includes the following material charges:
restructuring charges of $434,000 in the three and six-month periods ended June 30, 2003, Vari-L expenses related to workforce reductions of $244,000 and $566,000 in the three and six-month periods ended June 30, 2003, respectively, Vari-L expenses
relating to accounting restatements and related legal matters, net of recoveries, of $2,000, $45,000, $1.5 million and $1.8 million in the three and six-month periods ended June 30, 2003 and 2002, respectively, Vari-L proceeds from the sale of life
insurance contracts of $368,000 in the three and six-month periods ended June 30, 2003, respectively, and relocation and related expenses of $661,000 in the three and six-month periods ended June 30, 2003.



Acquisition of Xemod



On September 11, 2002, the Company acquired Xemod Incorporated, a California corporation and a designer and fabless manufacturer of radio
frequency (RF) power amplifier modules and components based on patented lateral double-diffused transistor (LDMOS) technology. The Companys results of operations include the effect of Xemod from September 11, 2002, the date the acquisition
closed. The purchase price was approximately $4.9 million in cash and accrued transaction costs, with additional cash consideration of up to approximately $3.4 million to be paid upon the execution, within 210 days following the closing of the
acquisition by the Company of a qualified supply, development or licensing agreement with regard to the technology developed by Xemod. This 210 day period lapsed and a qualified agreement was not executed and therefore the Company is not obligated
to pay at any time any additional cash consideration. The acquisition was intended to strengthen the Companys product portfolio of RF components, in particular, high power amplifier products.



In accordance with FAS 141, the Company allocated the purchase price of its acquisition of
Xemod to the tangible assets, liabilities and intangible assets acquired, as well as in-process research and development, based on their estimated fair values. The excess purchase price over those fair values has been recorded as goodwill. The fair
value assigned to intangible assets acquired was determined through established valuation techniques using estimates made by management. In accordance with FAS 142, goodwill and purchased intangibles with indefinite lives acquired after June 30,
2001 are not amortized but will be reviewed periodically, on at least an annual basis, for impairment. Purchased intangibles with finite lives will be amortized on a straight-line basis over their respective useful lives.



Of the total purchase price, approximately $770,000 has been allocated to amortizable
intangible assets including patented core technology ($700,000) and internal-use software ($70,000). Patented core technology consists of semiconductor and module intellectual property and proprietary knowledge that is technologically feasible.
Xemods technology is designed for high power RF amplifiers in the wireless communications infrastructure market. The Company intends to leverage this proprietary knowledge to develop new technology and improved products. The Company is
amortizing the patented core technology on a straight-line basis over a period of three to five years, which represents the estimated useful life of the patented core technology.



Internal-use software consists of proprietary test software that was developed internally and integral to Xemods daily operations. The
Company intends to utilize this internal-use software in the manufacturing of modules and components. The Company is amortizing internal-use software on a straight-line basis over a period of three years, which represents the estimated useful life
of the internal-use software.



Note 3:    Inventories



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



8



---

##### Table of Contents

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



In the first and second quarters of 2003, the Company
sold inventory products with an original cost of $439,000 and $394,000, respectively, that had been previously written-down. 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. 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 are as
follows:



|                |  | June 30,2003   |       | December31, 2002
|--------------- |  | -------------- | ----- | ----------------
|                |  | (in thousands)
|Inventories:    |  |                |       |                 
|Raw materials   |  | $              | 2,030 |                 
|Work-in-process |  |                | 2,260 |                 
|Finished goods  |  |                | 2,352 |                 
|                |  |                |       |                 
|Total           |  | $              | 6,642 |                 
|                |  |                |       |                 



Note
4:    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. The Companys total investment of $7.5 million represented approximately 14% of the outstanding voting shares of GCS at the time of the investment. The investment in
GCS was within the Companys strategic focus and intended to strengthen the Companys supply chain for Indium Gallium Phosphide (InGaP) and Indium Phosphide (InP) process technologies. In connection with the investment, the Companys
President and CEO joined GCS seven-member board of directors.



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



The Company evaluates its investment in GCS to determine if an other than temporary decline in value has occurred. Factors that may cause an
other than temporary decline in the value of the Companys investment in GCS would include, but not be limited to, a degradation of the general business environment in which GCS operates, the failure of GCS to achieve certain performance
milestones, a series of operating losses in excess of GCS business plan at the time of our investment, 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 securities of GCS, and the factors mentioned above may require management to make significant judgments about the fair value of the GCS securities.



In the fourth quarter of 2002, the Company determined that an other than temporary decline in value of its investment had occurred. Accordingly, the Company recorded a
charge of $2.9 million to reduce the carrying value of its investment to the 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. As of June 30, 2003, the
Company had determined that its investment in GCS had not experienced any further other than temporary decline in value.



The realizability of the balance of the Companys investment in GCS is ultimately dependent on the Companys ability to sell its GCS shares, for which there is
currently no public market and may be dependent on market conditions surrounding the wireless communications industry and the related semiconductor foundry industry, as well as, 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 5:    Restructuring
Activities



2003 Restructuring Activities



In connection with the acquisition of Vari-L, the resulting new strategic focus of Sirenza
and a new management structure, the Company incurred a restructuring charge of approximately $1.0 million in the second quarter of 2003, primarily related to a workforce reduction and costs of exiting excess facilities. All excess facilities were
exited prior to June 30, 2003. Prior to the date of the financial statements, management with the appropriate level of authority approved and committed the Company to a plan of employee termination and exiting of excess facilities which included the
benefits terminated employees would receive. In addition, prior to the date of the financial statements, the termination benefits were communicated to employees in detail sufficient to enable them to determine the nature and amounts of their
individual severance benefits. These costs are accounted for under Statement of Financial Accounting



9



---

##### Table of Contents

Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146).



The $1.0 million restructuring charge consisted almost entirely of severance and fringe
benefits and $8,000 of costs of exiting excess facilities. This charge is reflected on the Companys condensed consolidated statement of operations as Restructuring and is net of a 2001 restructuring liability adjustment of $596,000
(see 2001 Restructuring Activities below).



The $1.0 million of
severance and fringe benefits resulted from 50 employees to be terminated. Thirty-three of these employees were terminated as of June 30, 2003. Of the 50 terminations, 22 were engaged in manufacturing activities, 12 were engaged in research and
development activities, five were engaged in sales and marketing activities and 11 were engaged in general and administrative activities. In addition, of the 50 terminations, 41 were from sites located in the United States and nine were from the
Companys Canadian design center. None of the employees to be terminated were required to render service until their respective dates of termination in order to receive their termination benefits.



The workforce reductions began in the second quarter of 2003 and are expected to be completed
in the third quarter of 2003. Approximately $481,000 of the severance and fringe benefits were paid in the second quarter of 2003. Of the remaining $541,000 of cash expenditures related to the severance and fringe benefits, $391,000 is expected to
be paid in the third quarter of 2003 and $150,000 is expected to be paid in the first quarter of 2004.



The $8,000 of costs of exiting excess facilities related to noncancelable lease costs for the Companys Canadian design center. The Company estimated the fair value of the cost for exiting excess facilities based
on the remaining contractual lease payments, reduced by estimated sublease rentals at the cease-use date, or April 30, 2003.



The following table summarizes the restructuring costs and activities of the Companys 2003 restructuring through June 30, 2003 (in thousands):



|                              |  | Amount Charged toRestructuring |       | CashPayments |   |      | Non- cashCharges |  | Accrued Restructuring Balance at June 30, 2003
|----------------------------- |  | ------------------------------ | ----- | ------------ | - | ---- | ---------------- |  | ----------------------------------------------
|Worldwide workforce reduction |  | $                              | 1,022 |              | $ | (481 | )                |  | $                                             
|Lease commitments             |  |                                | 8     |              |   | (1   | )                |  |                                               
|                              |  |                                |       |              |   |      |                  |  |                                               
|                              |  | $                              | 1,030 |              | $ | (482 | )                |  | $                                             
|                              |  |                                |       |              |   |      |                  |  |                                               



The remaining cash expenditures
related to the noncancelable lease commitments are expected to be paid over the respective lease term through 2004.



Acquisition-Related Restructuring Costs Capitalized in Fiscal 2002 as a Cost of Acquisition



During the third quarter of 2002, in connection with the acquisition of Xemod, the Companys management approved and initiated plans to
restructure the operations of the Xemod organization. The Company recorded $393,000 to eliminate certain duplicative facilities and for employee termination costs. These costs are accounted for under Emerging Issues Task Force (EITF)
Issue No. 95-3, Recognition of Liabilities in Connection with Purchase Business Combinations. These costs were recognized as a liability assumed in the purchase business combination and included in the allocation of the cost to acquire
Xemod and, accordingly, have been included as an increase to goodwill.



The
$393,000 restructuring liability consisted of $28,000 of severance and $365,000 of costs of vacating duplicate facilities.



The $28,000 of severance resulted from the termination of one employee located in the United States and engaged in general and administrative activities. The employee was
terminated in the third quarter of 2002.



The $365,000 of costs of exiting
duplicative facilities related to noncancelable lease costs. The Company estimated the cost of duplicative facilities based on the contractual terms of its noncancelable lease agreement. Given the current and expected real estate market conditions,
the Company assumed that the exited facility would not be subleased.



In
February 2003, the Company began subleasing the facility that was exited as part of the restructuring related to the acquisition of Xemod. The Company expects to receive a total of $122,000 over the remaining term of the lease, which expires in
February 2005, from its sublessee. Accordingly, the Company reduced its accrued restructuring liability and goodwill by this amount as of December 31, 2002. Any further changes to the estimates of costs associated with executing the currently
approved plans of restructuring for the Xemod organization prior to September 11, 2003 would be recorded as an increase or decrease to goodwill.



The following table summarizes the activity related to the Companys acquisition related accrued restructuring balance during the second quarter of 2003 (in
thousands):



|                              |  | Accrued Restructuring Balance at March 30,2003 |     | CashPayments |   |     | Non- cashCharges |  | Accrued Restructuring Balance at June 30, 2003
|----------------------------- |  | ---------------------------------------------- | --- | ------------ | - | --- | ---------------- |  | ----------------------------------------------
|Worldwide workforce reduction |  | $                                              |    |              | $ |    |                  |  | $                                             
|Lease commitments             |  |                                                | 179 |              |   | (23 | )                |  |                                               
|                              |  |                                                |     |              |   |     |                  |  |                                               
|                              |  | $                                              | 179 |              | $ | (23 | )                |  | $                                             
|                              |  |                                                |     |              |   |     |                  |  |                                               



10



---

##### Table of Contents

The following table summarizes the Companys acquisition related restructuring costs and activities through June 30,
2003 (in thousands):



|                       |  | AmountCharged toRestructuring |     | CashPayments |   |      | Non- cashCharges |  |   | Accrued Restructuring Balance atJune 30, 2003
|---------------------- |  | ----------------------------- | --- | ------------ | - | ---- | ---------------- |  | - | ---------------------------------------------
|Severance              |  | $                             | 28  |              | $ | (28  | )                |  | $ |                                             
|Duplicative facilities |  |                               | 365 |              |   | (87  | )                |  |   | (122                                         
|                       |  |                               |     |              |   |      |                  |  |   |                                              
|                       |  | $                             | 393 |              | $ | (115 | )                |  | $ | (122                                         
|                       |  |                               |     |              |   |      |                  |  |   |                                              



The cash expenditures relating to the
duplicative facility lease commitments are expected to be paid over the term of the lease through 2005.



2002 Restructuring Activities



As a
result of the continued softness in the wireless telecommunications industry, the Company revised its cost structure in the fourth quarter of 2002 and incurred a restructuring charge of $391,000 related to a workforce reduction and exiting excess
facilities. Prior to the date of the financial statements, management with the appropriate level of authority approved and committed the Company to a plan of employee termination and consolidation of excess facilities which included the benefits
terminated employees would receive. In addition, prior to the date of the financial statements, the termination benefits were communicated to employees in detail sufficient to enable them to determine the nature and amounts of their individual
severance benefits. These costs are accounted for under EITF 94-3,  Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).



The $391,000 restructuring liability consisted of $120,000 of severance and fringe benefits
and $271,000 of costs of exiting excess facilities.



The $120,000 of severance
and fringe benefits resulted from the termination of nine employees. Of the nine terminations, seven were engaged in research and development activities and two were engaged in sales and marketing activities. All of the terminated employees were
from the United States. The workforce reductions began and were concluded in the fourth quarter of 2002 with all of the severance and fringe benefits paid in the fourth quarter of 2002.



The $271,000 of costs of exiting excess facilities primarily related to noncancelable lease costs. The Company estimated the cost for excess
facilities based on the contractual terms of its noncancelable lease agreements. Given the then current and expected real estate market conditions, the Company assumed none of the excess facilities would be subleased. To date, none of the facilities
have been subleased. However, to the extent the Company does sublease any of its excess facilities, the proceeds received from subleasing would be credited to restructuring charges, the same statement of operations line item originally charged for
such excess facilities.



The following table summarizes the activity related to
the Companys 2002 accrued restructuring balance during the second quarter of 2003 (in thousands):



|                              |  | Accrued Restructuring Balance atMarch 30, 2003 |     | CashPayments |   |     | Non- cashCharges |  | Accrued Restructuring Balance atJune 30, 2003
|----------------------------- |  | ---------------------------------------------- | --- | ------------ | - | --- | ---------------- |  | ---------------------------------------------
|Worldwide workforce reduction |  | $                                              |    |              | $ |    |                  |  | $                                            
|Lease commitments             |  |                                                | 247 |              |   | (22 | )                |  |                                              
|                              |  |                                                |     |              |   |     |                  |  |                                              
|                              |  | $                                              | 247 |              | $ | (22 | )                |  | $                                            
|                              |  |                                                |     |              |   |     |                  |  |                                              



The following table summarizes the
Companys 2002 restructuring costs and activities through June 30, 2003 (in thousands):



11



---

##### Table of Contents

|                       |  | AmountCharged to Restructuring |     | Cash Payments |   |      | Non- cash Charges |  | Accrued Restructuring Balance atJune 30, 2003
|---------------------- |  | ------------------------------ | --- | ------------- | - | ---- | ----------------- |  | ---------------------------------------------
|Severance              |  | $                              | 120 |               | $ | (120 | )                 |  | $                                            
|Duplicative facilities |  |                                | 271 |               |   | (46  | )                 |  |                                              
|                       |  |                                |     |               |   |      |                   |  |                                              
|                       |  | $                              | 391 |               | $ | (166 | )                 |  | $                                            
|                       |  |                                |     |               |   |      |                   |  |                                              



The remaining cash expenditures
related to the noncancelable lease commitments are expected to be paid over the respective lease terms through 2005.



2001 Restructuring Activities



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



The $2.7 million
restructuring liability consisted of $481,000 of severance and fringe benefits and approximately $2.2 million of costs of exiting excess facilities.



The $481,000 of severance and fringe benefits resulted from the termination of 27 employees. Of the 27 terminations, 12 were engaged in manufacturing activities, seven
were engaged in research and development activities, five were engaged in sales and marketing activities and three were engaged in general and administrative activities. In addition, of the 27 terminations, 23 were from sites located in the United
States, three were from the Companys Canadian design center and one was from the Companys European sales office. The workforce reductions began and were concluded in the fourth quarter of 2001 with substantially all of the severance and
fringe benefits paid in the fourth quarter of 2001.



The $2.2 million of costs
of exiting excess facilities primarily related to noncancelable lease costs. The Company estimated the cost for excess facilities based on the contractual terms of its noncancelable lease agreements. Given the then current and expected real estate
market conditions, the Company assumed none of the excess facilities would be subleased. To date, none of the facilities have been subleased. However, to the extent the Company does sublease any of its excess facilities, the proceeds received from
subleasing will be credited to restructuring charges, the same statement of operations line item originally charged for such excess facilities.



At each balance sheet date, the Company evaluates its restructuring accrual for appropriateness. In the third quarter of 2002, the Company determined that $112,000 of its
2001 restructuring liability accrual was no longer appropriate as of September 30, 2002 and adjusted its restructuring liability accordingly. Of the $112,000 restructuring liability adjustment, $95,000 related to a non-cancelable operating lease
that the Company determined would not be abandoned. The remaining $17,000 related to termination benefits that were never redeemed by terminated employees. The $112,000 restructuring liability adjustment was recorded through the same statement of
operations line item that was used when the liability was initially recorded, or Restructuring.



In addition, in the second quarter of 2003, the Company reoccupied of one its excess facilities as a result of the acquisition of Vari-L and relocation of its Sunnyvale, CA manufacturing facility to Broomfield, CO,
and determined that $596,000 of its 2001 restructuring liability accrual was no longer necessary as of June 30, 2003. As a result, the Company adjusted its restructuring liability accordingly. The $596,000 restructuring liability adjustment was
recorded through the same statement of operations line item that was used when the liability was initially recorded, or Restructuring.



The following table summarizes the activity related to the Companys 2001 accrued restructuring balance during the second quarter of 2003 (in thousands):



|                              |  | Accrued Restructuring Balance atMarch 30, 2003 |       | CashPayments |   |      | Non- cashCharges |  |   | Accrued Restructuring Balance atJune 30, 2003
|----------------------------- |  | ---------------------------------------------- | ----- | ------------ | - | ---- | ---------------- |  | - | ---------------------------------------------
|Worldwide workforce reduction |  | $                                              |      |              | $ |     |                  |  | $ |                                             
|Lease commitments             |  |                                                | 1,233 |              |   | (111 | )                |  |   | (596                                         
|                              |  |                                                |       |              |   |      |                  |  |   |                                              
|                              |  | $                                              | 1,233 |              | $ | (111 | )                |  | $ | (596                                         
|                              |  |                                                |       |              |   |      |                  |  |   |                                              



12



---

##### Table of Contents

The following table summarizes the Companys 2001 restructuring costs and activities through June 30, 2003 (in
thousands):



|                              |  | AmountCharged to Restructuring |       | Cash Payments |   |        | Non- cash Charges |  |   | Accrued Restructuring Balance atJune 30, 2003
|----------------------------- |  | ------------------------------ | ----- | ------------- | - | ------ | ----------------- |  | - | ---------------------------------------------
|Worldwide workforce reduction |  | $                              | 481   |               | $ | (464   | )                 |  | $ | (17                                          
|Lease commitments             |  |                                | 2,189 |               |   | (972   | )                 |  |   | (691                                         
|                              |  |                                |       |               |   |        |                   |  |   |                                              
|                              |  | $                              | 2,670 |               | $ | (1,436 | )                 |  | $ | (708                                         
|                              |  |                                |       |               |   |        |                   |  |   |                                              



The remaining cash expenditures
related to the noncancelable lease commitments are expected to be paid over the respective lease terms through 2006.



Note 6:    Net Income (Loss) Per Share



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



The following table sets forth the computation of basic and diluted net loss per share for
the periods indicated (in thousands, except per share data):



|                                           |  | Three Months EndedJune 30, |        |   | Six Months Ended June 30, |  
|------------------------------------------ |  | -------------------------- | ------ | - | ------------------------- | -
|                                           |  | 2003                       |        |   | 2002                      |  
|Net loss                                   |  | $                          | (2,181 | ) |                           | $
|                                           |  |                            |        |   |                           |  
|Weighted average common shares outstanding |  |                            | 32,119 |   |                           |  
|                                           |  |                            |        |   |                           |  
|Net loss per share                         |  | $                          | (0.07  | ) |                           | $
|                                           |  |                            |        |   |                           |  



The effect of options to purchase
5,407,530 and 4,023,198 shares of Common Stock at average exercise prices of $1.72 and $8.84 for the three and six months ended June 30, 2003 and June 30, 2002, respectively, has not been included in the computation of diluted net loss per share as
their effect would be antidilutive.



Note
7:    Comprehensive Income (Loss)



The Companys
comprehensive net loss was the same as its net loss for the three and six months ended June 30, 2003 and June 30, 2002.



Note 8:    Segments of an Enterprise and Related Information



The Company has adopted Statement of Financial Accounting Standard No. 131, Disclosure about Segments of an Enterprise and Related
Information (FAS 131). FAS 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about
operating segments in interim financial reports. FAS 131 also establishes standards for related disclosures about products and services, geographic areas, and major customers. The Companys chief operating decision maker (CODM), who is the
Chief Executive Officer of the Company, evaluates performance and allocates resources based on segment reporting operating income (loss).



From 2000 to 2001, the Company operated under two business segments organized around channels to market: the Standard Products segment and the Wireless Infrastructure
Products segment. At the beginning of 2002, in response to the changes in the market place, the Company reorganized to focus on end markets. As a result of this reorganization, the Company operated in three business segments: the Wireless
Applications business area, the Wireline Applications business area and the Terminals business area. As a result of the acquisition of Xemod, the Company added one additional



13



---

##### Table of Contents

segment, the Integrated Power Products business area. With the acquisition of Vari-L, the Company reorganized along
product type. The Company now operates in two business segments. First is the Amplifier Division. This business segment consists of our amplifier, power amplifier, power module and discrete product lines. Second, is the Signal Source Division. This
business segment consists of our signal processing and High Reliability product lines. The Companys reportable segments are organized as separate functional units with separate management teams and separate performance assessment and resource
allocation processes.



The accounting policies of each segment are the same as
those described in Note 1: Organization and Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements as reflected in the Companys Annual Report on Form 10-K, filed with the SEC on March 31, 2003. There are
no intersegment sales. Non-segment items include certain corporate manufacturing expenses, advanced research and development expenses, certain sales expenses, general and administrative expenses, amortization of deferred stock compensation,
amortization of acquisition related intangible assets, restructuring charges, interest income and other, net, interest expense, and the provision for income taxes, as the aforementioned items are not allocated for purposes of the CODMs review.
Assets and liabilities are not discretely reviewed by the CODM.



|                                         |  | Amplifier Division |        |   | Signal SourceDivision |   |       | Total Segments |  |   | Non-SegmentItems |   |  | TotalCompany |       
|---------------------------------------- |  | ------------------ | ------ | - | --------------------- | - | ----- | -------------- |  | - | ---------------- | - |  | ------------ | ------
|                                         |  | In 000s           |       
|For the three months ended June 30, 2003 |  |                    |        |   |                       |   |       |                |  |   |                  |   |  |              |       
|Net revenues from external customers     |  | $                  | 6,065  |   |                       | $ | 2,993 |                |  | $ | 9,058            |   |  | $            |      
|Operating income (loss)                  |  | $                  | (719   | ) |                       | $ | (734  | )              |  | $ | (1,453           | ) |  | $            | (883  
|For the six months ended June 30, 2003   |  |                    |        |   |                       |   |       |                |  |   |                  |   |  |              |       
|Net revenues from external customers     |  | $                  | 11,837 |   |                       | $ | 3,020 |                |  | $ | 14,857           |   |  | $            |      
|Operating income (loss)                  |  | $                  | (1,868 | ) |                       | $ | (745  | )              |  | $ | (2,613           | ) |  | $            | (1,118
|For the three months ended June 30, 2002 |  |                    |        |   |                       |   |       |                |  |   |                  |   |  |              |       
|Net revenues from external customers     |  | $                  | 4,856  |   |                       | $ | 7     |                |  | $ | 4,863            |   |  | $            |      
|Operating income (loss)                  |  | $                  | (1,001 | ) |                       | $ | 5     |                |  | $ | (996             | ) |  | $            | (239  
|For the six months ended June 30, 2002   |  |                    |        |   |                       |   |       |                |  |   |                  |   |  |              |       
|Net revenues from external customers     |  | $                  | 9,715  |   |                       | $ | 18    |                |  | $ | 9,733            |   |  | $            |      
|Operating income (loss)                  |  | $                  | (1,769 | ) |                       | $ | 13    |                |  | $ | (1,756           | ) |  | $            | (478  



The segment information above has been
restated to reflect the change in the number of the Companys segments from four to two in the second quarter of 2003. As noted aove, the Signal Source Division was established as a result of the acquisition of Vari-L and primarily includes the
revenues and operating income (loss) attributable to Vari-L and only a small portion of the revenues and operating income (loss) that was previously included in the Companys other segments.



Note 9:    Contingency



In November 2001, the Company, 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 the Companys 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 the Company and its 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 the Company. The courts order
dismissed all claims against the Company except for a claim brought under Section 11 of the Securities Act of 1933.



A proposal has been made for the settlement and release of claims against the issuer defendants, including the Company, in exchange for a guaranteed recovery to be paid
by the issuer defendants insurance carriers and an assignment of certain claims. The settlement is subject to a number of conditions, including approval of the proposed settling parties and the court. If the settlement does not occur, and
litigation against the Company continues, the Company believes it has meritorious defenses and intends to defend the case vigorously.



Note 10:    Realignment of Distribution Channel Partners



In the second quarter of 2003, the Company realigned its worldwide sales channels to enhance geographic market reach, customer service and



14



---

##### Table of Contents

technical support. As part of this realignment, the Company terminated its existing distribution agreement with
Richardson Electronics Laboratories and entered into a new distribution agreement with Acal, plc, (Acal), a leading value-added distributor with operations in Europe. Sales through Richardson Electronics Laboratories represented approximately 19% of
net revenues in the second quarter of 2003, 33% of net revenues in the first quarter of 2003, 37% of net revenues in 2002 and 39% of net revenues in 2001. In addition, in the second quarter of 2003 Richardson Electronics Laboratories completed its
return of unsold inventory products for which it had already paid, resulting in a net liability to the Company $475,000. This amount is reflected in accounts payable on the Companys June 30, 2003 balance sheet. Due to our accounting policy
related to distributor revenue accounting, no revenue had been recognized on the inventory products returned by Richardson Electronics Laboratories.



Subsequent to June 29, 2003, the Company entered into North American sales distribution agreements with two distributors, Nu Horizons and RFMW.



The Company intends to sell substantially all of the of inventory returned by Richardson
Electronics Laboratories to its other distributors, Avnet Electronics Marketing, Acal, Nu Horizons and RFMW, as well as through the Companys direct sales channels.



Note 11:    Impact of Recently Issued Accounting Standards



In April 2003, the FASB issued Statement of Financial Accounting Standard No. 149,
Amendment of Statement 133 on Derivative Instruments and Hedging Activities (FAS 149). FAS 149 amends and clarifies the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for
hedging activities under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. FAS 149 is generally effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after
June 30, 2003. The Company does not currently anticipate that the adoption of FAS 149 will have a material impact on its results of operations or financial condition.



In May 2003, the FASB issued Statement of Financial Accounting Standard No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity (FAS 150). FAS 150 requires that certain financial instruments, which under previous guidance were accounted for as equity, must now be accounted for as liabilities. The financial instruments
affected include mandatorily redeemable stock, certain financial instruments that require or may require the issuer to buy back some of its shares in exchange for cash or other assets and certain obligations that can be settled with shares of stock.
SFAS 150 is effective for all financial instruments entered into or modified after May 31, 2003 and must be applied to the Companys existing financial instruments effective July 1, 2003, the beginning of the first fiscal period after June 15,
2003. The Company does not expect the adoption of SFAS 150 to have a material effect on its results of operations or financial condition.



In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities. FIN 46 requires all investors with majority of the
variable interests (primary beneficiary) in a variable interest entity (VIE) to consolidate the entity and also requires majority and significant variable interest investors to provide certain disclosures. A VIE is an entity in which the voting
equity investors do not have a controlling interest or the equity invested in is insufficient to finance the entities activities without receiving additional subordinated financial support from other parties. For arrangements entered into with VIEs
created prior to January 31, 2003, the provisions of FIN 46 are required to be adopted at the beginning of the first interim or annual period beginning after June 15, 2003. The provisions of FIN 46 were effective immediately for all arrangements
entered into with VIEs created after January 31, 2003.



For promotion of
strategic business objectives the Company may enter into arrangements with VIEs. The Company has performed a review of its potential arrangements with VIEs to determine whether the Company is the primary beneficiary of any of the related entities.
To date the review has not identified any entity that would require consolidation. The Company will complete its review in the third quarter of 2003. Provided the Company is not the primary beneficiary, the maximum exposure to losses related to any
entity that is determined to be a VIE is limited to the carrying value of the investment in that entity.



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



Critical Accounting Policies and Estimates



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



Management believes the following critical accounting policies require the most significant judgments and estimates to be made in the preparation of Sirenzas consolidated financial statements.



Investments:    In the first quarter of 2002, Sirenza 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. Sirenzas total investment of $7.5 million represented approximately 14% of the outstanding voting shares of GCS at the time of the investment. The investment in GCS was within Sirenzas
strategic focus and intended to strengthen Sirenzas supply chain for InGaP and InP process technologies. In connection with the investment, Sirenzas President and CEO joined GCSs seven-member board of directors.



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



Sirenza
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 Sirenzas investment in GCS would include, but not be limited to, a
degradation of the general business environment in which GCS operates, the failure of GCS to achieve certain milestones or a series of operating losses in excess of GCS then current business plan, the inability of GCS to continue as a going
concern and a reduced valuation as determined by a new financing event. There is no public market for GCS, and the factors mentioned above may require management to make significant judgments about the fair value of such securities. If Sirenza
determines that an other than temporary decline in value has occurred, it will write-down its investment in GCS to fair value. Such a write-down could have a material adverse impact on Sirenzas consolidated results of operations in the period
in which it occurs. For



15



---

##### Table of Contents

example, in the fourth quarter of 2002, Sirenza wrote down the value of its investment in GCS by $2.9 million after
determining that GCS value had experienced an other than temporary decline.



Sirenzas ultimate ability to realize its investment in GCS in the future may be dependent on 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 mergers and acquisition activities.



Valuation of Goodwill:    We will review goodwill for impairment annually in the third quarter and whenever events or changes in circumstances
indicate the carrying value of an asset may not be recoverable in accordance with FAS 142. The provisions of FAS 142 require that a two-step impairment test be performed on goodwill. In the first step, the fair value of each reporting unit is
compared to its carrying value. The fair value is estimated using a discounted cash flow approach. When available and as appropriate, comparative market multiples are also used to supplement the discounted cash flow approach. If the fair value of
the reporting unit exceeds the carrying value of the assets assigned to that unit, goodwill is not impaired and no further testing is performed. If the carrying value of the assets assigned to the reporting unit exceeds the fair value of the
reporting unit, then the second step must be performed, and 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.



Valuation of LongLived Assets and Intangible Assets:    Sirenza records impairment charges for long-lived assets and intangible assets with
finite useful lives when impairment indicators exist and the related undiscounted future cash flows and fair values are less than the carrying value of such assets, as was the case in 2001 when Sirenza recorded $315,000 of impairment charges on
long-lived assets. Future adverse changes in market conditions or changes in the estimated useful life of Sirenzas long-lived assets or intangible assets with finite useful lives could result in new impairment indicators, thereby possibly
resulting in impairment charges in the future.



Excess and Obsolete
Inventories:    Sirenza records provisions for excess inventories based on levels of inventory exceeding the forecasted demand of such products within specific time horizons. Sirenza forecasts demand for specific products
based on the number of products it expects to sell, with such assumptions dependent on its assessment of market conditions and current and expected orders from its customers, considering that orders are subject to cancellation with limited advance
notice prior to shipment. If forecasted demand decreases based on Sirenzas estimates or if inventory levels increase disproportionately to forecasted demand, additional inventory write-downs may be required, as was the case in 2001 when
Sirenza recorded additional provisions for excess inventories of $7.8 million. Likewise, if Sirenza ultimately sells inventories that were previously written-down, Sirenza would reduce the previously recorded excess inventory provisions which would
have a positive impact on Sirenzas cost of revenues, gross margin and operating results, as was the case in 2002 and in the first and second quarters of 2003, when Sirenza sold a total of $2.6 million, $439,000 and $394,000, respectively, of
previously written-down inventory products.



In addition to the above critical
accounting policies Sirenza considers the following accounting policies to be very important in the preparation of Sirenzas consolidated financial statements:



Business Combinations:    Sirenza is required to allocate the purchase price of an acquired company to the
tangible and intangible assets acquired, liabilities assumed, as well as in-process research and development, or IPR&D, based on their estimated fair values. Such a valuation requires management to make significant estimates and assumptions,
especially with respect to intangible assets.



Critical estimates in valuing
certain of the intangible assets include but are not limited to: future expected net cash flows from acquired patented core, or developed technology; expected costs to develop the IPR&D into commercially viable products and estimating net cash
flows from the projects when completed; and discount rates. Managements estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. Assumptions may be incomplete or
inaccurate, and unanticipated events and circumstances may occur.



Valuation
of Deferred Tax Assets:    Sirenza records a valuation allowance to reduce its deferred tax assets to the amount that management believes is more likely than not to be realized. Each quarter management evaluates the required
criteria necessary to support deferred tax assets, including recoverable income taxes and sources of future taxable income, and adjusts the valuation allowance accordingly. Increases or decreases in the valuation allowance serve to increase or
decrease Sirenzas income tax expense in the period such adjustments are recorded. Due to current and continuing uncertain economic conditions in Sirenzas industry, management believes that as of June 30, 2003, it is more likely than not
that Sirenzas deferred tax assets will not be realized, and no net deferred tax assets are recorded on Sirenzas balance sheet as of that date. Management will continue to evaluate the need for a valuation allowance in subsequent
quarters. If it is subsequently determined that some or all or Sirenzas deferred tax assets will more likely than not be realized, Sirenza will reduce Sirenzas valuation allowance in the quarter such determination is made.



Allowance for Doubtful Accounts:    Sirenza maintains an allowance
for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of Sirenzas customers were to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required. To date, Sirenza has not experienced material losses as a result of Sirenzas customers inability to pay us.



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



Restructuring Charges:    Sirenza recorded restructuring charges
of $2.7 million in the fourth quarter of 2001, $393,000, as an increase to goodwill, in the third quarter of 2002, and $391,000 in the fourth quarter of 2002. Sirenza has assumed it would not sublease any of its excess facilities through the end of
the respective lease term. In the event that Sirenza subleases any of these excess facilities, an adjustment to Sirenzas restructuring accrual would be charged to income or goodwill (only if prior to September 11, 2003) in the period such a
sublease occurred. As of June 30, 2003, Sirenza subleased one of its excess facilities and reduced its restructuring liability accordingly. For more information related to Sirenzas restructuring activities, see Note 5 of Notes to Condensed
Consolidated Financial Statements.



16



---

##### Table of Contents

Distributor Revenue Accounting:    Sirenza recognizes revenues on sales to its distributors at
the time its products are sold by its distributors to their third party customers. At the end of each month, Sirenza defers both the sale and related cost of sale on any product that has not been sold to an end customer. Sirenza records the deferral
of the sale on any unsold inventory products at its distributors as a liability and records the deferral of the related cost of sale as a contra liability, the net of which is presented on Sirenzas balance sheet as Deferred margin on
distributor inventory. Sirenza receives reports from its distributors indicating the sales value of inventory being held on behalf of Sirenza, which is reconciled to Sirenzas estimate of the sales value of inventory being held on behalf
of Sirenza, considering in-transit inventory to and from Sirenzas distributors and pricing adjustments.



Overview



Sirenza is a leading designer
of high performance RF components for communications equipment manufacturers. Sirenzas products are used primarily in wireless communications equipment to enable and enhance the transmission and reception of voice and data signals.
Sirenzas products are also used in wireless, military/aerospace, broadband wireline, and terminal applications.



On September 11, 2002, Sirenza acquired Xemod Incorporated, a California corporation and a designer and fabless manufacturer of RF power amplifier modules and components
based on patented lateral double-diffused transistor (LDMOS) technology. Sirenzas results of operations include the effect of Xemod from September 11, 2002, the date the acquisition closed. The purchase price was approximately $4.9 million in
cash and accrued transaction costs, with additional cash consideration of up to approximately $3.4 million to be paid upon the execution, by April 9, 2003, by Sirenza of a qualified supply, development or licensing agreement with regard to the
technology developed by Xemod. A qualified agreement was not executed and therefore Sirenza is not obligated to pay at any time any additional cash consideration. The acquisition is intended to strengthen Sirenzas product portfolio of RF
components, in particular, high power amplifier products.



On May 5, 2003,
Sirenza acquired substantially all of the assets of Vari-L and assumed specified liabilities of Vari-L in exchange for approximately 3.3 million shares of Sirenza common stock, valued at approximately $4.7 million, approximately $9.1 million in cash
and incurred $2.4 million in estimated direct transaction costs for a preliminary aggregate purchase price of $16.1 million. The fair value of Sirenza common stock issued in connection with the Vari-L acquisition was derived using an average market
price per share of Sirenza common stock of $1.43, which was based on an average of the closing prices for a range of three trading days (April 30, 2003, May 1, 2003 and May 2, 2003) prior to the closing date of the acquisition. Of the $9.1 million
in cash, approximately $3.8 million was paid to Vari-L at closing and $5.3 million related to loans Sirenza made to Vari-L prior to the closing of the business combination. All of the $5.3 million of Vari-L loans, which included $3.4 million of
Vari-L loans outstanding on Sirenzas balance sheet as of December 31, 2002, have been included in the calculation of the estimated purchase price of Vari-L. Sirenzas results of operations include the effect of Vari-L subsequent to May 5,
2003, the date the acquisition closed. The acquisition is intended to strengthen Sirenzas product portfolio of RF components, in particular, signal source processing products and enable Sirenza to achieve significant cost synergies in the
highly competitive wireless communication RF component industry.



As a result
of the acquisition of Vari-L, Sirenza relocated its corporate headquarters from Sunnyvale, CA to Broomfield, CO. In addition, Sirenza relocated its manufacturing facilities in Sunnyvale, CA and Denver, CO to Broomfield, CO. The relocation of these
manufacturing facilites was completed as of June 30, 2003. Sirenza will also be relocating its Tempe, AZ manufacturing facility to Broomfield, CO in August 2003.



From 2000 to 2001, Sirenza operated under two business segments organized around channels to market: the Standard Products segment and the
Wireless Infrastructure Products segment. At the beginning of 2002, in response to the changes in the market place, Sirenza reorganized to focus on end markets. As a result of this reorganization, Sirenza operated in three business segments: the
Wireless Applications business area, the Wireline Applications business area and the Terminals business area. As a result of the acquisition of Xemod, Sirenza added one additional segment, the Integrated Power Products business area. With the
acquisition of Vari-L, Sirenza reorganized along product type. Sirenza now operates in two business segments. First is the Amplifier Division. This business segment consists of our amplifier, power amplifier, power module and discrete product lines.
Second, is the Signal Source Division. This business segment consists of our signal processing and High Reliability product lines.



Sirenzas Amplifier Division accounted for 67% of net revenues in the three months ended June 30, 2003. Sirenzas Signal Source Division accounted for 33% of
net revenues revenues in the three months ended June 30, 2003. We expect the percentage of sales through our Signal Source Division to increase within the next year.



Sirenza sells its products worldwide through a direct sales force and distributors based in the U.S. and Europe. In the past, Sirenza also
sold its products through a private label reseller who sold its products under its brand name, although there have not been any sales to this reseller since the fourth quarter of 2001. Sirenzas products are also sold through a worldwide
network of independent sales representatives whose orders are fulfilled either by Sirenzas distributors or Sirenza directly. Significant portions of Sirenzas distributors end sales are made to their customers overseas. Sales to
direct customers located in the United States represented approximately 46% of net revenues in the three months ended June 30, 2003. Sales to direct customers located outside of the United States represented 54% of net revenues in the three months
ended June 30, 2003. Sales to one customer with worldwide operations, Celestica, represented 10% of net revenues in the three months ended June 30, 2003. Sales to one additional customer, Planet Technology, our Chinese sales representative,
represented 10% of net revenues in the three months ended June 30, 2003. Celestica is a contract manufacturer for multiple OEM customers of Sirenza. Sirenza anticipates that sales to Celestica and Planet Technology will continue to account for a
substantial portion of its net revenues in the near term. For Sirenzas direct sales and sales to Sirenzas sales representatives, Sirenza recognizes revenues when the product has been shipped, title has transferred, and no further
obligations remain. Although Sirenza has never experienced a delay in customer acceptance of its products, should a customer delay acceptance in the future, Sirenzas policy is to delay revenue recognition until a customer accepts the products.
Revenues and the related cost of revenues from Sirenzas distributors are deferred until the distributors resell the products to their customers.



Two distributors, Richardson Electronics Laboratories and Avnet Electronics Marketing, accounted for a substantial portion of Sirenzas net revenues in the three
months ended June 30, 2003. Sales through Richardson Electronics Laboratories represented 19% of net revenues in the three months ended June 30, 2003. Sales to Avnet Electronics Marketing represented 12% of net revenues in the three months ended
June 30, 2003. Richardson



17



---

##### Table of Contents

Electronics Laboratories and Avnet Electronics Marketing distribute Sirenzas products to a large number of end
customers. Sirenza anticipates that sales through Avnet Electronics Marketing will continue to account for a substantial portion of its net revenues in the near term. In the second quarter of 2003, Sirenza terminated its agreement with Richardson
Electronics Laboratories and entered into a new distribution agreement with Acal, a leading value-added distributor with operations in Europe. In addition, in July of 2003, the Company entered into two North American sales distribution agreements
with Nu Horizons and RFMW. The failure to transition the customer accounts served by Richardson Electronics Laboratories to Acal, Avnet Electronics Marketing, Nu Horizons, RFMW and to our direct sales channels in a timely manner could limit our
ability to sustain and grow our revenues.



Sales of Sirenzas products
within two of Sirenzas product lines accounted for a significant portion of Sirenzas net revenues in the three months ended June 30, 2003. Sales of Sirenzas amplifier and power amplifier products accounted for 57% of Sirenzas
net revenues in the three months ended June 30, 2003. Sales of Sirenzas signal processing products accounted for 33% of Sirenzas net revenues in the three months ended June 30, 2003. Sales within Sirenzas other product lines
accounted for 10% of Sirenzas net revenues in the three months ended June 30, 2003.



Cost of revenues consists primarily of the costs of wafers from Sirenzas third-party wafer fabs, costs of raw material components from multiple third-party vendors, costs of packaging performed by third-party
vendors, costs of testing, costs associated with procurement, production control, quality assurance, reliability and manufacturing engineering. For the significant majority of Sirenzas amplifier, power amplifier and discrete products, Sirenza
subcontracts its wafer manufacturing and packaging and performs final testing and tape and reel assembly at Sirenzas facilities. For the significant majority of Sirenzas power module and signal processing products, Sirenza manufactures,
assembles and tests its products at its manufacturing facility in Broomfield, CO. Sirenza continues to explore the outsourcing of its production testing operations. Sirenza intends to begin the outsourcing of a portion of its production testing
operations once unit volumes increase to a level that makes outsourcing economically attractive to subcontractors.



There are a number of factors influencing Sirenzas gross margin. Historically, gross margins on Sirenzas sales through Sirenzas distributors, to private
label resellers and Sirenzas direct customers have differed materially from each other. As a result, the relative mix of these sales affects Sirenzas gross margin. Also, the gross margin on sales of Sirenzas newer products are
typically higher than the gross margin on sales of some of Sirenzas older products. As a result, the relative mix of new product sales compared to older product sales affects Sirenzas gross margin. In addition, Sirenza offers a broad
range of products within multiple product lines that have historically had different gross margins. As a result, the relative mix of product sales by product line affects Sirenzas gross margins. Finally, the relative mix of multi-chip product
sales compared to integrated circuit product sales may affect Sirenzas gross margin in the future.



In addition, Sirenzas cost of revenues and gross margins may be negatively influenced by provisions for excess inventories, as was the case in 2001 when Sirenza recorded provisions for excess inventories of $7.8
million, and positively influenced by the sale of previously written-down inventory products, as was the case in 2002 and in the first and second quarters of 2003 when Sirenza sold $2.6 million, $439,000 and $394,000 of previously written-down
inventory products, respectively.



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 products and also provides a schedule of the activity of Sirenzas written-down inventories (in
thousands):



|Six Months Ended June 30, |  | Additions to Written-DownInventories Charged to Cost of Revenues |     | Sales of Written-Down Inventorieswith no Associated Cost ofRevenues |   |        | Dispositions of Written-Down InventoriesVia Scrap and Other |  |   | Written-Down Inventories atEnd of Period
|------------------------- |  | ---------------------------------------------------------------- | --- | ------------------------------------------------------------------- | - | ------ | ----------------------------------------------------------- |  | - | ----------------------------------------
|2003                      |  | $                                                                | 168 |                                                                     | $ | (833   | )                                                           |  | $ | 93                                      
|2002                      |  | $                                                                | 86  |                                                                     | $ | (1,129 | )                                                           |  | $ | (11                                     



The $5.3 million of written-down
inventories at June 30, 2003 relates to a large number of Sirenzas products within a few of its product lines, at all stages of inventory completion. Sirenza will ultimately dispose of written-down inventories by either selling such products
or scrapping them. Sirenza currently expects to continue to sell written-down inventory products in 2003, however, not at the level experienced in 2002, although no assurance can be given in this regard. Similarly, Sirenza anticipates that it will
scrap additional written-down inventories in the near term. The sales of written-down inventories in the six months ended June 30, 2003 had a positive impact on Sirenzas gross margin. Had this inventory been valued at its original cost when
sold, Sirenzas gross margin for the six months ended June 30, 2003 would have been 43% instead of 49%, as reported.



As discussed above in Critical Accounting Policies and Estimates, Sirenza records provisions for excess inventories based on levels of inventory exceeding the
forecasted demand for such products within specific time horizons. Sirenza forecasts demand for specific products based on the number of products it expects to sell, with such assumptions dependent on its assessment of market conditions and current
and expected orders from its customers, considering that orders are subject to cancellation with limited advance notice prior to shipment. As a result, estimating the future impact of additional provisions for excess inventories on Sirenzas
results of operations involves many uncertainties. However, based on current levels of written-down inventories, the mix of inventory products and current market conditions, Sirenza does not expect to incur write-downs of inventories in 2003 at the
same levels as in 2001, although no assurance can be given in this regard. Should excess inventories need to be written-down in the future, Sirenzas gross margin would be negatively affected.



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



Sirenza does not recognize revenue or the related costs of
revenue from sales to its distributors until shipment to the distributors customer. Sirenza records the deferral of the sale on any unsold inventory products at its distributors as a liability and records the deferral of the related cost of
sale as a



18



---

##### Table of Contents

contra liability, the net of which is presented on Sirenzas balance sheet as Deferred margin on distributor
inventory. As a result, the level of inventory at Sirenzas distributors can affect Sirenzas reported gross margin for any particular period.



In the three months ended June 30, 2003, Circuit Electronic Industries Public Co., Ltd., or CEI, MPI Corporation and Unisem packaged a significant majority of
Sirenzas amplifier, power amplifer and discrete products. Relatives of Sirenzas founding stockholders own MPI Corporation in Manila, Philippines. Although Sirenza utilized three additional packaging subcontractors in the second quarter
of 2003, Sirenza anticipates that CEI and Unisem will continue to account for a significant amount of its amplifier, power amplifer and discrete packaging in the near future. Sirenza does not expect MPI to package significant amounts of its products
in the near future.



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



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



General and administrative expenses consist primarily of salaries and related expenses for
executive, finance, accounting, information technology, and human resources personnel, insurance and professional fees.



Comparison of the Three Months Ended June 30, 2003 and June 30, 2002



Net Revenues



Net revenues increased to $9.1 million for the three months ended June 30, 2003 from $4.9 million for the three months ended June 30, 2002. This increase was primarily the result of the acquisition of Vari-L, which
closed on May 5, 2003. Net revenues attributable to Vari-L products totaled $2.8 million for the three months ended June 30, 2003. In addition, demand for Sirenzas amplifier products increased from wireless original equipment manufacturers, or
OEMs. Sirenza attributes a large portion of the increase to its world-wide customer sales support capabilities added in the second half of 2002 when Sirenza established a sales office in Stockholm, Sweden, and a customer support office in Shenzhen,
China. Sirenza also experienced a slight increase in net revenues for the three months ended June 30, 2003 as a result of the acquisition of Xemod, which closed on September 11, 2002. Net revenues attributable to Xemod products approximated $222,000
for the three months ended June 30, 2003. Sales through Sirenzas distributors totaled $3.0 million, or 33% of net revenues for the three months ended June 30, 2003 compared to $2.3 million, or 48% of net revenues for the three months ended
June 30, 2002. Sales to Sirenzas direct customers totaled $6.1 million, or 67% of net revenues for the three months ended June 30, 2003. Sales to Sirenzas direct customers totaled $2.5 million, or 52% of net revenues for the three months
ended June 30, 2002.



Cost of Revenues



Cost of revenues increased to $4.9 million for the three months ended June 30, 2003 from
$2.0 million for the three months ended June 30, 2002 primarily as a result of the acquisition of Vari-L. Cost of revenues associated with Vari-L products totaled $1.9 million for the three months ended June 30, 2003. Other contributory factors
included additional cost of revenues associated with Xemod products, which increased cost of revenues by approximately $387,000 and relocation and related expenses of approximately $321,000 to move operations personnel and the Sunnvyale, CA
manufacturing facility to Broomfield, CO. In addition, in the second quarter of 2003, Sirenza sold inventory products that were previously written-down of approximately $394,000 compared to $566,000 in the second quarter of 2002. 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. Sirenza originally recorded provisions for
excess inventories as a result of a rapidly declining demand for products within a few product lines due to customer program cancellations. Subsequently, Sirenza began receiving new orders for these parts which it did not anticipate at the time it
wrote the inventories down. Sirenza expects to sell previously written-down inventory products in future periods, although no assurance can be given in this regard. Operations personnel increased to 64 at June 30, 2003 from 29 at June 30,
2002.



Gross Profit



Gross profit increased to $4.2 million for the three months ended June 30, 2003 from $2.9
million for the three months ended June 30, 2002. Gross margin decreased to 46% for the three months ended June 30, 2003 from 59% for the three months ended June 30, 2002. The decrease in gross margin is primarily attributable to additional costs
associated with the acquisition of Vari-L and Xemod products, and other contributory factors such as, relocation and related expenses to move operations personnel and the Sunnyvale, CA manufacturing facility to Broomfield, CO, and fewer sales of
previously written-down inventories. Sales of previously written-down inventory products totaled $394,000 for the three months ended June 30, 2003 which resulted in an increase to Sirenzas gross margin of approximately 4%. Had this inventory
been valued at its original cost when sold, Sirenzas gross margin would have been 42% instead of 46%, as reported, for the three months ended June 30, 2003. Sales of previously written-down inventory products totaled $566,000 for the three
months ended June 30, 2002 which resulted in an increase to Sirenzas gross margin of approximately 12%. Had this inventory been valued at its original cost when sold, Sirenzas gross margin would have been 48% instead of 59%, as reported,
for the three months ended June 30, 2002.



Operating Expenses



Research and Development.    Research and
development expenses increased to $2.2 million for the three months ended June 30, 2003 from $1.4 million for the three months ended June 30, 2002. This increase is the result of the acquisition of Vari-L, including salaries and related costs of
Vari-L personnel, which increased costs by $467,000 and the acquisition of Xemod, which increased costs by $437,000. Research and development personnel increased to 59 at June 30, 2003 from 30 at June 30, 2002.



19



---

##### Table of Contents

Sales and Marketing.    Sales and marketing expenses increased to $1.7 million for the three
months ended June 30, 2003 from $1.3 million for the three months ended June 30, 2002. This increase is the result of the acquisition of Vari-L, including salaries and related costs of Vari-L personnel, which increased costs by $431,000. Sales,
marketing and applications engineering personnel increased to 33 at June 30, 2003 from 22 at June 30, 2002.



General and Administrative.    General and administrative expenses increased to $1.8 million for the three months ended June 30, 2003 from $1.2
million for the three months ended June 30, 2002. This increase is primarily the result of the acquisition of Vari-L, including salaries and related costs of Vari-L personnel, which increased costs by $422,000 and to a lessor extent, relocation and
related costs of approximately $128,000 to move administrative personnel from Sunnyvale, CA to Broomfield, CO. General and administrative personnel increased to 31 at June 30, 2003 from 16 at June 30, 2002.



Amortization of Deferred Stock Compensation.    In connection with
the grant of stock options to employees prior to Sirenzas initial public offering, Sirenza recorded deferred stock compensation within stockholders equity of approximately $681,000 in 2000 and $4.5 million in 1999, representing the
difference between the deemed fair value of the common stock for accounting purposes and the exercise price of these options at the date of grant. During the three months ended June 30, 2003 and June 30, 2002 Sirenza amortized $146,000 and $239,000,
respectively, of this deferred stock compensation. Sirenza will amortize the remaining deferred stock compensation over the vesting period of the related options, generally four years. The amount of deferred stock compensation expense to be recorded
in future periods was reduced by $138,000 in the second quarter of 2003 and by $434,000 in 2001 as a result of options for which accrued but unvested compensation had been recorded was forfeited. The amount of deferred stock compensation expense to
be recorded in future periods could decrease again if additional options for which accrued but unvested compensation has been recorded are forfeited.



Amortization of Acquisition Related Intangible Assets.    In the second quarter of 2003, Sirenza acquired substantially all of the assets of
Vari-L and assumed specified liabilities of Vari-L in exchange for approximately 3.3 million shares of Sirenza common stock, valued at approximately $4.7 million, and approximately $9.1 million in cash, for a preliminary aggregate purchase price of
$16.1 million, including $2.4 million in estimated direct transaction costs. Of the total purchase price, approximately $6.0 million has been allocated to amortizable intangible assets including developed product technology ($4.8 million), customer
relationships ($870,000) and committed customer backlog ($310,000). Sirenza is amortizing the fair value of developed product technology on a straight-line basis over a period of 44 to 68 months, which represents the estimated useful life of the
developed product technology. The weighted average amortization period for developed product technology is approximately 65 months. Sirenza is amortizing the fair value of customer relationships on a straight-line basis over a period of 32 months,
which represents the estimated useful life of the customer relationships. Sirenza is amortizing the fair value of committed customer backlog on a straight-line basis over a period of 12 months.



In the third quarter of 2002, Sirenza acquired Xemod for approximately $4.9 million in cash
and accrued transaction costs. Of the total purchase price, $770,000 has been allocated to amortizable intangible assets including patented core technologies of $700,000 and internal-use software of $70,000. Sirenza is amortizing the patented core
technologies on a straight-line basis over a period of three to five years, which represents their estimated useful lives. Sirenza is amortizing the internal-use software on a straight-line basis over a period of three years, which represents its
estimated useful life.



In the second quarter of 2003, Sirenza recorded
amortization of $303,000 related to its acquired intangible assets.



Restructuring.    In the second quarter of 2003, as a result of the acquisition of Vari-L, the resulting new strategic focus of Sirenza and a new management structure, management of Sirenza approved and committed
to a restructuring plan including the termination of certain employees and costs of exiting excess facilities. Accordingly, Sirenza recorded a restructuring charge of approximately $1.0 million. These costs are accounted for under FAS 146. In
addition, in the second quarter of 2003, Sirenza reoccupied one of its excess facilities as a result of the acquisition of Vari-L and relocation of its Sunnyvale manufacturing facility to Broomfield, CO, and determined that $596,000 of its 2001
restructuring liability accrual was no longer necessary as of June 30, 2003. As a result, Sirenza adjusted its restructuring liability accordingly. The $596,000 restructuring liability adjustment was recorded through the same statement of operations
line item that was used when the liability was initially recorded, or Restructuring. The net restructuring charge in the second quarter of 2003 totaled $434,000.



Interest and Other Income (Expense), Net



Interest and other income (expense), net, includes income from Sirenzas cash and cash equivalents and available-for-sale securities, interest expense from capital
lease financing obligations and other miscellaneous items. Sirenza had net interest and other income of $155,000 for the three months ended June 30, 2003 and $262,000 for the three months ended June 30, 2002. The decrease in net interest and other
income for the three months ended June 30, 2003 compared to the three months ended June 30, 2002 is primarily attributable to a reduction in Sirenzas cash and cash equivalents and available for sale securities and lower interest rates.



Provision for (Benefit from) Income Taxes



Sirenzas provision for income taxes were zero for the three months ended June 30, 2003
and June 30, 2002. Sirenzas provision for income taxes for the three months ended June 30, 2003 and June 30, 2002 were based on our estimated tax rate for the year.



Comparison of the Six Months Ended June 30, 2003 and June 30, 2002



Net Revenues



Net revenues increased to $14.9 million for the six months ended June 30, 2003 from $9.7 million for the six months ended June 30, 2002. This increase was primarily the
result of the acquisition of Vari-L, which closed on May 5, 2003. Net revenues attributable to Vari-L products totaled $2.8 million for the six months ended June 30, 2003. In addition, demand for Sirenzas amplifier products increased by $1.9
million as a result of an increase in demand from OEMs. Sirenza attributes a large portion of this increase to its world-wide customer sales support capabilities added in the second half of 2002 when Sirenza established a sales office in Stockholm,
Sweden, and a customer support office in Shenzhen, China. Lastly, Sirenza also experienced a slight increase in net revenues for the six months ended June 30, 2003 as a result of the acquisition of Xemod, which closed on



20



---

##### Table of Contents

September 11, 2002. Net revenues attributable to Xemod products approximated $453,000 for the six months ended June 30,
2003. Sales through Sirenzas distributors totaled $5.7 million, or 38% of net revenues for the six months ended June 30, 2003 compared to $4.9 million, or 51% of net revenues for the six months ended June 30, 2002. Sales to Sirenzas
direct customers totaled $9.2 million, or 62% of net revenues for the six months ended June 30, 2003. Sales to Sirenzas direct customers totaled $4.8 million, or 49% of net revenues for the six months ended June 30, 2002.



Cost of Revenues



Cost of revenues increased to $7.6 million for the six months ended June 30, 2003 from $3.7 million for the six months ended June 30, 2002
primarily as a result of the acquisition of Vari-L. Cost of revenues associated with Vari-L products totaled $1.9 million for the six months ended June 30, 2003. Other contributory factors included additional cost of revenues associated with Xemod
products, which increased cost of revenues by approximately $774,000 and relocation and related expenses of approximately $321,000 to move operations personnel and the Sunnvyale, CA manufacturing facility to Broomfield, CO. In addition, for the six
months ended June 30, 2003, Sirenza sold inventory products that were previously written-down of approximately $833,000 compared to $1.1 million for the six months ended June 30, 2002. 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. Sirenza originally recorded provisions for excess inventories as a result of a rapidly
declining demand for products within a few product lines due to customer program cancellations. Subsequently, Sirenza began receiving new orders for these parts which it did not anticipate at the time it wrote the inventories down. Sirenza expects
to sell previously written-down inventory products in future periods, although no assurance can be given in this regard.



Gross Profit



Gross profit increased to $7.2 million for the six months ended June 30, 2003 from $6.1 million for the six months ended June 30, 2002. Gross margin decreased to 49% for the six months ended June 30, 2003 from 62% for
the six months ended June 30, 2002. The decrease in gross margin is primarily attributable to additional costs associated with the acquisition of Vari-L and Xemod products, and other contributory factors such as, relocation and related expenses to
move operations personnel and the Sunnvyale, CA manufacturing facility to Broomfield, CO, and fewer sales of previously written-down inventories. Sales of previously written-down inventory products totaled $833,000 for the six months ended June 30,
2003 which resulted in an increase to Sirenzas gross margin of approximately 6%. Had this inventory been valued at its original cost when sold, Sirenzas gross margin would have been 43% instead of 49%, as reported, for the six months
ended June 30, 2003. Sales of previously written-down inventory products totaled $1.1 million for the six months ended June 30, 2002 which resulted in an increase to Sirenzas gross margin of approximately 12%. Had this inventory been valued at
its original cost when sold, Sirenzas gross margin would have been 51% instead of 62%, as reported, for the six months ended June 30, 2002.



Operating Expenses



Research and Development.    Research and development expenses increased to $3.9 million for the six months ended June 30, 2003 from $3.1 million for the six months ended June 30, 2002. This
increase is the result of the acquisition of Vari-L, including salaries and related costs of Vari-L personnel, which increased costs by $467,000 and the acquisition of Xemod, which increased costs by $883,000.



Sales and Marketing.    Sales and marketing expenses increased to
$3.0 million for the six months ended June 30, 2003 from $2.4 million for the six months ended June 30, 2002. This increase is the primarily the result of the acquisition of Vari-L, including salaries and related costs of Vari-L personnel, which
increased costs by $431,000 and to a lessor extent, an increase in commission paid to outside sales representatives.



General and Administrative.    General and administrative expenses increased to $3.0 million for the six months ended June 30, 2003 from $2.4
million for the six months ended June 30, 2002. This increase is primarily the result of the acquisition of Vari-L, including salaries and related costs of Vari-L personnel, which increased costs by $422,000 and to a lesser extent, relocation and
related costs of approximately $128,000 to move administrative personnel from Sunnyvale, CA to Broomfield, CO.



Amortization of Deferred Stock Compensation.    In connection with the grant of stock options to employees prior to Sirenzas initial public offering, Sirenza recorded deferred stock
compensation within stockholders equity of approximately $681,000 in 2000 and $4.5 million in 1999, representing the difference between the deemed fair value of the common stock for accounting purposes and the exercise price of these options
at the date of grant. During the six months ended June 30, 2003 and June 30, 2002 Sirenza amortized $333,000 and $478,000, respectively, of this deferred stock compensation. Sirenza will amortize the remaining deferred stock compensation over the
vesting period of the related options, generally four years. The amount of deferred stock compensation expense to be recorded in future periods was reduced by $138,000 in the second quarter of 2003 and by $434,000 in 2001 as a result of options for
which accrued but unvested compensation had been recorded was forfeited. The amount of deferred stock compensation expense to be recorded in future periods could decrease again if additional options for which accrued but unvested compensation has
been recorded are forfeited.



Amortization of Acquisition Related Intangible
Assets.    In the second quarter of 2003, Sirenza acquired substantially all of the assets of Vari-L and assumed specified liabilities of Vari-L in exchange for approximately 3.3 million shares of Sirenza common stock, valued
at approximately $4.7 million, and approximately $9.1 million in cash, for a preliminary aggregate purchase price of $16.1 million, including $2.4 million in estimated direct transaction costs. Of the total purchase price, approximately $6.0 million
has been allocated to amortizable intangible assets including developed product technology ($4.8 million), customer relationships ($870,000) and committed customer backlog ($310,000). Sirenza is amortizing the fair value of developed product
technology on a straight-line basis over a period of 44 to 68 months, which represents the estimated useful life of the developed product technology. The weighted average amortization period for developed product technology is approximately 65
months. Sirenza is amortizing the fair value of customer relationships on a straight-line basis over a period of 32 months, which represents the estimated useful life of the customer relationships. Sirenza is amortizing the fair value of committed
customer backlog on a straight-line basis over a period of 12 months.



In the
third quarter of 2002, Sirenza acquired Xemod for approximately $4.9 million in cash and accrued transaction costs. Of the total purchase price, $770,000 has been allocated to amortizable intangible assets including patented core technologies of
$700,000 and internal-use software of



21



---

##### Table of Contents

$70,000. Sirenza is amortizing the patented core technologies on a straight-line basis over a period of three to five
years, which represents their estimated useful lives. Sirenza is amortizing the internal-use software on a straight-line basis over a period of three years, which represents its estimated useful life.



In the six months ended June 30, 2003, Sirenza recorded amortization of $351,000 related to
its acquired intangible assets.



Restructuring.    In the second quarter of 2003, as a result of the acquisition of Vari-L, the resulting new strategic focus of Sirenza and a new management structure, management of Sirenza approved and committed
to a restructuring plan including the termination of certain employees and costs of exiting excess facilities. Accordingly, Sirenza recorded a restructuring charge of approximately $1.0 million. These costs are accounted for under FAS 146. In
addition, in the second quarter of 2003, Sirenza reoccupied one of its excess facilities as a result of the acquisition of Vari-L and relocation of its Sunnvale manufacturing facility to Broomfield, CO, and detertmined that $596,000 of its 2001
restructuring liability accrual was no longer necessary as of June 30, 2003. As a result, Sirenza adjusted its restructuring liability accordingly. The $596,000 restructuring liability adjustment was recorded through the same statement of operations
line item that was used when the liability was initially recorded, or Restructuring. The net restructuring charge in the second quarter of 2003 totaled $434,000.



Interest and Other Income (Expense), Net



Interest and other income (expense), net, includes income from Sirenzas cash and cash equivalents and available-for-sale securities, interest expense from capital
lease financing obligations and other miscellaneous items. Sirenza had net interest and other income of $266,000 for the six months ended June 30, 2003 and $509,000 for the six months ended June 30, 2002. The decrease in net interest and other
income for the six months ended June 30, 2003 compared to the six months ended June 30, 2002 is primarily attributable to a reduction in Sirenzas cash and cash equivalents and available for sale securities and lower interest rates.



Provision for (Benefit from) Income Taxes



Sirenzas provision for income taxes was zero for the six months ended June 30, 2003
and June 30, 2002. Sirenzas provision for income taxes for the six months ended June 30, 2003 and June 30, 2002 were based on our estimated tax rate for the year.



Liquidity and Capital Resources



Sirenza has financed its operations primarily through the private sale in 1999 of mandatorily redeemable convertible preferred stock, (which has subsequently been
converted to common stock) and from the net proceeds received upon completion of its initial public offering in May 2000. As of June 30, 2003, Sirenza had cash and cash equivalents of $5.7 million, short-term investments of $7.0 million and
long-term investments of $3.5 million. In addition, the working capital of Sirenza approximated $16.1 million at June 30, 2003.



Sirenzas operating activities used cash of $5.3 million for the six months ended June 30, 2003 and used cash of $2.1 million for the six months ended June 30, 2002.
For the six months ended June 30, 2003, cash used in operating activities was primarily attributable to Sirenzas net loss of $3.5 million, decreases in deferred margin on distributor inventory of $1.4 million and accrued restructuring of
$398,000 and increases in inventories of $1.9 million and accounts receivable of $1.5 million. These were partially offset by non-cash items including depreciation and amortization of $2.1 million, and amortization of deferred stock compensation of
$333,000. In the six months ended June 30, 2002, cash used in operating activities was primarily attributable to our net loss of $1.7 million, decreases in deferred margin on distributor inventory of $822,000, accounts payable of $476,000, and
accrued restructuring of $342,000. These were partially offset by depreciation and amortization of $1.4 million and amortization of deferred stock compensation of $478,000.



Sirenzas investing activities used cash of $1.8 million for the six months ended June 30, 2003 and provided cash of $1.7 million for
the six months ended June 30, 2002. Sirenzas investing activities reflect purchases and sales of available-for-sale securities and fixed assets, Sirenzas investment in GCS, acquisitions of Xemod and Vari-L and increases in restricted
cash.



Sirenzas financing activities used cash of $4,000 for the six
months ended June 30, 2003 and provided cash of $50,000 for the six months ended June 30, 2002. Cash provided by or used in financing activities reflects proceeds from employee stock plans, offset by principal payments on capital lease obligations
and purchases of treasury shares.



On May 5, 2003, Sirenza acquired
substantially all of the assets of Vari-L and assumed specified liabilities of Vari-L in exchange for approximately 3.3 million shares of Sirenza common stock, valued at approximately $4.7 million, and approximately $9.1 million in cash, for a
preliminary aggregate purchase price of $16.1 million, including $2.4 million in estimated direct transaction costs. The fair value of Sirenza common stock issued in connection with the Vari-L acquisition was derived using an average market price
per share of Sirenza common stock of $1.43, which was based on an average of the closing prices for a range of three trading days (April 30, 2003, May 1, 2003 and May 2, 2003) prior to the closing date of the acquisition. Of the $9.1 million in
cash, approximately $3.8 million related to cash that was paid to Vari-L at closing and $5.3 million related to loans Sirenza made to Vari-L prior to the closing of the business combination. All of the $5.3 million of Vari-L loans, which included
$3.4 million of Vari-L loans outstanding on Sirenzas balance sheet as of December 31, 2002, have been included in the calculation of the estimated purchase price of Vari-L.



In the first quarter of 2002, Sirenza converted an outstanding loan receivable of approximately $1.4 million and invested cash of
approximately $6.1 million in GCS, a privately held semiconductor foundry partner, in exchange for 12.5 million shares of Series D-1 preferred stock valued at $0.60 per share. The impact of Sirenzas investment in GCS on Sirenzas cash,
liquidity and capital resources amounted to $6.1 million, plus forgone interest income that Sirenza would have received of approximately $175,000 annually.



As of June 30, 2003 Sirenzas anticipated operating lease and capital lease commitments and unconditional purchase obligations over the next five years and
thereafter were as follows (in thousands):



22



---

##### Table of Contents

|                                   |  | Future Minimum Payments Due
|---------------------------------- |  | ---------------------------
|                                   |  | Total                      
|Operating lease commitments        |  | $                          
|Capital lease commitments          |  | $                          
|Unconditional purchase obligations |  | $                          



Sirenza currently anticipates that its
current available cash and cash equivalents and short-term investments will be sufficient to meet its anticipated cash needs for working capital and capital expenditures for at least the next 12 months. If Sirenza requires additional capital
resources to grow its business, execute its operating plans, or acquire complementary technologies or businesses at any time in the future, Sirenza may seek to sell additional equity or debt securities or secure lines of credit, which may result in
additional dilution to its stockholders or additional costs to Sirenza.



Industry Trends and Market Conditions



In 2001, companies
throughout the worldwide telecommunication industry experienced slowdowns and delays in the build out of new wireless and wireline infrastructure. This resulted in lower equipment production volumes by Sirenzas customers and efforts to lower
their component inventory levels. These actions by Sirenzas customers reduced Sirenzas visibility regarding future sales and resulted in a slowdown in Sirenzas shipments in 2001. However, in 2002 Sirenza experienced a sequential
increase in sales to equipment manufacturers and in particular to end customers located in Europe and Asia. Excluding net revenues attributable to the acquisition of Vari-L, in the second quarter of 2003 Sirenzas net revenues increased
slightly compared with the previous few quarters, which Sirenza believes is an indication that the market for its products may have stabilized, although Sirenza does not at this time see any significant recovery in its end markets. Sirenza
anticipates that any sales growth in the immediate future will depend on the achievement of market share gains and/or the introduction of new product lines.



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



RISK FACTORS



An investment in our common stock involves a high degree of risk. In addition to the other information contained in this report, you
should carefully consider the following risks. If any of these risks occurs, our business, financial condition and operating results could be materially adversely affected. In that case, the trading price of our common stock could decline and you
could lose all or part of your investment.



Any acquisitions of
companies or technologies by us, including our acquisition of Vari-Ls assets, may result in distraction of our management and disruptions to our business and may not result in the revenue enhancements or cost savings envisioned when the
transaction was proposed.



We may acquire or make investments in
complementary businesses, technologies, services or products if appropriate opportunities arise, as was the case in the third quarter of 2002 when we acquired Xemod Incorporated, and again in the second quarter of 2003 when we acquired substantially
all of the assets of Vari-L. From time to time, we may engage in discussions and negotiations with companies regarding the possibility of our acquiring or investing in their businesses, products, services or technologies. We may not be able to
identify suitable acquisition or investment candidates in the future, or if we do identify suitable candidates, may not be able to make such acquisitions or investments on commercially acceptable terms or at all. If we acquired or invested in
another company, we could have difficulty assimilating that companys personnel, operations, technology or products and service offerings. In addition, the key personnel of the acquired company may decide not to work for us. These difficulties
could disrupt our ongoing business, distract our management and employees, increase our expenses and adversely affect our results of operations. Furthermore, we may incur indebtedness or issue equity securities to pay for any future acquisitions.
The issuance of equity securities could be dilutive to our existing stockholders. In addition, the accounting treatment for any acquisition transaction may result in significant goodwill, which, if impaired, will negatively affect our consolidated
results of operations.



In September 2002, we completed our acquisition of
Xemod, a California corporation and a designer and fabless manufacturer of RF power amplifier modules and components based on patented lateral double-diffused transistor (LDMOS) technology. On May 5, 2003, we completed our acquisition of
substantially all of the assets of Vari-L. We evaluate and may enter into other acquisitions or investment transactions on an ongoing basis. The recent acquisitions of Xemod and of substantially all of Vari-Ls assets increase both the scope
and consequence of ongoing integration risks. We may not successfully address the integration challenges in a timely manner, or at all, and we may not realize the anticipated benefits or synergies of either transaction, or of any other transaction
to the extent, or in the timeframe, anticipated. Moreover, the timeframe for achieving benefits may be dependent partially upon the actions of employees, suppliers or other third parties. For example, to the extent that future demand by OEMs for
integration by component suppliers is lower than expected or fails to materialize, we may not realize many of the strategic advantages we hope to achieve through the purchase of Vari-Ls assets.



Even if an acquisition or alliance is successfully integrated, we may not receive the
expected benefits of the transaction. Managing acquisitions requires varying levels of management resources, which may divert our attention from other business operations. These transactions also have resulted and may in the future result in
significant costs and expenses and charges to earnings. In the case of the Vari-L and Xemod acquisitions, these costs and expenses include those related to severance pay, noncancelable lease costs of duplicative or excess facilities, relocation and
related expenses, in-process research and development charges, legal, accounting, financial printing and financial advisory fees. We have incurred and will



23



---

##### Table of Contents

incur additional depreciation and amortization expense over the useful lives of certain of the net tangible and
intangible assets acquired in connection with the transactions, and, to the extent the value of goodwill acquired in connection with the transaction becomes impaired, we may be required to incur material charges relating to the impairment of that
asset. In addition, any completed, pending or future transactions may contribute to financial results of the combined company that differ from the investment communitys expectations in a given quarter, and may result in unanticipated expenses
or liabilities associated with the acquired assets or businesses.



Failure
to retain key employees could diminish the benefits of the Vari-L acquisition to us.



The successful integration of the Vari-L assets into our current business operations will depend in part on the retention of personnel critical to our business and operations and the Vari-L business. Although several
former key employees of Vari-L have been hired by us, such employment is terminable at will by either party. Furthermore, the Vari-L employees hired by us in connection with the acquisition have technical and engineering expertise that is in high
demand and short supply. We may be unable to retain such personnel that are critical to the successful integration of Vari-L, which may result in loss of key information, expertise or know-how and unanticipated additional recruiting and training
costs and otherwise diminishing anticipated benefits of the asset purchase for us and our stockholders.



If we are not successful in integrating Vari-Ls business, our operations may be affected.



Our ability to realize some of the anticipated benefits of the asset purchase will depend in part on our ability to integrate Vari-L into our current operations in a
timely and efficient manner. This integration may be difficult and unpredictable because our current products are highly complex and have been developed independently from those of Vari-L. Successful integration requires coordination of different
development and engineering teams. If we cannot successfully integrate Vari-L with our operations, we may not realize some of the expected benefits of the asset purchase. In connection with the acquisition of Vari-L, we have relocated our
manufacturing and general and administrative functions from Sunnyvale, California to Broomfield, Colorado and we intend to relocate additional manufacturing functions from our Tempe, Arizona facility to Broomfield, Colorado. This move may disrupt
our operations which could materially and adversely effect our business, financial condition or results of operations.



The unsuccessful realignment of our worldwide sales channels, including the termination of Richardson Electronics Laboratories as a distributor, may adversely affect
our revenues.



In the second quarter of 2003, we realigned our worldwide
sales channels to enhance geographic market reach, customer service and technical support. As part of this realignment, we terminated our existing distribution agreement with Richardson Electronics Laboratories and entered into a new distribution
agreement with Acal, a leading value-added distributor with operations in Europe. In July 2003, we also entered into relationships with two new distributors in North America. Sales to Richardson Electronics Laboratories represented approximately 19%
of net revenues in the second quarter of 2003, 37% of net revenues in 2002 and 39% of net revenues in 2001. In addition, in the second quarter of 2003, we also engaged several new international sales representatives. The failure to transition the
customer accounts served by Richardson Electronics Marketing to Acal, to our existing distributor Avnet, to our new distributors in North America, to our existing and new sales representatives or to our direct sales channels in a timely manner could
limit our ability to sustain and grow our revenues.



Our stock price may be
extremely volatile.



Our stock price has been highly volatile since our
initial public offering. We expect that this volatility will continue in the future due to factors such as:



| |  |  | general market and economic conditions;
| | - |  | ---------------------------------------



| |  |  | actual or anticipated variations in operating results;
| | - |  | ------------------------------------------------------



| |  |  | announcements of technological innovations, new products or new services by us or by our competitors or customers;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | changes in financial estimates or recommendations by stock market analysts regarding us or our competitors;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | announcements by our customers regarding end market conditions and the status of existing and future infrastructure network deployments;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | additions or departures of key personnel; and
| | - |  | ---------------------------------------------



| |  |  | future equity or debt offerings or our announcements of these offerings.
| | - |  | ------------------------------------------------------------------------



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



24



---

##### Table of Contents

Also, our stock price is currently trading below $5.00, which typically reduces the number of our institutional investors
and increases the number of our retail investors. This may have the effect of increased volatility in our stock price.



We may not meet quarterly financial expectations, which could cause our stock price to decline.



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



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



| |  |  | wireless and wireline industry conditions generally and demand for products containing RF components specifically;
| | - |  | ------------------------------------------------------------------------------------------------------------------



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



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



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



| |  |  | availability of raw materials, semiconductor wafers and manufacturing capacity or fluctuations in our manufacturing yields;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



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



| |  |  | changes in our product mix; and
| | - |  | -------------------------------



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



Due to the factors discussed above, investors should not rely on quarter-to-quarter comparisons of our results of operations as indicators
of future performance.



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



Our success will depend in large part on the growth of the telecommunications industry in general and, in particular, the market for
wireless and wireline infrastructure components. The semiconductor industry has historically been characterized by wide fluctuations in supply and demand for semiconductor products. From time to time, demand for semiconductor products has decreased,
often in connection with, or in anticipation of, major additions of wafer fabrication capacity or maturing product cycles or due to general economic conditions. We cannot assure you that the market for these infrastructure products will grow at all.
We continue to observe softness in the wireless and wireline infrastructure markets related to a general economic slowdown, which has impacted our entire segment. In the past, there have been announcements throughout the worldwide telecommunications
industry of current and planned reductions in component inventory levels and equipment production volumes, and of delays in the build-out of new wireless and wireline infrastructure. These trends have had an adverse effect on our operations and
caused us in the past to lower our previously announced expectations for our financial results, which caused the market price of our common stock to decrease.



These trends contributed to our decision in the fourth quarter of 2001 and 2002 to implement workforce reductions and consolidations of excess facilities resulting in
restructuring charges of $2.7 million and $391,000, respectively. These same trends contributed to our decision in the second half of 2001 to record provisions for excess inventories of $4.7 million, charges reducing the value of certain equipment
of $1.6 million and recording a valuation allowance of $2.3 million against our net deferred tax assets, and to the impairment of our investment in GCS in the fourth quarter of 2002 requiring a write-down of the investment by $2.9 million.



Although softness in the wireless and wireline infrastructure markets has
stabilized to some extent recently, if the economic trends described above were to reoccur or such stabilization were to cease, it would likely result in lower or erratic sales for our products. Significantly lower sales would likely lead to further
provisions for excess inventories and further actions by us to reduce our operating expenses. These actions could include, but would not be limited to, further abandonment or obsolescence of equipment, further consolidation of facilities and a
further workforce reduction. Any or all of these actions could have a material adverse effect on the results of our operations and the market price of our common stock.



The 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



25



---

##### Table of Contents

improvements in products and services. If technologies or standards supported by us or our customers products, such
as 2.5G and 3G, fail to gain widespread commercial acceptance, our business will be significantly impacted. For example, in 2001 and 2002 the installation of 2.5G and 3G equipment occurred at a much slower rate than was initially expected. In
addition, while historically the demand for wireless and wireline communications has exerted pressure on standards bodies worldwide to adopt new standards for these products, such adoption generally only occurs following extensive investigation of,
and deliberation over, competing technologies. The delays inherent in the standards approval process have in the past and may in the future cause the cancellation, postponement or rescheduling of the installation of communications systems by our
customers. For example, in 2001 and 2002, the delay in agreement over certain 3G standards contributed to the delay of the installation of 3G equipment worldwide, and contributed to our decision in the fourth quarter of 2001 and 2002 to implement
workforce reductions and consolidations of excess facilities resulting in restructuring charges of $2.7 million and $391,000, respectively. These same trends contributed to our decision in the second half of 2001 to record provisions for excess
inventories of $4.7 million, charges reducing the value of certain equipment of $1.6 million and recording a valuation allowance of $2.3 million against our net deferred tax assets, and to the impairment of our investment in GCS in the fourth
quarter of 2002 requiring a write-down of the investment by $2.9 million.



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



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



We do not own or operate a semiconductor fabrication facility. We
currently rely on three third-party wafer fabs to manufacture substantially all of our semiconductor wafers. These fabs are TRW for Gallium Arsenide, or GaAs, Atmel for Silicon Germanium, or SiGe, and TriQuint Semiconductors for our discrete
devices. A majority of our products sold in 2001 and in 2002 were manufactured in GaAs by TRW and SiGe by Atmel. Atmel is currently our sole source supplier for SiGe wafers and has provided us with a commitment for a supply of wafers through
September of 2004. The supply agreement with TRW provides us with a commitment for a supply of wafers through December 31, 2004. The loss of one of our third-party wafer fabs, in particular TRW or Atmel, or any delay or reduction in wafer supply,
will impact our ability to fulfill customer orders, perhaps materially, and could damage our relationships with our customers, either of which would significantly harm our business and operating results. Because there are limited numbers of
third-party wafer fabs that use the particular process technologies we select for our products, using alternative or additional third-party wafer fabs would require an extensive qualification process that could prevent or delay product shipments,
adversely effecting our results of operations.



Nortel Networks has
historically supplied us with the wafers used in the production of our NGA line of products. These products are manufactured using a process technology called Indium Gallium Phosphide Heterojunction Bipolar Transistor, or InGaP HBT. The NGA product
line consists of seven products. In 2002, we sold approximately $2.2 million of these products, which represented approximately 11% of our sales for that period. Nortel Networks has notified us that they have changed their fabrication process. As a
result, Nortel Networks is no longer able to support our products. We transferred the fabrication of the products made at Nortel Networks to Global Communication Semiconductors, Inc., or GCS, who has a comparable fabrication process. GCS is now our
sole source for wafers using the InGaP HBT process technology. To date, we have not purchased significant quantities of production wafers from GCS. The unsuccessful or delayed transfer of our products to GCS, or our inability to procure wafers from
GCS, could result in our having an insufficient supply of InGaP HBT wafers that meet our specifications in a timely manner. This would impact our ability to fulfill customer orders, perhaps materially, and could damage our relationships with our
customers, either of which would significantly harm our business and operating results.



We have begun introducing products that are fabricated at RF Micro Devices, or RFMD. If RFMD is unsuccessful in manufacturing these products, or is unable to sufficiently supply us with these products in a timely manner, it would impact our
ability to fulfill customer orders, perhaps materially, and could damage our relationships with our customers, either of which would significantly harm our business and operating results.



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



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



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



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



26



---

##### Table of Contents

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



In the first quarter of 2002, we converted an outstanding loan receivable of approximately $1.4 million and invested cash of approximately $6.1 million in GCS, a privately held semiconductor foundry, in exchange for 12.5 million shares of
Series D-1 preferred stock valued at $0.60 per share. Our total investment of $7.5 million represented approximately 14% of the outstanding voting shares of GCS at that time.



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



We 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 milestones or a series of operating losses in excess of GCS current business plan, the inability of GCS to continue as a going concern and 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 fair value. Such a write-down could have a material adverse impact on our consolidated results of operations in the period in which it occurs. For
example, as of December 31, 2002, we wrote down the value of our investment in GCS by $2.9 million after determining that GCS had experienced an other than temporary decline in value.



Our investment in GCS is also at risk to the extent that we cannot ultimately sell our shares of Series D-1 preferred stock, for which there
is currently no public market. Even if we are able to sell our Series D-1 preferred stock, the sale price may be less than the price paid, which could have a material adverse effect on our results of operations.



We are in the process of outsourcing our RF production testing function. We may not be
able to outsource our RF testing function on favorable terms, or at all.



In late 2001, we made the decision to outsource a significant portion of our RF testing function. We intend to begin outsourcing a portion of our production testing operations once unit volumes increase to a level that makes outsourcing
economically attractive to subcontractors. However, we may be unable to successfully outsource this function in the near term, or at all. The selection and ultimate qualification of a subcontractor to test our RF components could be costly and
increase our cost of revenues. In the second half of 2001, we recorded an impairment charge of $315,000 on some of our existing test equipment as a result of a reduction in demand for our products and the decision to outsource our testing
operations. As a result of the impairment charge, our existing test equipment was revalued to our estimate of market value as of September 30, 2001. To the extent that the proceeds, if any, from the ultimate disposition of our test equipment are
less than the recorded value of such equipment, we would incur a charge to cost of revenues. Such a charge could have a material adverse effect on our gross margin and results of operations.



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 components that we sell but rather rely on subcontractors to package our products. Packaging is the procedure of electrically bonding and encapsulating the integrated circuit into its final protective plastic or ceramic casing. We
provide the wafers containing the integrated circuits and, in some cases, packaging materials to third-party packagers. Although we currently work with six packagers, substantially all of our net revenues in 2001 and 2002 were attributable to
products packaged by two subcontractors. We do not have long-term contracts with our third-party packagers stipulating fixed prices or packaging volumes. Therefore, in the future we may be unable to obtain sufficient high quality or timely packaging
of our products. The loss or reduction in packaging capacity of any of our current packagers, particularly CEI, would significantly damage our business. In addition, increased packaging costs will adversely affect our profitability.



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



We depend on Avnet Electronics Marketing for a significant portion of our sales. The loss
of Avnet Electronics Marketing as a distributor may adversely affect our revenues.



Historically, Avnet Electronics Marketing has accounted for a significant portion of our sales. In the second quarter of 2003, sales through Avnet



27



---

##### Table of Contents

Electronics Marketing represented 12% of our net revenues. Our contract with Avnet Electronics Marketing does not require
them to purchase our products and may be terminated by them at any time without penalty. If Avnet Electronics Marketing fails to successfully market and sell our products, our revenues could be materially and adversely affected. The loss of Avnet
Electronics Marketing and our failure to develop new and viable distribution relationships would limit our ability to sustain and grow our revenues.



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



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



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



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



| |  |  | shortages in wafer fabrication capacity;
| | - |  | ----------------------------------------



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



| |  |  | unforeseen manufacturing yield problems.
| | - |  | ----------------------------------------



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



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



The markets for our products are characterized by frequent new product introductions, evolving industry standards and changes in product and process 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;
| | - |  | ----------------------------------------------------------------------



| |  |  | our ability to improve our products and to adapt to new process technologies in a timely manner;
| | - |  | ------------------------------------------------------------------------------------------------



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



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



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



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 limited sources for certain packaging materials. If we, or our packaging subcontractors, are unable to obtain these or other materials in the required quantity and quality, we
could experience delays or reductions in product shipments, which would materially and adversely affect our profitability. Although we have not experienced any significant difficulty to date in obtaining these materials, these shortages may arise in
the future. We cannot guarantee that we would not lose potential sales if key components or materials are unavailable, and as a result, be unable to maintain or increase our production levels.



If communications equipment manufacturers increase their internal production of RF
components, our revenues would decrease and our business would be harmed.



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



28



---

##### Table of Contents

Third-party wafer fabs that manufacture the semiconductor wafers for our products may compete with us in the future.



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



Perceived risks relating to process technologies we may adopt in the future to manufacture our products could cause reluctance among potential customers to purchase our products.



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



We have been named in a class action lawsuit alleging that various underwriters engaged in
improper and undisclosed activities related to the allocation of shares in our initial public offering.



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.



A proposal has been made for the settlement and release of claims against the issuer defendants, including us, in exchange for a guaranteed
recovery to be paid by the issuer defendants insurance carriers and an assignment of certain claims. The settlement is subject to a number of conditions, including approval of the proposed settling parties and the court. If the settlement does
not occur, and litigation against us continues, we believe we have meritorious defenses and intend to defend the case vigorously.



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.



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. Our counterclaims against Mini-Circuits include misappropriation of trade secrets, unfair competition and tortious interference with contract. Even
though we believe Mini-circuits claims to be without merit and we intend to defend the case and prosecute our claims vigorously, if we ultimately are unsuccessful in 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.



We may encounter difficulties managing our business in an economic downturn.



If the current slowdown in the economy and the telecommunications industry in particular
continues or worsens, we may experience difficulties maintaining employee morale, retaining employees, completing research and development initiatives, maintaining relationships with our customers and vendors and obtaining financing on favorable
terms or at all. In addition, we may have to take further actions to restructure our operations, including, but not limited to, further workforce reductions, further consolidation of facilities, eliminating product lines or disposing of certain
equipment, any of which would have a material adverse effect on our results of operations.



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



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



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



29



---

##### Table of Contents

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



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.



The semiconductor industry is characterized by the existence of a large number of patents and frequent litigation based on allegations of patent infringement and the
violation of intellectual property rights. Although we attempt to avoid infringing known proprietary rights of third parties in our product development efforts, we expect that we may be subject to legal proceedings and claims for alleged
infringement by us or our licensees of third-party proprietary rights, such as patents, trade secrets, trademarks or copyrights, from time to time in the ordinary course of business. Any claims relating to the infringement of third-party proprietary
rights, even if not meritorious, could result in costly litigation, divert managements attention and resources, or require us to enter into royalty or license agreements which are not advantageous to us. In addition, parties making these
claims may be able to obtain an injunction, which could prevent us from selling our products in the United States or abroad. We may increasingly be subject to infringement claims as the number of our products grows.



Our reliance on foreign suppliers and manufacturers 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 and the Philippines, package substantially all of our products and two suppliers in Hong Kong provide the majority of the packaging materials used in the production of our components.
In addition, we obtain some of our 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. 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.
| | - |  | ------------------------------------------------------------------------



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



A significant portion of our products are sold to international customers either through
our distributors or directly, which exposes us to risks that may adversely affect our results of operations.



A significant portion of our direct sales and sales through our distributors are to foreign purchasers, particularly in China, Norway and Sweden. International direct
sales approximated 43% of our net revenues in 2002 and approximated 54% of our net revenues for the quarter ended June 29, 2003. Based on information available from our distributors, a significant portion of sales through our distributors were sold
to international customers in 2002 and the quarter ended June 29, 2003. Demand for our products in foreign markets could decrease, which could have a materially adverse effect on our results of operations. Therefore, our future operating results may
depend on several economic conditions in foreign markets, including:



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



| |  |  | fluctuations in currency;
| | - |  | -------------------------



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



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



| |  |  | political instability.
| | - |  | ----------------------



30



---

##### Table of Contents

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



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



Certain products we recently acquired in connection with the Vari-L acquisition are the subject of a patent infringement lawsuit.



On August 8, 2002, Anaren Microwave, Inc. (Anaren) filed suit against VL
Dissolution Corporation (formerly known as Vari-L Company, Inc.) for infringement of U.S. Patent No. 4,821,007. On November 19, 2002, VL Dissolution Corporation was served with the complaint. Anaren has requested damages in an unspecified amount and
attorneys fees, costs and expenses. The complaint does not specify which of VL Dissolutions former products is alleged to infringe the intellectual property of Anaren, nor the exact nature of the alleged infringement. However, Sirenza
and VL Dissolution Corporation believe that Anarens claim is directed at VLs former coupler product line, which Sirenza acquired in connection with the asset purchase on May 5, 2003. In connection with the asset purchase, Sirenza agreed
to assume the liability for intellectual property infringement associated with certain acquired products. The coupler line is a recently introduced product line and does not account for a significant portion of gross sales from its inception through
June 29, 2003. Sirenza, VL Dissolution Corporation and Anaren have entered into discussions regarding the possibility of purchasing a license to the Anaren technology that is alleged to have been infringed. There can be no assurance that such a
license will be executed nor this lawsuit settled. Even if entirely successful in defending this lawsuit, the existence of the pending lawsuit could cause potential customers of the coupler product line to delay or cancel purchases. There can be no
assurance that the outcome of this matter will not have a material adverse effect on our financial condition, results of operations or liquidity.



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.
| | - |  | ---------------------------------------------------------------------------------------



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 3.    Quantitative and Qualitative Disclosures About Market Risk



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



At June 30, 2003, Sirenzas cash and cash equivalents consisted primarily of bank deposits, federal agency and related securities and money market funds issued or managed by large financial institutions in the
United States and Canada. Sirenza did not hold any derivative financial instruments. Sirenzas 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 Sirenzas cash equivalents, short-term investments and long-term investments. For example, a 1% increase or decrease in interest rates would increase or decrease Sirenzas annual interest income by approximately $99,000.



Item 4:    Controls and Procedures



31



---

##### Table of Contents

Evaluation of Disclosure Controls and Procedures



Based on their evaluation as of a date within 90 days of the filing date of this Quarterly Report on Form 10-Q, our principal executive
officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the Exchange Act)) are effective to ensure that
information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commissions rules and forms.



Change in Internal Controls



There were no significant changes in our internal controls or in other factors that could
significantly affect these controls subsequent to the date of their evaluation. There were no significant deficiencies or material weaknesses, and therefore there were no corrective actions taken.



Independent Accountant Services



We currently engage Ernst & Young LLP as our independent auditors. In addition to the
audit services they provide with respect to our annual audited consolidated financial statements included in our Annual Reports on Form 10-K and certain other filings with the Securities and Exchange Commission, Ernst & Young LLP has provided us
in the past and may provide in the future other non-audit services, such as the preparation and review of our tax returns, tax consultation services, review of and provision of consents for registration statements and accounting consultations
unrelated to audits. Our audit committee has pre-approved the other audit related and non-audit related services currently being provided to us by Ernst & Young LLP, as listed above. We intend to have our audit committee pre-approve any future
provision of audit or non-audit services by our independent auditors.



Part
II.    Other Information



Item 1.    Legal Proceedings



In November 2001, we, various officers and certain underwriters of our initial public offering of securities were named in a purported class action lawsuit filed in the United States District Court for the Southern District of New York. The
suit, 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.



A proposal has been made for the settlement and release of claims against the issuer defendants, including us, in exchange for a guaranteed recovery to be paid by the
issuer defendants insurance carriers and an assignment of certain claims. The settlement is subject to a number of conditions, including approval of the proposed settling parties and the court. 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. Even though we believe Mini-circuits claims to be without merit and we intend to defend the case and assert our claims vigorously, if we ultimately lose or settle the case, we may be
liable for monetary damages and other costs of litigation. Even if we are entirely successful in the lawsuit, we may incur significant legal expenses and our management may expend significant time in the defense.



On August 8, 2002, Anaren Microwave, Inc. (Anaren) filed suit against VL
Dissolution Corporation (formerly known as Vari-L Company, Inc.) for infringement of U.S. Patent No. 4,821,007. On November 19, 2002, VL Dissolution Corporation was served with the complaint. Anaren has requested damages in an unspecified amount and
attorneys fees, costs and expenses. The complaint does not specify which of VL Dissolutions former products is alleged to infringe the intellectual property of Anaren, nor the exact nature of the alleged infringement. However, Sirenza
and VL Dissolution Corporation believe that Anarens claim is directed at VLs former coupler product line, which Sirenza acquired in connection with the asset purchase on May 5, 2003. In connection with the asset purchase, Sirenza agreed
to assume the liability for intellectual property infringement associated with certain acquired products. The coupler line is a recently introduced product line which does not account for a significant portion of gross sales from its inception
through June 30, 2003. Sirenza, VL Dissolution Corporation and Anaren have entered into discussions regarding the possibility of purchasing a license to the Anaren technology that is alleged to have been infringed. There can be no assurance that
such a license will be executed nor this lawsuit settled. Even if entirely successful in defending this lawsuit, the existence of the pending lawsuit could cause potential customers of the coupler product line to delay or cancel purchases. There can
be no assurance that the outcome of this matter will not have a material adverse effect on our financial condition, results of operations or liquidity.



Item 2.    Changes in Securities and Use of Proceeds



The effective date of our Registration Statement filed on Form S-1 under the Securities Act of 1933 (File No. 333-31382), relating to our initial public offering of our common stock was May 24, 2000. Public trading
commenced on May 25, 2000. The offering closed on May 31, 2000. The managing underwriters of the public offering were Deutsche Banc Alex. Brown, Banc of America Securities LLC, CIBC World Markets and



32



---

##### Table of Contents

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, 2003 approximately $42.1 million of the net proceeds have been used to purchase property and equipment, make
capital lease payments, fund our operating activities, and fund our acquisitions of Xemod and Vari-L and investment in GCS. The remaining $7.7 million of net proceeds have been invested in interest bearing cash equivalents, short-term investments
and long-term investments.



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 May 30, 2003.
| | --- |  | -------------------------------------------------------------------------------------------



| | (b) |  | At the Annual Meeting, the stockholders elected John Ocampo as a Class III Director to serve for a term of three years. The terms of office of the Class I Directors, Peter Chung and
Robert Van Buskirk, and the Class II Directors, John Bumgarner, Jr. 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 one Class III director to serve for a term of three years; and
| | -- |  | ------------------------------------------------------------------------------



| | 2. |  | ratification of the appointment of Ernst & Young LLP as independent auditors of the Company for the fiscal year ending December 31, 2003.
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------



Votes were cast for the election of John Ocampo as Class III Director as follows:



Votes For

Votes WithheldJohn Ocampo

26,769,725

384,894




The appointment of Ernst &
Young LLP as auditors for the fiscal year ending December 31, 2003 was approved as follows:



|Votes For  |  | Votes Against |  | Abstentions
|---------- |  | ------------- |  | -----------
|27,073,947 |  | 60,835        |  | 19,837     



Item 5:    Other Information



None



Item 6:    Exhibits and Reports on Form 8-K



| | (a) |  | Exhibits:
| | --- |  | ---------



|ExhibitNumber |  | Description                                                                                                                                                                
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1           |  | Asset Purchase Agreement, by and among Registrant, Olin Acquisition Corporation, and Vari-L Company, Inc., dated as of December 2, 2002.(1)                                
|              | 
|2.2           |  | Agreement and Plan of Reorganization, by and among Registrant, Xavier Merger Sub, Inc. and Xemod Incorporated, dated as of August 15, 2002.(2)                             
|              | 
|3.1           |  | Restated Certificate of Incorporation of Registrant.(3)                                                                                                                    
|              | 
|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.).(4) 
|              | 
|3.3           |  | Bylaws of Registrant, as amended, as currently in effect.(5)                                                                                                               
|              | 
|4.1           |  | Form of Registrants Common Stock certificate.(3)                                                                                                                          
|              | 
|4.2           |  | Investors Rights Agreement, by and among Registrant and the parties named therein, dated as of October 4, 1999.(3)                                                        
|              | 
|10.1          |  | First Amendment to Office Building Lease for Mack-Cali Realty, L.P., a Delaware limited partnership (as Landlord) and the registrant (as Tenant) dated as of April 8,
2003.
|              | 
|11.1          |  | Statement regarding computation of per share earnings.(6)                                                                                                                  



33



---

##### Table of Contents

|99.1 |  | Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|---- |  | ------------------------------------------------------------------------------------------------------------------------

---

|(1) |  | This exhibit is incorporated by reference to the Registrants Registration Statement on Form S-4 and all amendments thereto, Registration No. 333-102099, initially filed with
the Securities and Exchange Commission on December 20, 2002.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | This exhibit is incorporated by reference to the Registrants Current Report on Form 8-K dated September 11, 2002, filed with the Securities and Exchange Commission on
September 25, 2002.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | 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.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | This exhibit is incorporated by reference to the Annual Report on Form 10-K for Sirenzas fiscal year ended December 31, 2001, filed with the Securities and Exchange Commission
on March 27, 2002.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | 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.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) |  | This exhibit has been omitted because the information is shown in the Consolidated Financial Statements or Notes thereto.
|--- |  | -------------------------------------------------------------------------------------------------------------------------



| | (b) |  | Reports on Form 8-K.
| | --- |  | --------------------



For the quarter ended June 29, 2003, we filed two reports on Form 8-K. Information regarding the items reported on is as follows:



| | 1) |  | On May 6, 2003, we filed a current report on Form 8-K in which we furnished our press release announcing our quarterly results for the first quarter of 2003.
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2) |  | On May 15, 2003, we filed a current report on Form 8-K to report that we completed the acquisition of substantially all the assets and specified liabilities of Vari-L Company, Inc.,
a Colorado corporation.
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



34



---

##### 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.



|                      |  | SIRENZA MICRODEVICES, INC.                     
|--------------------- |  | -----------------------------------------------
|                      | 
|DATE: August 13, 2003 |  | /s/    Robert Van Buskirk                      
|                      |  | ROBERT VAN BUSKIRK                             
|                      |  | President, Chief Executive Officer and Director
|                      | 
|DATE: August 13, 2003 |  | /s/    Thomas Scannell                         
|                      |  | THOMAS SCANNELL                                
|                      |  | Vice President, Finance and Administration,    
|                      |  | Chief Financial Officer and Assistant Treasurer

Certifications



I, Robert Van Buskirk, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Sirenza Microdevices, Inc.;
|-- |  | ---------------------------------------------------------------------------------



|2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14
and 15d-14) for the registrant and we have:
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the
Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of
registrants board of directors (or persons performing the equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report
financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





Date: August
13, 2003



/s/    Robert Van BuskirkRobert Van BuskirkChief Executive Officer


I, Thomas Scannell, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Sirenza Microdevices, Inc.;
|-- |  | ---------------------------------------------------------------------------------



|2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14
and 15d-14) for the registrant and we have:
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the
Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of
registrants board of directors (or persons performing the equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report
financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Date: August 13, 2003



/s/    Thomas ScannellThomas ScannellChief Financial Officer




35