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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                            ________________________

                                    Form 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
    ACT OF 1934.

                  For the Quarterly Period Ended June 30, 1998

                                       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 0-24758

                            MICRO LINEAR CORPORATION
             (Exact name of Registrant as specified in its charter)

                    Delaware                         94-2910085
         (State or other jurisdiction of          (I.R.S. Employer
         incorporation or organization)        Identification Number)

                2092 Concourse Drive                      95131
                San Jose, California                   (Zip Code)
                (Address of principal executive
                           offices)

       Registrant's telephone number, including area code: (408) 433-5200
           Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, $.001 Par Value

     Indicate by check mark whether the  Registrant (1) has filed all reports 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) has  been  subject  to such  filing
requirements for the past 90 days. YES [X] NO [ ]

     The number of shares of the  Registrant's  Common Stock  outstanding  as of
June 30, 1998 was 11,828,448.

<PAGE>
<TABLE>
<CAPTION>

                                                 TABLE OF CONTENTS

                                                                                                    Page
         PART I.     FINANCIAL INFORMATION

         Item 1.     Financial Statements

                     <S>                                                                            <C> 
                     Consolidated Condensed Statements of Income for the three and six months
                     ended June 30, 1998 and 1997...............................................     3


                     Consolidated Condensed Balance Sheets at June 30, 1998 and December 31, 1997     4

                     Consolidated Condensed Statements of Cash Flows for the six months ended
                     June 30, 1998 and 1997......................................................     5

                     Notes to Consolidated Condensed Financial Statements........................     6

         Item 2.     Management's Discussion and Analysis of Financial Condition and Results of
                        Operations...............................................................     9

         PART II.    OTHER INFORMATION

         Item 1.     Legal Proceedings...........................................................     14
                     

         Item 4.     Submission of Matters to a Vote of Security Holders.........................     15

         Item 6.     Exhibits and Reports on Form 8-K............................................     15

         SIGNATURES..............................................................................     16
</TABLE>
                                                        
<PAGE>
<TABLE>
<CAPTION>

                                      PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

                                         MICRO LINEAR CORPORATION
                               CONSOLIDATED CONDENSED STATEMENTS OF INCOME
                                               (Unaudited)
                                 (In thousands, except per share amounts)

                                                                          Three Months Ended          Six Months Ended
                                                                        ------------------------   ------------------------
<S>                                                                           <C>          <C>           <C>          <C>
                                                                         June 30,     June 30,      June 30,     June 30,
                                                                           1998         1997          1998         1997
                                                                        -----------  -----------   -----------  ------------
Net revenues...........................................................   $11,745      $19,502       $23,984       $35,639
Cost of revenues.......................................................     6,641        9,439        12,252        16,394
                                                                        -----------  -----------   -----------  ------------
   Gross profit........................................................     5,104       10,063        11,732        19,245
Operating expenses:
   Research and development............................................     2,912        3,274         6,151         5,831
   Selling, general and administrative.................................     2,396        3,169         5,191         6,607
                                                                        -----------  -----------   -----------  ------------
                                                                            5,308        6,443        11,342        12,438
                                                                        -----------  -----------   -----------  ------------
   Income (Loss) from operations.......................................      (204)       3,620           390         6,807
Interest and other income..............................................       365          335           728           663
Interest expense.......................................................       (66)         (70)         (133)         (141)
                                                                        -----------  -----------   -----------  ------------
   Income before taxes.................................................        95        3,885           985         7,329
Provision for income taxes.............................................        34        1,399           354         2,638
                                                                        -----------  -----------   -----------  ------------
   Net income.......................................................... $      61     $  2,486         $ 631      $  4,691
                                                                        ===========  ===========   ===========  ============

Net Income Per Share:
Basic:
   Net income per share................................................     $0.01        $0.21         $0.05         $0.39
                                                                        ===========
                                                                                     ===========   ===========  ============
   Weighted average number of shares used in per share computation.....    11,692       11,829        11,671        11,912
                                                                        ===========  ===========   ===========  ============
Diluted:
   Net income per                                                           $0.01        $0.19         $0.05         $0.35
share................................................
                                                                        ===========  ===========   ===========  ============
   Weighted average number of shares used in per share computation.....    12,087       13,394        12,155        13,346
                                                                        ===========  ===========   ===========  ============
<FN>
                           See accompanying notes to consolidated condensed financial statements.
</FN>
</TABLE>
                                                       

<PAGE>
<TABLE>
<CAPTION>

                                         MICRO LINEAR CORPORATION
                                  CONSOLIDATED CONDENSED BALANCE SHEETS
                                               (Unaudited)
                                              (In thousands)

<S>                                                                                               <C>                       <C>
                                                                                             June 30,              December 31,
                                                                                               1998                    1997
                                                                                       ---------------------   ---------------------
Assets
Current assets:
   Cash and cash equivalents........................................................                $8,257                  $5,210
   Short-term investments...........................................................                21,246                  20,653
   Accounts receivable, net.........................................................                 6,387                  10,367
   Inventories......................................................................                 7,680                   7,823
   Other current assets.............................................................                 5,353                   5,768
                                                                                       ---------------------   ---------------------
     Total current assets...........................................................                48,923                  49,821
                                                                                       ---------------------   ---------------------
Property, plant and equipment.......................................................                21,086                  21,523
Other assets........................................................................                   626                     681
                                                                                       ---------------------   ---------------------
       Total assets.................................................................               $70,635                 $72,025
                                                                                       =====================   =====================

Liabilities and Stockholders' Equity
Current liabilities:
   Accounts payable.................................................................              $  2,848                $  3,612
   Deferred income on shipments to distributors.....................................                 2,712                   2,695
   Other accrued liabilities........................................................                 2,480                   3,592
                                                                                       ---------------------   ---------------------
     Total current liabilities......................................................                 8,040                   9,899
                                                                                       ---------------------   ---------------------
Long-term debt......................................................................                 2,701                   2,805
                                                                                       ---------------------   ---------------------
Commitments and contingencies
Stockholders' equity:
   Preferred stock..................................................................                    --                      --
   Common stock.....................................................................                    14                      13
   Additional paid-in capital.......................................................                53,842                  52,890
   Retained earnings................................................................                21,076                  20,445
   Treasury stock...................................................................               (15,038 )               (14,027 )
                                                                                       ---------------------   ---------------------
     Total stockholders' equity.....................................................                59,894                  59,321
                                                                                       ---------------------   ---------------------
       Total liabilities and stockholders' equity...................................               $70,635                 $72,025
                                                                                       =====================   =====================
<FN>

Note: The balance sheet at December 31, 1997 has been derived from the consolidated audited financial
statements at that date.


                              See accompanying notes to consolidated condensed financial statements.
</FN>
</TABLE>

                                                              

<PAGE>

<TABLE>
<CAPTION>
                                         MICRO LINEAR CORPORATION
                             CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                               (Unaudited)
                                              (In thousands)

                                                                                         Six Months Ended
                                                                                ------------------------------------
<S>                                                                                    <C>                   <C>
                                                                                  June 30,              June 30,
                                                                                    1998                  1997
                                                                                --------------       ---------------
Cash provided by operating activities.........................................       $  5,559              $  6,878

Investing activities:
   Capital expenditures.......................................................         (1,751 )              (2,698 )
   Purchases of short-term investments........................................        (17,024 )             (22,613 )
   Sales of short-term investments............................................         16,431                21,175
                                                                                --------------       ---------------
     Net cash used in investing activities....................................         (2,344 )              (4,136 )

Financing activities:
   Principal payments under capital lease obligations and debt................           (104 )                (131 )
   Proceeds from issuance of common stock.....................................            947                   891
   Acquisition of treasury stock..............................................         (1,011 )              (5,114 )
                                                                                --------------       ---------------
     Net cash used in financing activities....................................           (168 )              (4,354 )
                                                                                --------------       ---------------

Net increase (decrease) in cash and cash equivalents..........................          3,047                (1,612 )
Cash and cash equivalents at beginning of period..............................          5,210                 4,385
                                                                                --------------       ---------------
Cash and cash equivalents at end of period....................................         $8,257                $2,773
                                                                                ==============       ===============
<FN>
                         See accompanying notes to consolidated condensed financial statements.
</FN>
</TABLE>

                                                                
<PAGE>
                                                            
                            MICRO LINEAR CORPORATION

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)

1)   Micro Linear Corporation (the "Company") designs, develops and markets high
     performance  analog and mixed signal integrated  circuits for a broad range
     of applications within the communications,  computer and industrial markets
     for sale primarily in North America, Asia and Europe.

2)   The accompanying  interim financial  statements are unaudited and have been
     prepared by the Company in accordance  with generally  accepted  accounting
     principles  and contain all  adjustments  (consisting  of normal  recurring
     adjustments) to fairly present the financial  information  included.  Where
     the  Company  believes  that  the  disclosures  are  adequate  to make  the
     information not misleading, it is suggested that these financial statements
     be read in  conjunction  with the Company's  Annual Report on Form 10-K for
     the year ended December 31, 1997. The results of operations for the interim
     periods shown in this report are not  necessarily  indicative of results to
     be expected for the fiscal year.

3)   For financial  reporting  purposes,  the Company's  fiscal year ends on the
     Sunday closest to December 31. Fiscal year 1997 ended on December 28, 1997.
     The Company's  fiscal quarters end on the Sunday closest to the end of each
     calendar quarter.  For presentation  purposes,  the accompanying  unaudited
     consolidated condensed financial statements refer to the quarters' calendar
     month end for convenience.  The Company exclusively uses the U.S. dollar as
     its functional currency.  Foreign currency transaction gains and losses are
     included in income as they occur. The effect of foreign  currency  exchange
     rate fluctuations was not significant.  The Company does not use derivative
     instruments.  The  preparation of financial  statements in conformity  with
     generally  accepted  accounting  principles  requires  management  to  make
     estimates and  assumptions  that affect the reported  amounts of assets and
     liabilities and disclosure of contingent assets and liabilities at the date
     of the  financial  statements  and the  reported  amounts of  revenues  and
     expenses  during the  reporting  period.  Actual  results could differ from
     those estimates.

4)   During the three months ended June 30, 1998,  two  customers  accounted for
     17% and 9% of total sales,  respectively.  During the six months ended June
     30,  1998,  two  customers  accounted  for  21%  and  10% of  total  sales,
     respectively.

5)   Supplemental  Financial  Information:  Inventories consist of the following
     (in thousands):
<TABLE>
<CAPTION>

<S>                                                                        <C>                  <C>
                                                                         June 30,         December 31,
                                                                            1998               1997
                                                                      -------------    -----------------
            Raw materials...........................................      $  567            $   712
            Work-in-process.........................................       4,719              5,100
            Finished goods..........................................       2,394              2,011
                                                                          $7,680             $7,823


     Property, plant and equipment consist of the following (in thousands):

                                                                           June 30,        December 31,
                                                                             1998              1997
                                                                        -------------   -----------------
            Land.......................................................    $  2,850        $  2,850
            Buildings and improvements.................................       9,353           9,353
            Machinery and equipment....................................      31,944          30,193
                                                                             44,147          42,396
            Accumulated depreciation and amortization..................      23,061          20,873
            Net property, plant and equipment..........................     $21,086         $21,523
</TABLE>

6)   Cash payments for income taxes and interest  expense  totaled  $954,000 and
     $133,000, respectively for the six months ended June 30, 1998.

7)   The  Company's  provision  for taxes on income is based on estimates of the
     levels of income and certain deductions  expected for the year which may be
     subject  to  change.  The  Company's  effective  tax rate for the six month
     period of 1998 and 19978 was 36% which,  differs from the statutory  income
     tax rate primarily due to state income taxes and federal research credits.

8)   From  January  1996  through  the end of the second  quarter  of 1998,  the
     Company's Board of Directors had approved the repurchase of an aggregate of
     $17.5 million of the Company's  Common  Stock.  Through July 31, 1998,  the
     Company had repurchased 1,642,000 shares for a total cost of $15.0 million.
     As of July 31, 1998, the Company had  authorization  to repurchase up to an
     additional $2.5 million of the Company's Common Stock.

9)   In the fourth quarter of 1997, the Company adopted the net income per share
     calculation  methodology  prescribed  by Statement of Financial  Accounting
     Standards No. 128 ("SFAS 128"). SFAS 128 requires presentation of basic and
     diluted  net income per share.  Basic net income per share is  computed  by
     dividing net income  available to common  stockholders  (numerator)  by the
     weighted average number of common shares outstanding  (denominator)  during
     the period and excludes the dilutive  effect of stock options.  Diluted net
     income  per share  gives  effect to all  dilutive  potential  common  stock
     outstanding  during the period.  In computing diluted net income per share,
     the average stock price for the period is used in determining the number of
     shares assumed to be purchased  from exercise of stock  options.  All prior
     year net income per share  amounts in this Form 10-Q have been  restated in
     accordance with SFAS 128.  Following is a reconciliation  of the numerators
     and denominators of the basic and diluted income per share computations for
     the periods presented below (in thousands except per share data):
<TABLE>
<CAPTION>


                                                  Three Months Ended June 30,
                          -----------------------------------------------------------------------------
                                          1998                                   1997
                          -------------------------------------  --------------------------------------
<S>                       <C>          <C>           <C>          <C>         <C>            <C>
                                                        Per-                                    Per-
                             Income        Shares     Share         Income         Shares     Share
                          (Numerator)  (Denominator)   Amount     (Numerator)  (Denominator)   Amount
   Basic Income Per
   Share:
   Net income available
     to common
     stockholders                  $61         11,692    $0.01          $2,486       11,829     $0.21

   Effect of dilutive
   securities:                                    395                                 1,565
     Stock options

   Diluted Income Per
   Share:
   Net income available
     to common
     stockholders
   assuming                        $61         12,087    $0.01          $2,486       13,394     $0.19
     dilution




                                                   Six Months Ended June 30,
                          -----------------------------------------------------------------------------
                                          1998                                   1997
                          -------------------------------------  --------------------------------------
                                                        Per-                                    Per-
                             Income        Shares     Share         Income         Shares     Share
                          (Numerator)  (Denominator)   Amount     (Numerator)  (Denominator)   Amount
   Basic Income Per
   Share:
   Net income available
     to common
     stockholders                 $631         11,671    $0.05          $4,691       11,912      $0.39

   Effect of dilutive
   securities:                                    484                                 1,434
     Stock options

   Diluted Income Per
   Share:
   Net income available
     to common
     stockholders
   assuming                       $631         12,155    $0.05          $4,691        13,346     $0.35
     dilution
</TABLE>



10)  In June  1997,  the FASB  issued  Statement  No.  130 (FAS 130)  "Reporting
     Comprehensive  Income".  FAS 130  establishes  standards  for reporting and
     display of comprehensive income and its components in a financial statement
     that is displayed  with a same  prominence as other  financial  statements.
     Comprehensive income as defined includes all changes in equity (net assets)
     during a period from nonowner sources. An example of an item to be included
     in comprehensive income which is excluded in net income would be unrealized
     gains and losses on available for sale securities. For the six months ended
     June 30, 1998 and 1997, comprehensive income approximated net income.

11)  A discussion of a certain pending legal proceeding is included in Item 1 of
     Part II of the  Company's  Form 10-Q for the fiscal  quarter ended June 30,
     1998. The Company believes that the final outcome of such matters discussed
     will not have a  material  adverse  effect  on the  Company's  consolidated
     financial  position or results of  operations.  No assurance  can be given,
     however,  that these matters will be resolved  without the Company becoming
     obligated  to make  payments or to pay other costs to the  opposing  party,
     with the potential for having an adverse effect on the Company's  financial
     position or its results of operations.

Item 2. Management's  Discussion and Analysis of Financial Condition and Results
     of Operations

     This report on Form 10-Q  contains  forward-looking  statements  within the
meaning of Section  27A of the  Securities  Act of 1933 and  Section  21E of the
Securities Exchange Act of 1934. The forward-looking statements contained herein
are  subject  to  certain  factors  that could  cause  actual  results to differ
materially from those projected in the forward-looking  statements. Such factors
include,  but are not limited to, the factors set forth below and  elsewhere  in
this Form 10-Q.

Results of Operations

   Net Revenues

     Net  revenues  were $11.7  million  for the second  quarter of 1998,  a 40%
decrease over net revenues of $19.5 million for the second quarter of 1997 and a
4% decrease  over net revenues of $12.2  million for the first  quarter of 1998.
Net revenues  were $24.0 million for the first half of 1998, a 33% decrease over
net  revenues of $35.6  million  for the first half of 1997.  The decline in net
revenues is the result of softness in business demand for the second quarter and
the first half of 1998.

     The   Company   serves   three   principal   market   segments,   computer,
communications  and  industrial.  Net  revenues  for the second  quarter of 1998
compared to the second quarter of 1997 decreased 51% in the computer market, 45%
in the  communications  market and 7% in the industrial market. Net revenues for
the second  quarter of 1998 compared to the first quarter of 1998  increased 49%
in the computer  market,  10% in the industrial  market and decreased 14% in the
communications  market.  Net revenues for the first half of 1998 compared to the
first half of 1997  decreased  35% in the  communications  market and 56% in the
computer market and increased 5% in the industrial market.

     The  communications  market  includes  the  computer  networking  equipment
("networking")   sub-market.   Sales  of  products  to  the  networking   market
constitutes a substantial  majority of the Company's net revenues.  Net revenues
for the second  quarter of 1998 in the networking  sub-market  decreased 49% and
19%  compared  to the  second  quarter  of 1997 and the first  quarter  of 1998,
respectively.   The  quarterly   decline  in  networking   product  revenues  is
principally  attributable  to lower  shipments of ethernet  parts.  Sales of the
Company's  networking  products  accounted for  approximately 60% and 66% of net
revenues  in the  first  half of 1998 and 1997 ,  respectively.  The  networking
sub-market is  characterized  by intense  competition,  relatively short product
life cycles and rapid technological change. In addition,  the network sub-market
has  undergone a period of rapid  growth,  price  erosion and  consolidation  in
recent  years.  Although  the Company has  expanded its product mix and customer
base,  the  Company  expects  its  dependency  on  sales  to  network  equipment
manufacturers  to continue  for the near  future.  The  Company's  business  and
results of operations have in the past and would in the future be materially and
adversely  affected  in the  event of a  significant  slowdown  in the  computer
networking equipment market.

     International net revenues were $5.6 million,  or 48% of net revenues,  for
the second quarter of 1998,  compared to $11.6 million,  or 60% of net revenues,
for the second quarter of 1997 and $5.2 million, or 42% of net revenues, for the
first quarter of 1998.  International revenues were $12.6 million, or 47% of net
revenues,  for the first half of 1998,  compared to $19.7 million, or 55% of net
revenues, for the first half of 1997. The decrease in international revenues for
the second  quarter of 1998 compared to the second  quarter of 1997 and also for
the  first  half of  1998  compared  to the  first  half of 1997  was due to the
combination of lower direct  product  demand for the Company's  products in Asia
and less Asia  Pacific  subcontract  work for  domestic  customers.  The  slight
increase in  international  revenues for the second  quarter of 1998 compared to
the first  quarter  of 1998 was due to more Asia  Pacific  subcontract  work for
domestic customers.  Despite the lower product demand in Asia through the end of
the second  quarter of 1998,  the Company  does not expect any  disproportionate
direct  negative  impact  as a result  of  future  financial  and  stock  market
dislocations  that may occur in the Asian  financial  markets as the majority of
the Company's Asia Pacific business is subcontract work for domestic customers.

     Domestic  distributor  revenues were  approximately 18% of net revenues for
the second  quarter of 1998,  13% of net revenues for the second quarter of 1997
and 21% for the  first  quarter  of 1998.  Domestic  distributor  revenues  were
approximately  20% and 15% of net  revenues for the first half of 1998 and first
half of 1997,  respectively.  Effective in July 1998, the Company added a second
national domestic distributor.  The Company expects sales from both domestic and
international  distributors  to increase in the future as a percentage  of total
net revenues.  In this regard,  several of the Company's OEM (Original Equipment
Manufacturer)   customers   have  moved  their   manufacturing   operations   to
subcontractors and, in turn, are placing their orders through distributors.  The
Company  defers   recognition   of  revenue   derived  from  sales  to  domestic
distributors  until such  distributors  resell the products to their  customers.
Revenue  is   recognized   by  the  Company  upon   shipment  to   international
representatives,  but the gross  margin on these  shipments  is  deferred  until
international distributors notify the Company of product sales to end users.

   Gross Margin

     The  Company's  gross  margin is affected  by the volume of product  sales,
price,  product  mix,  manufacturing  utilization,   product  yields,  inventory
obsolescence  and the mix of sales to OEM's and to  distributors.  The Company's
gross margin has been and will continue to be periodically  affected by expenses
incurred  in  connection   with  start-up  and   installation   of  new  process
technologies at outside manufacturing foundries.

     The Company's  gross margin  decreased to 43% in the second quarter of 1998
from 52% in the second  quarter  of 1997 and 54% in the first  quarter of 1998 .
The Company's gross margin  decreased to 49% for the first half of 1998 from 54%
for the first half of 1997.  The Company's  gross margin  declined in the second
quarter of 1998 compared to the second  quarter of 1997 and the first quarter of
1998 and in the first half of 1998 compared to the first half of 1997, primarily
due to the  combination  of an  unfavorable  change  in  product  mix and  lower
production  output  levels.  Communications  products  represented  63%  of  the
Company's  total  shipments in the second quarter of 1998,  down from 69% in the
second  quarter  of 1997 and 71% in the  first  quarter  of 1998.  Communication
products  represented  67% of the Company's total shipments in the first half of
1998,  down  from  69% in the  first  half of 1997.  It has  been  the  Compan's
experience  that  communication  products have higher average selling prices and
more  favorable  margins than computer and  industrial  products.  However,  the
Company has recently  seen  increased  competition  and pricing  pressure on its
newer products in the  communications  segment.  Future gross margin levels will
continue to be a function of product mix and levels of manufacturing.

     The Company's  gross margin is adversely  impacted by the costs  associated
with  installing  new  processes  at its  foundries.  Although  the  Company has
recently  been able to mitigate the adverse  impact on gross  margin  associated
with new wafer manufacturing  process costs by relying upon process technologies
existing at its outside  wafer  foundries,  there can be no  assurance  that the
Company  will not be  required  to incur  significant  expenses in the future to
develop, or obtain access to, advanced process  technologies and to transfer and
install such  technologies  at one or more of its foundries,  which could have a
material adverse effect on gross margin in the future.

     The Company  currently  purchases  its wafers from six wafer  suppliers.  A
substantial  majority of the Company's wafer supply is obtained from three wafer
suppliers.  The  Company's  products are assembled and packaged by four vendors.
Any delays or  interruptions  due to such  factors  as  inadequate  capacity  or
unavailable raw materials in the Company's  wafer suppliers or assembly  vendors
could materially and adversely affect product  shipments.  The Company purchases
nearly all of its BiCMOS wafers from two wafer foundries,  the majority of which
are supplied by one wafer foundry in Taiwan.  Although both wafer  foundries are
qualified to supply the Company with BiCMOS  wafers,  the  Company's  short-term
BiCMOS wafer  supply could be  materially  and  adversely  affected if the wafer
foundry in Taiwan is unable to meet the  Company's  wafer  supply  requirements.
Approximately  one-third of the Company's  bipolar  wafers are purchased  from a
wafer  foundry in Japan and have  pricing  contracts  that are tied to  currency
fluctuations  of the yen.  Wafer  pricing for this  foundry is adjusted  every 6
months,  either up or down,  depending  on the  movement of the yen. The Company
does not expect to be significantly  impacted by this pricing agreement and as a
result does not enter into foreign currency hedging  arrangements.  However, due
to the  uncertainty of the currency  markets and the recent  fluctuations of the
yen versus the U.S. dollar, there can be no assurance that significant swings in
currency will not have a material  adverse  effect on gross margin in the future
due to the impact of such  fluctuations  on this contract or other contracts the
Company has with foundries in Japan.

   Research and Development Expenses

     Research  and  development  expenses  include  costs  associated  with  the
definition,  design and development of standard and semi-standard products, tile
arrays and standard  cells.  In  addition,  research  and  development  expenses
include test  development  and  prototype  assembly  costs  associated  with new
product development.  The Company also expenses the cost of prototype wafers and
new  production  mask sets related to new  products as research and  development
costs until products based on new designs are fully characterized by the Company
and are  demonstrated to support  published data sheets and satisfy  reliability
tests. Research and development expenses such as mask and silicon costs that are
related to the development of new products can fluctuate from quarter to quarter
due to the timing of the product design process.  The Company  believes that the
development and introduction of new products is critical to the Company's future
success.

     Research  and  development  expenses  were  $2.9  million,  or  25%  of net
revenues,  for the second quarter of 1998,  compared to $3.3 million,  or 17% of
net revenues,  for the second  quarter of 1997 and $3.2  million,  or 27% of net
revenues,  for the first quarter of 1998. Research and development expenses were
$6.2 million,  or 26% of net revenues,  for the first half of 1998,  compared to
$5.8 million, or 16% of net revenues, in the first half of 1997. The decrease in
research and development  expenses in absolute  dollars in the second quarter of
1998  compared  to the second  quarter of 1997 is  primarily  attributable  to a
decrease in mask expenses and staffing levels offset by higher prototype product
costs  associated  with new product  development.  The  decrease in research and
development  expenses in absolute dollars in the second quarter of 1998 compared
to the  first  quarter  of 1998  is  primarily  attributable  to a  decrease  in
prototype  product  costs  associated  with  new  product  development  and mask
expenses  offset by increased  foundry  charges for  expedited  processing.  The
slight increase in research and development  expenses in absolute dollars in the
first half of 1998 compared to the first half of 1997 is primarily  attributable
to  an  increase  in  prototype   product  costs  associated  with  new  product
development  and staffing  levels being  offset by decreased  mask  expenses and
bonus  compensation  costs.  The Company expects its third quarter  research and
development  costs,  in absolute  dollars,  to be higher than the second quarter
levels  as  new  product  tape-outs  are  expected  to  increase.   The  Company
established a design center in Cambridge,  England during 1997.  Through the end
of the second quarter of 1998, the Company has added a managing  design director
and a staff of seven  employees,  of which  four are design  engineers.  Further
selective headcount additions are expected during 1998.

   Selling, General and Administrative

     Selling,  general and administrative  expenses were $2.4 million, or 20% of
net revenues,  for the second quarter of 1998,  compared to $3.2 million, or 16%
of net revenues,  for the second quarter of 1997 and $2.8 million, or 23% of net
revenues,  for the first quarter of 1998.  Selling,  general and  administrative
expenses were $5.2 million,  or 22% of net revenues,  for the first half of 1998
compared to $6.6 million,  or 19% of net  revenues,  for the first half of 1997.
The  decreases in absolute  dollars in the second  quarter of 1998 and the first
half of 1998 compared to the second  quarter of 1997 and the first half of 1997,
respectively,  is primarily  attributable  to a decrease in  commissions  due to
lower  revenues,   decreased  business   conference  expenses  and  lower  bonus
compensation  costs being  partially  offset by higher  legal fees.  The Company
expects selling, general and administrative expenses to generally fluctuate with
revenue in the future.

   Interest and Other Income and Interest Expense

     Interest  and other  income  was $0.4  million  for the  first  and  second
quarters of 1998 and $0.3 million for the second  quarter of 1997.  The increase
in the  second  quarter  of  1998  compared  to the  second  quarter  of 1997 is
attributable   primarily  to  higher  cash   balances.   Interest   expense  was
insignificant  for the first and second  quarters of 1998 and the second quarter
of 1997.

   Provision for Income Taxes

     The  Company's  effective tax rate for the first half of 1998 and the first
half of 1997 was 36% which differs from the statutory  income tax rate primarily
due to state income taxes and federal research credits.

Liquidity and Capital Resources

     During the last several years,  the Company has financed its operations and
capital requirements  principally through cash flow from operations.  Operations
provided  $5.6  million of net cash during the first half of 1998, a decrease of
$1.3 million over the first half of 1997. The decrease in the first half of 1998
compared to the first half of 1997 is primarily attributable to lower net income
and accrued liabilities offset by lower accounts receivable.

     Cash  used  in  investing   activities  for  the  first  half  of  1998  is
attributable  to  capital  expenditures  of $1.8  million  and net  purchase  of
short-term investments of $0.6 million.

     Financing  activities for the first half of 1998 consisted primarily of the
repurchase of the Company's Common Stock for an aggregate of $1.0 million.  From
January 1996 through the second quarter of 1998, the Board of Directors approved
the repurchase of an aggregate of $17.5 million of the Company's Common Stock in
stock  repurchase  programs.  Through July 28, 1998, the Company had repurchased
1,642,000 shares at an aggregate cost of $15.0 million. As of July 31, 1998, the
Company had  remaining  authorization  to  repurchase  additional  shares of the
Company's Common Stock costing up to $2.5 million.

     Working  capital was $41.0  million as of June 30, 1998,  compared to $40.0
million as of December 31, 1997.  Working capital at June 30,  1998included cash
and cash equivalents of $8.3 million and short-term investments of $21.2 million
as of June 30, 1998.

     The  Company's  liquidity  is affected by many  factors,  including,  among
others,  the extent to which the Company pursues  additional  wafer  fabrication
capacity from existing foundry suppliers or new suppliers, capital expenditures,
and the level of the Company's product  development  efforts,  and other factors
related to the uncertainties of the industry and global economies.  Although the
Company's cash  requirements  will  fluctuate  based on the timing and extent of
these factors, the Company anticipates that its existing cash resources and cash
generated from operations will fund necessary purchases of capital equipment and
provide adequate  working capital for at least the next twelve months.  However,
there can be no assurance that events in the future will not require the Company
to seek additional capital sooner or, if so required,  that such capital will be
available on terms acceptable to the Company.
Other Factors Affecting Future Operating Results

     A substantial  portion of the Company's net revenues are derived from sales
of  products  for  computer  networking  applications.  Sales  of the  Company's
products to network equipment  manufacturers  accounted for approximately 60% of
the  Company's net revenues in the first half of 1998 and accounted for 7 of the
Company's 10 top selling  products for the first half of 1998.  These 7 products
constituted approximately 37% of the Company's revenues for the same period. The
computer  networking  equipment market is characterized by intense  competition,
relatively  short  product  life  cycles  and  rapid  technological  change.  In
addition,  the computer network equipment market has undergone a period of rapid
growth and experienced  consolidation  among the competitors in the market-place
in recent years.  Although the Company has expanded its product mix and customer
base,  the  Company  expects  its  dependence  on  sales  to  network  equipment
manufacturers to continue for the remainder of 1998. The Company's  business and
results of operations would be materially and adversely affected in the event of
a significant slowdown in the computer networking equipment market. In addition,
as a result of competitive pricing pressures,  the Company has experienced lower
margins in certain of its existing and recently introduced products for computer
networking applications. There can be no assurance as to when or if such pricing
pressure will lessen.  Such pricing pressures will have an adverse affect on the
Company's  results of operations  unless they can be offset by higher margins on
other products or reduced operating expenses.

     The Company's quarterly and annual operating results are affected by a wide
variety of factors  that could  materially  and  adversely  affect  revenues and
profitability,  including the Company's access to advanced process technologies,
the timing and extent of process  development  costs,  the Company's  ability to
introduce  new  products  on a timely  basis,  the  volume  and timing of orders
received,  market acceptance of the Company's and its customers'  products,  the
timing of new  product  announcements  and  introductions  by the Company or its
competitors,  changes  in the mix of  products  sold,  the  timing and extent of
research and  development  expenses,  the  availability  and cost of wafers from
outside  foundries,  fluctuations in manufacturing  yields,  fluctuations in the
relative  exchange  rate of the yen and the  U.S.  dollar,  competitive  pricing
pressures  and cyclical  semiconductor  industry  conditions.  A majority of the
Company's  net revenues are derived from sales of a limited  number of products.
Historically,   average  selling  prices  in  the  semiconductor  industry  have
decreased over the life of any particular product. Competitive pricing pressures
are expected to continue in the future, especially in the communications market,
and are likely to have a material  adverse effect on the Company's gross margin.
The  Company's  business is  characterized  by  short-term  orders and  shipment
schedules,  and customer orders typically can be canceled or rescheduled without
significant  penalty  to  the  customer.  Due  to  the  absence  of  substantial
noncancellable backlog, the Company typically plans its production and inventory
levels based on internal  forecasts of customer  demand,  which demand is highly
unpredictable  and can  fluctuate  substantially.  In  addition,  the Company is
limited  in its  ability to reduce  costs  quickly in  response  to any  revenue
shortfalls.  As a result  of the  foregoing  or other  factors,  there can be no
assurance that the Company will not experience  material  fluctuations in future
operating  results on a quarterly  or annual  basis which would  materially  and
adversely  affect the  Company's  business,  financial  condition and results of
operations.

     The  markets  for  the  Company's   products  are  characterized  by  rapid
technological  change  and  frequent  new  product   introductions.   To  remain
competitive, the Company must develop or obtain access to advanced semiconductor
process  technologies in order to reduce die size,  increase die performance and
functional  complexity,  and improve  yields.  Semiconductor  design and process
methodologies  are  subject  to  rapid  technological  change,  requiring  large
expenditures for research and  development.  If the Company is unable to develop
or obtain  access to  advanced  wafer  processing  technologies  as they  become
needed, or is unable to define,  design,  develop and introduce  competitive new
products on a timely basis, its future operating  results will be materially and
adversely  affected.  In  addition,  if the  Company is unable to  transfer  and
install  such new  process  technologies  to one or more of its  foundries  in a
timely  manner,  its business and results of operations  could be materially and
adversely affected.

     The Company's market  diversification  and product  development  activities
have placed,  and could continue to place, a significant strain on the Company's
limited  personnel  and other  resources.  The  Company's  ability to manage any
future growth  effectively  will require it to integrate any new employees  into
its overall  operations,  to continue to improve its operational,  financial and
management  systems and to attract,  train,  motivate  and manage its  employees
successfully.   If  the   Company's   management  is  unable  to  manage  growth
effectively,   the  Company's  business  and  results  of  operations  could  be
materially and adversely affected.

     The semiconductor  industry is characterized by rapid technological change,
cyclical market patterns,  significant  price erosion,  periods of over-capacity
and  production  shortages,  variations  in  manufacturing  costs and yields and
significant  expenditures  for capital  equipment and product  development.  The
industry has from time to time experienced  depressed business  conditions.  The
Company  may  experience  substantial  period-to-period  fluctuations  in future
operating  results due to general  semiconductor  industry  conditions  or other
factors.

Year 2000 Disclosure

     The "Year 2000 issue"  arises  because most  computer  systems and programs
were designed to handle only a two-digit  year, not a four-digit  year. When the
Year 2000 begins,  these computers may interpret "00" as the year 1900 and could
either  stop  processing   date-related   computations  or  could  process  them
incorrectly.  The Company has commenced,  for all of its information  systems, a
Year 2000 date conversion project to address all necessary code changes, testing
and  implementation  and accordingly  does not anticipate any internal Year 2000
issues from its own  information  systems,  databases or  programs.  The Company
could be  adversely  impacted by Year 2000 issues  faced by major  distributors,
suppliers, customers, vendors and financial service organizations with which the
Company interacts. The Company has developed a plan to determine the impact that
third parties who are not Year 2000  compliant may have on the operations of the
Company.  At this time, the Year 2000 compliance  expense and related  potential
effect of the Company's  earnings are estimated to be insignificant.  As of July
26, 1998 the Company has not  identified any loss  contingencies  related to the
year 2000 issues for products it has sold.

                           PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

     In December 1995, Pioneer Magnetics,  Inc. ("Pioneer") filed a complaint in
the Federal District Court for the Central District of California  alleging that
certain of the Company's  integrated circuits violate a Pioneer patent.  Pioneer
is seeking  monetary  damages and an  injunction  against  such  alleged  patent
violation.  The Company has denied any  infringement  and filed a  counter-claim
seeking  invalidity of the patent.  The parties have a patent claim construction
hearing  currently  scheduled for August 31, 1998. The court has not set a trial
date or a discovery cutoff date.

     On February 24, 1997, a former employee of the Company filed a complaint in
the Superior  Court of  California,  County of Santa Clara,  alleging  breach of
contract and employment discrimination.  On June 5, 1997, the case was dismissed
and the  parties  agreed to submit the  dispute to  arbitration.  As of June 26,
1998, no arbitration  date had been scheduled.  The Company denies all liability
and intends to vigorously defend its actions in the arbitration.

     Although the Company believes that the resolution of these actions will not
have a material adverse effect on the Company's  financial  condition or results
of  operations,  there can be no assurance that such actions will be resolved in
the  Company's  favor or that an  unfavorable  resolution  would not  materially
adversely effect the Company's financial condition or results of operations.

     From time to time,  the  Company  has  received,  and in the  future it may
receive,  correspondence  from  certain  vendors,  distributors,   customers  or
end-users of its products  regarding  disputes with respect to contract  rights,
product  performance  or other  matters  that  occur in the  ordinary  course of
business.  There  can  be no  assurance  that  any of  such  disputes  will  not
eventually  result in litigation or other actions involving the Company or as to
the outcome of such disputes.

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

The  following  matters  were  approved  at  the  Company's  Annual  Meeting  of
Stockholders held on June 3, 1998:

    (a)  The following Directors were elected:
<TABLE>
<CAPTION>

                Directors                     Votes For         % of Outstanding Shares
------------------------------------------- -------------- ----------------------------------
<S>                                            <C>                       <C> 
Arthur B. Stabenow                             11,801,222                92.9
Roger A. Smullen                               11,821,584                93.0
Jeffrey D. West                                11,821,584                93.0
Joseph D. Rizzi                                11,821,584                93.0
David L. Gellatly                              11,821,584                93.0

    (b) The stockholders approved the following proposals:

       <S>                                   <C>             <C>                 <C>         <C>
                                                           Number of Common Shares Voted
                                                              % of Outstanding          
                     Proposal                      For           Shares            Against     Abstain  
       ------------------------------------- --------------- ------------------- ------------ ----------

       1) Amendment to increase the
          authorized number of shares of
          the Company's Common Stock
          reserved for issuance under the         9,593,123         82.5           1,479,364     18,473
          Company's Director Stock Option
          Plan to 180,000 shares.

       2) Ratification of the appointment
          of Price Waterhouse LLP as the
          Company's independent
          accountants for fiscal year 1998.      10,925,953         93.9             135,167     28,840
</TABLE>

Item 6.  Exhibits and Reports on Form 8-K

    (a) Exhibits
 
        11.1     Statement Regarding Computation of Earnings Per Share.

        27.1     Financial Data Schedule

    (b)  Reports on Form 8-K

        None







                                                          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.
































                               MICRO LINEAR CORPORATION

Date: August 11, 1998          By:  /s/ J. PHILIP RUSSELL
                                    J. Philip Russell
                                    Chief Financial Officer
                                    (Principal Financial and Accounting Officer)