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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 September 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)

     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
September 30, 1998 was 11,404,388.
<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 nine months
                     ended September 30, 1998 and 1997..........................................      3
                      

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

                     Consolidated Condensed Statements of Cash Flows for the nine months ended
                     September 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 2.       Changes in Securities.......................................................     14

       Item 6.       Exhibits and Reports on Form 8-K............................................     14

       SIGNATURES..............................................................................       15
</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          Nine Months Ended
                                                                        --------------------------- ---------------------------
<S>                                                                     <C>             <C>             <C>                <C>
                                                                        September 30, September 30, September 30, September 30,
                                                                            1998          1997          1998          1997
                                                                        ------------- ------------- ------------- -------------
  Net revenues......................................................        $11,758       $15,036       $35,742       $50,675
  Cost of revenues..................................................          5,919         8,405        18,171        24,799
                                                                        ------------- ------------- -------------  ------------
    Gross profit....................................................          5,839         6,631        17,571        25,876
                                                                        ------------- ------------- -------------  ------------
  Operating expenses:
    Research and development........................................          2,855         2,893         9,006         8,725 
    Selling, general and administrative.............................          2,876         2,863         8,067         9,469 
                                                                        ------------- ------------ --------------  ------------
                                                                              5,731         5,756        17,073        18,194 
                                                                        ------------- ------------ --------------  ------------
    Income from operations..........................................            108           875           498         7,682 
  Interest and other income.........................................            372           331         1,100           994 
  Interest expense..................................................            (65)          (69)         (198)         (210)
                                                                        ------------- ------------ --------------  ------------
    Income before taxes.............................................            415         1,137         1,400         8,466
  Provision for income taxes........................................            150           409           504         3,048
                                                                        ------------- ------------ --------------  ------------
    Net income......................................................        $   265       $   728       $   896       $ 5,418    
                                                                        ============= ============ ==============  ============

  Net Income Per Share:
  Basic:
    Net income per share............................................          $0.02         $0.06         $0.08         $0.46
                                                                        ============= ============ ==============  ============
    Weighted average number of shares used in per share computation.         11,642        11,811        11,661        11,878
                                                                        ============= ============ ==============  ============
  Diluted:
    Net income per share............................................          $0.02         $0.06         $0.07         $0.41    
                                                                        ============= ============ ==============  ============
    Weighted average number of shares used in per share computation.         11,992        12,679        12,101        13,146 
                                                                        ============= ============ ==============  ============
<FN>                                                                       
                            See accompanying notes to unaudited consolidated condensed financial statements.
</FN>
</TABLE>


<PAGE>
<TABLE>
<CAPTION>

                                            MICRO LINEAR CORPORATION
                                       CONSOLIDATED CONDENSED BALANCE SHEETS
                                                    (Unaudited)
                                 (In thousands, except share and per share amounts)

<S>                                                                                    <C>                    <C>
                                                                                          September 30,         December 31,
                                                                                               1998                 1997
                                                                                       ---------------------  ------------------
Assets
Current assets:
   Cash and cash equivalents....................................................                    $ 6,820             $ 5,210
   Short-term investments.......................................................                     22,285              20,653
   Accounts receivable, net.....................................................                      5,924              10,367
   Inventories..................................................................                      7,608               7,823
   Other current assets.........................................................                      5,421               5,768
                                                                                       ---------------------  ------------------
     Total current assets.......................................................                     48,058              49,821
                                                                                       ---------------------  ------------------
Property, plant and equipment, net..............................................                     20,636              21,523
Other assets....................................................................                        596                 681
                                                                                       =====================  ==================
       Total assets.............................................................                    $69,290             $72,025
                                                                                       =====================  ==================

Liabilities and Stockholders' Equity
Current liabilities:
   Accounts payable.............................................................                    $ 3,229             $ 3,612
   Deferred income on shipments to distributors.................................                      2,520               2,695
   Other accrued liabilities....................................................                      2,967               3,592
                                                                                       ---------------------  ------------------
     Total current liabilities..................................................                      8,716               9,899
                                                                                       ---------------------  ------------------ 
Long-term debt..................................................................                      2,654               2,805
                                                                                       ---------------------  ------------------
Commitments and contingencies
Stockholders' equity:
   Preferred stock, $.001 par value
     Authorized shares 5,000,000;
        None issued and outstanding ............................................                          -                   -
   Common stock, $.001 par value
     Authorized shares 30,000,000;
        Issued shares 13,487,988 and 13,168,003
        Outstanding shares 11,404,388 and 11,656,003 ...........................                         14                  13
   Additional paid-in capital...................................................                     53,859              52,890
   Retained earnings............................................................                     21,341              20,445
   Treasury stock, 2,083,600 and 1,512,000 shares at cost.......................                    (17,294 )           (14,027 )
                                                                                       ---------------------  ------------------
     Total stockholders' equity.................................................                     57,920              59,321
                                                                                       ---------------------  ------------------
       Total liabilities and stockholders' equity...............................                    $69,290             $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 unaudited consolidated condensed financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                             MICRO LINEAR CORPORATION
                                  CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                                    (Unaudited)
                                                  (In thousands)

                                                                                Nine Months Ended
                                                                     -----------------------------------------
<S>                                                                             <C>                     <C>
                                                                      September 30,           September 30,
                                                                           1998                   1997
                                                                     -----------------      ------------------
Cash provided by operating activities...........................               $8,129                 $10,855
                                                                     -----------------      ------------------
Investing activities:
   Capital expenditures.........................................              ( 2,432 )                (3,846 )
   Purchases of short-term investments..........................              (32,092 )               (32,735 )
   Sales of short-term investments..............................               30,460                  30,961
                                                                     -----------------      ------------------
     Net cash used in investing activities......................               (4,064 )                (5,620 )
                                                                     -----------------      ------------------
Financing activities:
   Principal payments under capital lease obligations and debt..                 (151 )                  (170 )
   Proceeds from issuance of common stock.......................                  963                   1,334
   Acquisition of treasury stock................................               (3,267 )                (6,903 )
                                                                     -----------------      ------------------
     Net cash used in financing activities......................               (2,455 )                (5,739 )
                                                                     -----------------      ------------------

Net increase (decrease) in cash and cash equivalents............                1,610                    (504 )
Cash and cash equivalents at beginning of period................                5,210                   4,385
                                                                     -----------------      ------------------
Cash and cash equivalents at end of period......................               $6,820                  $3,881
                                                                     =================      ==================
<FN>
                              See accompanying notes to unaudited 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.  While
     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  September 30, 1998,  one customer  accounted
     for 21% of total sales.  During the nine months ended  September  30, 1998,
     one customer accounted for 20% of total sales.

5)   Supplemental Financial Information:

     Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>

<S>                                                                         <C>                <C>
                                                                         September 30,      December 31,
                                                                               1998                1997
                                                                        -----------------   -----------------
          Raw materials..............................................      $   340              $   712
          Work-in-process............................................        5,259                5,100
          Finished goods.............................................        2,009                2,011
                                                                           $ 7,608              $ 7,823

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

                                                                         September 30,       December 31,
                                                                               1998                 1997
                                                                        -----------------    ----------------
          Land.......................................................      $  2,850             $  2,850
          Buildings and improvements.................................         9,358                9,873
          Machinery and equipment....................................        32,620               29,673
                                                                             44,828               42,396
          Accumulated depreciation and amortization..................        24,192               20,873
          Net property, plant and equipment..........................       $20,636              $21,523

</TABLE>

<PAGE>

       NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
                                   (Unaudited)

6)   Cash payments for income taxes and interest  expense  totaled  $905,000 and
     $198,000, respectively, for the nine months ended September 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 nine month
     period of 1998 and 1997 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  third  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 October 31, 1998, the
     Company had repurchased 2,083,600 shares for a total cost of $17.3 million.
     As of October 31, 1998, the Company had  authorization  to repurchase up to
     an additional $3.0 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 September 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               $265         11,642     $0.02          $728       11,811        $0.06

  Effect of dilutive
  securities:                                  350                                  868
    Stock options

  Diluted Income Per
  Share:
  Net income available
    to common
    stockholders assuming
    dilution                   $265         11,992     $0.02          $728       12,679        $0.06


</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
                                                    (Unaudited)


                                                Nine Months Ended September 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              $896         11,661      $0.08         $5,418       11,878       $0.46

  Effect of dilutive
  securities:                                 440                                  1,268
    Stock options

  Diluted Income Per
  Share:
  Net income available
    to common
    stockholders assuming
    dilution                  $896         12,101      $0.07         $5,418       13,146       $0.41

</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 nine  months
     ended September 30, 1998 and 1997,  comprehensive  income  approximated net
     income.

11)  A discussion of certain pending legal  proceedings is included in Item 1 of
     Part II of the Company's Form 10-Q for the fiscal  quarter ended  September
     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.





<PAGE>

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 $11.8  million  for the third  quarter  of 1998,  a 22%
decrease  over net revenues of $15.0 million for the third quarter of 1997 and a
slight  increase  over net revenues of $11.7  million for the second  quarter of
1998.  Net revenues were $35.7  million for the first three  quarters of 1998, a
29% decrease over net revenues of $50.7 million for the first three  quarters of
1997.

     The   Company   serves   three   principal   market   segments,   computer,
communications  and  industrial.  Net  revenues  for the third  quarter  of 1998
compared  to the  third  quarter  of 1997  decreased  24% in the  communications
market,  15% in the  industrial  market  and  10% in the  computer  market.  Net
revenues for the third  quarter of 1998  compared to the second  quarter of 1998
increased 11% in the  industrial  market and decreased 9% and 3% in the computer
and  communications  markets,  respectively.  Net  revenues  for the first three
quarters of 1998 compared to the first three  quarters of 1997  decreased 32% in
the  communications  market, 47% in the computer market and 3% 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  third  quarter  of  1998 in the  networking  sub-market  decreased  27%
compared to the third quarter of 1997,  and were flat with the second quarter of
1998. Sales of the Company's networking products accounted for approximately 59%
and  64% of  net  revenues  in the  first  three  quarters  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  networking  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 will 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 $4.1 million,  or 35% of net revenues,  for
the third quarter of 1998, compared to $7.8 million, or 52% of net revenues, for
the third  quarter of 1997 and $5.7  million,  or 49% of net  revenues,  for the
second quarter of 1998. International revenues were $15.0 million, or 42% of net
revenues,  for the first three quarters of 1998,  compared to $27.5 million,  or
54% of net  revenues,  for the first  three  quarters of 1997.  The  decrease in
international  revenues  for the third  quarter  of 1998  compared  to the third
quarter  of 1997 and the  second  quarter  of 1998 and also for the first  three
quarters of 1998  compared  to the first  three  quarters of 1997 was due to the
combination of lower direct  product  demand for the Company's  products in Asia
and decreased Asia Pacific subcontract work for domestic customers.  Despite the
lower product  demand in Asia through the end of the third 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 25% of net revenues for
the third quarter of 1998, 17% of net revenues for the third quarter of 1997 and
18% of net  revenues  for the  second  quarter  of  1998.  Domestic  distributor
revenues  were  approximately  21% and 16% of net  revenues  for the first three
quarters of 1998 and first three  quarters 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  increased to 50% in the third quarter of 1998
from 44% in the third quarter of 1997 and 43% in the second quarter of 1998. The
Company's  gross margin  decreased  to 49% for the first three  quarters of 1998
from 51% for the first  three  quarters  of 1997.  The  Company's  gross  margin
improved in the third  quarter of 1998 compared to the third quarter of 1997 and
the second quarter of 1998  primarily due to a favorable  change in product mix.
The Company's gross margin declined in the first three quarters of 1998 compared
to the first  three  quarters of 1997  primarily  due to the  combination  of an
unfavorable change in product mix and lower production output levels.

     Communications products represented 61% of the Company's total shipments in
the third quarter of 1998, down from 64% in the third quarter of 1997 and 63% in
the second quarter of 1998. The mix of products in the communications segment in
the third  quarter of 1998 had higher gross  margins than the mix of products in
such   segment   in  the   third   quarter   of  1997  or  second   quarter   of
1998.Communication  products represented 65% of the Company's total shipments in
the first three  quarters of 1998,  down from 68% in the first three quarters of
1997.  It has been the Company'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.  The  Company  expenses  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.
The Company  believes that the development  and  introduction of new products is
critical to its future success.  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.

     Research  and  development  expenses  were  $2.9  million,  or  24%  of net
revenues, for the third quarter of 1998, compared to $2.9 million, or 19% of net
revenues,  for  the  third  quarter  of 1997  and  $2.9  million,  or 25% of net
revenues, for the second quarter of 1998. Research and development expenses were
$9.0  million,  or 25% of net  revenues,  for the first three  quarters of 1998,
compared to $8.7 million, or 17% of net revenues, in the first three quarters of
1997. Research and development expenses in absolute dollars in the third quarter
of 1998 were flat with the second quarter of 1998 and the third quarter of 1997.
The slight increase in research and development  expenses in absolute dollars in
the first three quarters of 1998 compared to the first three quarters of 1997 is
primarily attributable to an increase in prototype product costs associated with
new product development offset by a decline in mask, payroll,  and travel costs.
The Company  established a design center in Cambridge,  England during 1997, and
through  the end of the third  quarter of 1998 the  Company had added a managing
design vice president and a staff of seven  employees,  of which four are design
engineers.  Further selective headcount additions are expected during the fourth
quarter of 1998.

   Selling, General and Administrative

     Selling,  general and administrative  expenses were $2.9 million, or 24% of
net revenues, for the third quarter of 1998, compared to $2.9 million, or 19% of
net  revenues,  for the third  quarter of 1997 and $2.4  million,  or 20% of net
revenues,  for the second quarter of 1998.  Selling,  general and administrative
expenses were $8.1 million, or 23% of net revenues, for the first three quarters
of 1998  compared to $9.5 million,  or 19% of net revenues,  for the first three
quarters of 1997. The expenses in absolute  dollars in the third quarter of 1998
were flat with the third  quarter of 1997.  The decrease in absolute  dollars in
the first three quarters of 1998 compared to the first three quarters of 1997 is
primarily  attributable  to decreased  commissions  due to lower  revenues and a
decrease in staffing and  business  conference  costs.  The increase in absolute
dollars in the third quarter of 1998  compared to the second  quarter of 1998 is
primarily   attributable  to  an  increase  in  sales  commission  and  business
conference  costs.  The Company  expects  selling,  general  and  administrative
spending to remain  relatively  constant as a percentage of sales  revenues from
quarter to quarter.

   Interest and Other Income and Interest Expense

     Interest  and other  income was $0.4  million  for each of the first  three
quarters  of 1998 and $0.3  million  for the  third  quarter  of 1997.  Interest
expense was  insignificant  for the first  three  quarters of 1998 and the first
three quarters of 1997.

   Provision for Income Taxes

     The Company's  effective tax rate for the first three  quarters of 1998 and
the first three quarters 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  $8.1  million of net cash during the first three  quarters of 1998,  a
decrease of $2.7 million over the first three  quarters of 1997. The decrease in
the first three quarters of 1998 compared to the first three quarters 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 three quarters of 1998 is
attributable  to capital  expenditures  of $2.4  million  and net  purchases  of
short-term investments of $1.6 million. As of September 30, 1998 the company had
capital commitments for the remainder of 1998 of approximately $1.4 million.

     Financing  activities  for the  first  three  quarters  of  1998  consisted
primarily of the  repurchase of the  Company's  Common Stock for an aggregate of
$3.3 million.  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  October 31, 1998,  the
Company had repurchased  2,083,600 shares for a total cost of $17.3 million.  As
of October 31,  1998,  the  Company had  authorization  to  repurchase  up to an
additional $3.0 million of the Company's Common Stock.

     Working  capital was $39.4  million as of September  30, 1998,  compared to
$40.0 million as of December 31, 1997 and includes cash and cash  equivalents of
$6.8 million and  short-term  investments  of $22.3  million as of September 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 networking equipment  manufacturers  accounted for approximately 59%
of the Company's net revenues in the first three  quarters of 1998 and accounted
for 7 of the Company's 10 top selling  products for the first three  quarters of
1998. These 7 products  constituted  approximately 40% 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 networking equipment  manufacturers to continue for the next several
quarters.  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.  In
particular,  during the last several quarters,  the  semiconductor  industry has
experienced a significant slow down in growth. These soft market conditions have
adversely  impacted the Company's  business and operating  results.  The Company
expects  these soft market  conditions  to continue at least  through the fourth
quarter of 1998. The Company expects to experience 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 has
also  commenced  on a Year 2000 date  conversion  project to address  machinery,
equipment and other items used in the operations of the Company.

     The required changes to the Company's information systems and items used in
the  operations  of the Company are  expected to be completed by the end of June
1999.  The  financial  impact of these  changes is expected to be  approximately
$100,000, which constitutes approximately 4 percent of the Company's information
technology budget during such period. Of such amount,  approximately $10,000 has
been spent to date. None of the Company's other information  technology projects
have been deferred as a result of the Company's Year 2000 compliance efforts.

     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 is in the process of developing a
plan to determine the impact that third parties who are not Year 2000  compliant
may have on the  operations  of the Company.  As part of this plan,  the Company
contacted each of its critical  vendors in September  1998 to determine  whether
they were Year 2000  compliant.  Many of such vendors have not yet  responded to
the  Company's  inquiries  and  the  Company  is  continuing  to  evaluate  Year
2000-related  risks and  corrective  actions that may be  associated  with these
critical  vendors.  Of the  critical  vendors  that  have  responded  none  have
indicated any problems or non-compliance  with Year 2000. At this time, the Year
2000 compliance  expense and related potential effect of the Company's  earnings
are  estimated  to be  insignificant.  As of March 26,  1998 the Company has not
identified any loss  contingencies  related to the year 2000 issues for products
it has sold.

     The  company  is  continuing  to  evaluate  Year  2000-related   risks  and
corrective actions. However, the risks associated with the Year 2000 problem are
pervasive  and complex,  can be  difficult  to identify and to address,  and can
result in material adverse consequences to the company.  Even if the company, in
a  timely  manner,  completes  all  of its  assessments,  identifies  and  tests
remediation  plans  believed to be  adequate,  and  develops  contingency  plans
believed to be adequate,  some  problems may not be  identified  or corrected in
time to prevent material adverse consequences to the company.
     
<PAGE>

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.  On November 9, 1998,  hearing in this matter
was held and the judge is  expected  to issue a ruling in the near  future.

     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 September 25,
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 2. Changes in Securities

     In August 1998,  the Company  adopted a Preferred  Shares  Rights Plan (the
"Plan").  The Plan entails a dividend of one right for each outstanding share of
the Company's  common stock.  The rights are  represented by and traded with the
Company's  common stock.  There are no separate  certificates  or market for the
rights.The rights do not become  exercisable or trade separately from the common
stock unless 15% or more of the common  stock of the Company has been  acquired,
or after a tender or exchange offer is made for 15% or greater  ownership of the
Company's common stock.  Should the rights become  exercisable,  each right will
entitle the holder thereof to buy 1/1,000th of a share of the Company's Series A
Preferred  Stock at an exercise  price of $30. Each  1/1,000th of a share of the
new Series A preferred Stock will essentially be the economic  equivalent of one
share of common stock.

     Under certain circumstances,  the rights "flip-in" and become rights to buy
the Company's common stock at a 50% discount. Under certain other circumstances,
the rights  "flip-over" and become rights to buy an acquirer's common stock at a
50% discount.

     The rights may be  redeemed  by the Company for $0.01 per right at any time
on or prior to the  tenth  day (or a later  date as  determined  by the Board of
Directors)  following  the  first  public  announcement  by the  Company  of the
acquisition of beneficial ownership of 15% of the Company's common stock.

Item 6.  Exhibits and Reports on Form 8-K

    (b)  Reports on Form 8-K

         None
<PAGE>



                                   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: November 12, 1998             By: /s/ J. PHILIP RUSSELL  
                                   J. Philip Russell
                                   Chief Financial Officer
                                   (Principal Financial and Accounting Officer)