### 

##### Table of Contents

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 27, 2002

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549



---



FORM 20-F

(box)  REGISTRATION STATEMENT PURSUANT TO SECTION 12 (B) OR (G)
OF THE SECURITIES EXCHANGE ACT OF 1934

OR

(XBOX)  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended DECEMBER 31, 2000

OR

(box)  TRANSITION REPORT PURSUANT TO SECTION 13 or 15(D) OFTHE SECURITIES EXCHANGE ACT OF 1934for the transition period from to

COMMISSION FILE NUMBER 5-59311



---



DIALOG SEMICONDUCTOR PLC(Exact name of Registrant as specified in its charter)

|                                                |  |                                                
|----------------------------------------------- |  | -----------------------------------------------
|NOT APPLICABLE                                  |  | ENGLAND AND WALES                              
|(Translation of Registrants Name Into English) |  | (Jurisdiction of Incorporation of Organization)



---



Neue Strasse 95D-73230 Kirchheim/Teck-Nabern, Germany(Address of Principal Executive Offices)



---



Securities registered or to be registered pursuant to Section 12(b) of the Act:

NONE

Securities registered or to be registered pursuant to Section 12(g) of the Act:

|                                                                             |  |                               
|---------------------------------------------------------------------------- |  | ------------------------------
|                                                                             |  | NAME OF EACH EXCHANGE OF WHICH
|TITLE OF EACH CLASS                                                          |  | REGISTERED                    
|                                                                             |  |                               
|ORDINARY SHARES OF £ 0.10 PER SHAREREPRESENTED BY AMERICAN DEPOSITARY
SHARES |  | NASDAQ NATIONAL MARKET        

Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:

NONE

Indicate the number of outstanding shares of each of the issuers classes of
capital or common stock as of the close of the period covered by the annual
report.

ORDINARY SHARES                                                  44,068,930

Indicate by check mark whether the registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the proceeding 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  (XBOX)           No  (BOX)

Indicate by check mark which financial statement item the registrant has elected to follow.

Item 17  (BOX)         Item 18  (XBOX)2TABLE OF CONTENTS

COVER
PART I
        ITEM 1  Identity of Directors, Senior Management and Advisers
        ITEM 2  Offer Statistics and Expected Timetable
        ITEM 3  Key Information
        ITEM 4  Information on the Company
        ITEM 5  Operating and Financial Review and Prospects
        ITEM 6  Directors, Senior Management and Employees
        ITEM 7  Major Shareholders and Related Party Transactions
        ITEM 8  Financial Information
        ITEM 9  The Offer and Listing
        ITEM 10  Additional Information
        ITEM 11  Quantitative and Qualitative Disclosures About Market Risk
        ITEM 12  Description of Securities Other than Equity Securities
        PART II
        ITEM 13  Defaults, Dividend Arrearages and Delinquencies
        ITEM 14  Material Modifications to the Rights of Security Holders and Use of Proceeds
        PART III
        ITEM 17  Financial Statements
        ITEM 18  Financial Statements
        ITEM 19  ExhibitsFORWARD-LOOKING STATEMENTSThe annual report contains forward-looking statements. All statements
regarding our future financial condition, results of operations and businesses,
strategy, plans and objectives are forward-looking. Statements containing the
words believes, intends, expects and words of similar meaning are also
forward-looking. Such statements involve unknown risks, uncertainties and other
factors that may cause our results, performance or achievements or conditions
in the markets in which we operate to differ from those expressed or implied in
such statements. These factors include, among others, product demand, the
effect of economic conditions, exchange-rate and interest-rate movements,
capital and credit market developments, the timing of customer orders and
manufacturing lead times, the changes in customer order and payment patterns,
insufficient, excess or obsolete inventory, the impact of competing products
and their pricing, product development, commercialization and technological
difficulties, political risks in the countries in which we operate or sale and
supply constraints. It is not possible to predict or identify all such factors.
Consequently, any such list should not be considered to be a complete statement
of all potential risks or uncertainties. We do not assume the obligations to
update forward-looking statements.

### 

##### Cover | Table of Contents

PART I

### 

##### Cover | Table of Contents

ITEM 1.   IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

NOT APPLICABLE.

### 

##### Cover | Table of Contents

ITEM 2.   OFFER STATISTICS AND EXPECTED TIMETABLE

NOT APPLICABLE.

3

### 

##### Cover | Table of Contents

ITEM 3.   KEY INFORMATION

A.     SELECTED FINANCIAL DATA

We derived the following selected historical and pro forma financial data from
our consolidated financial statements and those of our predecessor business.
You should read the following selected financial data in conjunction with our
consolidated financial statements and the related notes and Item 5. Operating
and Financial Review and Prospects. We derived the selected historical
consolidated financial information of our predecessor business for the period
from January 1, 1998 to February 28, 1998 and as of December 31, 1997 and for
the year then ended from the audited consolidated financial statements of our
predecessor business, which have been audited by KPMG Deutsche
Treuhand-Gesellschaft Aktiengesellschaft. We derived the selected historical
consolidated financial information of Dialog Semiconductor Plc as of December
31, 2001, 2000 and 1999, for the years ended December 31, 2001, 2000 and 1999,
and for the period from March 1, 1998 to December 31, 1998 from our audited
consolidated financial statements, which have been audited by KPMG. The
audited consolidated financial statements for the years ended December 31,
2001, 2000 and 1999 are included elsewhere in this annual report.

We derived the pro forma statement of income of Dialog Semiconductor Plc for
the year ended December 31, 1998 from the audited consolidated statement of
income of our predecessor business for the period from January 1, 1998 to
February 28, 1998 and from the audited consolidated statement of income of
Dialog Semiconductor Plc for the period from March 1, 1998 to December 31,
1998, in each case as audited by KPMG. We prepared the pro forma financial
information solely to assist comparisons across financial periods. This pro
forma information does not purport either to represent actual results or to be
indicative of results which will be achieved in future periods. You may find it
helpful to read this data in conjunction with Item 5. Operating and Financial
Review and Prospects and our financial statements, the related notes and other
financial information included elsewhere in this annual report. You may also
find it helpful to read Item 5. Operating and Financial Review and
Prospects-Overview-Acquisition for more information on the acquisition of our
predecessor business and to which the pro forma financial information relates.

Our audited consolidated financial statements and those of our predecessor
business were prepared in accordance with US GAAP.

4

The following tables should be read in conjunction with our audited
consolidated financial statements, the notes thereto and Item 5. Operating and
Financial Review and Prospects included elsewhere in this annual report.

|                                                                       |  |                         |         |                  |  |                    |          |              |  |      |         |      |  |            |         |   |  |              |         |              |  |  |        |   |  |  |         |  
|---------------------------------------------------------------------- |  | ----------------------- | ------- | ---------------- |  | ------------------ | -------- | ------------ |  | ---- | ------- | ---- |  | ---------- | ------- | - |  | ------------ | ------- | ------------ |  |  | ------ | - |  |  | ------- | -
|                                                                       |  | Successor (1)           |         | Predecessor (2) 
|                                                                       |  |                         |         |                 
|                                                                       |  | Year ended December 31, |         | For the period   |  | For the period     |          | Year ended  
|                                                                       |  |                         |         | March 1, 1998 to |  | January 1, 1998 to |          | December 31,
|                                                                       |  |                         |         |                  |  |                    |          |              |  |      |         |      |  |            |         |   |  | December 31, |         | February 28, |  | 
|(IN THOUSANDS OF EURO) (5)                                             |  | 2001                    |         | 2000             |  | 1999               |          | 1998(3)      |  | 1998 |         | 1998 |  | 1997      
|                                                                       |  |                         |         |                  |  |                    |          |              |  |      |         |      |  |           
|                                                                       |  |                         |         |                  |  |                    |          |              |  |      |         |      |  | (unaudited |         |   |  |              |         |              |  |  |        |   |  | 
|                                                                       |  |                         |         |                  |  |                    |          |              |  |      |         |      |  | pro forma) |         |   |  |              |         |              |  |  |        |   |  | 
|                                                                       |  |                         |         |                  |  |                    |          |              |  |      |         |      |  |            |         |   |  |              |         |              |  |  |        |   |  | 
|STATEMENT OF INCOME DATA:                                              |  |                         |         |                  |  |                    |          |              |  |      |         |      |  |            |         |   |  |              |         |              |  |  |        |   |  |  |         |  
|Revenues                                                               |  |                         | 100,519 |                  |  |                    | 214,459  |              |  |      | 87,246  |      |  |            | 44,478  |   |  |              | 38,197  |              |  |  | 6,281  |   |  |  | 38,528  |  
|Cost of sales (including excess
inventory provision of 10,689 in
2001) |  |                         | (79,637 | )                |  |                    | (138,866 | )            |  |      | (56,749 | )    |  |            | (25,429 | ) |  |              | (21,896 | )            |  |  | (3,533 | ) |  |  | (26,728 | )
|                                                                       |  |                         |         |                  |  |                    |          |              |  |      |         |      |  |            |         |   |  |              |         |              |  |  |        |   |  |  |         |  
|Gross margin                                                           |  |                         | 20,882  |                  |  |                    | 75,593   |              |  |      | 30,497  |      |  |            | 19,049  |   |  |              | 16,301  |              |  |  | 2,748  |   |  |  | 11,800  |  
|Selling and marketing expenses                                         |  |                         | (4,054  | )                |  |                    | (5,672   | )            |  |      | (3,888  | )    |  |            | (3,515  | ) |  |              | (2,714  | )            |  |  | (801   | ) |  |  | (4,451  | )
|General and administrative expenses                                    |  |                         | (5,569  | )                |  |                    | (5,972   | )            |  |      | (2,698  | )    |  |            | (2,610  | ) |  |              | (2,363  | )            |  |  | (247   | ) |  |  | (1,277  | )
|Research and development                                               |  |                         | (31,256 | )                |  |                    | (22,898  | )            |  |      | (11,108 | )    |  |            | (6,656  | ) |  |              | (5,542  | )            |  |  | (1,114 | ) |  |  | (3,773  | )
|Amortization of goodwill and
intangible assets                         |  |                         | (3,202  | )                |  |                    | (2,651   | )            |  |      | (1,237  | )    |  |            | (957    | ) |  |              | (802    | )            |  |  | (3     | ) |  |  | (15     | )
|Acquired in-process research and
development                           |  |                         |        |                  |  |                    |         |              |  |      |        |      |  |            | (9,300  | ) |  |              | (9,300  | )            |  |  |       |   |  |  |        |  
|                                                                       |  |                         |         |                  |  |                    |          |              |  |      |         |      |  |            |         |   |  |              |         |              |  |  |        |   |  |  |         |  
|Operating profit (loss)                                                |  |                         | (23,199 | )                |  |                    | 38,400   |              |  |      | 11,566  |      |  |            | (3,989  | ) |  |              | (4,420  | )            |  |  | 583    |   |  |  | 2,284   |  
|Interest income, net                                                   |  |                         | 898     |                  |  |                    | 1,940    |              |  |      | 13      |      |  |            | (155    | ) |  |              | (129    | )            |  |  | (26    | ) |  |  | (214    | )
|Foreign currency exchange gains and
losses, net                        |  |                         | 306     |                  |  |                    | 2,627    |              |  |      | (329    | )    |  |            | (63     | ) |  |              | (11     | )            |  |  | (52    | ) |  |  | 31      |  
|Write-down of investment                                               |  |                         | (42,405 | )                |  |                    |         |              |  |      |        |      |  |            |        |   |  |              |        |              |  |  |       |   |  |  |        |  
|                                                                       |  |                         |         |                  |  |                    |          |              |  |      |         |      |  |            |         |   |  |              |         |              |  |  |        |   |  |  |         |  
|Result before income taxes                                             |  |                         | (64,400 | )                |  |                    | 42,967   |              |  |      | 11,250  |      |  |            | (4,207  | ) |  |              | (4,560  | )            |  |  | 505    |   |  |  | 2,101   |  
|Income taxes                                                           |  |                         | 22,721  |                  |  |                    | (16,410  | )            |  |      | (4,570  | )    |  |            | (2,721  | ) |  |              | (2,430  | )            |  |  | (291   | ) |  |  | (1,078  | )
|                                                                       |  |                         |         |                  |  |                    |          |              |  |      |         |      |  |            |         |   |  |              |         |              |  |  |        |   |  |  |         |  
|Net income (loss)                                                      |  |                         | (41,679 | )                |  |                    | 26,557   |              |  |      | 6,680   |      |  |            | (6,928  | ) |  |              | (6,990  | )            |  |  | 214    |   |  |  | 1,023   |  
|                                                                       |  |                         |         |                  |  |                    |          |              |  |      |         |      |  |            |         |   |  |              |         |              |  |  |        |   |  |  |         |  
|Basic earnings (loss) per share(6)                                     |  |                         | (0.95   | )                |  |                    | 0.62     |              |  |      | 0.16    |      |  |            |         |   |  |              | (0.23   | )            |  |  |        |   |  |  |         |  
|Diluted earnings (loss) per share(6)                                   |  |                         | (0.95   | )                |  |                    | 0.60     |              |  |      | 0.15    |      |  |            |         |   |  |              | (0.23   | )            |  |  |        |   |  |  |         |  
|BALANCE SHEET DATA:                                                    |  |                         |         |                  |  |                    |          |              |  |      |         |      |  |            |         |   |  |              |         |              |  |  |        |   |  |  |         |  
|Cash and cash equivalents                                              |  |                         | 32,626  |                  |  |                    | 29,879   |              |  |      | 11,257  |      |  |            |         |   |  |              | 2,958   |              |  |  |        |   |  |  | 1,105   |  
|Working capital(4)                                                     |  |                         | 50,394  |                  |  |                    | 70,589   |              |  |      | 26,683  |      |  |            |         |   |  |              | 2,943   |              |  |  |        |   |  |  | 1,745   |  
|Total assets                                                           |  |                         | 178,443 |                  |  |                    | 247,423  |              |  |      | 90,864  |      |  |            |         |   |  |              | 31,92   |              |  |  |        |   |  |  | 16,225  |  
|Financial liabilities                                                  |  |                         |        |                  |  |                    |         |              |  |      | 56      |      |  |            |         |   |  |              | 3,489   |              |  |  |        |   |  |  | 5,415   |  
|Cumulative redeemable preference
Shares                                |  |                         |        |                  |  |                    |         |              |  |      |        |      |  |            |         |   |  |              | 37,607  |              |  |  |        |   |  |  |        |  
|Shareholders equity                                                   |  |                         | 157,706 |                  |  |                    | 199,194  |              |  |      | 68,611  |      |  |            |         |   |  |              | 3,036   |              |  |  |        |   |  |  | 4,408   |  
|OTHER DATA:                                                            |  |                         |         |                  |  |                    |          |              |  |      |         |      |  |            |         |   |  |              |         |              |  |  |        |   |  |  |         |  
|Weighted average number of shares
outstanding (in thousands):          |  |                         |         |                  |  |                    |          |              |  |      |         |      |  |            |         |   |  |              |         |              |  |  |        |   |  |  |         |  
|Basic                                                                  |  |                         | 43,788  |                  |  |                    | 42,669   |              |  |      | 35,980  |      |  |            |         |   |  |              | 34,568  |              |  |  |        |   |  |  |         |  
|Diluted                                                                |  |                         | 43,788  |                  |  |                    | 44,300   |              |  |      | 37,790  |      |  |            |         |   |  |              | 34,568  |              |  |  |        |   |  |  |         |  



---

|(1) |  | Dialog Semiconductor Plc and its subsidiaries from and after the
acquisition effective March 1, 1998.
|--- |  | -----------------------------------------------------------------------------------------------------

5

|(2) |  | Dialogue Semiconductors Limited and its subsidiaries, a majority-owned
group of companies of Daimler-Benz AG (now DaimlerChrysler AG), prior to
the acquisition effective March 1, 1998.                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(3) |  | The pro forma statement of income data for the year ended December 31,
1998 gives effect to our acquisition of our predecessor business as if
this acquisition had occurred on January 1, 1998. We have accounted for
the acquisition using the purchase method of accounting. Accordingly, we
allocated the28.0 million purchase price to the assets acquired and
the liabilities we assumed based upon their fair values. The purchase
price exceeded the fair value of the net assets we acquired by
approximately11.1 million. We recorded this amount as goodwill and
are amortizing it over 15 years.

Here is how we calculated the pro forma statement of income data:



| |  |  | We combined the results of operations of our predecessor business
for January and February, 1998 with the results of our operations for
the ten months from March through December, 1998.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | We added152,000 to amortization of goodwill and intangible
assets to show the amount of amortization expense we would have had if
the acquisition had occurred on January 1, 1998.      



|(4) |  | Current assets less current liabilities.                                                                                                                                                                                                                                                                                                            
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(5) |  | All balances prior to January 1, 1999 have been restated from Deutsche Mark
into Euro using the exchange rate as of January 1, 1999 (1 = DM1.95583).                                                                                                                                                                                               
|   
|(6) |  | Because our predecessor was a limited liability company and part of a group
of UK companies majority-owned by Daimler-Benz AG, presentation of earnings per
share information for the period from January 1, 1998 to February 28, 1998, for
the years ended December 31, 1997, and pro forma for the year ended December
31, 1998 is not meaningful.

B.     EXCHANGE RATE INFORMATION

The following table shows, for the dates indicated, certain information
concerning the noon buying rate in New York City for cable transfers in Pounds
Sterling as certified for customs purposes by the Federal Reserve Bank of New
York, expressed in US Dollars per (£)1.00.

|               |  |            |      |             |  |      |      |     |  |   |      |  |  |   |      | 
|-------------- |  | ---------- | ---- | ----------- |  | ---- | ---- | --- |  | - | ---- |  |  | - | ---- | 
|Year           |  | Period End |      | Average (1) |  | High |      | Low
|               |  |            |      |             |  |      |      |    
|1997           |  | $          | 1.64 |             |  | $    | 1.64 |     |  | $ | 1.70 |  |  | $ | 1.58 | 
|1998           |  |            | 1.66 |             |  |      | 1.66 |     |  |   | 1.72 |  |  |   | 1.61 | 
|1999           |  |            | 1.62 |             |  |      | 1.61 |     |  |   | 1.68 |  |  |   | 1.55 | 
|2000           |  |            | 1.50 |             |  |      | 1.51 |     |  |   | 1.65 |  |  |   | 1.40 | 
|2001           |  |            | 1.45 |             |  |      | 1.44 |     |  |   | 1.47 |  |  |   | 1.41 | 
|MONTH          |  |            |      |             |  |      |      |     |  |   |      |  |  |   |      | 
|September 2001 |  |            |      |             |  |      |      |     |  |   | 1.47 |  |  |   | 1.44 | 
|October 2001   |  |            |      |             |  |      |      |     |  |   | 1.48 |  |  |   | 1.42 | 

6

|                              |  |            |  |             |  |      |  |     |  |  |      |  |  |  |      | 
|----------------------------- |  | ---------- |  | ----------- |  | ---- |  | --- |  |  | ---- |  |  |  | ---- | 
|Year                          |  | Period End |  | Average (1) |  | High |  | Low
|                              |  |            |  |             |  |      |  |    
|November 2001                 |  |            |  |             |  |      |  |     |  |  | 1.47 |  |  |  | 1.41 | 
|December 2001                 |  |            |  |             |  |      |  |     |  |  | 1.46 |  |  |  | 1.42 | 
|January 2002                  |  |            |  |             |  |      |  |     |  |  | 1.45 |  |  |  | 1.41 | 
|February 2002                 |  |            |  |             |  |      |  |     |  |  | 1.43 |  |  |  | 1.41 | 
|March 2002 (through March 15) |  |            |  |             |  |      |  |     |  |  | 1.42 |  |  |  | 1.41 | 



---

|(1) |  | The average of the noon buying rates on the last day of each month during
the year.
|--- |  | -----------------------------------------------------------------------------------

On March 15, the noon buying rate was $1.42 per £1.00.

The following table shows, for the dates indicated, certain information
concerning the noon buying rate in New York City for cable transfers in Euros
as certified for customs purposes by the Federal Reserve Bank of New York
expressed in US Dollars per1.00. All exchange rates relating to periods
prior to January 1, 1999 have been calculated using the noon buying rate in New
York City for cable transfers in Deutsche Mark expressed in US Dollars per Euro
divided by the fixed Deutsche Mark/Euro exchange rate in effect on and after
January 1, 1999 of DM1.95583 per1.00.

|                              |  |            |      |            |  |      |      |     |  |   |      |  |  |   |      | 
|----------------------------- |  | ---------- | ---- | ---------- |  | ---- | ---- | --- |  | - | ---- |  |  | - | ---- | 
|Year                          |  | Period End |      | Average(1) |  | High |      | Low
|                              |  |            |      |            |  |      |      |    
|1997                          |  | $          | 1.09 |            |  | $    | 1.12 |     |  | $ | 1.04 |  |  | $ | 1.27 | 
|1998                          |  |            | 1.17 |            |  |      | 1.11 |     |  |   | 1.05 |  |  |   | 1.22 | 
|1999                          |  |            | 1.01 |            |  |      | 1.06 |     |  |   | 1.18 |  |  |   | 1.00 | 
|2000                          |  |            | 0.94 |            |  |      | 0.92 |     |  |   | 1.03 |  |  |   | 0.83 | 
|2001                          |  |            | 0.89 |            |  |      | 0.89 |     |  |   | 0.93 |  |  |   | 0.85 | 
|MONTH                         |  |            |      |            |  |      |      |     |  |   |      |  |  |   |      | 
|September 2001                |  |            |      |            |  |      |      |     |  |   | 0.93 |  |  |   | 0.89 | 
|October 2001                  |  |            |      |            |  |      |      |     |  |   | 0.92 |  |  |   | 0.89 | 
|November 2001                 |  |            |      |            |  |      |      |     |  |   | 0.90 |  |  |   | 0.88 | 
|December 2001                 |  |            |      |            |  |      |      |     |  |   | 0.90 |  |  |   | 0.88 | 
|January 2002                  |  |            |      |            |  |      |      |     |  |   | 0.90 |  |  |   | 0.86 | 
|February 2002                 |  |            |      |            |  |      |      |     |  |   | 0.88 |  |  |   | 0.86 | 
|March 2002 (through March
15) |  |            |      |            |  |      |      |     |  |   | 0.88 |  |  |   | 0.87 | 



---

|(1) |  | The average of the noon buying rates on the last day of each month during
the year.
|--- |  | -----------------------------------------------------------------------------------

On March 15, the noon buying rate was $0.88 per  1.00.

C.     RISK FACTORS

In addition to other information in this annual report, you should carefully
consider the risks described below before deciding to invest in our ordinary
shares or ADSs. Any of these risk factors could materially and adversely affect
our business, financial condition or operating results. In that case, the trading price of our ordinary
shares and ADSs could decline, and you could lose all or part of your
investment. It is not possible to predict or identify all relevant risk factors
and, therefore, the following list should not be considered to be a complete
statement of all potential risks or uncertainties.

7

Our revenues, profitability and growth could decline
if the growth of the wireless communications market slows

We derive a substantial portion of our revenue from the wireless communications
market. Our revenues from wireless communications applications accounted for
77% of our total revenues for the year ended December 31, 2001. The wireless
communications market experienced an industry-wide decline in demand for mobile
communications products during the year ended December 31, 2001. Our revenues
decreased 53% from214.5 million for the year ended December 31, 2000
compared with100.5 million for the year ended December 31, 2001,
primarily as a result of the decline. In future periods, conditions in the
wireless communications market may fluctuate, which could result in either
growth or decline. Conditions in the wireless communications market may be
influenced by numerous factors, including:



| |  |  | national and regional regulatory environments                       
| | - |  | --------------------------------------------------------------------
|
| |  |  | general economic conditions                                         
|
| |  |  | advances in competing telecommunication and information technologies
|
| |  |  | manufacturing capacity                                              
|
| |  |  | perceived health risks to mobile phone users                        

Any significant constraints on the growth of, or downturns in, the wireless
communications market could have a negative effect on our future revenues and
profit growth.

Perceived health risks relating
to mobile handsets could leadto decreased
demand for ASICs

Some members of the medical community have expressed concern that the
electromagnetic signals from mobile handsets may cause brain tumors, memory
loss or DNA and genetic damage. The perceived health risks and related
publicity or litigation could reduce the demand for mobile handsets and related
applications specific integrated circuits, or ASICs, and, thus, reduce our
sales and revenues.

If we are unable to adapt rapidly to changing markets and technology, we may
lose customers and be unable to develop new business

The market in which we compete is characterized by continuous development and
technological improvement. As a result, our success depends on our ability to
develop new designs and products on a cost-effective, timely basis. Our future
success also
depends on our ability to anticipate and respond to new market trends, to
rapidly implement new designs that satisfy customers desires, and to keep
abreast of technological changes within the semiconductor industry generally.
If we fail to successfully design and develop new products and product
enhancements that respond to technological changes and customer requirements in
a timely and cost-effective manner, we may be unable to respond to competitive
challenges. We could also lose customers and experience a lower demand for our
products.

8

We depend on Ericsson, Siemens and a few other customers for most of our
revenues, and the loss of one or more of these customers may result in a
material decline in our revenues

We derive a substantial portion of our revenues from a relatively small number
of wireless communications manufacturers that require high performance, low
cost semiconductor products. Sales to our two largest customers accounted for
67% of our revenues in 2001, 75% of our revenues in 2000 and 69% of our
revenues in 1999. The loss of one or more major customers, in particular
Ericsson or Siemens, or material decreases in sales to one or more of our other
major customers would result in a material decrease in our revenues. In
addition, because we depend on a relatively small, focused customer base we are
exposed to downward pricing pressures from those customers.

We may not be able to remain competitive if we lose any of our key executives

Our success depends to a significant extent upon the continued service of our
key senior executives, particularly of our management board members. We rely
heavily on senior managements special knowledge and its ability to maintain
relationships with our key customers. If we lose any of our key senior
executives, we may not be able to retain our current customers or develop
business with new customers.

We may not be able to remain competitive if we cannot hire and retain qualified
engineers and sales and marketing personnel

Our future success depends on our ability to continue enhancing and introducing
new generations of technology. We are therefore particularly dependent on our
ability to identify, attract, motivate and retain qualified design, process and
testing engineers with the requisite educational background and industry
experience. Competition in the market for qualified engineers, particularly
those with significant industry experience, is intense. Our ability to
successfully grow will also depend on our ability to attract and retain sales
and marketing personnel. The loss of the services of any of our senior
engineers or our inability to attract and retain sales and marketing personnel
could hurt our product development efforts or business relationships.

We may not be able to recover any of our investment in the parent company of
one of our principal foundries, European Semiconductor Manufacturing Limited,
and a continued downturn in the semiconductor industry could adversely affect
our ability to recover our investments in another foundry

Commencing in 1999, we made a series of investments in ESM Limited, the parent
company of one of our principal foundries, European Semiconductor Manufacturing
Limited, in the form of equity interests, loans and advance payments for
products. ESM Limited and European Semiconductor Manufacturing Limited have
since experienced significant financial difficulties and, as a result, we
wrote-off our total investment in ESM Limited which resulted in a
 42.4 million pre-tax charge to earnings in the fourth quarter of 2001. In January
2002, ESM Limited and European Semiconductor Manufacturing Limited were placed
in receivership (a reorganization under UK law). We recently learned that the
receiver had successfully completed negotiations that will result in the sale
of ESM Limited to International Rectifier

9

Corporation. Based on the terms of
the sale agreement, we expect to receive approximately 6 million of our
investment in ESM Limited. See Notes 3 and 18 to the Consolidated Financial
Statements.

We also maintain a $20 million deposit with and have made advanced payments of
$10 million in 2000 to another foundry, Chartered Semiconductor Manufacturing.
Under the terms of our contract with Chartered Semiconductor Manufacturing, the
deposit and advanced payments will be refunded to us in proportion to our
future wafer purchases. We currently expect to recover the entire amount of
our deposit and advance payments in the form of wafers. However, prolonged
adverse market conditions could affect our estimates about the recoverability
of these investments. It is reasonably possible that our future operating
results could be materially adversely affected if we determine that it is
necessary to write-off a portion or all of our investment.

The loss of one of our principal foundry relationships or assembly services or
a delay in foundry or assembly production may result in a material loss of
production and revenue

As discussed above, ESM Limited and European Semiconductor Manufacturing
Limited experienced significant financial difficulties and were placed in
receivership in January 2002. We have secured supplies of silicon from multiple
sources and we believe that we have sufficient quantities of silicon on hand to
maintain levels of production to meet our current needs.

However, a material production delay, limitation or other detrimental effect on
production at one of our other principal foundries could result in a material
loss of revenue until such production is restored or until the affected product
lines are transferred to another foundry. A foundrys production can be
delayed, limited or detrimentally affected by, among other things:



| |  |  | difficulties in the manufacturing process         
| | - |  | --------------------------------------------------
|
| |  |  | the complexity of individual designs              
|
| |  |  | failure of suppliers to meet delivery dates       
|
| |  |  | shortages in raw materials or silicon impurities  
|
| |  |  | other factors or circumstances outside our control

We also outsource our wafer assembly services, including bonding and packaging,
to selected assemblers in Europe and Asia. If we lost one or more of our
assemblers or if any assembler failed to meet its delivery dates, failed to
meet quality standards set by us, limited production volumes or increased
prices due to capacity constraints, we could experience significant delays and
loss of production, which could result in a material loss of revenues.

The market for silicon wafer fabrication is highly competitive and in the
future we may have difficulty obtaining foundry capacity

10

We outsource our silicon wafer fabrication and, therefore, access to
semiconductor manufacturing plants, or fabs, is necessary to our business.
Access to fabs, however, may become increasingly difficult in future years as
the semiconductor industry continues to grow. If we are unable to obtain access
to sufficient manufacturing capacity at fabs, we could experience significant
delays or a loss of production, which could result in a material loss of
revenues. Additionally, if there is a shortage of available manufacturing
capacity at fabs, we may have to pay more for the manufacture of silicon
wafers.

We face intense competition, and if we are unable to compete
effectively, we could lose customers

Many of our direct and indirect competitors are major international
semiconductor companies with substantially greater technical, financial and
marketing resources and name recognition. In addition, in the future we may
face increased competition from smaller, niche semiconductor design companies.
Further, some of our customers could decide to satisfy their ASIC demands
through in-house design and production. We compete with these competitors
primarily on the basis of the following attributes:



| |  |  | price                          
| | - |  | -------------------------------
|
| |  |  | design cycle time              
|
| |  |  | reliability                    
|
| |  |  | performance                    
|
| |  |  | customer and logistical support
|
| |  |  | reputation                     

Our inability to compete effectively on any of these bases or others could
affect the pricing of and demand for our products. See Item 4. Information on
the Company  Competition.

Our business, financial condition and reputation may be materially adversely
affected if our ASICs, or the electronic systems of which they are a part,
contain defects that cause damage or injury

Our ASICs form part of larger complex products such as mobile phones and airbag
sensors. Defects in our ASICs, or in the electronic systems of which they are
part, may directly or indirectly result in damage to third parties property,
physical injury or even death. If such defects occur, they may result in:



| |  |  | product liability claims                  
| | - |  | ------------------------------------------
|
| |  |  | expensive and time-consuming modifications
|
| |  |  | damaged customer relationships            

11



| |  |  | damage to our reputation
| | - |  | ------------------------
|
| |  |  | loss of market share    

Although we carry insurance, our insurance coverage may not cover potential
claims to which we are exposed or may not be adequate to indemnify us for all
potential liability. In addition, we may not have sufficient cash reserves to
cover such liabilities. If we do not have sufficient insurance or cash
reserves, we may be forced to sell assets or divert cash that may have
otherwise been used for capital expenditures or operating costs.

If we are unable to protect our intellectual property and know-how from copy or
use by others, our competitors may gain access to our content and technology

We attempt to protect our trade secrets and other proprietary information
through confidentiality agreements with customers, suppliers, employees and
consultants and through other security measures. We also rely on copyright and
trade secret laws to protect our intellectual property and know-how.

If we are unable to protect our intellectual property, it may be possible for
someone to copy aspects of our designs and products or to obtain and use
information that we regard as proprietary.

The semiconductor industry is characterized by frequent litigation regarding
intellectual property rights. Questions of infringement in the semiconductor
field involve highly technical and subjective analysis. Litigation may be
necessary in the future to enforce our intellectual property rights, to protect
our trade secrets, to determine the validity and scope of the proprietary
rights of others, or to defend against claims of infringement or invalidity.
Any litigation, whether or not determined in our favor, would probably be
costly and would divert the efforts and attention of our management and
technical personnel from normal business operations. Adverse determinations in
litigation could result in the loss of our proprietary rights, subject us to
significant liabilities or require us to seek licenses from third parties.
Moreover, there may not be effective trade mark, copyright and trade secret
protection in every country in which our technology is or may be used in the
future. This would increase the possibility of infringement of our intellectual
property.

The profitability of our business may be adversely affected by currency
fluctuations and by the economic and legal developments in the countries where
we conduct our business

We sell our products primarily in Europe, Malaysia, China and the United
States. Our operations are subject to risks inherent in international business
activities, including:



| |  |  | general economic conditions in each country                                        
| | - |  | -----------------------------------------------------------------------------------
|
| |  |  | costs of complying with a variety of regulatory environments                       
|
| |  |  | currency conversion risks and the effect of fluctuations in
currency exchange rates

12



| |  |  | taxation by multiple government entities
| | - |  | ----------------------------------------
|
| |  |  | tariffs and other trade barriers        
|
| |  |  | staffing and managing foreign operations

We conduct our business primarily in US Dollars and Euros, the currency in
which we state our financial statements (prior to January 1, 1999 we used the
Deutsche Mark).

Since its introduction on January 1, 1999, the Euro has declined in value
against the US Dollar. From the date of its introduction through January 31,
2002, the value of the Euro declined approximately 25% against the US Dollar.
Changes in the exchange rate between the Euro and other non-Euro currencies,
principally the US Dollar, will affect the translation of our consolidated
financial results into Euros, and will also affect the value of any amounts
that our subsidiaries distribute to us. Exchange rate changes may also affect
our balance sheet. Changes in the Euro values of our assets and liabilities
resulting from exchange-rate movements may cause us to record foreign currency
gains and losses. We do not currently enter into forward or other derivative
transactions to hedge against exchange rate fluctuations, except with respect
to certain deposits with our foundries as described below.

Changes in exchange rates also influence our results of operations. Our sales
are primarily denominated in US Dollars, Euros, and, prior to January 1, 1999,
the Deutsche Mark, whereas our purchases of raw materials and manufacturing
services are primarily denominated in US Dollars. For the year ended December
31, 2001, 46% of our revenues were denominated in Euros, 51% were denominated
in US Dollars, 2% were denominated in Swedish Krona and 1% were denominated in
Pound Sterling and 22% of our cost of sales was denominated in Euros and 78%
was denominated in US Dollars. For the year ended December 31, 2000, 30% of our
revenues were denominated in Euros and 70% were denominated in US Dollars and
24% of our cost of sales was denominated in Euros and 76% was denominated in US
Dollars. For the year ended December 31, 1999, 36% of our revenues were
denominated in Euros and 64% were denominated in US Dollars and 19% of our cost
of sales was denominated in Euros and 81% was denominated in US Dollars. In
order to hedge our foreign currency exposure, we attempt to match cash inflows and
outflows in the same currency, primarily the US Dollar.

During 2001 to hedge our foreign currency exposure with respect to $26 million
of deposits with Chartered Semiconductor Manufacturing Pte., Ltd and ESM
Limited, we purchased foreign currency forward contracts to effectively convert
the US Dollar deposits into Euros. See Item 5. Operating and Financial Review
and Prospects-Wafer Supply Agreements and  Foreign Currency Exposure and
Note 15 to the Consolidated Financial Statements.

With the exception of specific foreign currency forward contracts, we may be
unable to match inflows and outflows adequately, which increases our exposure
to changing exchange rates.

13

Our future operating results could be materially affected if
judgments
underlying any of our accounting policies were to significantly change

A number of our accounting policies involve judgments about various factors,
including our financial and operating condition, the wireless communications
industry and general economic conditions. There is a reasonable likelihood that
our future operating results could be materially affected if the conditions or
assumptions on which our judgments are based were to significantly change. See
Item 5. Operating and Financial Review and Prospects-Critical Accounting
Policies and Related Uncertainties.

### 

##### Cover | Table of Contents

ITEM 4.   INFORMATION ON THE COMPANY

A.     HISTORY AND DEVELOPMENT OF THE COMPANY

Dialog Semiconductor Plc is a public limited company constituted under the laws
of England and Wales. Our business originated from the European activities of
International Microelectric Products, Inc., a US company active in the
semiconductor industry. In May 1985, International Microelectric Products, Inc.
incorporated IMP (UK) Limited as a private limited company registered in
England and Wales. At the end of 1989 and the beginning of 1990, Daimler-Benz
AG, now DaimlerChrysler AG, acquired IMP (UK) Limited. International
Microelectric Products (Europe) Limited became part of a Daimler-Benz AG
subsidiary, Temic Telefunken Microelectric GmbH, now Conti Temic
microelectronic GmbH (TEMIC). In March 1998, three of our major shareholders,
Apax Partners, Adtran, Inc. and Ericsson provided funding to finance our buyout
of the business from Daimler-Benz AG for  28.0 million. See Item 5.
Operating and Financial Review and Prospects-Acquisition.

Our head office is located near Stuttgart, Germany and we have additional
offices in Swindon, UK; Clinton, New Jersey, USA; Lund, Sweden; Graz, Austria;
Tokyo, Japan; and Heidelberg and Munich, Germany. Our principal executive
office is located at Neue Strasse 95, D-73230 Kirchheim/Teck-Nabern, Germany,
Tel: 0049 7021 805-0. Our agent for US federal securities law purposes is
Dialog Semiconductor, Inc., Corporation Trust Center, 1209 Orange Street,
Wilmington, Delaware 19801.

B.     BUSINESS OVERVIEW

We develop and supply types of silicon chips called mixed signal ASICs, or
applications specific integrated circuits, for wireless communications and
automotive applications. All of our innovative products are developed in 100%
Complimentary Metal Oxide Semiconductor, or CMOS, technology and are used by
major original equipment manufacturers or, OEMs, around the world. Our core
competence is the design of complex analog and digital (mixed signal)
integrated circuits complemented by our ability to rapidly deliver qualified
and tested products directly to the customer. We draw on our team of highly
skilled engineers and an extensive library of ASIC designs and know-how to
respond to the requirements of our customers. We have historically focused on
two applications for the mobile telephone market, namely audio-CODEC and power
management. Audio CODEC is the critical interface between outside world analog
signals (such as the human voice) and the digital data

14

processing inside a
mobile phone. Power management controls the supply of power from the battery
to the other subsystems and controls their power consumption. More recently we
initiated strategic research and development programs in order to leverage our
expertise and to expand our product and customer base. Our new applications
include multimedia, digital camera and MP3 modules, sensors and radio
frequency, or RF.

We have developed a strategy for outsourcing the manufacture and assembly of
our ASICs. We have entered into partnerships with leading semiconductor foundry
manufacturing plants, or foundries, which maintain state of the art facilities.
This enables us to offer high quality products without being required to make
the substantial capital investment required by an in-house foundry. We monitor
and control the complete production process and ensure quality through
pre-shipping testing of all final products. Our test programs are developed by
our test engineers at the same time as ASIC design and are based upon
specifications determined by the individual customer. Our rigorous test process
enables us to ensure the overall quality of the manufactured product prior to
its delivery to our customer.

INDUSTRY BACKGROUND

Semiconductors and mixed signal ASICs

Semiconductors are essential building blocks in todays electronic products,
including mobile telephones. Integrated circuits are complex semiconductor
devices that consist of a single piece of silicon and are commonly referred to
as a chip. In the past, standard integrated circuits were placed close
together to create a system that met the requirements of an application. This
standardization in turn has created a foundry industry which produces wafers,
consisting of multiple identical silicon chips. In order to reduce size and
costs and increase performance ASICs were developed. ASICs integrate these
circuits together on one custom designed chip. A mixed signal ASIC processes
both analog and digital data.

Analog circuits provide the interface between electronic systems and a variety
of real world phenomena such as sound, light, and temperature. Digital devices
use a series of on/off states to perform arithmetic functions that are used to
process data. Due to the risk of interference, it is technically difficult to combine analog and
digital circuits on a single chip. System manufacturers historically addressed
mixed signal requirements using printed circuit boards that incorporated
individual analog and digital components. However, in response to increasing
demand for greater functionality at lower cost, system manufacturers are
actively seeking solutions that contain both analog and digital functions
integrated on a single chip.

Mixed signal ASICs in the wireless communications market

Following exceptional growth in the wireless communications market in 2000,
there was a reduction in demand for cellular handsets in 2001. The number of
handsets manufactured in 2001 declined by 25% as compared to 2000. The majority
of phone manufacturers had overstocked inventories as a result of over
production of handsets and phone components in late 2000. With the global
economy slowing at the same time, customer demand was also depressed, extending
the time required to sell the

15

excess inventory. This situation has prompted a
major restructuring of the industry, including the merger of the Ericsson and
SONY mobile phone divisions, the decision by both Ericsson and Motorola to
offer their intellectual property in mobile phones to third parties, and the
downsizing and outsourcing of production by many manufacturers. Additionally,
major companies have changed the focus of their activities, concentrating on
profitability rather than unit sales volumes. There has also been a
consolidation of development resources in so-called third generation systems,
most notably in Japan, to speed up the time to market for new handsets, to
assist interoperability and to share development costs.

During 2001 China surpassed the USA as the single largest phone market with
more than 120 million subscribers, and the market in China is forecasted to
continue to grow. Sales of replacement handsets have dominated Western European
and Japanese markets as penetration rates have reached 70 to 80%. This in turn
has focused development activities towards the support of new features and
improved data capabilities. The success of i-Mode in Japan during 2001
demonstrated the viability of wireless data services. The introduction of
so-called 2.5 generation systems in 2001 is an opportunity for the industry
to deliver effective data services after a disappointing false start in 2000.
For more information, see Item 5. Operating and Financial
Review and Prospects  Trend Information.

Despite the turbulence in the wireless marketplace, Nokia has maintained its
leading position, with Motorola, Ericsson, Siemens and Samsung following at
some distance.

OUR SOLUTION

We design and supply mixed signal ASIC solutions on an efficient basis to
targeted customers in the wireless communications and automotive markets.
Building on our proven expertise in mixed signal ASIC design, we have developed
a considerable reputation in creating innovative, customer-specific solutions.
We believe that the following key factors have contributed to our success.

Design expertise and product innovation

We concentrate solely on designing increasingly complex mixed signal ASIC
solutions and have accumulated substantial know-how in this area. We employ our
know-how to respond to our customers demands and to identify new product
solutions that increase performance while lowering overall system costs.

Examples of the success of this approach can be seen in our leading market
positions in Audio CODEC and power management applications.

Alternatives to ASICs and CMOS technology

We focus our business on the design of ASICs rather than general purpose,
mass-produced integrated circuits on standard chipsets. Our larger mobile phone
manufacturing customers rely primarily on the ASIC-based semiconductor designs
to maintain their customized strategic position in the mobile phone industry,
giving them more control over the design of their products than they would have
if they used mass produced standard chips. Other customers tend to rely more
heavily on the standard

16

baseband chipsets. We supply these customers with
standard designed chips, although this is not a significant part of our
business.

We supply ASICs using mainstream CMOS, or Complimentary Metal Oxide
Semiconductor, technology, the most widely used semiconductor manufacturing
technology. Although specialist analog (bipolar, analog CMOS) as well as mixed
manufacturing technologies (BiCMOS) exist for analog circuits, most chip
designers use CMOS manufacturing technology because unit production costs can
be up to 20-25% lower than can be achieved with alternative manufacturing
technologies for the same or similar functionality. In addition, most foundries
are designed to use CMOS production processes. As a semiconductor company that
relies on outsourced manufacture of our chips, access to foundry capacity with
comparable technology is critical to our ability to compete in the mobile
communications industry. Accordingly, we do not view BiCMOS technology as a
realistic alternative for our business.

Commitment to selected customers

We have built a core of strong and growing relationships with selected high
profile, high volume customers. We are a flexible partner for these customers,
who increasingly demand that we, as a preferred supplier, serve as an integral
part of their overall supply chain. We work with our customers to rapidly
develop the appropriate technical response to changing market trends.

OUR STRATEGY

We believe that increased demand for new applications and technical
improvements in the wireless communications market will require handset
manufacturers to rely more on the type of ASICs that we supply to achieve the
cost and performance demands of the market.

Our objective is to be the leading global supplier of mixed signal ASICs to the
wireless communications market. To meet these objectives, we have developed a
focused strategy.

Remain focused on existing business model

We intend to remain focused on our existing business model, which includes
outsourcing silicon wafer production to foundry manufacturing plants and
supplying ASICs using mainstream CMOS technology. We maintain control over our
entire production process and ensure product quality through pre-shipping
testing of all final products. By selectively outsourcing production to
foundries and assemblers, we believe it minimizes the substantial cost of
purchasing semiconductor production equipment and allows us to concentrate
management efforts on our core competencies.

Expand engineering expertise

We recognize that one of our key strengths lies in the engineering expertise of
our employees in design, product development and testing. Due to the increasing
complexity of mixed signal design and production, it is essential to our
ongoing success that we attract, develop and retain key engineering personnel.
We intend to

17

continue to meet this challenge by offering our technical staff a
variety of ongoing educational and career opportunities, combined with
performance incentives and by actively recruiting additional highly skilled
individuals. See  Sales and Marketing below.

Expand relationships with key industry leaders

We have close relationships with a number of high volume customers, many of
which are key industry leaders. We intend to continue to focus our sales and
marketing efforts on a small number of high quality target customers. By
strengthening these relationships and developing new ones, we intend to secure
our involvement in developing market segments.

Proactively refine customers system architecture

We work proactively with our customers to refine their system architectures.
One example of this approach is the integration of audio and power management
functions onto one chip in order to increase power efficiencies and reduce
product weight and size. We see particular opportunities in the expected
migration to third generation wireless communications technology, which will
demand more efficient use of system architectures.

Selectively expand global capabilities

We have successfully developed a strong, focused customer base in Europe. In
order to support and service our growing customers, we will consider expansion
through organic growth and selected acquisitions. To this end, we have
established facilities in Graz, Austria and Tokyo, Japan to extend the range of
ASICs offered for mobile communications to include radio frequency, or RF,
components and to support local customers in Japan. See Item 5. Operating and Financial Review and
Prospects-Liquidity and Capital Resources.

OUR PRINCIPAL PRODUCTS

We focus on the production and supply of mixed signal ASICs for the mobile
communications market and, to a lesser but increasing extent, for the
automotive electronics market. We also supply ASICs for other consumer and
industrial applications in the lighting systems and data communications
markets. For the year ended December 31, 2001, approximately 61% of our
revenues originated from Europe (of which approximately 62% originated outside
Germany), 28% originated from Asia and 6% originated from North America. For
the year ended December 31, 2000, approximately 73% of our revenues originated
from Europe (of which approximately 74% originated outside of Germany), 19%
originated from Asia and 7% originated from North America. For the year ended
December 31, 1999, approximately 87% of our revenues originated from Europe (of
which approximately 72% originated outside of Germany), 7% originated from Asia
and 6% originated from North America.

18

ASICS FOR WIRELESS COMMUNICATION

We supply mixed signal ASICs to mobile telephone manufacturers primarily for
use in handset Audio CODEC and power management systems. Revenues from our
mobile communications mixed signal ASICs accounted for approximately 77% of our
revenues for 2001, 84% of our revenues for 2000 and 78% for 1999.

The mobile phone can be divided into five subsystems:



| |  |  | The RADIO FREQUENCY subsystem is responsible for transmitting and
receiving communication signals.                                                                                                                    
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The BASEBAND, or digital control subsystem uses a micro-controller
and a digital signal processor to control the functioning of the phone
and interacts with the operator of the phone through the display and
keypad.
|
| |  |  | The FLASH MEMORY provides all software necessary for the operation
of the phone and retains all user specific data.                                                                                                   
|
| |  |  | The AUDIO AND POWER MANAGEMENT subsystem.                                                                                                                                                                             
|
| |  |  | The MULTIMEDIA APPLICATION subsystem.                                                                                                                                                                                 

Historically we have concentrated on the production of our Audio-CODEC and
power management ASICs for mobile phones and have successfully developed 38
designs in these two areas. More recently, we have leveraged our expertise in
new applications within wireless devices. One of our new applications includes
a plug-in or built-in digital camera module for mobile phones.

Audio and Power Management

Developments in both Audio-CODEC and power management technology have reached a
point where these two functions can be combined on a single circuit. Our
competence in both areas means that we can provide advanced solutions without
compromising performance. By combining audio and power management systems into
a single circuit we have successfully met market demands for smaller and less
expensive systems. In 2001, we had one design in production and shipped
approximately seven million units.

Audio-CODECs

The audio performance of a mobile phone is one of the most important features
for consumers selecting a new handset. Therefore, we have concentrated on
delivering high quality audio performance, integrating successive generations
of audio CODEC functions. The audio processing subsystem works by taking the
analog voice input from the microphone and converting this to digital
information so that it can be processed and transmitted through the network. In
the opposite direction it converts digital speech or digital music back to an
analog signal and then drives the phones loudspeaker. Built around the basic
sound conversion are a host of other functions such as volume control and noise
shaping to make the sound as clear as possible.

19

These features are what make a
phone pleasant to use, delivering speech sounds which are natural rather than
harsh and metallic or muffled.

Historically, mobile phone consumers have used the phone to convey speech, but
recent advances in design now enable them to use phones like a Walkman,
either by incorporating a built in radio or by playing stored music through MP3
files. These functions extend the performance requirements of the Audio CODEC
to include Hi Fi performance. We have devoted significant resources to meet
this new audio challenge.

In 2001, we had two designs in production and shipped approximately twelve
million units. In 2000, we had four designs in production and shipped
approximately 38 million units. In 1999, we had three designs in production and
shipped approximately 18 million units.

Power management

Mobile phone users are, above all, looking for convenience when they buy a new
handset, and standby and talk time are critical features. Both standby and talk
time are controlled by the power management subsystem within the phone, which
controls the power supply to all of the functions in the phone, ensuring power
is used most effectively and that all the functions have the optimum operating
environment. Efficient power management delivers maximum standby and talk time.
The power management block is also responsible for charging and monitoring the
battery and providing functions such as fuel gauging, where the user is able to
see how much longer the phone can be used before re-charging.

In 2001, we had 6 designs in production and shipped approximately 38 million
units. In 2000, we had eight designs in production and shipped approximately 78
million units. In 1999, we had four designs in production and shipped approximately 16
million units.

Multimedia and other applications

Digital camera module  MP3 playback  Multimedia Messaging Services

We no longer use the phone just to talk. Increasingly, it is becoming an
information and entertainment tool. But as phones become more complex it is
essential that they remain easy to use. That means more sophisticated ways are
needed to handle information and better ways to enter information or navigate
to the functions we require. As an entertainment tool, the phone is evolving to
include personal stereo features such as FM radio and MP3 playback, the first
stages of multimedia support. The next stage in developing multi-media phones
is the inclusion of digital camera functionality, initially for still
photography linked to Multimedia Messaging Services or MMS, and then to full
motion video applications such as video conferencing. The ability to add
pictures to messages whilst on the move has many applications, and even in its
simplest form, makes communication far more personal. Adding this function to a
phone is a complex task. It requires competence in imaging, data conversion and
digital signal processing, as well as advanced packaging and silicon
technology. We have already shipped products containing MP3 and stereo radio

20

functions and have recently completed the development of a complete digital
camera accessory including a customized image processor.

Force sensor

To help phone users navigate these increasingly capable machines, an extension
of the current keyboard has been developed to include a force sensor. This is
similar to a joystick or touch screen function and allows the user to select
items without having to press a host of keys or scroll through multiple
screens. Many users are familiar with using a joystick to navigate as it is a
common feature of the personal computer. Our focus in this area is on joystick
sensor interfacing and signal conditioning, to ensure mechanical movements
convert to electronic position data precisely. Our established expertise in
mixed signal processing also places us in a strong position for touch screen
interfacing due to the precision data converter requirements of these
applications.

Bluetooth

As we generate and handle more information with the phone, communication is no
longer just between individual phones in the traditional sense. Increasingly we
need to have Machine-to-Machine interfaces, links in and between Personal Area
Networks and ad hoc connections. These allow us to connect the phone to
computers and other pieces of electronic equipment so that we can transfer data
such as emails, photographs or software. In this way the phone becomes a
wireless access point as well as a voice communicator. In the mobile world
Bluetooth has been developed to allow short-range communication between
devices at low cost and with low power consumption. Bluetooth enabled products
are starting to become available in the market but remain relatively expensive.
We are actively addressing this need to develop a low cost product with the
development of zero chip, a highly integrated silicon solution that includes
all analog and digital functionality on a single small device. This new product
precisely encompasses our core competencies and we are
actively developing zero chip Bluetooth solutions to be integrated within our
existing products.

ASICS FOR WIRELINE COMMUNICATION

The products we supply for the wireline communication market provide the
interface between the transmission cable or telephone line and digital
transmission equipment such as central office line cards, routers or
multiplexers. Our products support T1, T3, HDSL, SDSL and G.shdsl transmission
standards, embracing the latest high-speed transmission technologies. Our
solutions are targeted at improving system efficiency, increasing transmission
distance and lowering the cost of providing high-speed connections throughout
networks. We currently produce ASICs in data communication for Adtran. Revenues
generated by these applications accounted for approximately 3% of our total
revenues for 2001, 4% of our total revenues for 2000 and 3% of our total
revenues for 1999. In 2001, we have four designs in production and shipped
approximately one million units. In 2000, we had five designs in production and
shipped approximately three million units. In 1999, we had four designs in
production and shipped approximately one million units.

21

AUTOMOTIVE ASICS

Although we intend to remain focused on our established expertise in the
wireless communications market, we also intend to increase our penetration in
sectors of the automotive electronics market by offering selective design
applications to key automotive suppliers. Revenues from our automotive
applications accounted for approximately 6% of our revenues for 2001, 4% of our
revenues for 2000 and approximately 8% of our revenues for 1999. In 2001, we
had nine designs in production and shipped approximately eight million units.
In 2000, we had nine designs in production and shipped approximately 13 million
units. In 1999, we had eight designs in production and shipped approximately 16
million units.

Semiconductor products used in the automotive electronics market can broadly be
divided into four segments:

|                   |  |                                                     |  | 
|------------------ |  | --------------------------------------------------- |  | 
|Safety:            |  | Airbag and braking systems                         
|                  
|Dashboard Control: |  | Dashboard, radio, navigation and driver information
|                  
|Comfort & Body:    |  | Seat control, wipers, window lift, sunroof,        
|                   |  | air-conditioning, locking system, headlight control
|                  
|Powertrain:        |  | Engine management, gearbox control, transmission   

To date, we have concentrated our efforts in the automotive electronics sector
in the areas of safety and dashboard semiconductor products.

Safety

Heightened consumer awareness has created new demands on car manufacturers to
increase the safety components available in new car models. Cars today have an
increasing number of airbags in order to protect passengers from specific areas
of impact (for example, head, knee and side impact). Additionally, according to
Dataquest, a number of automotive electronic suppliers are developing smart
airbags which will tailor inflation of the airbag to adjust for the size of the
occupant and external conditions such as the velocity of impact. All of these
products will require additional, increasingly sophisticated semiconductor
sensors which can be adapted to their specific applications.

We produce a variety of signal conditioning ASICs for our automotive customers.
These ASICs, when combined with micro-mechanical chips, form the principal
components of the sensors used in airbag
systems. These sensors then relay electronic signals to an electronic control
unit which determines deployment of the airbag. We believe that, due to
increased consumer awareness regarding automotive safety, growth in the use of
sensors in cars will continue as airbag and other safety systems become more
sophisticated.

Dashboard control

Automotive dashboards are being used to deliver more information and data to
drivers for safety and convenience. According to Dataquest, growth trends in
this area are

22

predicted to include information systems for road transport and
traffic, emergency calling systems and links to wider forms of communications
such as the Internet, on-board navigation systems and new wireless
communications applications. In addition, there is a trend in this area towards
systems integration instead of relying on discrete devices. As a result, we
believe there will be increased demand for mixed signal ASICs in this sector
due to the increase in potential applications.

We currently produce a variety of dashboard control ASICs which relay
information from various on board sensors (such as fuel level, oil pressure,
speed and engine heat) through microcontrollers to the dashboard.

OTHER INDUSTRIAL APPLICATIONS

In addition to providing analog and mixed signal design expertise to the
wireless communications and automotive markets, we also have developed a
relatively small but established product range in dimming, motor control,
sensor and power management ASICs for use in lighting systems. We currently
have an exclusive supply agreement with Tridonic, a large manufacturer of
lighting systems. Revenues generated by these industrial applications accounted
for approximately 14% of our total revenues for 2001, approximately 7% of our
total revenues for 2000 and approximately 9% of our total revenues for 1999.
While we intend to maintain our existing product base in the lighting control
sectors, we have no current plans for expansion.

PRINCIPAL CUSTOMERS

Our principal customers are recognized wireless communications manufacturers
and automotive equipment manufacturers. In light of the rapid pace of
technological development and customer demand for increasingly complex
functionality, our partnerships with our customers has allowed them to draw on
us as an outside source of expertise. For us, the close working relationship
with our customers provides an opportunity to continually develop and fine-tune
market leading technological expertise with a recognized industry leader.

Ericsson

We have developed a long-term partnership with Ericsson, one of the worlds
leading wireless communications suppliers. We provide a range of ASIC products
that are used in several Ericsson platforms, and we are also in preliminary
design discussions with Ericsson on a variety of next generation products.

Siemens

We have a strong and growing relationship with Siemens, a significant European
wireless communications manufacturer. A range of our ASIC products are
currently in a number of Siemens handsets.

23

Conti Temic microelectronic Gmbh

We have a long-term relationship with Conti Temic microelectronic GmbH for
which we have developed several generations of airbag sensor chips as well as
other safety applications.

Bosch

In February 1999, we were granted official supplier status by Bosch. Bosch uses
its own semiconductor division for power electronics but has worked with us on
a strategic outsourcing basis on applications that can benefit from mixed
signal ASICs. This has resulted in a number of new initiatives between the two
companies, and we are currently in design or prototype production for several
Bosch projects.

Other customers

In addition to Ericsson and Siemens, our current wireless communications
customers include Sagem, Motorola, Telit Mobile Terminals and Sunarrow Limited.
In addition to Conti Temic microelectronic GmbH and Bosch, our other automotive
and industrial clients include TRW, VDO, Adtran and Tridonic.

OUR PRODUCT CYCLE

We design, develop and supply mixed signal ASICs. We outsource the actual
manufacture of wafers and assembly to selected foundries and assemblers. Once
the manufacture and assembly has been completed, all of our products are
tested, the large majority in-house, before final delivery to our customers. A
description of our process from design to delivery can be summarized as
follows:



| |  |  | design and development
| | - |  | ----------------------
|
| |  |  | manufacture of wafers 
|
| |  |  | assembly              
|
| |  |  | testing               
|
| |  |  | delivery              

Design and development

Our engineering group consists of 176 professionals with mixed signal ASIC
experience and has a current development capacity of approximately 30 new
designs per year. We use design tools from Cadence Design Systems, Inc. to
increase design automation and top level simulation to identify system design
incompatibilities at an early stage. Furthermore, we base our production around
a standard CMOS semiconductor technology process in order to focus the design
efforts more effectively. See  Manufacture of Wafers below.

We believe we offer our clients a significant advantage through our ability to
rapidly develop mixed signal ASIC designs. This ability has been fostered
through many

24

years of design experience and a highly skilled engineering staff.
We keep track of evolving design elements through our design library database.
We achieve rapid design cycles through our strategy of modifying and reusing
previously designed building blocks. In 2000, we completed the acquisition of
the rights to the CR16B, a 16 bit microprocessor core. This core, which
utilizes the CompactRISC architecture developed by National Semiconductor
for embedded applications that are integrated with other functions on a single
integrated circuit, provides a high performance, general purpose, flexible and
power efficient platform that can be used in a wide variety of designs. This
technology enables us to develop system-on-chip, or SOC, designs combining
analog, digital and microcontroller functions. We have successfully integrated
circuits combining complex digital functions including eFlash, which can
simultaneously handle 40V in a 0.35-micron technology.

We assign dedicated design teams to each customer. These teams work closely
with the customer in order to identify and develop customized system solutions.
This approach builds close customer relationships and insures that each design
team develops a detailed knowledge of the customers product enabling it to
rapidly develop innovative applications.

At the start of the design process, a customer typically generates a
description of its requirements. We will then propose a variety of possible
solutions and will also prepare a preliminary quotation outlining pricing
details, time to market factors and production considerations. This preliminary
quotation is usually prepared within one week of the initial request which we
believe provides us with a competitive advantage.

Once a solution has been selected by a customer, we typically enter into a
development and supply agreement with the customer. Such an agreement contains
a description of the technical concept, a detailed timetable outlining the
various development stages or milestones, a breakdown of each development
stage or milestone cost and details regarding unit pricing. Our terms of
payment are usually divided into a series of stage or milestone payments. Once
a milestone has been achieved, a progress report is released to the customer.
Upon approval of each milestone, an invoice is sent to the customer with
payment due usually within 30-60 days. The development and supply agreement
does not oblige the customer to buy the developed ASIC.

The unit price for each ASIC product is fixed in the development and supply
agreement and is usually dependent on the anticipated number of ASICs to be
delivered. Unit price is subject to negotiation between us and the customer.
Generally, initial deliveries of product are sold at the highest per unit price
and subsequent volume deliveries are sold at reduced unit prices.

Manufacture of wafers

Semiconductors can be manufactured using different process technologies. The
two dominant processes in use today are bipolar and CMOS. Bipolar devices
typically operate at faster speeds than CMOS devices, but CMOS devices consume
less power and permit more transistors to be integrated on a single ASIC. While bipolar
semiconductors were once used extensively, CMOS technology
has become the more

25

dominant of the two technologies. As a result, most CMOS processes have become
standardized and the design rules necessary for manufacture are well understood
in the semiconductor industry. This standardization has created an active
foundry industry.

We have adopted a strategy of outsourcing our wafer production to selected
foundries with a demonstrated ability to provide high quality products on tight
deadlines. The principal foundries we currently use are European Semiconductor
Manufacturing Limited in Wales, UMC Group in Taiwan, Mitel Semiconductor in
Canada and Europe, and Chartered Semiconductor in Singapore. We have long term
supply contracts with European Semiconductor Manufacturing Limited and
Chartered Semiconductor. In 2001, we outsourced our wafer production as
follows: approximately 42% with European Semiconductor Manufacturing Limited,
15% with Mitel, 4% with UMC and 36% with Chartered. The percentage of
production we received from European Semiconductor Manufacturing Limited
decreased from approximately 79% in 1999 to 42% in 2001.

We aim to ensure that all steps in the manufacturing process can be provided by
at least two suppliers. Before we appoint one foundry as a supplier for a
specific wafer, we provide at least two foundries with technical
specifications. Upon confirmation by both foundries as to the ability to
manufacture such wafer, we appoint one of them; we then can use the other one
as a back-up source of production in the event that the first foundry is unable
to provide its services. The goal is to prevent shortage or loss of chip
production due to market conditions or disasters such as foundry fires.

Since the successful manufacture of silicon wafers is critical to our
reputation and profitability we work carefully to identify suitable foundries
in order to maintain continuity and security of supply for our customers. There
are many factors which contribute to our selection of wafer suppliers. The
principal concern is whether the foundrys process technology can be
effectively used for our designs. Additionally, we will consider such factors
as capacity, history, financial stability, mixed signal experience, pricing,
location, customer support and reputation. Once a foundry has been selected, we
then seek to secure its supply in a variety of ways, including entering into
supply contracts to fix price and reserve production capacity and, when deemed
appropriate, paying a deposit to a foundry to guarantee future production
capacity. We also place, when practicable, our own process engineers directly
at the fab premises to resolve any potential engineering problems and to ensure both the quality and timely
delivery of the finished product.

We may, from time to time, reserve capacity in a foundry. On August 2, 1999, we
entered into an investment agreement pursuant to which we acquired a 19.47%
interest in the voting shares of INHOCO 937 Limited, which was renamed ESM
Holdings Limited on August 3, 1999 and ESM Limited on January 12, 2001 and is
the parent company of European Semiconductor Manufacturing Limited. European
Semiconductor Manufacturing Limited manufactures integrated circuits in the
form of silicon wafers. As part of the investment agreement, we also entered
into a supply agreement with European Semiconductor Manufacturing Limited on
August 2, 1999, which guarantees a minimum production capacity at the European Semiconductor
Manufacturing Limited foundry at Newport, Wales for the first three years of
the supply agreement. In August 2000, we participated in an additional capital

26

contribution and made a loan to ESM Limited totalling  3.3 million. We also
entered into a new supply agreement with European Semiconductor Manufacturing
Limited in September 2000, which was subsequently amended on November 10, 2000.
Under the terms of this agreement, we maintain a deposit of $6 million with ESM
Limited. In addition we paid $9 million to ESM Limited as advance payments for
future wafer deliveries. In the fourth quarter of 2001, we determined that we
could not recover our investments in ESM Limited and therefore recorded an
impairment charge of  42.4 million, which includes the $6 million deposit
with ESM Limited and the remaining balance of the advance payments for future
wafer deliveries of $8.3 million. In January 2002 ESM Limited and European
Semiconductor Manufacturing Limited were placed in receivership (a
reorganisation under UK law). We recently learned that the receiver had
successfully completed negotiations that will result in the sale of ESM Limited
to International Rectifier Corporation. Based on the terms of the sale
agreement, we expect to receive approximately  6 million of our investment
in ESM Limited. For additional information, see Notes 3 and 18 to the
Consolidated Financial Statements.

We also have entered into a supply agreement with Chartered Semiconductor
Manufacturing Pte., Ltd. Under the terms of the agreement, we maintain deposits
of $20 million with Chartered Semiconductor Manufacturing which guarantee
access to certain quantities of sub-micron wafers through fiscal 2003 and
several generations of process technologies ranging from current products at
0.60-micron and 0.35-micron and will extend down to, and beyond 0.18-micron
technologies. In addition, we have paid $10 million to Chartered Semiconductor
Manufacturing in 2000 as advanced payments for future wafer deliveries.

Assembly

We also outsource final assembly. During the assembly process, a wafer is
sawed, the individual chips are mounted on lead-frames and substrates and then
connected via bond wires. There is a large group of subcontractors who service
this market. We have qualified the following seven assemblers: Orient
Semiconductor Electronics, Ltd (Taiwan), Carsem Semiconductor Sdn. Bhd.,
Circuit Electronic Industries Public Co., Ltd. (Thailand), AIT International
Limited (Hong Kong), Atlantic Technology (UK) Limited (United Kingdom), Hana
Technologies Ltd. (Hong Kong), Orient Semiconductor Electronics, Ltd (Taiwan),
ASAT Ltd. (Hong Kong) and Eurasem B.V. (the Netherlands). Completely assembled
ASICs are returned to us for final testing before delivery to the customer. We
view our quality assurance role as critical in order to ensure the success of a
business model that incorporates strategic outsourcing.

Testing

Following return of the assembled products from its assemblers, we test our
products before delivery to a customer. No product is delivered to a customer
unless it has been tested. This rigorous testing approach allows us to ensure
overall quality control of our manufactured products. The test programs developed by our test engineers
are based upon specifications determined by the individual customers and are
developed in parallel with the design.

27

Once a testing program has been developed and the chips have been delivered
from the assembly, individual batches of chips are tested in our machines. All
14 of our testing machines are made by Credence Systems Corporation. The
machines are regularly calibrated to insure the accuracy of the test
parameters.

To the extent that chip volume exceeds our testing capacity, we use selected
third party test houses in and around Stuttgart to assist with overflow. When
we use third party houses, our test personnel work closely with such houses to
ensure that testing procedures are complied with. More than 90% of all our
chips are tested in-house. Any chip that does not satisfy our testing criteria
is discarded. We send approved chips to a tape and reel manufacturer who will
then return the loaded reels to us for final packaging and delivery to the
customer.

SALES AND MARKETING

Sales is our most recently formed department. Prior to April 1998, we relied on
the sales arm of TEMIC (the electronic components group of Daimler-Benz AG
until 1997). At that time, TEMIC was comprised of three divisions, Integrated
Circuits, Discrete Components and Sales, operating within one group. Each
product division had multiple operating units servicing world-wide factories
and thousands of device types in more than 14 product families. Since much of
the emphasis in such an organization was on revenue turnover, concentration
solely on high-level, long-term and complex sales products such as mixed signal
ASICs was difficult to achieve. As a result, we decided in 1998 to establish
our own sales division.

At present, we have a direct sales staff of six. Each sales person earns a base
salary that may be supplemented in two ways. A portion of the annual salary is
eligible for a quarterly bonus based on our agreed goals. This corresponds to a
similar bonus available to all of our employees. A further bonus is available
to each sales person based on performance relating to our Management By
Objective program. Under this program, each sales person is assigned a number
of objectives specifically targeting design wins from selected customers within
a set period of time. These objectives are established by management with input
from the marketing department. We measure the performance of each sales person
against these objectives quarterly.

In light of continued high-growth in our wireless communications business, in
2000 we restructured our salesforce to more clearly focus efforts on our
handset products. The individual sales executives for major accounts report
directly to our CEO to ensure greater co-ordination. We believe that this new
focused effort and salesforce structure allows us to compete more effectively
in the engineering and silicon resources market and enables us to more
effectively service our existing customers and expand into new accounts.

We occasionally use a limited number of independent sales representatives in
our coverage efforts. In 2001, we generated more than 95% of our revenues from
sales directly to customers through our regional sales offices and less than 5%
of our revenues from sales through representatives. Our marketing department is
responsible for new market research and development, competition analysis and
identifying new target applications. This ensures that we retain an application
focus on the wireless communications and automotive sectors in addition to the
customer focus of our sales

28

team. The marketing department is currently
evaluating various business opportunities, including developing various third
generation cellular and standardized applications for Bluetooth wireless
technology, a radio technology designed to standardize the wireless
transmission of signals over short distances between telephones, computers,
domestic appliances and other devices. Our strategic planning and business
guidelines are developed by senior management working with the input of the
marketing department to ensure that we identify a focused strategy with defined
goals.

INTELLECTUAL PROPERTY

We attempt to protect our intellectual property and know-how through a
combination of copyrights, trade secret laws and confidentiality agreements
with our customers, suppliers, employees and consultants. We believe that the
patenting of the precise functionality of individual ASICs is commercially
impractical due to the complex, specialized design of our mixed signal ASICs,
which are designed according to customer specifications. For the majority of
our designs, the rights to the design are held by our customers. We currently
have patent applications pending for various ASIC applications. We intend to
apply for patents whenever it may be practicable in the future.

In addition, we license standard software from a number of vendors on standard
terms. We have also licensed the CR16B 16 bit microprocessor core, a software
product, from National Semiconductor. See Our Product Cycle-Design and
Development above.

COMPETITION

Competition in the semiconductor market is intense. There are many competitors
in this market, offering products that are similar to ours and are based on
similar technologies. We compete in the wireless communications market with
major international semiconductor manufacturers, such as ST Microelectronics,
Texas Instruments and NEC. We also compete in the automotive electronics market
with major international semiconductor manufacturers, such as Motorola, ST
Microelectronics, Infineon and National Semiconductor.

In general, we compete primarily on the basis of price, design cycle time,
reliability, performance, customer and logistical support and reputation. Our
ability to compete successfully depends on factors both within and beyond our
control, including successful and timely development of new products,
availability of future-oriented manufacturing process technologies, product
performance and quality, manufacturing yields and product availability,
customer service, pricing, industry trends and general economic trends. Many of
our direct and indirect competitors are major international semiconductor
companies with substantially greater technical, financial and marketing
resources and name recognition. In addition, in the future we may face
increased competition from smaller, niche semiconductor design companies.
Further, some of our customers could decide to satisfy their ASIC demands through
in-house design and production. See Item 3. Risk Factors-We face intense
competition, and if we are unable to compete effectively, we could lose
customers.

29

ENVIRONMENTAL MATTERS

We are subject to a comprehensive body of environmental laws, rules and
regulations in each jurisdiction in which we operate. Since we have no
manufacturing facilities, our management believes that we are in material
compliance with all applicable environmental laws, rules and regulations. In
addition, we have implemented an Environmental Management System compliant with
the internationally recognized standard ISO 14001 requirements.

C.     ORGANIZATIONAL STRUCTURE

|                                  |  |                                                                                  |  |                   |  |               |     |                    |  |  |  | 
|--------------------------------- |  | -------------------------------------------------------------------------------- |  | ----------------- |  | ------------- | --- | ------------------ |  |  |  | 
|                                  |  |                                                                                  |  |                   |  | Proportion of
|                                  |  |                                                                                  |  |                   |  | Country of    |     | Ownership Interest
|Name and Registered Office        |  | Areas of Business                                                                |  | Incorporation     |  | (in %)       
|                                  |  |                                                                                  |  |                   |  |              
|Dialog Semiconductor GmbH         |  | Acquisition, sale and marketing of microelectronic products, especially of ASICs |  | Germany           |  |               | 100 |                   
|                                 
|Dialog Semiconductor (UK) Limited |  | Design, development and sale of semiconductor components                         |  | England and Wales |  |               | 100 |                   
|                                 
|Dialog Semiconductor, Inc.        |  | Design, development and sale of semiconductor components                         |  | United States     |  |               | 100 |                   
|                                 
|Svep Design Center AB             |  | Design and development of semiconductor components                               |  | Sweden            |  |               | 100 |                   
|                                 
|Dialog Semiconductor K.K.         |  | Design, development and sale of semiconductor components                         |  | Japan             |  |               | 100 |                   

30

D. PROPERTY, PLANTS AND EQUIPMENT

Dialog Semiconductor Plc and its wholly-owned subsidiaries currently use the
following properties:

|                                                                                |  |           |  |                                                                                                                 |  |                  |       |               |  |                                                                         
|------------------------------------------------------------------------------- |  | --------- |  | --------------------------------------------------------------------------------------------------------------- |  | ---------------- | ----- | ------------- |  | ------------------------------------------------------------------------
|                                                                                |  |           |  |                                                                                                                 |  | Approximate Area |       |              
|Location                                                                        |  | Tenure    |  | Term                                                                                                            |  | (m(2))           |       | Principal Use
|                                                                                |  |           |  |                                                                                                                 |  |                  |       |              
|Building 15 and 29,
Neue Strasse 95,
Kirchheim/Teck-Nabern
Germany              |  | Leasehold |  | Fixed until January
31, 2003 with option
for Dialog
Semiconductor GmbH
to extend for a
further 3 year           |  |                  | 4,365 |               |  | Company
headquarters, office
operation for
design, marketing
and testing
|                                                                               
|S:t Lars vag 46 Ideon
Park Lund
Sweden                                          |  | Leasehold |  | 5 years, expiring
November 15,
2006 with option for
Svep Design Center
AB to extend for a
further 3 year period |  |                  | 2,070 |               |  | Office operation for
systems and
new applications                       
|                                                                               
|Unit 1 Omega,
Windmill Hill Business
Centre, Swindon,
Wiltshire,
United Kingdom |  | Leasehold |  | 24 years from
September 29, 1986                                                                                |  |                  | 780   |               |  | Office operation for
marketing and design                               
|                                                                               
|Aomi Frontier
Building 9f
2-43, Aomi,
Koto-ku, Tokyo
Japan 135-0064             |  | Leasehold |  | Fixed until January
31, 2003                                                                                    |  |                  | 686   |               |  | Office operation for
marketing and design                               
|                                                                               
|54 Old Highway 22,
Clinton, New Jersey,
USA                                     |  | Leasehold |  | 5 years, expiring
within 70 days of
August 3, 2003                                                              |  |                  | 661   |               |  | Office operation for
marketing and design                               
|                                                                               
|Industriestrasse 1,
Munich/Germering,
Germany                                   |  | Leasehold |  | 5 years, fixed until
September 30, 2004
with option for a
further 5 year period                                 |  |                  | 530   |               |  | Office operation for
design                                             
|                                                                               
|Mannheimer Strasse 1,
Heidelberg,
Germany                                       |  | Leasehold |  | Fixed until January
1, 2002 with option
for Dialog
Semiconductor GmbH
to extend for 2
further 5 year
periods    |  |                  | 307   |               |  | Office operation for
design                                             
|                                                                               
|Karntner Strasse 518,
Graz-Seiersberg, Austria                                  |  | Leasehold |  | Lease with unlimited
duration, terminable
by either party on 3
months notice to
the end of a
calendar quarter  |  |                  | 197   |               |  | Office operation for
design                                             

We do not currently own any properties. Our management believes that our leased
properties and our existing design and administrative facilities are sufficient
for our current requirements and provide us with flexibility to expand our
facilities in accordance with our current objectives.

31

### 

##### Cover | Table of Contents

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

You should read the following discussion and analysis of our financial
condition and results of operations in conjunction with the audited
consolidated financial statements included in this annual report. Our audited
consolidated financial statements have been prepared in accordance with US
GAAP.

OVERVIEW

Our financial condition, results of operations and business during the period
from January 1, 1999 through December 31, 2001 as well as future periods have
been and will be affected by the key factors described below.

ACQUISITION

We were formed in March 1998 by Apax Partners, Ericsson and Adtran, Inc. With
funding from these shareholders we purchased our predecessor business, Dialogue
Semiconductors Limited and its subsidiaries, from Daimler-Benz AG (now
DaimlerChrysler AG). These shareholders contributed approximately28.0
million in cash in exchange for ordinary shares in the amount of5.3
million, additional paid-in capital in the amount of5.3 million and
cumulative redeemable preference shares in the amount of17.5 million. We
then acquired our predecessor business for28.0 million. In connection
with this acquisition, Apax Partners transferred some of its shares to members
of management and the board of directors of our company and transferred
additional shares then owned by it into the Dialog Employee Benefit Trust,
which is a trust established to purchase our shares from and sell our shares to
our employees and directors.
We accounted for the acquisition using the purchase method of accounting.
Accordingly, we allocated the purchase price for the acquisition to the assets
we acquired and liabilities we assumed based upon their respective fair values
and to acquired in-process research and development, as described below. We
expensed the amounts allocated to acquired in-process technology at the time of
the acquisition. We applied the excess of the28.0 million purchase price
for the acquisition over the fair value of the net assets acquired to goodwill.
We are amortizing this11.1 million goodwill amount over 15 years,
resulting in periodic charges to earnings. We have consolidated the results of
operations and cash flows of our predecessor business with our own from March
1, 1998, the date of the acquisition.
The financial information included in this annual report for the period from
January 1, 1998 to February 28, 1998, and for the fiscal year ended December
31, 1997, reflect the consolidated operations of our predecessor business for
those periods. This historical financial information is generally comparable to
the historical financial information for the periods following the acquisition,
except for the goodwill and other intangible assets and related amortization
resulting from the acquisition and for selling expenses. Both prior to the
acquisition and after the acquisition until we established our own salesforce,
selling expenses included amounts our predecessor business paid (and, following
the acquisition, amounts we paid) to Daimler-Benz AG (now DaimlerChrysler AG)
for selling activities. These amounts were calculated as a percentage of total
sales. See  Salesforce below.32ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENTIn acquisitions accounted for under the purchase method, like our acquisition
of our predecessor business, acquirors frequently allocate portions of the
purchase price to acquired in-process technology and expense those amounts
immediately. Acquirors allocate and expense such amounts if the technologies
acquired have not yet reached technological feasibility based on the status of
design and development activities.We recorded an
acquired in-process research and development charge of9.3 million in 1998 in connection with our acquisition of our predecessor business.
We attribute this portion of the28.0 million purchase price to acquired
in-process research and development because we determined that some of the
in-process technology that we acquired had not reached technological
feasibility based on the status of design and development activities that
required further refinement and testing. The in-process technology relates to
mixed signal ASICs under development primarily for our principal customers. The
development activities required to complete the acquired in-process
technologies included completion of ASICs design, testing and validation,
quality assurance, and customer prototype testing.
The in-process technology that we acquired can be categorized into two
principal types of projects, audio circuits and power management circuits,
under development for our wireless communications customers. The valuable
elements of the power management projects represented, depending upon the
customer, first or next generation power management ASICs which included unique
and emerging technologies, the application of which was tailored for the
particular customer. The fair value of the in-process technology assigned to
power management circuits was3.5 million. The expected costs to complete
the projects were0.7 million. The valuable element of the audio circuits
projects was enhanced audio quality. We assigned3.8 million of fair value
of in-process technology to audio circuits. Our expected costs to complete the
projects were0.8 million. In the case of both power management and audio
circuits, we were funding the projects from existing cash reserves and
operating cash flows. The time required to complete the projects ranged from 12
to 18 months. The2.0 million balance of our9.3 million acquired
in-process research and development charge related to products under
development for the automotive electronics market.
To determine the fair market value of the acquired in-process technology, we
considered the three traditional valuation approaches: the cost approach, the
market approach and the income approach. We relied primarily on the income
approach, in which fair market value is equal to the future revenues expected
to be generated by an asset, less all allocable expenses and charges for the
use of contributory assets. The future net revenue stream is discounted to
present value based upon the specific level of risk associated with achieving
the forecasted asset earnings. Because the income approach focuses on the
income producing capability of the acquired assets, we believe that it best
represents the present value of the future economic benefits expected to be
derived from these assets. In this case, we projected future cash flows over
six years and discounted them to present value using a discount rate of
approximately 24% per annum. We believe the discount rate is appropriate given
the level of risk of unsuccessful completion of the technology.33The in-process technologies that we acquired represent unique product related
developments, the application of which is technically and legally limited to
the particular unique company-customer relationship. Accordingly, these
acquired technologies have no alternative future use other than the use for
which the technologies were designed. For additional information on our
expensing of acquired in-process research and development, see Note 1 to the
Audited Consolidated Financial Statements.CHANGE IN FOCUSWe experienced considerable growth in our revenues during the period between
January 1, 1996 and December 31, 2000. This growth has been attributable to the
strategic decision by management in 1996 to focus primarily on producing
semiconductor products for the rapidly expanding wireless communications
industry. Since 1996, our revenues have been principally derived from sales of
mixed signal ASICs to targeted customers in this industry. In 2001, the
wireless communications market suffered a significant decline in demand for
mobile communication products. Despite the industry-wide decline we expect
revenues to continue to be principally derived from sales of mixed signal ASICs
in the wireless communications industry.PRICINGOur customers purchase products based on periodic orders made throughout the
year. The prices paid for each type of product or design are generally agreed
with customers on an annual basis for specified volumes of each design ordered
by the customer during the year. Contracts often provide for a reduction in the
per unit price for volumes ordered in excess of a specified amount. As a
result, revenues from increased volumes are often offset in part by per unit
price decreases. If a customer orders amounts of a product in excess of the
amounts projected for the year, the customer may seek an additional reduction
in the price of the product ordered. Such requests are common in the industry,
under the assumption that, after delivery of the projected amount of the
product, the supplier has already earned a return on its investment in the
development of the design and that its per unit production costs are low
relative to that investment. This pricing pressure tends to increase over the
life of a design. As a result of this pressure, our margins are generally
higher for new designs than for mature products. This in part underlies our
strategy to continually develop new designs on which we initially can earn
higher margins. As sales volumes of these products increase and the products
mature, however, it is likely they will become subject to similar pricing
pressures.CUSTOMER CONCENTRATIONWe depend on Ericsson, Siemens and a few other customers for most of our
revenues. See Item 3  Key Information  Risk Factors  We depend on Ericsson,
Siemens and a few other customers for most of our revenues, and the loss of one
or more of these customers may result in a material decline in our revenues.34SEMICONDUCTOR INDUSTRY AND OUTSOURCINGThe semiconductor industry in general is highly cyclical and has been subject
to significant economic downturns which, at various times, have resulted in
production overcapacity, reduced product demand and an accelerated erosion of
average selling prices. In 1997, the anticipated rebound in semiconductor sales
following the 8.6% decline in 1996 did not fully materialize. Sales increased
by 4% over 1996 but did not achieve the previously high level of sales seen in
1995. In 1998, the semiconductor industry generally suffered from overcapacity
with resulting price pressures. Although we were affected by these generally
poor industry conditions in 1998, our focus on specialized designs tailored for
a small number of strategic customers in the rapidly growing wireless
communications market made us less vulnerable to these influences than many
other semiconductor suppliers. The significant growth in the wireless
communications industry in 1999 and 2000 resulted in parallel growth in related
demand for semiconductors. In 2001, the semiconductor market suffered its worst
ever decline, with chip sales falling 32% from record sales in 2000. The
outlook for 2002 is for growth, but only in the range of 3%.WIRELESS COMMUNICATION INDUSTRYRevenues from our wireless communications applications accounted for 77% of our
total revenues for the year ended December 31, 2001, 84% of our total revenues
for the year ended December 31, 2000 and 78% of our total revenues for the year
ended December 31, 1999. The wireless communications market experienced an
industry-wide decline in demand for mobile communication products during the
year ended December 31, 2001. The majority of handset manufacturers had
overstocked inventories in 2001 because of over production of handsets and
phone components in late 2000. Additionally, there has been a reduction in
connection bonuses due to the large amounts of debt assumed by the mobile
operators in the process of obtaining third generation licences. This, combined
with a slowdown in the global economy, has led to slowdown in subscriber
growth.TRENDS IN REGIONAL MARKETSWe allocate our revenues to countries based on the location of the customer.
Changes in revenues from period to period have differed among geographical
regions. In 2001, all our regional markets experienced decline in demand for
our ASIC products, except China, where regional growth was particularly strong
with revenues increasing from2.6 million for the year ended December 31,
2000 to20.1 million for the year ended December 31, 2000. In 2000,
regional growth was particularly strong in Malaysia where revenues increased
from5.1 million for the year ended December 31, 1999 to35.6 million
for the year ended December 31, 2000.
RESEARCH AND DEVELOPMENTResearch and development expenses consist principally of design and engineering
related costs associated with the development of new products for customers
and, to an insignificant extent, further customization of existing products for
customers. Most of our research and development is in response to particular
product
needs specified by a customer. We do not maintain a separate research and
development function35apart from customer-driven design. We therefore expense research and
development costs as we incur them.Some contracts we enter into with our customers provide us with contributions
from those customers to specific research and development projects. Research
and development costs which are charged to customers and, accordingly, are
included in cost of sales, amounted to approximately2.7 million,2.3
million and1.5 million, for the years ended December 31, 2001, 2000 and
1999, respectively. Research and development costs which were not reimbursed
and are therefore included in research and development expenses amounted to31.3 million in 2001,22.9 million in 2000 and11.1 million in
1999. The amount of our research and development funded by customers has been
declining, which we expect to continue.
SALESFORCEOur internal salesforce was not in place until the second half of 1998. Prior
to mid-1998, we principally used the salesforce of a DaimlerChrysler AG
affiliate to sell our products. The fee that DaimlerChrysler AG charged for the
use of this salesforce was based on a percentage of total sales achieved. This
fee resulted in higher commissions and selling expenses than we now incur for
our own salesforce, which is compensated by means of a base salary combined
with performance-related incentives. For further information, see Item 4.
Information on the Company-Sales and Marketing. Beginning on May 1998, we
began hiring our own internal salesforce in order to gradually eliminate our
reliance on the DaimlerChrysler AG affiliates salesforce. This has resulted in
decreased selling costs as a percentage of revenues. For the year ended
December 31, 2001, selling expenses were5.6 million or 4.0% of revenues.
For the year ended December 31, 2000, selling expenses were5.7 million or
2.6% of revenues. For the year ended December 31, 1999, selling expenses were3.9 million or 4.5% of revenues.
FOREIGN CURRENCIESThe reporting currency for our consolidated financial statements is the Euro.The functional currency for our operations is generally the applicable local
currency. The assets and liabilities of our subsidiaries whose functional
currency is other than the Euro are included in the consolidation by
translating the assets and liabilities into the reporting currency at the
exchange rates applicable at the end of the reporting year. Equity accounts are
translated at historic rates. The statements of income and cash flows of these
non-Euro functional currency operations are translated at the average exchange
rates during the year. Translation gains or losses are accumulated as a
separate component of shareholders equity. Currency transaction gains or
losses arising from our transactions or those of our subsidiaries in currencies
other than the relevant functional currency are included in operations at each
reporting period. See Note 2 to the Consolidated Financial Statements.For periods prior to January 1, 1999 when the Deutsche Mark was our reporting
currency, any appreciation of the Deutsche Mark against the functional
currencies in which we operated had the effect of reducing Deutsche Mark values
(which for purposes of this annual report have been converted into Euro) in the
consolidated financial statements. Depreciation of the Deutsche Mark had the
opposite effect. For36periods commencing after January 1, 1999 exchange rate risk will be with
respect to fluctuations of the non-Euro currencies in which we operate
(primarily Pounds Sterling and US Dollars), against the Euro.Changes in exchange rates also influence our results of operations. Our sales
are primarily denominated in US Dollars and Euro (we used the Deutsche Mark
prior to January 1, 1999) whereas purchases of raw materials and manufacturing
services are primarily denominated in US Dollars. In order to hedge our foreign
currency exposure, we attempt to match cash inflows and outflows (sales with
supply costs) in the same currency, primarily the US Dollar.During 2001, to hedge the foreign currency exposure with respect to the $26
million of deposits with Chartered Semiconductor Manufacturing Pte., Ltd. and
ESM Limited, we purchased foreign currency
forward contracts to effectively change the US Dollar deposits into Euros. See
Note 15 to the Consolidated Financial Statements.TAXESOur business is subject to taxation in Germany, the United Kingdom and the
United States. Our effective tax rate and tax liability are affected by a
number of factors, such as the amount of taxable income or loss in these
particular jurisdictions, the tax rates in these jurisdictions, tax treaties
between jurisdictions, the extent to which we transfer funds between
jurisdictions and income is repatriated, and future changes in law. Generally,
because the tax liability for each legal entity is determined on a
non-consolidated basis we may pay income taxes in these jurisdictions even
though on a consolidated basis we have incurred a net loss for the period.RESULTS OF OPERATIONSThe following table sets forth historical consolidated statements of operations
of Dialog Semiconductor Plc for the
fiscal years ended December 31, 2001, 2000 and 1999 in thousands of Euros and
as a percentage of revenues.

|                                                                       |  |                         |         |      |  |      |       |   |  |  |          |   |  |  |       |   |  |   |         |   |  |  |       |  
|---------------------------------------------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ----- | - |  |  | -------- | - |  |  | ----- | - |  | - | ------- | - |  |  | ----- | -
|                                                                       |  | Year ended December 31,
|                                                                       |  |                        
|                                                                       |  | 2001                    |         | 2000 |  | 1999
|                                                                       |  |                         |         |      |  |     
|                                                                       |  |                         |         |      |  | %    |       |   |  |  |          | % |  |  |       |   |  | %
|Revenues                                                               |  |                         | 100,519 |      |  |      | 100.0 |   |  |  | 214,459  |   |  |  | 100.0 |   |  |   | 87,246  |   |  |  | 100.0 |  
|Cost of sales (including excess inventory
provision of 10,689 in 2001) |  |                         | (79,637 | )    |  |      | (79.2 | ) |  |  | (138,866 | ) |  |  | (64.8 | ) |  |   | (56,749 | ) |  |  | (65.0 | )
|                                                                       |  |                         |         |      |  |      |       |   |  |  |          |   |  |  |       |   |  |   |         |   |  |  |       |  
|Gross margin                                                           |  |                         | 20,882  |      |  |      | 20.8  |   |  |  | 75,593   |   |  |  | 35.2  |   |  |   | 30,497  |   |  |  | 35.0  |  
|Selling and marketing expenses                                         |  |                         | (4,054  | )    |  |      | (4.0  | ) |  |  | (5,672   | ) |  |  | (2.6  | ) |  |   | (3,888  | ) |  |  | (4.5  | )
|General and administrative expenses                                    |  |                         | (5,569  | )    |  |      | (5.6  | ) |  |  | (5,972   | ) |  |  | (2.8  | ) |  |   | (2,698  | ) |  |  | (3.1  | )
|Research and development                                               |  |                         | (31,256 | )    |  |      | (31.1 | ) |  |  | (22,898  | ) |  |  | (10.7 | ) |  |   | (11,108 | ) |  |  | (12.7 | )
|Amortization of goodwill and intangible assets                         |  |                         | (3,202  | )    |  |      | (3.2  | ) |  |  | (2,651   | ) |  |  | (1.2  | ) |  |   | (1,237  | ) |  |  | (1.4  | )
|                                                                       |  |                         |         |      |  |      |       |   |  |  |          |   |  |  |       |   |  |   |         |   |  |  |       |  
|Operating profit (loss)                                                |  |                         | (23,199 | )    |  |      | (23.1 | ) |  |  | 38,400   |   |  |  | 17.9  |   |  |   | 11,566  |   |  |  | 13.3  |  
|Interest income, net                                                   |  |                         | 898     |      |  |      | 0.9   |   |  |  | 1,940    |   |  |  | 0.9   |   |  |   | 13      |   |  |  | 0.0   |  
|Foreign currency exchange gains and losses, net                        |  |                         | 306     |      |  |      | 0.3   |   |  |  | 2,627    |   |  |  | 1.2   |   |  |   | (329    | ) |  |  | (0.4  | )
|Write-down of investment in silicon supplier                           |  |                         | (42,405 | )    |  |      | (42.2 | ) |  |  |         |   |  |  |      |   |  |   |        |   |  |  |      |  
|                                                                       |  |                         |         |      |  |      |       |   |  |  |          |   |  |  |       |   |  |   |         |   |  |  |       |  
|Result before income taxes                                             |  |                         | (64,400 | )    |  |      | (64.1 | ) |  |  | 42,967   |   |  |  | 20.0  |   |  |   | 11,250  |   |  |  | 12.9  |  
|Income taxes                                                           |  |                         | 22,721  |      |  |      | 22.6  |   |  |  | (16,410  | ) |  |  | (7.6  | ) |  |   | (4,570  | ) |  |  | (5.2  | )
|                                                                       |  |                         |         |      |  |      |       |   |  |  |          |   |  |  |       |   |  |   |         |   |  |  |       |  
|Net income (loss)                                                      |  |                         | (41,679 | )    |  |      | (41.5 | ) |  |  | 26,557   |   |  |  | 12.4  |   |  |   | 6,680   |   |  |  | 7.7   |  
|                                                                       |  |                         |         |      |  |      |       |   |  |  |          |   |  |  |       |   |  |   |         |   |  |  |       |  

37

YEAR ENDED DECEMBER 31, 2001
COMPARED TO

THE YEAR ENDED DECEMBER 31, 2000

Revenues

Revenues were214.5 million for the year ended December 31, 2000 compared
with100.5 million for the year ended December 31, 2001. This represents a
53% decrease. Revenues in the business sector of wireless communications
accounted for77.8 million or 77% in 2001. The decrease in revenues is
primarily due to lower sales volumes resulting from an industry wide decline in
demand for mobile communications products. Handset manufacturers reduced their
demand for mobile phone components, including mixed signal ASICs, during the
year ended December 31, 2001 in an effort to reduce both existing on hand
inventory levels and inventory remaining in their distribution channels from
2000. The industry wide decline in demand for mobile communications products
also resulted in handset manufacturers requesting lower component prices as
they implemented cost reduction programs. Such price reductions are common in
the semiconductor industry and have a particular impact on ASICs which have
been in volume production for a significant period of time, since pricing
pressure tends to increase over the life of a given ASIC.
Revenues from our industrial applications reached14.2 million or 14% of
total revenues, a decline of1.0 million when compared to 2000. Revenues
from our automotive applications accounted for5.9 million or 6% of total
revenues for 2001.This represents a decline of2.0 million when compared
to 2000. Revenues from our wireline communication applications reached2.6
million or 3% of total revenues, a decline of6.9 million when compared to
2000.
We expect revenues in the first half of fiscal 2002 to be slightly below the
level of revenues achieved in the second half of fiscal 2001 and earnings from
operations in the first half of fiscal 2002 to approximate the level of
earnings from operations in the second half of fiscal 2001.Cost of SalesCost of sales consists of the costs of outsourcing production and assembly,
personnel costs and applicable overhead and depreciation of test and other
equipment. Cost of sales decreased from138.9 million for the year ended
December 31, 2000 to79.6 million for the year December 31, 2001 in line
with significantly reduced production volumes. However, as a result of lower
production volume during the year ended December 31, 2001 our internal testing
operation has been running at a reduced utilization level, which in turn has
increased per unit production costs. In addition, a charge of10.7 million
for excess inventory was recorded under cost of sales during the second quarter
of fiscal 2001. Due to the sudden and significant decrease in demand for our
products accompanied by substantial order cancellations, inventory levels
exceeded our requirements. The excess inventory charge was calculated based on
the inventory levels in excess of estimated demand for each specific product.
Based on our current forecast demand, we do not currently anticipate that the
excess inventory subject to this charge will be used at a later date. We expect that the charge
38for excess inventory
made in the second quarter of fiscal 2001 has brought our inventory in line
with current requirements.Gross MarginThe charge for excess inventory, the increase in per unit production costs and
the lower component prices were the primary factors contributing to a decline
in our gross margin from75.6 million (or 35.2% of revenues) for the year
ended December 31, 2000 to20.9 million (or 20.8% of revenues) for the year
ended December 31, 2001. Excluding the charge for excess inventory, the gross
margin was 31.4% of revenues for the year ended December 31, 2001. The gross
margin was 30.2% for the six months ended December 31, 2001. We expect the near
term future gross margin percentage to approximate the gross margin percentage
achieved in the later part of 2001.
Selling and marketing expensesSelling and marketing expenses consist primarily of salaries, travel expenses
and costs associated with advertising and other marketing activities. Selling
and marketing expenses decreased 28.5% from5.7 million for the year ended
December 31, 2000 to4.1 million for the year ended December 31, 2001 in
line with significantly reduced sales volumes. As a percentage of total
revenues, selling and marketing expenses increased from 2.6% to 4.0% primarily
due to the proportionately lower revenue base.
General and Administrative expensesGeneral and administrative expenses consist primarily of personnel and support
costs for our finance, human resources, information systems and other
management departments. General and administrative expenses decreased 6.7% from6.0 million for the year ended December 31, 2000 to5.6 million for
the year ended December 31, 2001. As a percentage of total revenues, selling
and administrative expenses increased from 2.8% to 5.6% primarily due to the
proportionately lower revenue base.
Research and DevelopmentResearch and development expenses increased 37% from22.9 million for the
year ended December 31, 2000 to31.3 million for the year ended December
31, 2001. The absolute increase in research and development expenses reflected
the demand from key customers for us to devote further resources to assist in
the development of new products for them in addition to our own strategic
research and development program. This increase occurred notwithstanding a
significant drop in demand for our products from handset manufactures. We
increased research and development headcount from 145 at December 31, 2000 to
176 at December 31, 2001. Research and development expenses increased from
10.7% to 31.1% as a percentage of revenues, resulting both from an absolute
increase in research and development costs and the proportionately lower
revenue base. We expect research and development expenses to remain at
approximately the same level in absolute terms in 2002 as in 2001. Despite the
significant decline in demand for our products, we expect continued demand from
key customers for us to assist in the development of new products for them. Our
ability to generate long term revenues from our research and development
39programs depends on customers accepting our designs and implementing them in
large scale production.Amortization of Goodwill and Intangible AssetsTotal amortization
expense for the year ended December 31, 2000 was2.7
million (of which1.1 million
related to goodwill) as compared to3.2
million (of which1.3 million related to goodwill) for the year ended
December 31, 2001. Amortization expense for both periods related primarily to
goodwill and other intangible assets recorded as part of the acquisition of the
Dialogue Semiconductors activities of Daimler-Benz AG (now DaimlerChrysler AG)
and the rights to a 16 bit microprocessor core acquired from National
Semiconductor in 1999. The increase in amortization during the period ended
December 31, 2001 reflects amortization of other ASIC design software acquired
during the period as well as amortization of goodwill arising from the
acquisition of SVEP Design Center AB for the entire twelve month period,
whereas the period ended December 31, 2000 included only eight months
amortization of SVEP goodwill. Goodwill recognized in connection with the
acquisitions is being amortized over the expected period of benefit ranging
from 7 to 15 years. As a percentage of total revenues, amortization of goodwill
and intangible assets increased from 1.2% to 3.2% for the reasons stated above
and due to the proportionately lower revenue base.As discussed in Note 2 to the Consolidated Financial Statements, we are
required to adopt a new accounting principle effective January 1, 2002.
Consequently, goodwill will no longer be amortized in 2002 and subsequent
periods. Instead, we will be required to evaluate the recoverability of
goodwill on an annual basis and record a charge to earnings if and when
recoverability is considered impaired.Operating Profit (Loss)We reported an
operating profit of38.4 million for the year ended
December 31, 2000 compared with an operating loss of23.2 million for the
year ended December 31, 2001. This decrease in operating profit was primarily
due to significantly lower sales volumes in 2001, the charge for excess
inventory recorded during the second quarter of fiscal 2001 and higher research
and development expenses during the period.Interest income, NetInterest income results from the Companys investments (primarily loans and
short-term deposits). Interest income, net, decreased from1.9 million for
the year ended December 31, 2000 to0.9 million for the year ended
December 31, 2001. This decrease is primarily due to reduced interest income on
lower cash balances.Foreign currency exchange gains and losses, NetForeign currency transaction gains and losses result from amounts ultimately
realized upon settlement of foreign currency transactions and from the year end
remeasurement of foreign currency denominated receivables and payables into
Euro. Foreign currency exchange gains, net decreased from2.6 million for
the year ended40December 31, 2000 to0.3 million for the year ended December 31, 2001.
This decrease is primarily due to the reduced increase in value of the US
Dollar against the Euro.Write-down of InvestmentAs discussed in Note 3 to the Consolidated Financial Statements, we have made
certain investments since 1999 in ESM Limited, the parent company of one of our
principal foundries, European Semiconductor Manufacturing Limited, to secure
silicon supplies. Such investments comprised a cost basis equity interest,
loans and advance payments for future silicon, which totaled an aggregate of42.4 million at September 30, 2001. We have continually monitored the
recoverability of our investments in ESM Limited in light of the decline in
demand in the semiconductor industry and the deteriorating financial condition
of ESM Limited. Based on our estimates of the fair value of our investments in
ESM Limited, indications of continued third-party financial support of ESM
Limited, and our intentions with respect to these investments, we previously
determined that the investments in ESM Limited were recoverable. However,
during the fourth quarter 2001, the financial condition of ESM Limited
continued to deteriorate and, in January 2002, ESM Limiteds lead bank withdrew
its lending facilities. As a result, European Semiconductor Manufacturing
Limited and ESM Limited were subsequently placed in receivership (a
reorganisation under UK law). Consequently, we currently believe that we will
not recover our investments in ESM Limited and therefore recorded an impairment
charge of42.4 million in the fourth quarter of 2001. We recently learned
that the receiver had successfully completed negotiations that will result in
the sale of ESM Limited to International Rectifier Corporation. Based on the
terms of the sale agreement, we expect to receive approximately6 million
of our investment in ESM Limited. See Notes 3 and 18 to the Consolidated
Financial Statements.As we have secured supplies of silicon from multiple sources and have
sufficient quantities of silicon on hand, we do not believe the current
situation at European Semiconductor Manufacturing Limited and ESM Limited will
have a material negative impact on our future operations.Income TaxesIncome tax expense
was16.4 million for the year ended December 31, 2000
compared with an income tax benefit of22.7 million for the year ended
December 31, 2001, representing effective income tax expense (benefit) rates of
37.1% and 36.1%, respectively (before amortization of goodwill and other
intangible assets). This decrease in the effective tax rate reflects primarily
a reduction of the Companys statutory tax rate for its German subsidiary from
30% on distributed earnings to 25%, effective January 1, 2001.Net IncomeFor the reasons
described above, we reported net income of26.6 million
for the year ended December 31, 2000 compared with net loss of41.7
million for the year ended December 31, 2001.41YEAR ENDED DECEMBER 31, 2000 COMPARED
TO THE YEAR ENDED DECEMBER 31, 1999RevenuesRevenues
were214.5 million
for the year ended December 31, 2000 compared
with87.2 million for the year ended December 31, 1999. This represents a
146% increase. This increase in revenues was primarily due to greater sales
volumes resulting from an industry-wide increase in demand for mobile
communications products combined with a variety of new designs in production in
response to customer requirements. The unit growth in the mobile handset
volumes results from subscriber growth and accelerating replacement demand.Cost of SalesCost of sales increased from56.7 million for the year
ended December 31,
1999 to138.9 million for the year December 31, 2000 in line with
significantly increased production volumes. Cost of sales as a percentage of
revenues decreased slightly during this period from 65.0% for the year ended
December 31, 1999 to 64.8% for the year ended December 31, 2000.Gross MarginGross margin increased from30.5 million for the year ended December 31,
1999 to75.6 million for the year ended December 31, 2000. As a percentage
of revenues, gross margin increased slightly from 35.0% for the year ended
December 31, 1999 to 35.2% for the year ended December 31, 2000 due to
improved yields in the production process of new products.Selling and marketing expensesSelling and marketing expenses increased 45.9% from3.9 million for the
year ended December 31, 1999 to5.7 million for the year ended December
31, 2000 in line with significantly increased sales volumes. As a percentage of
total revenues, selling and marketing expenses decreased from 4.5% to 2.6%
primarily due to the proportionately greater revenue base.General and Administrative expensesGeneral and administrative expenses increased 121.3% from2.7 million for
the year ended December 31, 1999 to6.0 million for the year ended
December 31, 2000. The absolute increase in selling, general and administrative
expenses reflected higher costs incurred resulting from additional
administrative personnel, increased IT systems support and legal and accounting
expenses as a public company. As a percentage of total revenues, selling and
administrative expenses decreased from 3.1% to 2.8% primarily due to the
proportionately greater revenue base.Research and DevelopmentResearch and development expenses increased 106% from11.1 million for the
year ended December 31, 1999 to22.9 million for the year ended December
31, 2000.42As a percentage of revenues, however, research and development
expenses decreased from 12.7% for the year ended December 31, 1999 to 10.7% for
the year ended December 31, 2000. The decrease in research and development
expenses as a percentage of revenues resulted from the proportionately greater
revenue base. The absolute increase in research and development expenses
reflected the demand from key customers for us to devote further resources to
assist in the development of new products for them and our own strategic
research and development. We increased research and development head count from
76 at December 31, 1999 to 145 at December 31, 2000.Amortization of Goodwill and Intangible AssetsAmortization of goodwill and intangible assets for the year ended December 31,
1999 was1.2 million and for the year ended December 31, 2000 was2.7 million. In both cases, the amortization related primarily to the goodwill and
other intangible assets recorded as part of the acquisition of our predecessor
business. In addition, in 2000 amortization includes the rights of a 16 bit
microprocessor core and other software as well as eight months amortization of
goodwill arising from the acquisition of SVEP Design Center AB.Operating ProfitWe reported an operating profit of11.6 million for the year ended
December 31, 1999 and38.4 million for the year ended December 31, 2000.
This 231% increase in operating profit was primarily due to greater sales
volumes in 2000, which were partially offset by higher research and development
expenses and to a lesser extent, by higher selling, general and administrative
expenses.Interest income, netInterest income, net, increased from13.00 for the year ended December 31,
1999 to1.9 million for the year ended December 31, 2000. This increase is
primarily due to higher interest income on cash balances following our
secondary offering in June 2000.Foreign currency exchange gains and losses, NetForeign currency exchange gains and losses, net increased from0.3 million
of expenses for the year ended December 31, 1999 to2.6 million of income
for the year ended December 31, 2000. This increase is primarily due to
recognized foreign exchange gains from the period-end valuation of foreign
currency receivables and payables.Income TaxesIncome tax expense was4.6 million for the year ended December 31, 1999 or
an effective tax rate of 37.6% (before amortization of goodwill and other
intangible assets). For the year ended December 31, 2000 income tax expense
amounted to16.4 million or an effective tax rate of 37.1% (before
amortization of goodwill and other intangible assets).43Net IncomeFor the reasons described above, we reported net income of6.7 million for
the year ended December 31, 1999 compared with net income of26.6 million
for the year ended December 31, 2000.LIQUIDITY AND CAPITAL RESOURCESCash FlowsCash provided by operating activities was15.1 million for the year ended
December 31, 2001. Cash used for operating activities was5.1 million for
the year ended 2000 and0.9 million for the year ended 1999. Excluding
advance payments of23.2 million due under the Wafer Supply Agreements
described below, cash provided by operating activities was18.1 million
for the year ended December 31, 2000. In the years 2000 and 1999, we used cash
to finance our growing working capital requirements, primarily higher accounts
receivable and inventory levels as our sales volumes increased. Because our
revenues continued to grow by more than 100% during 2000, our accounts
receivable and accounts payable increased significantly.Cash used for investing activities was12.6 million for the year ended
December 31, 2001,80.2 million for the year ended 2000 and28.8
million for the year ended 1999. Cash used for investing activities for the
year ended December 31, 2001 consisted mostly of the purchase of EDP equipment,
test equipment and tooling (masks) of3.2 million and an additional
capital contribution and loan to ESM Limited of8.6 million. Cash used for
investing activities for the year ended December 31, 2000 consisted mostly of
payments under the Wafer Supply Agreements of28.2 million described
below, the purchase of test equipment and tooling (masks) of33.3 million,
the acquisition of technology and design software of4.8 million, the
acquisition of the remaining outstanding interest of SVEP Design Center AB for4.4 million and an additional capital contribution and loan to ESM Limited
of3.3 million. In 1999, we invested a total of12.2 million in cash
to acquire a 19.47% equity interest in, and make a loan to, ESM Limited. In
addition, in 1999 we invested14.5 million in property, plant and
equipment, primarily new test equipment. See Capital Expenditures and
Investments below. For more information regarding the investments in ESM
Limited, see Note 3 to the Consolidated Financial Statements.In July 2000, we received105.6 million in net cash proceeds from our
secondary offering. Of this amount, we used approximately51.4 million to
enter into silicon wafer supply agreements in order to facilitate capacity
expansion and secure technological influence with silicon suppliers in Asia and
Europe to further accelerate our anticipated growth. We also used
approximately33.3 million of our net proceeds to
purchase test equipment to expand our test capacity. Additionally, we used4.4 million to repay a credit line with Baden-Wurttembergische Bank
Aktiengesellschaft.In October 1999, we received59.2 million in net cash proceeds from our
initial public offering in Germany. Of this amount, we used19.6 million
to redeem all of our then outstanding cumulative redeemable preference shares.
We also used44approximately12.2 million of the net offering proceeds to
repay the short-term borrowings under a revolving line of credit with Deutsche
Bank AG that we incurred in connection with our investment in ESM Limited. We
also used approximately3.4 million of the net offering proceeds to repay
all outstanding amounts then due under an overdraft facility with Deutsche Bank
AG.LiquidityAt December 31, 2001 we had32.6 million in cash and cash equivalents and
had a working capital surplus of50.4 million, as compared to29.9
million in cash and cash equivalents and a working capital surplus of70.6 million at December 31, 2000 and11.3 million in cash and cash equivalents
and a working capital surplus of26.7 million at December 31, 1999.Our primary sources of liquidity have historically been cash from operations as
well as cash from the issuance of ordinary shares and from short-term
borrowings. As of December 31, 2001 we had no long-term debt. We have no
arrangements with unconsolidated, limited purpose entities. We expect that our
principle source of liquidity will come from cash from operations in 2002. A
decrease in customer demand for our products caused by prolonged unfavorable
industry conditions or an inability to develop new products in response to
technological changes could materially reduce the amount of cash generated from
operations. If necessary, we have available a short-term credit facility of12.8 million that bears interest at a rate of EURIBOR + 0.75% per annum.
At December 31, 2001 we had no amounts outstanding under this facility.
Accordingly, we believe the funding available from these and other sources will
be sufficient to satisfy working capital requirements.Capital Expenditures and InvestmentsOur capital expenditures were3.2 million for the year ended December 31,
2001 compared to39.0 million for the year ended December 31, 2000 and14.5 million for the year ended December 31, 1999. Our capital
expenditures in 2001, 2000 and 1999 consisted primarily of purchasing new or
replacement test systems, tooling equipment, handling systems and other
equipment in the ordinary course of our business. The significant amounts in
capital expenditures in 2000 and 1999 primarily reflect the purchase of 15
additional testing machines in 2000 and 5 in 1999. Also in 1999, in order to
secure an additional short-term supply of silicon, we purchased a minority
stake in, and made a loan to, ESM Limited. In March 2001 and August 2000, the
Company participated pro rata in an additional capital contribution and loan to
ESM Limited totalling8.6 and3.3 million, respectively. We expect
capital expenditures in 2002 will approximate the 2001 level.Our capital expenditures were financed principally with the cash proceeds from
equity offerings and short-term borrowings in 2000 and 1999. The investment in
and loan to ESM Limited in 1999 were financed by short-term borrowings under an
additional revolving line of credit with Deutsche Bank AG. We used a portion of
the net proceeds of our initial public offering to repay all outstanding
amounts under this revolving facility.45On May 9, 2000 we exercised our option to purchase the remaining 90.8% interest
that we did not already own in SVEP Design Center AB, a Swedish company focused
on system design for advanced consumer electronic products in the wireless
communication area. SVEPs system design expertise has been used by a number of
major companies, such as Ericsson, to develop prototypes for a wide range of
wireless telecommunications devices. The purchase price of the 90.8% interest
in SVEP was 36,320,000 Swedish Krona (approximately4.4 million). In
future periods, we may also make strategic investments or acquisitions in
connection with our plans to expand our business internationallyForeign Currency ExposureTo hedge our economic currency exposure with respect to the $26 million of
deposits with Chartered Semiconductor Manufacturing and ESM Limited, we
purchased foreign currency forward contracts to effectively convert the US
Dollar deposits into Euros.
See Note 15 to the Consolidated Financial
Statements.We also have foreign currency risk with respect to our net investments in
foreign subsidiaries in Japan, Sweden, the United Kingdom and the United
States. Foreign currency translation gains and losses with respect to these
subsidiaries are included in other comprehensive income.CRITICAL ACCOUNTING POLICIES AND RELATED UNCERTAINTIESWe have identified the following accounting polices and related uncertainties
with the accounting measures used in preparing our consolidated financial
statements that we believe are essential to understanding the financial
reporting risks present in the current economic environment.Realizability of Investments in Wafer SuppliersIn order to secure adequate sources of silicon supply, we made certain
investments in suppliers in the form of equity interests, loans, deposits and
advanced payments for products. As discussed in Write-down of Investment
above and in Note 7 to the Consolidated Financial Statements, due to
significant financial difficulties at one of our suppliers, European
Semiconductor Manufacturing, we wrote-off our total investments in the parent
company of this supplier, ESM Limited, which resulted in a42.4 million
pre-tax charge to earnings in the fourth quarter of 2001. In January 2002 ESM
Limited and European Semiconductor Manufacturing Limited were placed in
receivership (a reorganization under UK law). We recently learned that the
receiver had successfully completed negotiations that will result in the sale
of ESM Limited to International Rectifier Corporation. Based on the terms of
the sale agreement, we expect to receive approximately6 million of our
investment in ESM Limited. This recovery will be recognized in the Companys
financial statements when realized, which is expected to be by the end of the
first quarter of 2002. See notes 3 and 18 to the Consolidated Financial
Statements.46As discussed in Note 7 to the Consolidated Financial Statements, at December
31, 2001 we maintain a $20 million deposit with another supplier, as well as
advance payments of $8.6 million. These advance payments will be refunded to us
in proportion to our future wafer purchases. We currently expect to realize the
entire amount of our deposit and advance payments. However, the industry-wide
decline in demand for semiconductors has adversely affected the financial
condition of several semiconductor manufacturers. Prolonged adverse market
conditions could affect our estimates about the recoverability of our
investments. Therefore, it is reasonably possible that future operating results
could be materially adversely affected if we consider an impairment charge for
our investments to be necessary.Recoverability of Long-Lived AssetsOur business is capital intensive and has required, and will continue to
require, significant investments in long-lived assets, including property,
plant, and equipment. At December 31, 2001, the carrying amount of our
property, plant and equipment was36.9 million. As discussed in Note 2 to
the Consolidated Financial Statements, recoverability of long-lived assets to
be held and used is measured by a comparison of the carrying amount of an asset
or group of assets to future net cash flows expected to be generated by the
asset or group of assets. If such assets are considered impaired, the
impairment recognized is measured as the amount by which the carrying amount of
the assets exceeds the fair value of the assets. At December 31, 2001, the
carrying value of intangible assets, including goodwill, was17.1 million.
Intangible assets are evaluated for recovery based upon projected future cash
flows.A prolonged general economic downturn and, specifically, a continued downturn
in the semiconductor industry would intensify competitive pricing pressure
because of overcapacity in the industry, and we could be forced to decrease
production and reduce capacity. Such events could adversely affect our
estimates of future net cash flows expected to be generated by our long-lived
assets. It is reasonably possible that our future operating results could be
materially and adversely affected by an impairment charge related to the
recoverability of our long-lived assets.Realizable Value of InventoriesDue to the sudden and significant decrease in demand for our products
accompanied by substantial order cancellations, our inventory levels in the
second quarter of 2001 exceeded our requirements. Accordingly, we recorded a
charge of10.7 million to write-off excess inventory as of June 30, 2001.At December 31, 2001, our total inventory was17.2 million. We believe
that our inventory levels are in line with current requirements. However, the
demand for our products can fluctuate significantly in response to rapid
technological changes in the semiconductor and wireless communications
industries. In addition, demand for our products reflects, to a significant
degree, the changing requirements of manufacturers of telecommunications
devices. In particular, handset manufacturers have significantly reduced their
demand for mobile phone components, including mixed signal ASICs, in recent
periods. It is reasonably possible that future operating results could be
materially and adversely affected if any additional excess inventory charges
are needed.47Collectibility of Trade Account Receivables and Concentration of Credit RiskWe derive a substantial portion of revenues from a relatively small number of
wireless communications manufacturers. At December 31, 2001, trade accounts
receivable, net was16.5 million. As discussed in Note 2 to the
Consolidated Financial Statements, we perform ongoing credit valuations of our
customers financial condition and, generally, require no collateral from our
customers.We establish an allowance for doubtful accounts that represents our estimate of
amounts that may not be ultimately collected. We determine the allowance for
doubtful accounts based on periodic review and evaluation performed as part of
our credit-risk evaluation process, historical loss experience, current
economic events and conditions and other pertinent factors. This evaluation is
inherently subjective and may not accurately reflect the actual financial
condition or credit worthiness of some of our customers.Although we consider the allowance for doubtful accounts to be adequate based
on information currently available, additional provisions may be necessary due
to (i) changes in our estimates and assumptions about receivable collectibility
or the creditworthiness of specific customers or (ii) changes in economic,
industry and other events and conditions. Therefore, it is reasonably possible
that a change in our allowance for doubtful accounts could occur in the near
term, thereby negatively affecting future operating results.Realization of Deferred Tax AssetsTotal net deferred tax assets are20.5 million at December 31, 2001,
reflecting primarily the year 2001 benefit of24.5 million in loss
carryforwards. While these losses may be carried forward indefinitely,
realization is dependent on generating sufficient taxable income to utilize the
losses. Although realization is not assured, we believe it is more likely than
not that all of the deferred tax assets will be realized. The amount of total
deferred tax assets considered realizable, however, could be reduced if our
estimates change about our ability to generate future taxable income in the
foreseeable future, or if changes in tax laws impose restrictions on the time
or extent of our ability to utilize our loss carryforwards.DIVIDENDSWe did not pay dividends in the years ended December 31, 2001, 2000 and 1999.
We do not currently plan to pay dividends in the foreseeable future. See Item
8. Dividend Policy.48TREND INFORMATIONRecent market analysis indicates continuing growth in the number of handsets
produced despite the decline in handset manufacture in 2001. The long term
outlook for the mobile handset market is positive, with worldwide production
forecast to register a compound annual growth rate, or CAGR, of 15 per cent
between 2002 and 2006. While the already saturated Japanese market shows signs
of slower growth, less mature markets in the Americas, Europe and Asia/Pacific
are expected to show double digit growth rates. The global market for digital
handsets is forecast to reach nearly 730 million units in 2006.The Strategis Group, a Washington, D.C.-based telecommunications research and
consulting firm has said overall handset sales in 2002 will be up 17 percent
worldwide, with burgeoning markets like China and Southeast Asia experiencing
40 percent increases.The introduction of so called 2.5 generation and third generation systems
will herald a new range of applications as network providers seek to increase
revenues by tapping into the demand for data based services. Already this is
stimulating the development of more advanced terminals requiring more complex
semiconductors. Most network providers will adopt General Packet Radio
Services, or GPRS, and by 2003 GPRS shipments are forecast to be almost double
those of Global System for Mobile Communications or GSM, only designs. It is
envisaged that GPRS will not only meet consumer demands for basic data
services, but will also stimulate demand for more advanced third generation
devices and applications. In non GPRS markets more advanced CDMA2000 1X
wireless and data network systems are starting to be introduced in a parallel
activity to deliver higher speed data applications.The market for third generation terminals, although now launched in Japan as
FOMA, or Freedom Of Mobile Multimedia Access, is likely to be relatively modest
until the second half of the decade. It is now thought likely that no one
application will emerge to drive the growth of third generation services.
Instead it will be a range of diverse applications that push sales growth
forward. Development of these applications will take time to establish.The introduction of new technology and applications will help sustain terminal
growth rates in markets reaching saturation for subscriber penetration by
stimulating the replacement market as users upgrade to gain access to the
latest data services in search of greater functionality or speed.Looking ahead, it is widely expected that by 2004 operator revenues from data
services will exceed those of voice based applications.The more complex systems and services will also increase the value of
semiconductors within phone terminals. Manufacturers will want better display
technologies such as large colour displays. They will want better power
management to control the increased power demands of more sophisticated
multimedia applications. They will also need more complex processing functions
to handle audio and visual information in applications like Multimedia
Messaging, or MMS.49INFLATIONWe do not believe that inflation has had a significant effect on our operations
to date.THE INTRODUCTION OF THE EUROOn January 1, 1999, 11 of the 15 member countries of the European Union
established fixed conversion rates between their existing sovereign currencies
and the Euro. The participating countries adopted the Euro as their common
currency on the same day. The Euro was only available as deposit money until
January 1, 2002, at which time the participating countries introduced Euro
bills and coins. By March 1, 2002 the Euro was the sole legal tender for all
participating countries and the national currencies of those participating
countries were withdrawn from circulation.We have selected our computer and operational systems in an attempt to ensure
that our ability to transact business will not be impaired by complications
resulting from the introduction of the Euro. While we believe that our systems
will not be adversely impacted by the Euro conversion, there can be no
assurance that our third-party suppliers and customers will be able to
successfully implement the necessary protocols. Thus far, we have not
experienced any significant problems with third parties as a result of the
introduction of the Euro. In 1998 we purchased an accounting and billing system
for0.4 million which is Euro-compliant.We believe that the introduction of the Euro has reduced our exposure to risk
from foreign currency and interest rate fluctuations.NEW ACCOUNTING STANDARDSIn July 2001, the FASB issued SFAS 141, Business Combinations, and SFAS 142,
Goodwill and Intangible Assets. SFAS 141 requires that the purchase method of
accounting be used for all business combinations completed after June 30, 2001.
SFAS 141 also specifies the types of acquired intangible assets that are
required to be recognized and reported separately from goodwill and those
acquired intangible assets that are required to be included in goodwill. SFAS
142 will require that goodwill and intangible assets with indefinite useful
lives no longer be amortized, but instead tested for impairment at least
annually. SFAS 142 will also require recognized intangible assets be amortized
over their respective estimated useful lives and reviewed for impairment in
accordance with SFAS 121 and subsequently SFAS 144 after its adoption.The Company adopted the provisions of SFAS 141 as of July 1, 2001 and SFAS 142
is effective on January 1, 2002. SFAS 142 will require the Company to evaluate
its existing intangible assets and goodwill and to make any necessary
reclassifications in order to conform with the new requirements in SFAS 141.
Upon adoption of SFAS 142, the Company will be required to reassess the useful
lives and residual values of all intangible assets and make any necessary
amortization period adjustments by March 31, 2002. As of January 1, 2002, the
Company expects to have unamortized goodwill (after reclassification of its
unamortized assembled workforce intangible asset into goodwill) of11.8
million. Total amortization expense related to goodwill and assembled
workforce was1.4 million and1.2 million for the years ended50December 31, 2001 and 2000, respectively. The adoption of SFAS 142 is not
expected to result in any transitional goodwill impairment.In June 2001, the FASB issued SFAS 143, Accounting for Asset Retirement
Obligations. It applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development
and (or) the normal operation of a long-lived asset, except for certain
obligations of lessees. SFAS 143 requires that the fair value of a liability
for an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
long-lived asset and subsequently allocated to expense over the assets useful
life. The Company will adopt SFAS 143 on January 1, 2003. The adoption of SFAS
143 is not expected to have a material impact on the Companys financial
statements.In August 2001, the FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS 144 retains the current requirement to
recognize an impairment loss only if the carrying amounts of long-lived assets
to be held and used are not recoverable from their expected undiscounted future
cash flows. However, goodwill is no longer required to be allocated to these
long-lived assets when determining their carrying amounts. SFAS 144 requires
that a long-lived asset to be abandoned, exchanged for a similar productive
asset, or distributed to owners in a spin-off be considered held and used until
it is disposed. However, SFAS 144 requires the depreciable life of an asset to
be abandoned be revised. SFAS 144 requires all long-lived assets to be disposed
of be sale by sale be recorded at the lower of its carrying amount or fair
value less cost to sell and to cease depreciation (amortization). Therefore,
discontinued operations are no longer measured on a net realizable value basis,
and future operating losses are no longer recognized before they occur. The
Company will adopt SFAS 144 on January 1, 2002. The adoption of SFAS 144 is not
expected to have a material impact on the Companys financial statements.

### 

##### Cover | Table of Contents

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

OVERVIEW

We rely on our board of directors to manage our business. The board, which
consists of executive and non-executive directors, supervises our general
management and decides upon and oversees the implementation of our central
strategic and operational guidelines.

Each director is required under English law to carry out his functions as a
director with the degree of skill and care that may reasonably be expected of a
person of his skill and experience. Each director is obliged to act in the
interests of our shareholders as a whole and should avoid allowing any
conflicting interests, whether his or those of the persons that appointed him,
to influence his judgment in acting as a director. The board is ultimately
required to manage our affairs in accordance with our Memorandum and Articles
of Association and with the requirements of local laws and regulations.

51

We have six non-executive independent directors as part of our board. While
these non-executive directors do not play an active role in our day to day
operations, they provide the board with an independent element which brings a
greater depth of skill, experience and objectivity to the making of key
decisions.

We also have five vice-presidents who, together with the executive director,
are responsible for our day to day business. All directors and senior
management can receive service of process at the business address of the
company.

A. Directors, Executive Officers and Senior Management

The following table sets forth, as of March 15, 2002, the name of each member
of our board of directors and each of our executive officers, their ages, the
dates of their first appointments and their positions:

|                                   |  |     |    |                     |  |               |  |                                          
|---------------------------------- |  | --- | -- | ------------------- |  | ------------- |  | -----------------------------------------
|Name                               |  | Age |    | Date Of Appointment |  | Position     
|                                   |  |     |    |                     |  |              
|Roland Pudelko                     |  |     | 49 |                     |  | March 1998    |  | Executive Director, CEO and
President    
|Timothy Richard
    Black Anderson |  |     | 41 |                     |  | February 1998 |  | Non-executive Director                   
|Michael John Glover                |  |     | 63 |                     |  | March 1998    |  | Non-executive Director                   
|John McMonigall                    |  |     | 58 |                     |  | March 1998    |  | Non-executive Director                   
|Michael Risman                     |  |     | 33 |                     |  | August 1999   |  | Non-executive Director                   
|Jan Olof Ingemar Tufvesson         |  |     | 63 |                     |  | March 1998    |  | Non-executive Chairman                   
|Tord Martin Wingren                |  |     | 41 |                     |  | March 1998    |  | Non-executive Director                   
|Gary Duncan                        |  |     | 46 |                     |  | October 1987  |  | Vice-President of Operations             
|Peter Hall                         |  |     | 50 |                     |  | July 1987     |  | Vice-President of IT and
Quality         
|Yoshihiko Kido                     |  |     | 49 |                     |  | November 2001 |  | Vice President of Japan                  
|Martin Kloble                      |  |     | 42 |                     |  | July 1999     |  | Vice-President of Finance
and Controlling
|Martin Sallenhag                   |  |     | 33 |                     |  | November 2001 |  | Director of Applied
Technology           
|Richard Schmitz                    |  |     | 44 |                     |  | January 1994  |  | Vice-President of
Engineering            

52

The following is a brief biography of each director, executive officer and
senior manager named here.

ROLAND PUDELKO joined us in 1989 as managing director and has served as
Executive Director, CEO and President since March 1998. Mr. Pudelko has 24
years experience in electronics and microelectronics, primarily in management
positions within the Daimler-Benz Group. During that time, he was a board
member of a joint venture with the Taiwanese company, ACER, and for the TEMIC
Group he was responsible for the coordination of worldwide design and
engineering. Mr. Pudelko has a diploma in communication technologies from the
vocational college (Fachhochschule) of Esslingen. He is also the managing
director of Dialog Semiconductor GmbH and our other consolidated subsidiaries.

TIMOTHY RICHARD BLACK ANDERSON joined the board of our then-holding company in
1990 and has served as a director since February 1998. Mr. Anderson has been a
partner with the London law firm Reynolds Porter Chamberlain since 1989, where
he is the head of the corporate department and specializes in business law for
media and technology companies. He holds a law degree from Southampton
University and is qualified as a solicitor in England and Wales.

MICHAEL JOHN GLOVER joined the board of our then-holding company in 1990 and
has served as one of our directors since March 1998. Mr. Glover was a senior
executive with technology based companies in the United Kingdom, Europe, the
Far East and North America prior to becoming involved in private equity fund
management in 1985. He has a degree in economics from the University of
Birmingham. Mr. Glover currently is Managing Director of Aylestone Strategic
Management Limited and serves as a director of other companies including
Biocode Inc. and Mercury Grosvenor Trust plc.

JOHN MCMONIGALL has served as one of our directors since March 1998. He joined
Apax Partners as a director in 1990 and is currently the director responsible
for investments in telecommunications, software and related fields. Between
1986 and 1990, Mr. McMonigall held a variety of senior positions at British
Telecom, including managing director of the customer service division. He was
also a member of the management board of British Telecom. He is currently on
the board of five other public and private companies, including Crane
Telecommunications Ltd, Autonomy Corporation plc and Amphion Ltd.

MICHAEL RISMAN joined us as a director in August 1999, having been closely
involved with our company since March 1998. He is a director at Apax Partners
where he is responsible for investments in information technology including
semiconductors, software and e-commerce infrastructure. Before joining Apax
Partners in 1995, Mr. Risman worked for The MAC Group as a strategy consultant
and for Jaguar Cars as an engineer. He earned an MBA from Harvard Business
School and an MA (Honors) in Electrical Engineering and Management from
Cambridge University. He is also a director of Streamserve Inc., ARC
International Plc, Integrated Silicon Systems Ltd and Red-M (Communications)
Limited.

JAN OLOF INGEMAR TUFVESSON joined the board of our then-holding company in 1990
and has served as chairman of the board since March 1998. Between 1972

53

and 1980
he held senior positions on the Royal Swedish Air Force Board. In 1980 he
joined Ericsson where he had a number of executive roles, the last being a vice
president at LM Ericsson corporate, responsible for all procurement in Ericsson
and for developing relations with key suppliers. Mr. Tufvesson graduated from
the Royal University of Technology in Stockholm with a masters degree in
electronic engineering in 1962. Mr. Tufvesson retired from Ericsson in 1998 and
is now active as an independent management consultant, based in Stockholm. He
is also a director of ARC International Plc.

TORD MARTIN WINGREN joined us as a director in March 1998. Mr. Wingren has been
employed by the Ericsson company for 17 years. Starting in R & D working on
ASIC development he progressed through different roles within Ericssons mobile
phone development activity. He was technically responsible for the pioneering
development of GSM handsets as well as establishing and heading up the UMTS
business development unit. Mr. Wingren was appointed President of the newly
formed Ericsson Mobile Platforms (EMP) on its launch on September 1, 2001.

GARY DUNCAN joined us in October 1987 and is currently the Vice-President of
Operations. He obtained a Higher National Certificate in electronics and
mathematics in 1978 from Plymouth Polytechnic and is a chartered engineer.
Before joining Dialog Semiconductor Mr. Duncan held various senior engineering
and management positions at Plessey and ES2 in quality and production, device
engineering, design software and marketing.

PETER HALL joined us in July 1987 and is currently our Vice-President of IT and
Quality and is responsible for all computer systems and quality issues. Before
joining Dialog Semiconductor he held various management and engineering
positions at STC Semiconductors and MEM in Switzerland. Mr. Hall obtained his
BSc (Honors) in electrical and electronic engineering in 1974 from the
University of Newcastle upon Tyne and his MSc in digital techniques in 1977
from the University of Edinburgh.

MARTIN KLOBLE joined us in July 1999 as Vice-President of Finance and
Controlling. He holds an MBA from the University of Stuttgart-Hohenheim and is
qualified as a tax consultant (STEUERBERATER) as well as a certified public
accountant in Germany (WIRTSCHAFTSPRUFER) and in the United States (CPA).
Before joining Dialog Semiconductor Mr. Kloble worked with KPMG, and was
appointed a partner at the beginning of 1999.

RICHARD SCHMITZ joined us in 1994 and is currently our Vice-President of
Engineering. Prior to joining us, he held various design- related positions at
Hewlett Packards instruments division in Boblingen and the Institute for
Microelectronics, Stuttgart. Mr. Schmitz received a diploma in engineering for
communications electronics in 1983 from the vocational college (FACHHOCHSCHULE)
in Trier.

B. Compensation

We pay non-executive directors who are not associated with any of our principal
shareholders (£) 5,000 to (£) 15,000 per annum.

54

We reimburse all of our directors for their reasonable travel expenses incurred
in connection with attending meetings of the board or committees thereof. Under
certain circumstances, directors are also eligible to receive stock options.

The following table sets out the aggregate amount of remuneration paid by us
and our subsidiaries to all our directors, executives and senior management as
a group for services rendered during the year ended December 31, 2001.

|                                                 |  |                           |           | 
|------------------------------------------------ |  | ------------------------- | --------- | 
|                                                 |  | Directors, Executives and
|Compensation                                     |  | Senior Management        
|                                                 |  |                          
|                                                 |  | (in)                    
|Base salary                                      |  |                           | 1,097,034 | 
|Bonuses                                          |  |                           | 0         | 
|Monetary value of other benefits                 |  |                           | 210,603   | 
|Amounts reserved for pension or similar
benefits |  |                           | 0         | 

55

BONUS SCHEMES

All of our employees participate in a quarterly profit-based bonus scheme,
which pays out if we achieve our agreed financial goals.

A further bonus is available to our sales employees and senior management via
our Management By Objectives (MBO) program.

Under this program, each sales person is annually assigned a number of
objectives which specifically target achieving design-wins from selected
customers within a set period of time. These objectives are established by
senior management with input from the marketing department. We assess the
performance of each sales person against these objectives half-yearly and
annually.

For senior management, key business objectives for their respective departments
are set and agreed by the board of directors. Performance is measured formally
on an annual basis and also via quarterly progress reviews.

STOCK OPTIONS

As of December 31, 2001, our senior management held 938,400 options for our
ordinary shares which entitle the holders to acquire 938,400 shares.

|                 |  |         |         |            |  |                   |  |  |       |  |  | 
|---------------- |  | ------- | ------- | ---------- |  | ----------------- |  |  | ----- |  |  | 
|Senior           |  | Options |         | Expiration |  | Exercise         
|Management       |  | Held    |         | Date       |  | Price            
|                 |  |         |         |            |  |                  
|Roland Pudelko   |  |         | 150,000 |            |  | February 23, 2009 |  |  | £0.20 | 
|                 |  |         | 34,530  |            |  | May 8, 2009       |  |  | £0.40 | 
|                 |  |         | 132,920 |            |  | July 30, 2009     |  |  | £0.60 | 
|                 |  |         | 100,000 |            |  | December 19, 2011 |  |  | 7.00 | 
|Gary Duncan      |  |         | 60,000  |            |  | February 23, 2009 |  |  | £0.20 | 
|                 |  |         | 17,210  |            |  | May 8, 2009       |  |  | £0.40 | 
|                 |  |         | 26,440  |            |  | July 30, 2009     |  |  | £0.60 | 
|                 |  |         | 25,000  |            |  | December 19, 2011 |  |  | 7.00 | 
|Peter Hall       |  |         | 60,000  |            |  | February 23, 2009 |  |  | £0.20 | 
|                 |  |         | 17,210  |            |  | May 8, 2009       |  |  | £0.40 | 
|                 |  |         | 26,440  |            |  | July 30, 2009     |  |  | £0.60 | 
|                 |  |         | 25,000  |            |  | December 19, 2011 |  |  | 7.00 | 
|Yoshihiko Kido   |  |         | 25,000  |            |  | March 1, 2011     |  |  | 6.00 | 
|Martin Kloble    |  |         | 75,000  |            |  | July 29, 2009     |  |  | £0.80 | 
|                 |  |         | 25,000  |            |  | December 19, 2011 |  |  | 7.00 | 
|Martin Sallenhag |  |         | 10,000  |            |  | May 2, 2011       |  |  | 7.00 | 
|Richard Schmitz  |  |         | 60,000  |            |  | February 23, 2009 |  |  | £0.20 | 
|                 |  |         | 17,210  |            |  | May 8, 2009       |  |  | £0.40 | 
|                 |  |         | 26,440  |            |  | July 30, 2009     |  |  | £0.60 | 
|                 |  |         | 25,000  |            |  | December 19, 2011 |  |  | 7.00 | 

56

C. Board Practices

TERM OF OFFICE AND RETIREMENT BY ROTATION

Our Articles of Association currently provide that one-third (or a number
nearest to one-third) of the directors shall retire at every annual general
meeting; but if any director has at the start of the annual general meeting
been in office for more than three years since his last appointment or
re-appointment, he shall retire. A director who retires at an annual general
meeting may, if willing to act, be re-appointed.

SERVICE AGREEMENTS

Our CEO and President, Roland Pudelko, has entered into a service agreement
with us that is of unlimited duration. The agreement is terminable by either
party on 12 months notice. In addition, our shareholders are entitled to
dismiss Mr. Pudelko by virtue of an ordinary resolution at any time, without
prejudice to his right to remuneration. Such dismissal is considered
termination of the contract at the next possible deadline.

Each of our vice-presidents has entered into a service agreement with us and
our subsidiaries. The service agreements are all of unlimited duration. In the
cases of Gary Duncan and Peter Hall, their agreements are terminable by either
party to the agreement on 6 months written notice to the other. Richard
Schmitzs agreement is terminable by either party on 3 months notice to the
end of a calendar quarter. Yoshihiko Kidos agreement has no time limit and can
be terminated by either party on 3 months notice in writing. Martin Klobles
agreement is terminable subject to German statutory provisions for termination.
Martin Sallenhags agreement is terminable subject to Swedish statutory
provisions for termination. None of the service agreements contain provisions
subjecting us to onerous obligations in the case of early termination.

BOARD COMMITTEES

We have established an Audit Committee of the board of directors which reviews,
acts on and reports to the board of directors with respect to various auditing
and accounting matters, including the selection of our auditors, the scope of
the annual audits, fees to be paid to the auditors, the performance of our
independent auditors and our accounting practices. Our Audit Committee consists
of Messrs. Tufvesson and Glover.

The Remuneration Committee of the board of directors determines the salaries
and incentive compensation of our officers and the officers of our subsidiaries
and provides recommendations for the salaries and incentive compensation of
other employees and consultants. The Remuneration Committee also administers
our various compensation, stock and benefit plans. Our Remuneration Committee
consists of Messrs. Tufvesson, Glover and Anderson. None of the members of this
Committee was our employee at any time during 2001.

57

D. Employees

At December 31, 2001, we employed 287 full-time employees not including
trainees/apprentices, of which 157 were based in Germany, 46 in Sweden, 45 in
the United Kingdom, 17 in the United States, 14 in Austria and 8 in Japan. Of
the total number, 176 were engaged in engineering (including design and product
engineering) and 55 were engaged in production (including logistics, quality
and testing). The average number of employees in 2001 was 285 compared to 229
in 2000 and 127 in 1999.

58

E. Share Ownership

As of December 31, 2001, our directors, executives and senior management held
1,318,770 shares.

|                                 |  |        |         |                    |  |                   |   | 
|-------------------------------- |  | ------ | ------- | ------------------ |  | ----------------- | - | 
|Directors, Executives and Senior |  |        |         |                    |  | Percent of shares
|Management                       |  | Number |         | beneficially owned
|                                 |  |        |         |                   
|Roland Pudelko                   |  |        | 320,405 |                    |  |                   | * | 
|Timothy Richard Black Anderson   |  |        | 20,816  |                    |  |                   | * | 
|Michael John Glover(1)           |  |        | 195,000 |                    |  |                   | * | 
|Jan Olof Ingemar Tufvesson(2)    |  |        | 165,062 |                    |  |                   | * | 
|Michael Risman                   |  |        | 1,172   |                    |  |                   | * | 
|Gary Duncan                      |  |        | 162,105 |                    |  |                   | * | 
|Peter Hall                       |  |        | 162,105 |                    |  |                   | * | 
|Martin Kloble                    |  |        | 150,000 |                    |  |                   | * | 
|Richard Schmitz                  |  |        | 142,105 |                    |  |                   | * | 



---

|*   |  | Less than 1%                                                                                                                                                                                                                                                                                                                                                                                                      
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) |  | Includes (i) 40,000 shares owned directly by Mr. Michael John Glover,
(ii) 90,000 shares owned by Linda Diane Glover, (iii) 5,000 shares owned
by Matthew James Glover and (iv) 60,000 shares held by Timothy Thornton
Jones as trustee for Linda Diane Glover and the sons of Michael John
Glover. The Michlin Trust, trustee for Michael John Glover and the
members of his immediate family, owns 3,750 shares.
|   
|(2) |  | Includes (i) 144,162 shares owned directly by Mr. Tufvesson, (ii) 2,900
shares held by Tuf Interactive Leadership AB, a company controlled by Mr.
Tufvesson and (iii) 18,000 shares held by members of his family.                                                                                                                                                                                                

EMPLOYEE SHARE PURCHASE PLAN

On March 26, 1998, we entered into a Subscription and Shareholders Agreement
with Apax Partners. Under the terms of this agreement, employees and directors
are invited from time-to-time, at the discretion of the Board, to purchase up
to 3,456,890 of our ordinary shares from Apax Partners or from the Dialog
Employee Benefit Trust (a Jersey trust established to purchase our shares from
and sell our shares to our employees and directors). The purchase price of the
shares is equal to their estimated fair market value on the date that the
employee or director subscribes for the shares. Employees and directors are
immediately vested in shares that they purchase under the plan. During the
first quarter of 1999, the Trust acquired 668,800 ordinary shares from Apax for
purposes of distributing them to employees under the Employee Stock Purchase
Plan. For the period from March 1, 1998 to December 31, 1998 and for the year
ended December 31, 1999, employees and directors purchased 2,581,360 and
473,480 ordinary shares, respectively, at fair value on the date of purchase.
During 2001 and 2000 the Trust distributed 159,006 and 57,108 shares,
respectively, in connection with the exercise of employee stock options. At
December 31, 2001, the Trust continued to hold 216,616 shares.

59

SHARE OPTION SCHEME

All of our employees and full time executive directors and employees of any of
our consolidated subsidiaries who are required to devote substantially the
whole of their working time to us and/or any of our subsidiaries are eligible
to be granted options under our share option scheme, at the discretion of the
board. The scheme was established on August 7, 1998. A total of 3,840,990
shares may be issued under the scheme. As of December 31, 2001 we had granted
options to purchase 2,672,506 shares. These options are exercisable at prices
ranging from £ 0.20 to55.00 per share depending on the date of grant and
what type of option they are (see below). The options generally expire 10
years after the date of grant.

Eligible employees and directors may be invited by the board to apply for
options. Employees and directors who wish to take up the invitation will have a
period of 14 days (or such longer period as the board determines) to then apply
for an option. No payment will be required in applying for an option. Options
may be offered by the board within 42 days of the day on which we announce the
annual or semi-annual results or in exceptional circumstances when approved by
the board.

The scheme provides for the grant of three categories of options:



| |  | short options, which may be exercised, if at all, within two years
of the date of grant;                                                                     
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | long options, which may be exercised within five years of the date
of grant;                                                                                 
| 
| |  | incentive stock options which are options granted to a US employee
which complies with the relevant terms of the United States Internal
Revenue Code of 1986.

Options granted before the offering have not been subject to date to a
performance condition (such as the achievement of pre-determined financial
targets), although the rules allow the board to make the exercise of an option
subject to the satisfaction of objective performance conditions.

Options entitle the option holder to acquire shares at a price per share
determined by the board. Such price may not be less than the greater of:



| |  | the nominal value of a share;                                                                                                                                     
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | the market value of a share at the date of grant;                                                                                                                 
| 
| |  | for US participants, who own 10% or more of the total combined
voting power of any company of the group, 110% of the market value of a
share on the date of grant.

Fifty percent of the shares comprised in a short option may be exercised on the
first anniversary of the date of grant. Twenty percent of the shares comprised
in a long option may be exercised on each anniversary of the date of grant
together with any unexercised portion from previous years.

60

An incentive stock option held by a US participant owning 10% or more of the
total voting power of our company or our consolidated subsidiaries may not be
exercised later than five years after the date of grant. For all other option
holders, options may be exercised before the tenth anniversary of the date of
grant, at the end of which period they will lapse.

Unless the option holder is dismissed for cause or has filed for bankruptcy he
or she has one calendar month or such longer period as the board determines
from the date of termination of employment in which to exercise options.
Otherwise, any options held will lapse immediately upon termination of
employment.

In the event of the death of an option holder, his or her personal
representatives may exercise any subsisting option in the period of 12 months
from the date of death.

In the event that an option holder, other than an option holder holding an
incentive stock option, retires in accordance with the contractual retirement
age or otherwise at 65, any subsisting options may be exercised within the
period of six months following the date of retirement. Holders of incentive
stock options must exercise any subsisting options within the period of one
month following the date of retirement.

Where the option holder leaves our employment in circumstances of injury,
disability, redundancy within the meaning of the UK Employment Rights Act 1996,
the company for which the option holder works ceases to be a member of the
Dialog Semiconductor group or the business for which the option holder works is
transferred out of the Dialog Semiconductor group, options will be exercisable
in the period of six months (three months in respect of incentive stock
options) following termination of employment, whether or not any performance
conditions which apply to them have been satisfied. In the event of a
takeover, reconstruction or amalgamation of our company, options may be
exercised in the period of six months following such event. Alternatively,
options may be exchanged for options over shares in an acquiring
company provided that the new option confers a right to acquire a number of new
shares that have the same total market value as the subsisting option, the
total amount payable by a participant is the same under the new option as under
the subsisting option, and the new option is exercisable in the same manner as
the corresponding subsisting option. In practice the six month period can be
shortened by the compulsory acquisition procedure under section 429 of the
Companies Act 1985 on a takeover. In the event of a voluntary winding up of
the company the options may be exercised within three months of the passing of
a winding up resolution.

In the event of any rights or capitalization issue, sub-division,
consolidation, or reduction of our share capital, the board may (subject to
auditors confirmation) adjust the number of shares subject to options and the
price payable on their exercise provided that (1) the option price for a share
is not less than its nominal value; and (2) the total price for the option has
not been materially altered.

Other than options granted to German participants (which are fully
transferable), options are not transferable and may only be exercised by the
option holder or his personal representatives. Shares allotted or transferred
under the share option scheme will rank pari passu with shares of the same
class then in issue (except in respect of entitlements arising prior to the
date of allotment).

61

No options may be granted over shares under the share option scheme which
would, when combined with options granted over shares under any other scheme
operated by us or any of our consolidated subsidiaries, exceed 10% of the
ordinary share capital of our company in issue on the day preceding the date of
the grant.

### 

##### Cover | Table of Contents

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.     Major Shareholders

Apax Partners own 12,054,793 of our ordinary shares or 27.3%. Apax Partners
refers to two entities: Apax Partners & Co. Ventures Ltd. and Apax Partners &
Co. Germany II L.P., which act as Manager of Apax Funds Nominees Limited and
Managing General Partner of Apax Germany II L.P., respectively. Apax Funds
Nominees Limited holds shares as a nominee for certain other Apax Venture
Capital Limited Partnerships. Prior to the secondary offering in June 2000,
Apax Partners owned 13,568,380 of our ordinary shares or 32.3%. Apax Partners
voting rights do not differ from the rights of other shareholders.

Adtran, Inc., through its wholly-owned subsidiary ADFI, Inc., owns 2,520,960
ordinary shares or 5.7%. Prior to the secondary offering in June 2000, Adtran,
Inc. owned 5,305,810 ordinary shares or 12.6%. Adtran, Inc.s voting rights do
not differ from the rights of other shareholders.

UNITED STATES SHAREHOLDERS

Clearstream Banking AG and a nominee of Clearstream holding two shares are the
current holders of record of the companys shares. Clearstream issues bearer
rights to these shares to financial institutions who are participants in
Clearstream Banking AG and through whom beneficial owners (including US
beneficial owners) hold our shares. Due to the secrecy laws of some of the
jurisdictions (including Germany) in which the participants of Clearstream
Banking AG are located, these participants may not be obligated to disclose
information regarding beneficial ownership of our shares pursuant to Section
198 of the Companies Act 1985 or the Nasdaq Europe regulations. Consequently,
we are unable to identify the US beneficial owners of these shares.

B.     Related Party Transactions

Timothy Anderson, a member of the Board, is also a partner in the law firm
Reynolds Porter Chamberlain, which frequently acts as our legal adviser.
Payments to Reynolds Porter Chamberlain for legal services rendered during the
2001 fiscal year amounted to159,098.

In 1999, we acquired a 19.47% equity interest in and made a loan to ESM
Limited, the parent company of European Semiconductor Manufacturing Limited,
one of our suppliers. In August 2000, we participated in an additional capital
contribution and loan to ESM Limited totalling3.3 million. Affiliates of
Apax Partners, one of our shareholders, currently own 62.23% of ESM Limited.

We negotiate our contracts for the purchase of silicon wafers from European
Semiconductor Manufacturing Limited on an arms-length basis. In 2001 we

62

purchased silicon wafers from European Semiconductor Manufacturing Limited in
the amount of12.2 million. Payables due to European Semiconductor
Manufacturing Limited were0.5 million at December 31, 2001. We also
maintain a deposit of $6 million with ESM Limited, the parent company of
European Semiconductor Manufacturing Limited and we have paid $8.3 million as
advanced payments for future wafer deliveries. In the fourth quarter of 2001,
we determined that we could not recover our investment in ESM Limited and
therefore we recorded an impairment charge of42.4 million. See Notes 3
and 18 to the Consolidated Financial Statements. Our management believes that
the investment we have made in ESM Limited and our ongoing transactions with
ESM Limited have been, and are conducted on terms no less favourable to us than
those that would have been obtainable in arms-length transactions among
unrelated entities. For more information on ESM Limited and European
Semiconductor Manufacturing Limited see Item 4: Information on the Company
and Item 5: Operating and Financial Review and Prospects.

### 

##### Cover | Table of Contents

ITEM 8. FINANCIAL INFORMATION

A.     Consolidated Statements and other Financial Information

See Item 18: Financial Statements and pages F-1 through F-25.

LEGAL PROCEEDINGS

Neither we nor any of our consolidated subsidiaries are involved in litigation
or arbitration proceedings that could have a substantial impact on our
financial position or the financial position of any of our consolidated
subsidiaries. We have not been involved in such litigation or arbitration
proceedings in the past two years, nor, to the best of our knowledge, are such
proceedings pending or threatened against us or any of our consolidated
subsidiaries. However, as is the case with many companies in the semiconductor
industry, we may from time to time receive communications alleging possible
infringement of intellectual property rights of others. Irrespective of the
validity of such claims, we could incur significant costs with respect to the
defence of such claims which could have a material adverse effect on our
business, results of operations or financial condition. See Item 3: Risk
Factors  If we are unable to protect our intellectual property and know-how
from copy or use by others, our competitors may gain access to our content and
technology.

DIVIDEND POLICY

We have never declared or paid any dividends. We currently intend to retain
all available earnings generated by our operations for the development and
growth of our business. As a result, we do not anticipate paying any dividends
in the foreseeable future. You should also refer to Item 5: Operating and
Financial Review and Prospects-Liquidity.

### 

##### Cover | Table of Contents

ITEM 9. THE OFFER AND LISTING

The NEUER MARKT (XETRA), Nasdaq Europe and Nasdaq are the principal trading
markets for our ordinary shares and ADSs.

63

MARKET PRICES

The following table sets forth, for the periods indicated, the highest and
lowest closing market quotations for the shares from the NEUER MARKT (XETRA),
Nasdaq Europe and Nasdaq.

NEUER MARKT

|                         |                                                 |  |                 |       |          |  |  |       | 
|------------------------ | ----------------------------------------------- |  | --------------- | ----- | -------- |  |  | ----- | 
|                         |                                                 |  | Ordinary Shares
|                         |                                                 |  |                
|                         |                                                 |  | High Euro       |       | Low Euro
|                         |                                                 |  |                 |       |         
|ANNUAL HIGHS AND LOWS    |                                                 |  |                 |       |          |  |  |      
|                         | 1999 (from October 13)                          |  |                 | 43.25 |          |  |  | 9.50  | 
|                         | 2000                                            |  |                 | 72.50 |          |  |  | 6.86  | 
|                         | 2001                                            |  |                 | 10.85 |          |  |  | 2.60  | 
|QUARTERLY HIGHS AND LOWS |                                                 |  |                 |       |          |  |  |      
|1999                     |                                                 |  |                 |       |          |  |  |      
|                         | Fourth quarter (October 13 through December
31) |  |                 | 43.25 |          |  |  | 9.50  | 
|2000                     |                                                 |  |                 |       |          |  |  |      
|                         | First quarter                                   |  |                 | 72.50 |          |  |  | 29.75 | 
|                         | Second quarter                                  |  |                 | 65.95 |          |  |  | 40.00 | 
|                         | Third quarter                                   |  |                 | 59.00 |          |  |  | 36.56 | 
|                         | Fourth quarter                                  |  |                 | 37.95 |          |  |  | 6.86  | 
|2001                     |                                                 |  |                 |       |          |  |  |      
|                         | First quarter                                   |  |                 | 10.85 |          |  |  | 3.88  | 
|                         | Second quarter                                  |  |                 | 8.60  |          |  |  | 4.61  | 
|                         | Third quarter                                   |  |                 | 4.60  |          |  |  | 2.60  | 
|                         | Fourth quarter                                  |  |                 | 8.30  |          |  |  | 3.85  | 
|MONTHLY HIGHS AND LOWS   |                                                 |  |                 |       |          |  |  |      
|2001                     |                                                 |  |                 |       |          |  |  |      
|                         | September                                       |  |                 | 4.40  |          |  |  | 3.34  | 
|                         | October                                         |  |                 | 6.78  |          |  |  | 3.85  | 
|                         | November                                        |  |                 | 7.81  |          |  |  | 6.28  | 
|                         | December                                        |  |                 | 8.30  |          |  |  | 5.87  | 
|2002                     |                                                 |  |                 |       |          |  |  |      
|                         | January                                         |  |                 | 8.82  |          |  |  | 5.62  | 
|                         | February                                        |  |                 | 5.55  |          |  |  | 4.40  | 
|                         | March (through March 15)                        |  |                 | 5.35  |          |  |  | 5.11  | 

On March 15, 2001 the closing market quotation for our shares on the NEUER
MARKT (XETRA) was5.17.

64

Nasdaq Europe

|                         |                                                 |  |                 |       |          |  |  |       | 
|------------------------ | ----------------------------------------------- |  | --------------- | ----- | -------- |  |  | ----- | 
|                         |                                                 |  | Ordinary Shares
|                         |                                                 |  |                
|                         |                                                 |  | High Euro       |       | Low Euro
|                         |                                                 |  |                 |       |         
|ANNUAL HIGHS AND LOWS    |                                                 |  |                 |       |          |  |  |      
|                         | 1999 (from October 13)                          |  |                 | 41.00 |          |  |  | 9.52  | 
|                         | 2000                                            |  |                 | 74.00 |          |  |  | 6.50  | 
|                         | 2001                                            |  |                 | 11.75 |          |  |  | 2.80  | 
|QUARTERLY HIGHS AND LOWS |                                                 |  |                 |       |          |  |  |      
|1999                     |                                                 |  |                 |       |          |  |  |      
|                         | Fourth quarter (October 13 through December
31) |  |                 | 41.00 |          |  |  | 9.52  | 
|2000                     |                                                 |  |                 |       |          |  |  |      
|                         | First quarter                                   |  |                 | 74.00 |          |  |  | 30.50 | 
|                         | Second quarter                                  |  |                 | 67.50 |          |  |  | 41.00 | 
|                         | Third quarter                                   |  |                 | 60.00 |          |  |  | 36.00 | 
|                         | Fourth quarter                                  |  |                 | 36.00 |          |  |  | 6.50  | 
|2001                     |                                                 |  |                 |       |          |  |  |      
|                         | First quarter                                   |  |                 | 11.75 |          |  |  | 4.00  | 
|                         | Second quarter                                  |  |                 | 7.75  |          |  |  | 5.00  | 
|                         | Third quarter                                   |  |                 | 5.00  |          |  |  | 2.80  | 
|                         | Fourth quarter                                  |  |                 | 8.15  |          |  |  | 3.50  | 
|MONTHLY HIGHS AND LOWS   |                                                 |  |                 |       |          |  |  |      
|2001                     |                                                 |  |                 |       |          |  |  |      
|                         | September                                       |  |                 | 4.25  |          |  |  | 3.00  | 
|                         | October                                         |  |                 | 6.95  |          |  |  | 3.50  | 
|                         | November                                        |  |                 | 8.12  |          |  |  | 6.25  | 
|                         | December                                        |  |                 | 8.15  |          |  |  | 6.00  | 
|2002                     |                                                 |  |                 |       |          |  |  |      
|                         | January                                         |  |                 | 9.10  |          |  |  | 6.45  | 
|                         | February                                        |  |                 | 6.45  |          |  |  | 5.00  | 
|                         | March (through March 15)                        |  |                 | 5.50  |          |  |  | 5.05  | 

On March 15, 2001 the closing market quotation for our shares on Nasdaq Europe
was5.05.

NASDAQ

|                         |                                          |  |             |       |            |  |  |       | 
|------------------------ | ---------------------------------------- |  | ----------- | ----- | ---------- |  |  | ----- | 
|                         |                                          |  | ADSs       
|                         |                                          |  |            
|                         |                                          |  | High Dollar |       | Low Dollar
|                         |                                          |  |             |       |           
|ANNUAL HIGHS AND LOWS    |                                          |  |             |       |            |  |  |      
|                         | 2000 (from June 29)                      |  |             | 54.88 |            |  |  | 6.25  | 
|QUARTERLY HIGHS AND LOWS |                                          |  |             |       |            |  |  |      
|2000                     |                                          |  |             |       |            |  |  |      
|                         | Second quarter (June 29 through June 30) |  |             | 50.25 |            |  |  | 49.38 | 
|                         | Third quarter                            |  |             | 54.88 |            |  |  | 33.00 | 

65

|                       |                          |  |             |       |            |  |  |      | 
|---------------------- | ------------------------ |  | ----------- | ----- | ---------- |  |  | ---- | 
|                       |                          |  | ADSs       
|                       |                          |  |            
|                       |                          |  | High Dollar |       | Low Dollar
|                       |                          |  |             |       |           
|                       | Fourth quarter           |  |             | 32.88 |            |  |  | 6.25 | 
|2000                   |                          |  |             |       |            |  |  |     
|                       | First quarter            |  |             | 9.69  |            |  |  | 3.69 | 
|                       | Second quarter           |  |             | 7.50  |            |  |  | 4.00 | 
|                       | Third quarter            |  |             | 4.35  |            |  |  | 2.49 | 
|                       | Fourth quarter           |  |             | 7.30  |            |  |  | 3.40 | 
|MONTHLY HIGHS AND LOWS |                          |  |             |       |            |  |  |     
|2001                   |                          |  |             |       |            |  |  |     
|                       | September                |  |             | 4.35  |            |  |  | 3.20 | 
|                       | October                  |  |             | 6.08  |            |  |  | 3.40 | 
|                       | November                 |  |             | 7.00  |            |  |  | 5.52 | 
|                       | December                 |  |             | 7.30  |            |  |  | 5.50 | 
|2002                   |                          |  |             |       |            |  |  |     
|                       | January                  |  |             | 7.55  |            |  |  | 4.80 | 
|                       | February                 |  |             | 5.20  |            |  |  | 3.75 | 
|                       | March (through March 15) |  |             | 4.69  |            |  |  | 4.30 | 

On March 15, 2001 the closing market quotation for our shares on Nasdaq was
$4.30.

### 

##### Cover | Table of Contents

ITEM 10. ADDITIONAL INFORMATION

A.     Memorandum and Articles of Association

Incorporated by reference to our Registration Statement on Form F-1, which was
filed with the Securities and Exchange Commission on June 27, 2000.

B.     Material Contracts

SUPPLY AGREEMENT WITH CHARTERED SEMICONDUCTOR MANUFACTURING PTE., LTD.

We maintain a deposit of $20 million with Chartered Semiconductor Manufacturing
classified in the balance sheet line item Loans. Under the terms of our
supply agreement dated June 30, 2000, the deposit will guarantee access to
certain quantities of sub-micron wafers through fiscal 2003 and several
generations of process technologies ranging from current products at
0.60-micron and 0.35-micron and will extend down to, and beyond 0.18-micron
technologies. In addition, we paid $10 million as advance payments for future
wafer deliveries. Such advance payments are classified in the balance sheet
under Prepaid expenses. The outstanding balance of the advance payments will
be refunded in proportion to our purchases of wafers from Chartered
Semiconductor Manufacturing, and at this time, we expect to have the entire
advance payment refunded. On October 25, 2001, the Securities and Exchange
Commission granted our request for confidential treatment with respect to wafer
prices, lot quantities and related proprietary data contained in the supply
agreement.

66

SUPPLY AGREEMENTS WITH EUROPEAN SEMICONDUCTOR MANUFACTURING LIMITED

In September 1999, we entered into an agreement with RJT258 Limited (now
European Semiconductor Manufacturing Limited) which guarantees a minimum
production capacity at the European Semiconductor Manufacturing Limited foundry
at Newport, Wales for the first three years of the supply agreement. On June
28, 2000, the Securities and Exchange Commission granted our request for
confidential treatment with respect to wafer prices, lot quantities and related
proprietary data.

In September 2000, we entered into a new supply agreement with ESM Limited (now
European Semiconductor Manufacturing Limited) which was subsequently amended on
November 10, 2000. Under the terms of this agreement, we maintain a deposit of
$6 million with European Semiconductor Manufacturing Limiteds parent company
ESM Limited. In addition, we paid $8.3 million as advanced payments for future
wafer deliveries. These advance payments are classified in the balance sheet
under Prepaid expenses. For more information, see Notes 3 and 18 to the
Consolidated Financial Statements.
On October 25, 2001, the Securities and Exchange Commission granted our request
for confidential treatment with respect to wafer prices, lot quantities and
related proprietary data contained in the supply agreement.

C. Exchange Controls

There are currently no UK laws, decrees or regulations that restrict the export
or import of capital, including, but not limited to, foreign exchange controls,
or that affect the remittance of dividends or other payments to non-UK
residents or to US holders of our securities except as otherwise set forth
below in Taxation below. There are no limitations under our articles of
association restricting voting or shareholding.

D. Taxation

The following is a discussion of the material tax consequences to holders of
our shares or ADSs under the present laws of the United Kingdom, Germany,
Belgium and the United States. The discussion addresses only persons who hold
shares or ADSs as capital assets. It does not address the tax treatment of
persons subject to special rules. Among those are banks, securities dealers,
insurance companies, tax-exempt entities, partnerships, holders of 10 percent
or more of our voting shares, persons holding shares as part of a hedge,
straddle, conversion or constructive sale transaction, US Holders using a
functional currency other than the US Dollar, persons resident or ordinarily
resident in the United Kingdom for UK tax purposes and persons holding shares
or ADSs in connection with a trade or business conducted in the United Kingdom
or some other place outside their country of residence. The summary also does
not discuss the tax laws of particular states or localities in the United
States and other countries.

This summary does not consider your particular tax circumstances. It is not a
substitute for tax advice. WE URGE YOU TO CONSULT YOUR OWN TAX ADVISORS ABOUT
THE TAX CONSEQUENCES TO YOU IN LIGHT OF YOUR PARTICULAR CIRCUMSTANCES OF
HOLDING OUR SHARES OR ADSs.

67

As used in this summary, US Holder means a beneficial owner of shares or ADSs
that is (1) an individual who is a US citizen or resident, (2) a corporation or
other entity taxable as a corporation and organized under US laws, (3) a trust
subject to the control of a US person and the primary supervision of a US court
and (4) an estate the income of which is subject to US federal income tax
regardless of its source.

UK TAXATION

DIVIDENDS

Under current UK taxation legislation, no tax is required to be withheld at
source from cash dividend payments by Dialog Semiconductor Plc. See US Federal
Income Taxation  Distributions below for a discussion of the treatment of
dividend payments by Dialog Semiconductor Plc under the UK-US income tax
treaty.

CAPITAL GAINS

If you are not resident or ordinarily resident in the UK then, subject to the
comments below, you will not be liable for UK tax on capital gains realised on
the disposal of a share or ADS unless, at the time of the disposal, you carry
on a trade, including a profession or vocation, in the UK through a branch or
agency and the share or ADS you dispose of is, or has been, held or acquired
for the purposes of that trade or branch or agency carried on by you in the UK.

A US Holder who is an individual and who has on or after March 17, 1998 ceased
to be resident or ordinarily resident for tax purposes in the UK for a period
of less than five years of assessment and who disposes of shares or ADSs during
that period may be liable on his or her return to the UK to UK tax on
chargeable gains, subject to any available exemption or relief, notwithstanding
that he or she is not resident or ordinarily resident in the UK at the time of
the disposal.

UK INHERITANCE TAX

Shares or ADSs are assets situated in the UK for the purposes of UK inheritance
tax. Subject to the discussion of the UK-US estate tax treaty in the next
paragraph, shares or ADSs beneficially owned by an individual US Holder will be
subject to UK inheritance tax on the death of the individual or, if the shares
or ADSs are the subject of a lifetime gift that constitutes a chargeable
transfer, including a transfer at less than full market value, by such
individual. UK inheritance tax is not chargeable on gifts to individuals or to
accumulation and maintenance or disabled trusts made more than seven years
before the death of the donor. Special rules apply to shares or ADSs held in a
settlement.

A share or ADS held by an individual US Holder whose domicile is determined to
be the US for purposes of the UK-US estate tax treaty, and who is not a
national of the UK, will not be subject to UK inheritance tax on the
individuals death or on a lifetime transfer of the share or ADS except where
the share or ADS:



| |  | is part of the business property of a UK permanent establishment of
an enterprise; or
|- |  | -------------------------------------------------------------------------------------

68



| |  | pertains to a UK fixed base of an individual used for the
performance of independent personal services.
|- |  | -------------------------------------------------------------------------------------------------------

The estate tax treaty provides a credit against US federal tax liability for
the amount of any tax paid in the UK in a case where the share or ADS is
subject both to UK inheritance tax and to US federal estate or gift tax.

On 23 February 2000, the Inland Revenue indicated that the US and UK
Governments had scheduled negotiations for revisions to their estate and gift
tax treaty. However, as of the date of this annual report no such negotiations
have taken place.

UK STAMP DUTY AND STAMP DUTY RESERVE TAX (SDRT)

No stamp duty or SDRT will be payable on the transfer of existing shares which
are held, and which continue to be held, in Clearstream Banking AG.

No UK stamp duty will be payable on the transfer of an ADS provided that any
instrument of transfer remains at all times outside the UK and is not executed
in or brought into the UK. An agreement to transfer an ADS will not give rise
to SDRT.

No stamp duty or SDRT will be payable on a cancellation of an ADS provided that
the underlying shares continue to be held within Clearstream Banking AG.

GERMAN TAXATION

The summary of German tax considerations addresses only shareholders who are
resident in Germany for tax purposes.

DIVIDENDS

Under the new so-called half-income system (HALBEINKÜNFTESYSTEM), only one half
of the dividends received by German private investors will generally be subject
to German taxation at standard tax rates, and are also subject to a surcharge
(SOLIDARITATSZUSCHLAG) equal to 5.5% of the applicable German income tax
liability. As long as Dialog Semiconductor Plc is not required to withhold tax
at source from dividend payments, the issue of obtaining a refund of UK
withholding taxes and for a credit for such withholding taxes in Germany does
not arise.

The taxable dividend income from Dialog Semiconductor Plc must be declared in
the tax returns of the German investors. The taxable dividend income (i.e. the
half of the total proceeds after deduction of either half of the actual
income-related expenses incurred, or the standard amount of51 (or102 for married couples filing jointly) of individuals holding the shares as a
private asset may be applied against a tax free investment income allowance of1,550/3,100 (individual/married couple) per year.

A corporation subject to unlimited tax liability in Germany is normally exempt
from German taxation with respect to dividends received from Dialog
Semiconductor Plc, irrespective of the amount of shares held. However, an
amount equal to 5% of such tax exempt dividends will be deemed to constitute
non-deductible expenses to such corporation and thus will be subject to German
corporate income tax and trade tax. The tax exemption does not apply to banks
and financial service institutions holding

69

shares as part of the trading book
and to financial institutions under certain conditions. If the tax exempt
dividends derived by a German corporation will in turn be distributed to its
individual shareholder that dividend will be taxed under the half-income system
(private individual) or will be tax-free (corporation).

CAPITAL GAINS

A disposal of shares by an individual shareholder who is resident in Germany
for tax purposes and holds the shares as a private asset will only be subject
to capital gains taxation if such investor held a minimum participation of 1%
in Dialog Semiconductor Plc at any time during the five-year period preceding
such disposal, or disposes of the shares during a period of one year following
their acquisition. If that is the case, 50% of the capital gains is taxed
under the new half-income system, otherwise, the capital gains will be tax
free. Capital gains from the sale of shares which are implemented during the
one year holding period and which, taken together with all other gains from
private sales transactions during the one year holding period, do not exceed512 per calendar year, will not be taxed.

A private investor holding the shares as a business asset will be subject to
German income taxation on 50% of the capital gains realized on the disposal of
the shares at standard rates. In case of a commercial enterprise he will also
be subject to trade tax. The capital gains realized by a corporate investor
are generally tax-exempt under the new rules effective as of 2001. However,
should the corporate investor hold the shares via a partnership, it is
presently unclear whether or not the capital gains are taxable for trade tax
purposes. The tax exemption does not apply to banks and financial service
institutions holding shares as part of the trading book and to financial
institutions under certain conditions

STAMP DUTY, NET WORTH TAX

There is no stamp duty in Germany. Net worth tax and trade tax on capital are
presently not levied in Germany.

ESTATE AND GIFT TAXES

A transfer of shares in Dialog Semiconductor Plc by reason of death or gift are
subject to German gift or estate taxes if:



|(1) |  | the donor or decedent or the heir, donee or other beneficiary, has its
domicile or habitual abode in Germany at the time of the transfer or, with
respect to German citizens who are not resident in Germany, if such donor,
decedent or beneficiary has not been continuously outside of Germany for a
period of more than five years (or is a foreign-based German public
official or a person belonging to the household of such German public
official); or
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | the shares were part of the donors or the decedents business assets for
which a fixed place of business existed or a permanent representative was
appointed in Germany.                                                                                                                                                                                                                                                                                      

70

BELGIAN TAXATION

The summary of Belgian tax considerations addresses only shareholders who are
resident in Belgium for tax purposes.

DIVIDENDS

BELGIAN/UK INCOME TAX TREATY.Under current UK tax law, Dialog Semiconductor
Plc will not have to retain any withholding tax on dividends at source, but UK
dividends will carry a tax credit of 10% of the gross dividend. Pursuant to
the Belgian/UK Income Tax Treaty, shareholders who are residents of Belgium who
receive dividends from Dialog Semiconductor Plc will in principle be entitled
to recover all or part of the UK tax credit attached to such dividends but any
repayment of a tax credit will be subject to a withholding (which cannot exceed
the amount of the tax credit).

Belgian corporate direct investors, meaning corporate shareholders controlling
at least 10% of the voting power of Dialog Semiconductor Plc, will in principle
be entitled to one half of the tax credit, being one twentieth of the gross
dividend, but reduced by a withholding of 5% of the aggregate amount of the
dividend and the tax credit. Any repayment is therefore likely to be of a
minimal amount.

Belgian shareholders who are individuals and other shareholders who do not
qualify as corporate direct investors are in principle entitled to the full UK
tax credit, being one tenth of the gross dividend, after deduction of a
withholding of 20% of the aggregate amount of the dividend and the tax credit.
As a result of the withholding, no repayment of the credit will take place in
practice.

BELGIAN TAX LAW.For Belgian income tax purposes, the gross amount of all
distributions made by Dialog Semiconductor Plc to its shareholders (other than
the repayment of paid-in capital pursuant to a valid shareholders decision to
reduce the share capital) is taxed as a dividend. Distributions made by Dialog
Semiconductor Plc to its shareholders in the course of a final dissolution and
liquidation of the company are also taxed as dividends. However, no Belgian
withholding tax is due on such liquidation distributions. In addition, the
gross amount paid by Dialog Semiconductor Plc over and above the (revalued)
paid-in share capital to redeem Shares owned by a holder is taxed as a
dividend, but is not subject to withholding tax in Belgium.

INDIVIDUAL SHAREHOLDERS

BELGIAN WITHHOLDING TAX.Dividends distributed on shares are, in principle,
subject in Belgium to a withholding tax at the rate of 25%, when paid or
attributed through a paying agent in Belgium. The dividend withholding tax
rate on shares which are publicly issued after January 1, 1994 can under
certain strict conditions be lowered to 15%. In the present case, the existing
shares offered by the selling shareholders will not normally qualify for the
reduced dividend withholding tax. In the absence of a proper tracing mechanism,
it is expected that the shares will not, in practice, benefit from the reduced
rate.

71

INCOME TAX FOR BELGIAN RESIDENT INDIVIDUALS.In the hands of an individual
Belgian holder who is holding his shares as a private investment, rather than
as a business asset, the Belgian dividend withholding tax is a final tax  the
dividends need not be reported in the individuals annual income tax return.
If no withholding tax has been levied (i.e. in case of payment or attribution
outside Belgium), the individual must report the dividends in his tax return as
dividend income. That individual will be taxed at the separate rate of 25%, to
be increased by a municipal surcharge (varying, in general, from 6% to 9%).

In the hands of an individual Belgian holder whose shares are effectively
connected with his business, the dividends are taxable at the ordinary rates
for business income (i.e. varying from 25% to 55% to be increased by the
municipal surcharge and a crisis contribution of 3% of the tax due-subject to a
gradual reduction of the crisis contribution to zero over the period
2001-2003). Any Belgian withholding tax (in case of payment or attribution
through a Belgian paying agent) is creditable against the final income tax due,
provided that the holder has the full ownership of the Shares at the time of
payment of the dividends and provided that the dividend distribution does not
entail a reduction in value of, or capital loss on, the shares.

CORPORATE SHAREHOLDERS

BELGIAN WITHHOLDING TAX.No dividend withholding tax is due if the Belgian
holder is a company subject to Belgian corporate income tax.

INCOME TAX FOR BELGIAN RESIDENT COMPANIES.Dividends received by Belgian
resident companies are, in principle, subject to corporate income tax at the
rate of 40.17% (i.e. the standard rate of 39% increased by the crisis
contribution of 3% of the corporate income tax due). However, provided that
the dividends benefit from the so-called dividend-received deduction, only 5%
of the dividends received will be taxable. In order to benefit from the
deduction, Dialog Semiconductor Plc must not fall, and the Company believes
that it does not fall, within one of the categories of which the dividends are
expressly excluded from the dividend-received deduction (e.g. companies which
are not subject to a company tax or which are subject to a company tax regime
which is much more advantageous than the Belgian tax regime) and the
beneficiary should hold, at the time of payment of the dividends, an equity
participation in Dialog Semiconductor Plc of at least 5% or with an acquisition
value of at least BEF 50 million. This minimum holding requirement does not
apply to Belgian credit institutions, insurance companies, stock exchange
companies and qualifying investment companies.

RESIDENT ENTITIES SUBJECT TO THE LEGAL ENTITIES TAX (PENSION FUNDS, ETC.)

BELGIAN WITHHOLDING TAX.Where the Belgian holder is a Belgian resident entity
subject to the Legal Entities Tax (e.g. a pension fund) and no Belgian paying
agent intervenes, the holder itself must pay the dividend withholding tax at
the rate of 25%.

LEGAL ENTITIES TAX.The Belgium dividend withholding tax is a final tax.

72

CAPITAL GAINS

BELGIAN-UK INCOME TAX TREATY.Under the Belgian-UK Income Tax Treaty, Belgian
resident shareholders are exempt from UK taxation on capital gains as a result
of the disposal of their shares provided that they do not carry on business in
the UK through a fixed base or permanent establishment to which the shares can
be attributed.

INDIVIDUAL SHAREHOLDERS.Individual Belgian holders holding the shares as a
private investment are not subject to the Belgian capital gains tax on the
disposal of the shares. Individual holders may, however, be subject to a 33%
tax (to be increased by the municipal surcharge and the crisis contribution) if
the capital gain is deemed to be speculative. Individual holders whose
holding of shares is effectively connected with a business are taxable at the
ordinary progressive income tax rates for business income on any capital gains
realized on the disposal of shares unless the individual has held the shares
for at least five years, in which case a flat rate of 16.5% will apply (to be
increased by the municipal surcharge and the crisis contribution).

CORPORATE SHAREHOLDERS.Belgian resident companies are not subject to Belgian
capital gains tax provided that the dividends received on the shares qualify
for the dividend-received deduction (except for the minimum holding
requirement).

RESIDENT ENTITIES SUBJECT TO THE LEGAL ENTITIES TAX (PENSION FUNDS, ETC.).
Belgian entities subject to the Legal Entities Tax are not subject to Belgian
capital gains tax on the disposal of the shares.

INDIRECT TAXES

STAMP TAX ON SECURITIES TRANSACTIONS.In principle, a stamp tax is levied upon
the subscription of new shares and on each of the purchase and sale in Belgium
of shares through a professional intermediary. The rate applicable to
subscriptions of new shares is 0.35% but the maximum tax that can be assessed
is BEF 10,000
(248) per transaction. The rate applicable for secondary
sales and purchases in Belgium of shares (including any existing shares offered
by the selling shareholders) through a professional intermediary is 0.17%, but
there is a limit of BEF 10,000 (248) per transaction and per party.

An exemption is available to professional intermediaries (e.g. credit
institutions), insurance companies, pension funds and collective investment
vehicles who are acting for their own account. A non-resident shareholder who
is acting for his own account will also be entitled to an exemption from this
stamp tax, provided that he delivers to the issuer or the professional
intermediary, as the case may be, an affidavit confirming his non-resident
status in Belgium.

TAX ON PHYSICAL DELIVERY

The physical delivery of bearer securities in Belgium normally triggers a tax
in the amount of 0.2% of the value of the securities. A specific exemption
applies to the physical delivery of non-Belgian bearer securities deposited in
Belgium to

73

non-residents of Belgium. It is not expected that physical delivery
of the shares will occur.

US FEDERAL INCOME TAXATION

If the obligations contemplated by the deposit agreement are performed in
accordance with their terms, US holders of ADSs will be treated as the owners
of the shares represented by those ADSs for US federal income tax purposes.

DISTRIBUTIONS

Subject to the Passive Foreign Investment Company discussion below, dividends
paid with respect to shares or ADSs will be included in the gross income of a
US holder as ordinary dividend income from foreign sources to the extent paid
from Dialog Semiconductor Plcs earnings and profits as determined under US
federal income tax principles. Distributions in excess of earnings and profits
will be treated first as a return of capital to the extent of the US holders
tax basis in the shares or ADSs and then as a capital gain. Dividends will not
be eligible for the dividends-received deduction available to corporations.

Dividends paid in Euros will be includable in a US Dollar amount based on the
exchange rate in effect on the day received by the shareholder or the
depositary whether or not the payment is converted into Dollars at that time.
Gain or loss recognized on a subsequent conversion of Euros for a different
amount will be US source ordinary income or loss.

A US holder eligible for benefits under the UK-US income tax treaty will be
entitled to receive a tax credit from the UK Inland Revenue, subject to a
withholding tax equal to the amount of the tax credit. At current tax rates, a
dividend of £ 90 entitles an eligible US holder to a payment of £ 10 offset by
a UK withholding tax of £ 10. Because the tax credit payment and the
withholding tax offset each other, the UK Inland Revenue neither makes the
payment nor collects the tax. The offsetting payments nevertheless have US tax
significance for electing US holders. A US holder that elects to include the
tax credit payment in income may claim a foreign tax credit for the UK
withholding tax (subject to otherwise applicable limitations on foreign tax
credit claims). To make the election, a holder must file a completed US
Internal Revenue Service Form 8833 with its US federal income tax return for
the relevant year. A new UK-US income tax treaty has been signed but not
ratified. Under the new treaty, US holders will no longer be entitled to a
foreign tax credit in respect of the tax credit payment. The new treaty will
apply to dividends paid or credited on or after the first day of the second
month following the date on which the new treaty is ratified. A US holder may
elect to continue to apply the terms of the current UK-US income tax treaty for
an
additional 12-month period. You are advised to consult your own tax advisors
about the consequences of the new treaty in light of your particular
circumstances.

DISPOSITIONS

Subject to the Passive Foreign Investment Company discussion below, US
holders will recognize capital gain or loss on the sale or other disposition of
the shares or

74

ADSs in an amount equal to the difference between the amount
realized on the sale or other disposition and the US holders basis in the
shares or ADSs. Such gain or loss will be long term capital gain or loss if
the US holder has held the shares or ADSs for more than one year at the time of
the sale or other disposition. Long term capital gain recognized by an
individual is subject to taxation at a maximum rate of 20 per cent. Deductions
for capital losses are subject to limitations. Any gain or loss will be
treated as arising from US sources.

A US holder that receives Euros upon sale or other disposition of the shares
will realize an amount equal to the US Dollar value of the Euros on the date of
sale (or in the case of cash basis and electing accrual basis taxpayers, the
settlement date). A US holder will have a tax basis in the Euros received
equal to the US Dollar amount received. Any gain or loss realized by a US
holder on a subsequent conversion of Euros into US Dollars will be US source
ordinary income or loss.

PASSIVE FOREIGN INVESTMENT COMPANY

Dialog Semiconductor Plc believes that it is not and will not become a passive
foreign investment company (PFIC) for US federal income tax purposes.
Whether Dialog Semiconductor Plc becomes a PFIC will depend, among other
things, upon the amount of its passive income and its passive assets, the
growth in its business revenues and its market value in the future. A non-US
company is a PFIC in any taxable year in which, after taking into account the
income and assets of certain subsidiaries, either (1) at least 75% of its gross
income is passive income or (2) at least 50% of the average value of its assets
is attributable to assets that produce or are held to produce passive income.

If Dialog Semiconductor Plc were a PFIC in any year during which a US holder
owned the shares or ADSs, the US holder would be subject to additional taxes on
any excess distributions received from Dialog Semiconductor Plc and any gain
realized from the sale or other disposition of the shares or ADSs, regardless
of whether Dialog Semiconductor Plc continued to be a PFIC. A US holder has an
excess distribution to the extent that distributions on the shares or ADSs
during a taxable year exceed 125% of the average amount received during the
three preceding tax years or, if shorter, the US holders holding period. To
compute the tax on excess distributions or any gain (1) the excess distribution
or the gain is allocated ratably over the US holders holding period, (2) the
amount allocated to the current year and any year before Dialog Semiconductor
Plc became a PFIC is taxed as ordinary income in the current year, and (3) the
amount allocated to other taxable years is taxed at the highest applicable
marginal rate in effect for each year and an interest charge is imposed to
recover the deemed benefit from the deferred payment of the tax attributable to
each year.

If Dialog Semiconductor Plc becomes a PFIC in any tax year, a US holder of the
shares or ADSs could avoid some of the tax consequences just described by
electing to mark the shares or ADSs to market annually. Any gain from marking
the shares or ADSs to market or from disposing them will be ordinary income. A
US holder will recognize loss from marking the shares or ADSs to market, but
only to the extent of its unreversed gains from marking them to market. Loss
from marking shares or ADSs to market will be ordinary, but loss on disposing
of them will be capital loss except to the extent of unreversed gains.

75

A US holder of shares or ADSs will not be able to avoid the tax consequences
described above by electing to treat Dialog Semiconductor Plc as a qualified
electing fund (QEF) because Dialog Semiconductor Plc does not intend to
prepare the information that US holders would need to make a QEF election.

INFORMATION REPORTING AND BACKUP WITHHOLDING

Distributions on the shares or ADSs and proceeds from sale of the shares or
ADSs paid in the United States (or by certain persons outside the United
States) will be reported to the US Internal Revenue Service unless the
shareholder (1) is a corporation, (2) provides a properly executed US Internal
Revenue Service Form W-8 BEN or (3) otherwise establishes a basis for
exemption. Backup withholding tax may apply to amounts subject to reporting if
the holder fails to provide an accurate taxpayer identification number. The
amount of any backup withholding tax will be allowed as a credit against the
shareholders United States federal income tax liability.

E.     Documents on Display

We are subject to the informational requirements of the Securities Exchange Act
of 1934, as amended. In accordance with these requirements, we file reports
and other information with the Securities and Exchange Commission. These
materials, including this annual report and the exhibits thereto, may be
inspected and copied at the Commissions Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commissions regional offices
at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of the
material may be obtained from the Public Reference Room of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The public
may obtain information on the operation of the Commissions Public Reference
Room by calling the Commission in the United States at 1-800-SEC-0330. The
Commission also maintains a web site at HTTP://WWW.SEC.GOV that contains
reports, proxy statements and other information regarding registrants that file
electronically with the Commission. Our annual reports and some other
information submitted by us to the Commission may be accessed through this web
site.

### 

##### Cover | Table of Contents

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

As a matter of policy, we do not engage in derivatives trading, derivatives
market-making or other speculative activities. See Item 5: Operating and
Financial Review and Prospects-Overview-Foreign Currencies and Note 15 to the
Consolidated Financial Statements.

During 2000 to hedge the foreign currency exposure with respect to the $26
million of deposits with Chartered Semiconductor Manufacturing Pte., Ltd. and
ESM Limited, we purchased foreign currency forward contracts to effectively
change the US Dollar deposits into Euros. At December 31, 2001, these
derivative financial instruments had a maximum maturity of 24 months. Because
of the write-off of our investments in ESM Limited, $ 6 million of deposits no
longer qualify for hedge accounting. Consequently, future changes in the fair
value of the related foreign currency forward

76

contract will be recognised in
results of operations. See Note 15 to the Consolidated Financial Statements.

### 

##### Cover | Table of Contents

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

NOT APPLICABLE.

### 

##### Cover | Table of Contents

PART II

### 

##### Cover | Table of Contents

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

NOT APPLICABLE.

### 

##### Cover | Table of Contents

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

NOT APPLICABLE.

### 

##### Cover | Table of Contents

PART III

### 

##### Cover | Table of Contents

ITEM 17. FINANCIAL STATEMENTS

We have responded to Item 18 in lieu of responding to this Item.

### 

##### Cover | Table of Contents

ITEM 18. FINANCIAL STATEMENTS

See pages F-1 through F-25 of this annual report.

### 

##### Cover | Table of Contents

ITEM 19. EXHIBITS



|1.1  |  | Memorandum and Articles of Association of Dialog Semiconductor Plc.(1)                                                                                                         
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|2.1  |  | Form of Deposit Agreement among Dialog Semiconductor Plc, The Bank of New
York as depositary, and holders and beneficial owners from time to time of
ADRs issued thereunder.(1)
|    
|8.1  |  | See Item 4: Information on the Company  Organizational structure.                                                                                                           
|    
|10.1 |  | Supply Agreement with ESM Limited (now European Semiconductor
Manufacturing Limited) dated September 28, 2000 and subsequently amended
on November 10, 2000.(2)(3)             
|    
|10.2 |  | Supply Agreement with Chartered Semiconductor Manufacturing Pte., Ltd.
dated June 30, 2000.(2)(3)                                                                              



---

|(1) |  | Previously filed as an exhibit to the Companys Registration Statement on
Form F-1, filed with the Securities and Exchange Commission on June 27,
2000 and are incorporated herein by reference.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

77

|(2) |  | Previously filed as an exhibit to the Companys Annual Report on Form
20-F for 2000, filed with the US Securities and Exchange Commission on
June 4, 2001 and incorporated herein by reference.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(3) |  | On October 25 2001, the US Securities and Exchange Commission granted our
request for confidential treatment of the commercially sensitive material
in the above contracts.                    

78

FINANCIAL INFORMATION

|                                                                                           |  |      |     | 
|------------------------------------------------------------------------------------------ |  | ---- | --- | 
|                                                                                           |  | Page
|                                                                                           |  |     
|Audited Consolidated Financial Statements:                                                 |  |      |     | 
|Independent Auditors Report                                                               |  |      | F-2 | 
|Consolidated Statements of Operations for the years ended
December 31, 2001, 2000 and 1999 |  |      | F-3 | 
|Consolidated Balance Sheets as of December 31, 2001, 2000 and 1999                         |  |      | F-4 | 
|Consolidated Statements of Cash Flows for the years ended December 31,
2001, 2000 and 1999 |  |      | F-5 | 
|Consolidated Statements of Shareholders Equity and Comprehensive                          |  |      |     | 
|Income for the years ended December 31, 2001, 2000 and 1999                                |  |      | F-6 | 
|Consolidated Fixed Assets Schedule                                                         |  |      | F-7 | 
|Notes to the Consolidated Financial Statements                                             |  |      | F-9 | 

F-1

INDEPENDENT AUDITORS REPORT

THE BOARD OF DIRECTORS AND SHAREHOLDERS DIALOG SEMICONDUCTOR PLC:

We have audited the accompanying consolidated balance sheets of Dialog
Semiconductor Plc and subsidiaries as of December 31, 2001, 2000 and 1999
and the related consolidated statements of operations, shareholders
equity and comprehensive income, and cash flows for each of the years in
the three-year period ended December 31, 2001. These consolidated
financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Dialog Semiconductor Plc and subsidiaries as of December 31, 2001, 2000
and 1999, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United
States of America.

As discussed in note 2 to the consolidated financial statements, the
Company changed its method of accounting for derivative instruments and
hedging activities in 2001.

Stuttgart, Germany
February 20, 2002, except for Note 18
which is as of March 21, 2002

KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft
Wirtschaftsprüfungsgesellschaft

|                         |  |                            
|------------------------ |  | ---------------------------
|(Held)
Wirtschaftsprüfer |  | (Kiechle)
Wirtschaftsprüfer

F-2

Dialog Semiconductor Plc
Consolidated Statements of Operations
(In thousands of , except per share data)

|                                                                       |  |       |    |      |  |                         |         |      |  |      |          |   |  |  |          |   |  |  |         |  
|---------------------------------------------------------------------- |  | ----- | -- | ---- |  | ----------------------- | ------- | ---- |  | ---- | -------- | - |  |  | -------- | - |  |  | ------- | -
|                                                                       |  |       |    |      |  | Year ended December 31,
|                                                                       |  |       |    |      |  |                        
|                                                                       |  | Notes |    | 2001 |  | 2001                    |         | 2000 |  | 1999
|                                                                       |  |       |    |      |  |                        
|                                                                       |  |       |    |      |  | (Note 1)                |         |      |  |      |          |   |  |  |          |   |  | 
|Revenues                                                               |  |       | 16 |      |  | $                       | 89,472  |      |  |      | 100,519 |   |  |  | 214,459 |   |  |  | 87,246 |  
|Cost of sales (including excess
inventory provision of 10,689 in 2001) |  |       |    |      |  |                         | (70,885 | )    |  |      | (79,637  | ) |  |  | (138,866 | ) |  |  | (56,749 | )
|                                                                       |  |       |    |      |  |                        
|Gross margin                                                           |  |       |    |      |  |                         | 18,587  |      |  |      | 20,882   |   |  |  | 75,593   |   |  |  | 30,497  |  
|Selling and marketing expenses                                         |  |       |    |      |  |                         | (3,608  | )    |  |      | (4,054   | ) |  |  | (5,672   | ) |  |  | (3,888  | )
|General and administrative expenses                                    |  |       |    |      |  |                         | (4,957  | )    |  |      | (5,569   | ) |  |  | (5,972   | ) |  |  | (2,698  | )
|Research and development                                               |  |       |    |      |  |                         | (27,821 | )    |  |      | (31,256  | ) |  |  | (22,898  | ) |  |  | (11,108 | )
|Amortization of goodwill and
intangible assets                         |  |       |    |      |  |                         | (2,850  | )    |  |      | (3,202   | ) |  |  | (2,651   | ) |  |  | (1,237  | )
|                                                                       |  |       |    |      |  |                        
|Operating profit (loss)                                                |  |       |    |      |  |                         | (20,649 | )    |  |      | (23,199  | ) |  |  | 38,400   |   |  |  | 11,566  |  
|Interest income, net                                                   |  |       |    |      |  |                         | 799     |      |  |      | 898      |   |  |  | 1,940    |   |  |  | 13      |  
|Foreign currency exchange gains and
losses, net                        |  |       |    |      |  |                         | 273     |      |  |      | 306      |   |  |  | 2,627    |   |  |  | (329    | )
|Write-down of investment                                               |  |       | 3  |      |  |                         | (37,745 | )    |  |      | (42,405  | ) |  |  |         |   |  |  |        |  
|                                                                       |  |       |    |      |  |                        
|Result before income taxes                                             |  |       |    |      |  |                         | (57,322 | )    |  |      | (64,400  | ) |  |  | 42,967   |   |  |  | 11,250  |  
|Income taxes                                                           |  |       | 4  |      |  |                         | 20,224  |      |  |      | 22,721   |   |  |  | (16,410  | ) |  |  | (4,570  | )
|                                                                       |  |       |    |      |  |                        
|Net income (loss)                                                      |  |       |    |      |  |                         | (37,098 | )    |  |      | (41,679  | ) |  |  | 26,557   |   |  |  | 6,680   |  
|                                                                       |  |       |    |      |  |                        
|Earnings (loss) per share                                              |  |       | 17 |      |  |                         |         |      |  |      |          |   |  |  |          |   |  |  |         |  
|Basic earnings (loss) per share                                        |  |       |    |      |  |                         | (0.85   | )    |  |      | (0.95    | ) |  |  | 0.62     |   |  |  | 0.16    |  
|                                                                       |  |       |    |      |  |                        
|Diluted earnings (loss) per share                                      |  |       |    |      |  |                         | (0.85   | )    |  |      | (0.95    | ) |  |  | 0.60     |   |  |  | 0.15    |  
|                                                                       |  |       |    |      |  |                        
|Weighted average number of shares (in
thousands)                       |  |       |    |      |  |                         |         |      |  |      |          |   |  |  |          |   |  |  |         |  
|Basic                                                                  |  |       |    |      |  |                         | 43,788  |      |  |      | 43,788   |   |  |  | 42,669   |   |  |  | 35,980  |  
|Diluted                                                                |  |       |    |      |  |                         | 43,788  |      |  |      | 43,788   |   |  |  | 44,300   |   |  |  | 37,790  |  

The accompanying notes are an integral part of these Consolidated Financial
Statements

F-3

Dialog Semiconductor Plc
Consolidated Balance Sheets
(In thousands of )

|                                           |  |       |    |      |  |                 |         |      |  |      |         |   |  |  |         |   |  |  |         |  
|------------------------------------------ |  | ----- | -- | ---- |  | --------------- | ------- | ---- |  | ---- | ------- | - |  |  | ------- | - |  |  | ------- | -
|                                           |  |       |    |      |  | At December 31,
|                                           |  |       |    |      |  |                
|                                           |  | Notes |    | 2001 |  | 2001            |         | 2000 |  | 1999
|                                           |  |       |    |      |  |                
|                                           |  |       |    |      |  | (Note 1)        |         |      |  |      |         |   |  |  |         |   |  | 
|ASSETS                                     |  |       |    |      |  |                 |         |      |  |      |         |   |  |  |         |   |  |  |         |  
|Cash and cash equivalents                  |  |       |    |      |  | $               | 29,040  |      |  |      | 32,626 |   |  |  | 29,879 |   |  |  | 11,257 |  
|Trade accounts receivable, net             |  |       |    |      |  |                 | 14,677  |      |  |      | 16,489  |   |  |  | 42,100  |   |  |  | 21,946  |  
|Inventories                                |  |       | 6  |      |  |                 | 15,267  |      |  |      | 17,152  |   |  |  | 36,818  |   |  |  | 10,019  |  
|Deferred taxes                             |  |       | 4  |      |  |                 | 20      |      |  |      | 23      |   |  |  | 182     |   |  |  | 38      |  
|Prepaid expenses                           |  |       | 7  |      |  |                 | 986     |      |  |      | 1,107   |   |  |  | 4,151   |   |  |  |        |  
|Other current assets                       |  |       |    |      |  |                 | 739     |      |  |      | 830     |   |  |  | 3,162   |   |  |  | 5,101   |  
|                                           |  |       |    |      |  |                
|Total current assets                       |  |       |    |      |  |                 | 60,729  |      |  |      | 68,227  |   |  |  | 116,292 |   |  |  | 48,361  |  
|Property, plant and equipment, net         |  |       | 8  |      |  |                 | 32,880  |      |  |      | 36,940  |   |  |  | 46,772  |   |  |  | 15,570  |  
|Intangible assets                          |  |       | 8  |      |  |                 | 5,074   |      |  |      | 5,701   |   |  |  | 6,993   |   |  |  | 3,738   |  
|Goodwill                                   |  |       | 8  |      |  |                 | 10,150  |      |  |      | 11,403  |   |  |  | 12,730  |   |  |  | 9,762   |  
|Investments                                |  |       | 8  |      |  |                 |        |      |  |      |        |   |  |  | 2,638   |   |  |  | 2,404   |  
|Loans                                      |  |       | 8  |      |  |                 | 20,449  |      |  |      | 22,974  |   |  |  | 41,867  |   |  |  | 10,507  |  
|Deferred taxes                             |  |       | 4  |      |  |                 | 21,971  |      |  |      | 24,684  |   |  |  | 445     |   |  |  | 522     |  
|Prepaid expenses                           |  |       | 7  |      |  |                 | 7,579   |      |  |      | 8,514   |   |  |  | 19,686  |   |  |  |        |  
|                                           |  |       |    |      |  |                
|TOTAL ASSETS                               |  |       |    |      |  |                 | 158,832 |      |  |      | 178,443 |   |  |  | 247,423 |   |  |  | 90,864  |  
|                                           |  |       |    |      |  |                
|LIABILITIES AND SHAREHOLDERS
EQUITY       |  |       |    |      |  |                 |         |      |  |      |         |   |  |  |         |   |  |  |         |  
|Financial Liabilities                      |  |       | 9  |      |  |                 |        |      |  |      |        |   |  |  |        |   |  |  | 56      |  
|Trade accounts payable                     |  |       |    |      |  |                 | 7,364   |      |  |      | 8,273   |   |  |  | 26,815  |   |  |  | 15,289  |  
|Accrued expenses                           |  |       |    |      |  |                 | 4,514   |      |  |      | 5,071   |   |  |  | 7,573   |   |  |  | 1,920   |  
|Income taxes payable                       |  |       |    |      |  |                 | 1,279   |      |  |      | 1,437   |   |  |  | 8,428   |   |  |  | 3,195   |  
|Deferred taxes                             |  |       | 4  |      |  |                 | 1,127   |      |  |      | 1,266   |   |  |  | 1,106   |   |  |  | 604     |  
|Other current liabilities                  |  |       |    |      |  |                 | 1,589   |      |  |      | 1,786   |   |  |  | 1,781   |   |  |  | 614     |  
|                                           |  |       |    |      |  |                
|Total current liabilities                  |  |       |    |      |  |                 | 15,873  |      |  |      | 17,833  |   |  |  | 45,703  |   |  |  | 21,678  |  
|Deferred taxes                             |  |       | 4  |      |  |                 | 2,585   |      |  |      | 2,904   |   |  |  | 2,526   |   |  |  | 575     |  
|                                           |  |       |    |      |  |                
|TOTAL LIABILITIES                          |  |       |    |      |  |                 | 18,458  |      |  |      | 20,737  |   |  |  | 48,229  |   |  |  | 22,253  |  
|                                           |  |       |    |      |  |                
|Ordinary shares                            |  |       | 11 |      |  |                 | 5,997   |      |  |      | 6,737   |   |  |  | 6,737   |   |  |  | 6,418   |  
|Additional paid-in capital                 |  |       |    |      |  |                 | 150,238 |      |  |      | 168,788 |   |  |  | 168,776 |   |  |  | 63,475  |  
|Retained earnings (accumulated
deficit)    |  |       |    |      |  |                 | (15,521 | )    |  |      | (17,437 | ) |  |  | 24,242  |   |  |  | (2,315  | )
|Currency translation adjustment            |  |       |    |      |  |                 | (241    | )    |  |      | (270    | ) |  |  | (440    | ) |  |  | 1,194   |  
|Derivative financial instruments           |  |       |    |      |  |                 | (37     | )    |  |      | (42     | ) |  |  |        |   |  |  |        |  
|Employee stock purchase plan shares        |  |       | 12 |      |  |                 | (62     | )    |  |      | (70     | ) |  |  | (121    | ) |  |  | (161    | )
|                                           |  |       |    |      |  |                
|Total Shareholders equity                 |  |       |    |      |  |                 | 140,374 |      |  |      | 157,706 |   |  |  | 199,194 |   |  |  | 68,611  |  
|                                           |  |       |    |      |  |                
|TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY |  |       |    |      |  |                 | 158,832 |      |  |      | 178,443 |   |  |  | 247,423 |   |  |  | 90,864  |  
|                                           |  |       |    |      |  |                

The accompanying notes are an integral part of these Consolidated Financial
Statements

F-4

Dialog Semiconductor Plc
Consolidated Statements of Cash Flows
(In thousands of )

|                                                                                                    |                                                |  |                         |         |      |  |          |         |      |  |         |         |   |  |         |         |  
|--------------------------------------------------------------------------------------------------- | ---------------------------------------------- |  | ----------------------- | ------- | ---- |  | -------- | ------- | ---- |  | ------- | ------- | - |  | ------- | ------- | -
|                                                                                                    |                                                |  | Year ended December 31,
|                                                                                                    |                                                |  |                        
|                                                                                                    |                                                |  | 2001                    |         | 2001 |  | 2000     |         | 1999
|                                                                                                    |                                                |  |                        
|                                                                                                    |                                                |  | (Note 1)                |         |      |  |          |         |      |  |        
|Cash flows from operating activities:                                                               |                                                |  |                         |         |      |  |          |         |      |  |         |         |   |  |         |        
|Net income (loss)                                                                                   |                                                |  | $(37,098                | )       |      |  | (41,679 | )       |      |  | 26,557 |         |   |  | 6,680  |        
|Adjustments to reconcile net income (loss) to
net cash provided by (used for) operating
activities: |                                                |  |                         |         |      |  |          |         |      |  |         |         |   |  |         |        
|                                                                                                    | Write-down of investment in silicon supplier   |  |                         | 37,745  |      |  |          | 42,405  |      |  |         |        |   |  |         |        |  
|                                                                                                    | Provision for excess inventory                 |  |                         | 9,514   |      |  |          | 10,689  |      |  |         |        |   |  |         |        |  
|                                                                                                    | Depreciation of property, plant and equipment  |  |                         | 11,394  |      |  |          | 12,801  |      |  |         | 8,126   |   |  |         | 2,548   |  
|                                                                                                    | Amortization of goodwill and intangible assets |  |                         | 2,850   |      |  |          | 3,202   |      |  |         | 2,651   |   |  |         | 1,237   |  
|                                                                                                    | Change in deferred taxes                       |  |                         | (20,909 | )    |  |          | (23,491 | )    |  |         | 2,322   |   |  |         | 1,135   |  
|Changes in current assets and liabilities:                                                          |                                                |  |                         |         |      |  |          |         |      |  |         |         |   |  |         |        
|                                                                                                    | Trade accounts receivable                      |  |                         | 22,783  |      |  |          | 25,597  |      |  |         | (19,626 | ) |  |         | (14,065 | )
|                                                                                                    | Inventories                                    |  |                         | 7,989   |      |  |          | 8,975   |      |  |         | (26,793 | ) |  |         | (6,523  | )
|                                                                                                    | Prepaid expenses                               |  |                         | 3,697   |      |  |          | 4,153   |      |  |         | (23,862 | ) |  |         | 0       |  
|                                                                                                    | Trade accounts payable                         |  |                         | (16,489 | )    |  |          | (18,525 | )    |  |         | 11,409  |   |  |         | 10,445  |  
|                                                                                                    | Accrued expenses                               |  |                         | (2,506  | )    |  |          | (2,815  | )    |  |         | 5,489   |   |  |         | 333     |  
|                                                                                                    | Income taxes payable                           |  |                         | (6,242  | )    |  |          | (7,013  | )    |  |         | 5,294   |   |  |         | 1,795   |  
|                                                                                                    | Other assets and liabilities                   |  |                         | 747     |      |  |          | 840     |      |  |         | 3,304   |   |  |         | (4,492  | )
|                                                                                                    |                                                |  |                        
|Cash provided by (used for) operating activities                                                    |                                                |  | 13,475                  |         |      |  | 15,139   |         |      |  | (5,129  | )       |   |  | (907    | )      
|                                                                                                    |                                                |  |                        
|Cash flows from investing activities:                                                               |                                                |  |                         |         |      |  |          |         |      |  |         |         |   |  |         |        
|Purchases of property, plant and equipment                                                          |                                                |  | (2,810                  | )       |      |  | (3,157   | )       |      |  | (39,024 | )       |   |  | (14,487 | )      
|Purchases of intangible assets                                                                      |                                                |  | (514                    | )       |      |  | (577     | )       |      |  | (4,769  | )       |   |  | (1,372  | )      
|Investments and deposits made                                                                       |                                                |  | (7,916                  | )       |      |  | (8,894   | )       |      |  | (32,019 | )       |   |  | (12,905 | )      
|Payments for the acquisition of businesses                                                          |                                                |  |                        |         |      |  |         |         |      |  | (4,342  | )       |   |  |        |        
|                                                                                                    |                                                |  |                        
|Cash used for investing activities                                                                  |                                                |  | (11,240                 | )       |      |  | (12,628  | )       |      |  | (80,154 | )       |   |  | (28,764 | )      
|                                                                                                    |                                                |  |                        
|Cash flows from financing activities:                                                               |                                                |  |                         |         |      |  |          |         |      |  |         |         |   |  |         |        
|Additions to short-term borrowings                                                                  |                                                |  |                        |         |      |  |         |         |      |  |        |         |   |  | 12,190  |        
|Repayment of short-term borrowings                                                                  |                                                |  |                        |         |      |  |         |         |      |  |        |         |   |  | (12,190 | )      
|Repayments of redeemable preference shares including accrued dividends                              |                                                |  |                        |         |      |  |         |         |      |  |        |         |   |  | (19,563 | )      
|Proceeds from issuance of ordinary shares                                                           |                                                |  | (5                      | )       |      |  | (6       | )       |      |  | 105,627 |         |   |  | 59,152  |        
|Purchase of employee stock purchase plan shares                                                     |                                                |  |                        |         |      |  |         |         |      |  |        |         |   |  | (185    | )      
|Sale of employee stock purchase plan shares                                                         |                                                |  | 61                      |         |      |  | 69       |         |      |  | 33      |         |   |  | 231     |        
|Changes in financial liabilities                                                                    |                                                |  |                        |         |      |  |         |         |      |  | (58     | )       |   |  | (3,434  | )      
|                                                                                                    |                                                |  |                        
|Cash provided by financing activities                                                               |                                                |  | 56                      |         |      |  | 63       |         |      |  | 105,602 |         |   |  | 36,201  |        
|                                                                                                    |                                                |  |                        
|Cash provided by operating, investing
and financing activities                                      |                                                |  | 2,291                   |         |      |  | 2,574    |         |      |  | 20,319  |         |   |  | 6,530   |        
|Effect of foreign exchange rate changes on cash
and cash equivalents                                |                                                |  | 154                     |         |      |  | 173      |         |      |  | (1,697  | )       |   |  | 1,769   |        
|                                                                                                    |                                                |  |                        
|Net increase in cash and cash equivalents                                                           |                                                |  | 2,445                   |         |      |  | 2,747    |         |      |  | 18,622  |         |   |  | 8,299   |        
|Cash and cash equivalents at beginning of period                                                    |                                                |  | 26,595                  |         |      |  | 29,879   |         |      |  | 11,257  |         |   |  | 2,958   |        
|                                                                                                    |                                                |  |                        
|Cash and cash equivalents at end of period                                                          |                                                |  | 29,040                  |         |      |  | 32,626   |         |      |  | 29,879  |         |   |  | 11,257  |        
|                                                                                                    |                                                |  |                        

The accompanying notes are an integral part of these Consolidated Financial
Statements

F-5

Dialog Semiconductor Plc
Consolidated Statements of Shareholders Equity and Comprehensive Income
(In thousands of )

|                                                           |  |          |       |                 |  |              |         |             |  |             |         |                             |  |                   |        |       |  |  |     |   |  |  |      |   |  |  |         |  
|---------------------------------------------------------- |  | -------- | ----- | --------------- |  | ------------ | ------- | ----------- |  | ----------- | ------- | --------------------------- |  | ----------------- | ------ | ----- |  |  | --- | - |  |  | ---- | - |  |  | ------- | -
|                                                           |  |          |       |                 |  |              |         |             |  |             |         |                             |  | Accumulated other |        |       |  |  |     |   |  | 
|                                                           |  |          |       |                 |  |              |         |             |  | Retained    |         | comprehensive income (loss) |  | Employee          |        |       |  | 
|                                                           |  |          |       |                 |  |              |         |             |  | earnings    |         | Currency                    |  | Derivative        |        | stock |  |  |     |  
|                                                           |  | Ordinary |       | Additional      |  | (accumulated |         | translation |  | financial   |         | purchase plan               |  |                   |        |      
|                                                           |  | shares   |       | paid-in capital |  | deficit)     |         | adjustment  |  | instruments |         | shares                      |  | Total            
|                                                          
|Balance at December 31, 1998                               |  |          | 5,267 |                 |  |              | 5,267   |             |  |             | (7,969  | )                           |  |                   | 471    |       |  |  |    |   |  |  |     |   |  |  | 3,036   |  
|                                                          
|New issuance of shares                                     |  |          | 1,151 |                 |  |              | 58,001  |             |  |             |        |                             |  |                   |       |       |  |  |    |   |  |  |     |   |  |  | 59,152  |  
|Net income                                                 |  |          |      |                 |  |              |        |             |  |             | 6,680   |                             |  |                   |       |       |  |  |    |   |  |  |     |   |  |  | 6,680   |  
|Other comprehensive income                                 |  |          |      |                 |  |              |        |             |  |             |        |                             |  |                   | 723    |       |  |  |    |   |  |  |     |   |  |  | 723     |  
|                                                          
|Total comprehensive income                                 |  |          |      |                 |  |              |        |             |  |             | 6,680   |                             |  |                   | 723    |       |  |  |    |   |  |  |     |   |  |  | 7,403   |  
|Purchase of employee stock purchase plan shares            |  |          |      |                 |  |              |        |             |  |             |        |                             |  |                   |       |       |  |  |    |   |  |  | (185 | ) |  |  | (185    | )
|Sale of employee stock purchase plan shares                |  |          |      |                 |  |              | 207     |             |  |             |        |                             |  |                   |       |       |  |  |    |   |  |  | 24   |   |  |  | 231     |  
|Accrued dividend  cumulative redeemable preference shares |  |          |      |                 |  |              |        |             |  |             | (1,026  | )                           |  |                   |       |       |  |  |    |   |  |  |     |   |  |  | (1,026  | )
|                                                          
|Balance at December 31, 1999                               |  |          | 6,418 |                 |  |              | 63,475  |             |  |             | (2,315  | )                           |  |                   | 1,194  |       |  |  |    |   |  |  | (161 | ) |  |  | 68,611  |  
|                                                          
|New issuance of shares                                     |  |          | 319   |                 |  |              | 105,308 |             |  |             |        |                             |  |                   |       |       |  |  |    |   |  |  |     |   |  |  | 105,627 |  
|Net income                                                 |  |          |      |                 |  |              |        |             |  |             | 26,557  |                             |  |                   |       |       |  |  |    |   |  |  |     |   |  |  | 26,557  |  
|Other comprehensive loss                                   |  |          |      |                 |  |              |        |             |  |             |        |                             |  |                   | (1,634 | )     |  |  |    |   |  |  |     |   |  |  | (1,634  | )
|                                                          
|Total comprehensive income (loss)                          |  |          |      |                 |  |              |        |             |  |             | 26,557  |                             |  |                   | (1,634 | )     |  |  |    |   |  |  |     |   |  |  | 24,923  |  
|Sale of employee stock purchase plan shares                |  |          |      |                 |  |              | (7      | )           |  |             |        |                             |  |                   |       |       |  |  |    |   |  |  | 40   |   |  |  | 33      |  
|                                                          
|Balance at December 31, 2000                               |  |          | 6,737 |                 |  |              | 168,776 |             |  |             | 24,242  |                             |  |                   | (440   | )     |  |  |    |   |  |  | (121 | ) |  |  | 199,194 |  
|                                                          
|Cost of issuance of shares in 2000                         |  |          |      |                 |  |              | (6      | )           |  |             |        |                             |  |                   |       |       |  |  |    |   |  |  |     |   |  |  | (6      | )
|Net loss                                                   |  |          |      |                 |  |              |        |             |  |             | (41,679 | )                           |  |                   |       |       |  |  |    |   |  |  |     |   |  |  | (41,679 | )
|Other comprehensive income (loss)                          |  |          |      |                 |  |              |        |             |  |             |        |                             |  |                   | 170    |       |  |  | (42 | ) |  |  |     |   |  |  | 128     |  
|                                                          
|Total comprehensive income (loss)                          |  |          |      |                 |  |              |        |             |  |             | (41.679 | )                           |  |                   | 170    |       |  |  | (42 | ) |  |  |     |   |  |  | (41.551 | )
|Sale of employee stock purchase plan shares                |  |          |      |                 |  |              | 18      |             |  |             |        |                             |  |                   |       |       |  |  |    |   |  |  | 51   |   |  |  | 69      |  
|                                                          
|Balance at December 31, 2001                               |  |          | 6,737 |                 |  |              | 168,788 |             |  |             | (17,437 | )                           |  |                   | (270   | )     |  |  | (42 | ) |  |  | (70  | ) |  |  | 157,706 |  
|                                                          

The accompanying notes are an integral part of these Consolidated Financial
Statements

F-6

Dialog Semiconductor Plc
Consolidated Fixed Assets Schedule
(In thousands of )

|                               |  |                    |        |          |  |           |     |           |  |           |       |      |  |  |      |              |  |  |      |            |  |  |        | 
|------------------------------ |  | ------------------ | ------ | -------- |  | --------- | --- | --------- |  | --------- | ----- | ---- |  |  | ---- | ------------ |  |  | ---- | ---------- |  |  | ------ | 
|                               |  |                   
|                               |  | Acquisitions costs
|                               |  |                   
|                               |  | Balance at         |        |          |  |           |     |           |  |           |       |      |  |  |      |              |  |  |      | Balance at
|                               |  | January 1,         |        | Currency |  |           |     |           |  | Reclassi- |       |      |  |  |      | December 31,
|                               |  | 2001               |        | Change   |  | Additions |     | fications |  | Disposals |       | 2001
|                               |  |                   
|Test equipment                 |  |                    | 47,808 |          |  |           | 5   |           |  |           | 872   |      |  |  |     |              |  |  |     |            |  |  | 48,685 | 
|Leasehold improvements         |  |                    | 1,588  |          |  |           | 13  |           |  |           | 178   |      |  |  |     |              |  |  |     |            |  |  | 1,779  | 
|Office and other equipment     |  |                    | 11,725 |          |  |           | 65  |           |  |           | 2107  |      |  |  |     |              |  |  | (499 | )          |  |  | 13,398 | 
|                               |  |                   
|Property, plant and equipment  |  |                    | 61,121 |          |  |           | 83  |           |  |           | 3,157 |      |  |  |     |              |  |  | (499 | )          |  |  | 63,862 | 
|                               |  |                   
|Intangible assets              |  |                    | 10,013 |          |  |           | 33  |           |  |           | 577   |      |  |  |     |              |  |  | (141 | )          |  |  | 10,482 | 
|Goodwill                       |  |                    | 15,221 |          |  |           |    |           |  |           |      |      |  |  |     |              |  |  |      |            |  |  | 15,221 | 
|                               |  |                   
|Intangible assets and goodwill |  |                    | 25,234 |          |  |           | 33  |           |  |           | 577   |      |  |  |     |              |  |  | (141 | )          |  |  | 25,703 | 
|                               |  |                   
|Investments                    |  |                    | 2,638  |          |  |           |    |           |  |           | 455   |      |  |  |     |              |  |  |     |            |  |  | 3,093  | 
|Loans                          |  |                    | 41,867 |          |  |           | 981 |           |  |           | 8,443 |      |  |  | (763 | )            |  |  | (4   | )          |  |  | 50,524 | 
|                               |  |                   
|Investments and loans          |  |                    | 44,505 |          |  |           | 981 |           |  |           | 8,898 |      |  |  | (763 | )            |  |  | (4   | )          |  |  | 53,617 | 
|                               |  |                   

Investments in affiliated companies

|                                  |  |                                  |  |               |     |   |  | 
|--------------------------------- |  | -------------------------------- |  | ------------- | --- | - |  | 
|Name                              |  | Registered office                |  | Participation
|Dialog Semiconductor GmbH         |  | Kirchheim/Teck  Nabern, Germany |  |               | 100 | %
|Dialog Semiconductor
(UK) Limited |  | Swindon, UK                      |  |               | 100 | %
|Dialog Semiconductor Inc          |  | Clinton, New Jersey, USA         |  |               | 100 | %
|Dialog Semiconductor KK           |  | Tokyo, Japan                     |  |               | 100 | %
|SVEP Design Center AB             |  | Lund, Sweden                     |  |               | 100 | %

The accompanying notes are an integral part of these Consolidated Financial
Statements

F-7

Dialog Semiconductor Plc
Consolidated Fixed Assets Schedule (Continued)
(In thousands of )

|                               |  |                             |        |            |  |           |    |           |  |      |        |      |  |              |      |              |  |            |        |  |  |  |        |  |  |  |        | 
|------------------------------ |  | --------------------------- | ------ | ---------- |  | --------- | -- | --------- |  | ---- | ------ | ---- |  | ------------ | ---- | ------------ |  | ---------- | ------ |  |  |  | ------ |  |  |  | ------ | 
|                               |  |                            
|                               |  | Depreciation / Amortization |        | Book Value
|                               |  |                            
|                               |  | Balance at                  |        |            |  |           |    |           |  |      |        |      |  |              |      | Balance at   |  | Balance at
|                               |  | January 1,                  |        | Currency   |  |           |    |           |  |      |        |      |  | December 31, |      | December 31,
|                               |  | 2001                        |        | change     |  | Additions |    | Disposals |  | 2001 |        | 2001 |  | 2000        
|                               |  |                            
|Test equipment                 |  |                             | 8.414  |            |  |           | 4  |           |  |      | 9,498  |      |  |              |      |              |  |            | 17,916 |  |  |  | 30,769 |  |  |  | 39,394 | 
|Leasehold improvements         |  |                             | 590    |            |  |           | 7  |           |  |      | 235    |      |  |              |      |              |  |            | 832    |  |  |  | 947    |  |  |  | 998    | 
|Office and other equipment     |  |                             | 5.345  |            |  |           | 43 |           |  |      | 3,068  |      |  |              | (282 | )            |  |            | 8,174  |  |  |  | 5,224  |  |  |  | 6,380  | 
|                               |  |                            
|Property, plant and equipment  |  |                             | 14.349 |            |  |           | 54 |           |  |      | 12,801 |      |  |              | (282 | )            |  |            | 26,922 |  |  |  | 36,940 |  |  |  | 46,772 | 
|                               |  |                            
|Intangible assets              |  |                             | 3.020  |            |  |           | 28 |           |  |      | 1,875  |      |  |              | (142 | )            |  |            | 4,781  |  |  |  | 5,701  |  |  |  | 6,993  | 
|Goodwill                       |  |                             | 2.491  |            |  |           |   |           |  |      | 1,327  |      |  |              |     |              |  |            | 3,818  |  |  |  | 11,403 |  |  |  | 12,730 | 
|                               |  |                            
|Intangible assets and goodwill |  |                             | 5.511  |            |  |           | 28 |           |  |      | 3,202  |      |  |              | (142 | )            |  |            | 8,599  |  |  |  | 17,104 |  |  |  | 19,723 | 
|                               |  |                            
|Investments                    |  |                             |       |            |  |           |   |           |  |      | 3,093  | (1)  |  |              |     |              |  |            | 3,093  |  |  |  |       |  |  |  | 2,638  | 
|Loans                          |  |                             |       |            |  |           |   |           |  |      | 27,550 | (1)  |  |              |     |              |  |            | 27,550 |  |  |  | 22,974 |  |  |  | 41,867 | 
|                               |  |                            
|Investments and loans          |  |                             |       |            |  |           |   |           |  |      | 30,643 |      |  |              |     |              |  |            | 30,643 |  |  |  | 22,974 |  |  |  | 44,505 | 
|                               |  |                            



---

|(1) |  | Write-down of investment in silicon supplier (see note 3)
|--- |  | ---------------------------------------------------------

The accompanying notes are an integral part of these Consolidated Financial
Statements

F-8

DIALOG SEMICONDUCTOR PLCNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of , unless otherwise stated)

1. General

(a) Description of Business

Dialog Semiconductor Plc (Dialog or the Company) develops and supplies
mixed signal and system level solutions for wireless, communications and
automotive applications. Dialogs products are used by major original equipment
manufacturers across the world. Once developed the Company contracts with
manufacturers for production of the chips.

The Company was formed in March 1998 to effect the acquisition of the Dialogue
Semiconductors Limited Group from Daimler-Benz AG (now DaimlerChrysler AG).
Dialog was majority-owned by the venture capital company, Apax Partners
(Apax), and its related investors prior to the Companys initial public
offering in October 1999.

On May 9, 2000 the Company purchased the remaining 90.8% interest that it did
not already own in SVEP Design Center AB, a Swedish company focused on system
design for advanced consumer electronic products in the wireless communication
area. The purchase price of the 90.8% interest in SVEP was 36,320,000 Swedish
Krona (approximately  4.4 million).

(b) Business and Credit Concentrations

The Companys future results of operations involve a number of risks and
uncertainties. Factors that could affect the Companys future operating results
and cause actual results to vary materially from historical results include,
but are not limited to, the highly cyclical nature of both the semiconductor
and wireless communications industries, dependence on certain customers, the
ability to obtain adequate supply of sub micro wafers and to access additional
sources of liquidity.

The Company has made significant investments in long-lived assets and in
certain suppliers (in the form of equity interests, loans, deposits and
advanced payments) to ensure sufficient future wafer deliveries. The industry
wide decline in demand for semiconductors has adversely affected the financial
condition of several semiconductor manufactures, including certain wafer
suppliers used by the Company. Prolonged adverse market conditions in the
industries could effect significantly financial statement estimates made by
management, including the Companys ability to fully recover these investments
and therefore could impact future operating results.

F-9

DIALOG SEMICONDUCTOR PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Companys revenue base is diversified by geographic region and by
individual customer. The Companys products are generally utilized in the
mobile communications and automotive industries. During 2001, 2000 and 1999,
two customers individually accounted for more than 10% of the Companys
revenues. Such customers accounted for 67% in 2001, 75% in 2000 and 69% in 1999
of total revenues. The Company performs ongoing credit evaluations of its
customers financial condition and, generally, requires no collateral from its
customers.

(c) Basis of Presentation

The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
of America (US GAAP). All amounts herein are shown in thousands of Euros and
for the year 2001 are also presented in U.S. Dollars ($), the latter being
unaudited and presented solely for convenience of the reader at the rate of 1
= 0.8901, the Noon Buying Rate of the Federal Reserve Bank of New York on
December 31, 2001.

Certain prior year balances have been reclassified to conform with current year
presentation.

2. Summary of Significant Accounting Policies

Principles of Consolidation The consolidated financial statements include all
of the entities of the Company. Investments in which the Company has less than
a 20% ownership are accounted for using the cost method. All intercompany
accounts and transactions are eliminated in consolidation.

Cash and Cash Equivalents Cash and cash equivalents include highly liquid
investments with original maturity dates of three months or less.

Inventories-Inventories are valued at the lower of cost or market. Cost, which
includes direct materials, labor and overhead plus indirect overhead, is
determined using the first-in, first-out (FIFO) or weighted average cost
methods.

Other Current Assets Other current assets principally represent tax refunds
receivable.

Property, Plant and Equipment Property, plant and equipment are stated at
cost less accumulated depreciation. Depreciation is charged on a straight-line
basis over the estimated useful lives of the assets as follows:

|                        |  |                                      |  | 
|----------------------- |  | ------------------------------------ |  | 
|Machinery and equipment |  | 3 to 5 years                        
|Leasehold improvements  |  | Shorter of useful life or lease term

Leasing The Company is a lessee of design software and property, plant and
equipment which are accounted for as operating leases.

F-10

DIALOG SEMICONDUCTOR PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Intangible Assets Purchased software and licenses are stated at cost and
amortized using the straight-line method over the estimated useful lives of
three years for software and five years for licenses. Intangible assets
resulting from the acquisition include customer lists, patents, trade names and
an assembled workforce and are amortized over their useful lives of 9 years for
customer lists, 17 years for a patent application, 15 years for trade names and
18 years for the assembled workforce. Such useful lives were determined based
upon historical data with respect to customer and employer turnover and
remaining contractual lives.

Goodwill The excess of purchase price over the fair value of net assets
acquired (goodwill) is amortized on a straight-line basis over the expected
period of benefit ranging from 7 to 15 years. The Company assesses the
recoverability of such amount by determining whether the amortization of the
balance over its remaining life can be recovered from the undiscounted future
operating cash flows of the acquired operation. The amount of impairment, if
any, is measured based on projected discounted future operating cash flows
using a discount rate reflecting the Companys average cost of funds. The
assessment of the recoverability of the excess of cost over net assets acquired
will be impacted if estimated future operating cash flows are not achieved.

Impairment of Long-Lived Assets The Company assesses impairment of long-lived
assets and its intangible assets, excluding goodwill, whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell. No impairment losses have been recognized in the years
presented.

Foreign Currencies The functional currency for the Companys operations is
generally the applicable local currency. Accordingly, the assets and
liabilities of companies whose functional currency is other than the Euro are
included in the consolidation by translating the assets and liabilities into
the reporting currency (the Euro) at the exchange rates applicable at the end
of the reporting year. Equity accounts are measured at historical rates. The
statements of income and cash flows of such non-Euro functional currency
operations are translated at the average exchange rates during the year.
Translation gains or losses are accumulated as a separate component of
shareholders equity. Currency transaction gains or losses arising from
transactions of Dialog companies in currencies other than the functional
currency are included in financial income, net at each reporting period.

The exchange rates of the more important currencies against the Euro used in
preparation of the consolidated financial statements were as follows:

F-11

DIALOG SEMICONDUCTOR PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

|                    |  |                  |      |                |  |      |      |      |  |      |      |      |  |  |      |  |  |  |      |  |  |  |      | 
|------------------- |  | ---------------- | ---- | -------------- |  | ---- | ---- | ---- |  | ---- | ---- | ---- |  |  | ---- |  |  |  | ---- |  |  |  | ---- | 
|                    |  | Exchange rate at |      | Annual average
|                    |  | December 31,     |      | exchange rate 
|                    |  |                  |      |               
|Currency            |  | 2001             |      | 2000           |  | 1999 |      | 2001 |  | 2000 |      | 1999
|                    |  |                  |      |               
|                    |  |                 |      |               |  |     |      |     |  |     |      |    
|Great Britain 1 GBP |  |                  | 1.64 |                |  |      | 1.6  |      |  |      | 1.61 |      |  |  | 1.61 |  |  |  | 1.65 |  |  |  | 1.52 | 
|Japan 100 YEN       |  |                  | 0.86 |                |  |      |     |      |  |      |     |      |  |  | 0.92 |  |  |  |     |  |  |  |     | 
|United States 1 USD |  |                  | 1.13 |                |  |      | 1.07 |      |  |      | 1.00 |      |  |  | 1.11 |  |  |  | 1.08 |  |  |  | 0.94 | 
|Sweden 10 SEK       |  |                  | 1.07 |                |  |      | 1.13 |      |  |      |     |      |  |  | 1.08 |  |  |  | 1.18 |  |  |  |     | 

Revenue Recognition Revenue, net of discounts, is recognized when persuasive
evidence of an arrangement exists, delivery has occurred or services have been
rendered, the price of the transaction is fixed and determinable, and
collectibility is reasonably assured. Service revenue, which is derived from
research and development reimbursement projects, is recognized based upon the
acceptance by a customer of project milestones.

Product-Related Expenses Expenditures for advertising and sales promotion and
for other sales-related expenses are charged to expense as incurred. Provisions
for estimated costs related to product warranty are made at the time the
related sale is recorded. Shipping and handling costs amounting to  241 (2000:
 684; 1999:  636) are recorded within selling expenses.

Research and Development Research and development costs are expensed as
incurred. Research and development costs which are charged to customers and,
accordingly, are included in cost of sales, amounted to approximately to 
2,683 (2000:  2,286; 1999:  1,492).

Income Taxes Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. The Company records deferred tax
valuation allowances, if any, to reduce the deferred tax assets to amounts
which will more likely than not be realized.

Stock-Based Compensation The Company applies the intrinsic value-based method
of accounting prescribed by Accounting Principles Board (APB) Opinion 25,
Accounting for Stock Issued to Employees, and related interpretations, for
its stock option plan. As such, compensation expense would be recorded on the
date of grant only if the current market price of the underlying shares
exceeded the exercise price.

F-12

DIALOG SEMICONDUCTOR PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Earnings Per Share Earnings per share has been computed using the weighted
average number of outstanding ordinary shares for each year. Because the
Company reported a net loss in 2001, only basic per share amounts have been
presented in 2001. Had the Company reported net income in 2001, the weighted
average number of shares outstanding would have potentially been diluted by
2,672,506 stock options (not assuming the effects of applying the treasury
stock method).

Use of estimates The preparation of financial statements requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent amounts at the date of the
financial statements and reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Derivative Instruments and Hedging Activities The Company adopted Statement
No. 133 of Financial Accounting Standards (SFAS), Accounting for Derivative
Instruments and Hedging Activities, and SFAS 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities an amendment of SFAS
No. 133, on January 1, 2001. Upon adoption of this statement, the Company
recorded a net transition adjustment gain of  605 (net of income tax expense
of  340) in accumulated other comprehensive income. During 2001, the Company
reclassified  647 (net of income tax expense of  364) from accumulated other
comprehensive income to net income relating to the transition adjustment
recorded at January 1, 2001.

New Accounting Pronouncements In July 2001, the FASB issued SFAS 141,
Business Combinations, and SFAS 142, Goodwill and Intangible Assets. SFAS 141
requires that the purchase method of accounting be used for all business
combinations completed after June 30, 2001. SFAS 141 also specifies the types
of acquired intangible assets that are required to be recognized and reported
separately from goodwill and those acquired intangible assets that are required
to be included in goodwill. SFAS 142 will require that goodwill and intangible
assets with indefinite useful lives no longer be amortized, but instead tested
for impairment at least annually. SFAS 142 will also require recognized
intangible assets be amortized over their respective estimated useful lives and
reviewed for impairment in accordance with SFAS 121 and subsequently SFAS 144
after its adoption.

The Company adopted the provisions of SFAS 141 as of July 1, 2001 and SFAS 142
is effective on January 1, 2002. Goodwill and any intangible asset determined
to have an indefinite useful life that is acquired in a business combination
completed after June 30, 2001 will not be amortized. Goodwill and intangible
assets acquired in business combinations completed before July 1, 2001
continued to be amortized until December 31, 2001.

F-13

DIALOG SEMICONDUCTOR PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SFAS 142 will require the Company to evaluate its existing intangible assets
and goodwill and to make any necessary reclassifications in order to conform
with the new requirements in SFAS 141. Upon adoption of SFAS 142, the Company
will be required to reassess the useful lives and residual values of all
intangible assets and make any necessary amortization period adjustments by
March 31, 2002.

As of the date of adoption of SFAS 142, the Company expects to have unamortized
goodwill (after reclassification of its unamortized assembled workforce
intangible asset into goodwill) of  11.8 million. Total amortization expense
related to goodwill and assembled workforce was 1.4 million and 1.2 million
for the years ended December 31, 2001 and 2000, respectively. The adoption of
SFAS 142 is not expected to result in any transitional goodwill impairment.

In June 2001, the FASB issued SFAS 143, Accounting for Asset Retirement
Obligations. It applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development
and (or) the normal operation of a long-lived asset, except for certain
obligations of lessees. SFAS 143 requires that the fair value of a liability
for an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
long-lived asset and subsequently allocated to expense over the assets useful
life. The Company will adopt SFAS 143 on January 1, 2003. The adoption of SFAS
143 is not expected to have a material impact on the Companys financial
statements.

In August 2001, the FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS 144 retains the current requirement to
recognize an impairment loss only if the carrying amounts of long-lived assets
to be held and used are not recoverable from their expected undiscounted future
cash flows. However, goodwill is no longer required to be allocated to these
long-lived assets when determining their carrying amounts. SFAS 144 requires
that a long-lived asset to be abandoned, exchanged for a similar productive
asset, or distributed to owners in a spin-off be considered held and used until
it is disposed. However, SFAS 144 requires the depreciable life of an asset to
be abandoned be revised. SFAS 144 requires all long-lived assets to be disposed
of by sale be recorded at the lower of its carrying amount or fair value less
cost to sell and to cease depreciation (amortization). Therefore, discontinued
operations are no longer measured on a net realizable value basis, and future
operating losses are no longer recognized before they occur. The Company will
adopt SFAS 144 on January 1, 2002. The adoption of SFAS 144 is not expected to
have a material impact on the Companys financial statements.

F-14

DIALOG SEMICONDUCTOR PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

3. Write-down of Investment

The Company has made certain investments since 1999 in one of its principal
foundries, ESM Limited (ESM) to secure silicon supplies. Such investments
comprised of a cost basis equity interest, loans and advance payments for
future silicon which totaled  42.4 million at September 30, 2001. The Company
has continually monitored the recoverability of its investments in ESM in light
of the decline in demand in the industry and the deteriorating financial
condition of ESM. Based on the Companys estimates of the fair value of its
investments, indications of continued third-party financial support of ESM, and
the Companys intentions with respect to these investments, management
previously determined that its investments in ESM were recoverable. However,
during the 4th quarter 2001, the financial condition of ESM continued to
deteriorate and in January 2002, ESMs lead bank cancelled its lending
facilities. As a result, ESM was subsequently placed in receivership (a
reorganisation under UK law). Consequently, management currently believes that
it will not recover its investments in ESM and therefore recorded an impairment
charge of  42.4 million in the 4th quarter of 2001. It is possible that the
Company may be able to recover a portion of its investments in ESM. However,
management is unable to estimate reliably what amount, if any, that may
ultimately be recovered. See Note 18 for subsequent event.

4. Income Taxes

Income (loss) before income taxes consists of the following:

|        |  |                         |         |      |  |      |        |  |  |  |        | 
|------- |  | ----------------------- | ------- | ---- |  | ---- | ------ |  |  |  | ------ | 
|        |  | Year ended December 31,
|        |  |                        
|        |  | 2001                    |         | 2000 |  | 1999
|        |  |                         |         |      |  |     
|Germany |  |                         | (69,629 | )    |  |      | 23,965 |  |  |  | 8,570  | 
|Foreign |  |                         | 5,229   |      |  |      | 19,002 |  |  |  | 2,680  | 
|        |  |                         |         |      |  |      |        |  |  |  |        | 
|        |  |                         | (64,400 | )    |  |      | 42,967 |  |  |  | 11,250 | 
|        |  |                         |         |      |  |      |        |  |  |  |        | 

F-15

DIALOG SEMICONDUCTOR PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The benefit (provision) for income taxes consists of the following:

|                |         |  |                         |        |      |  |         |        |   |  |        |        |  
|--------------- | ------- |  | ----------------------- | ------ | ---- |  | ------- | ------ | - |  | ------ | ------ | -
|                |         |  | Year ended December 31,
|                |         |  |                        
|                |         |  | 2001                    |        | 2000 |  | 1999   
|                |         |  |                         |        |      |  |        
|Current taxes:  |         |  |                         |        |      |  |         |        |   |  |        |       
|                | Germany |  |                         | 856    |      |  |         | (8,444 | ) |  |        | (2,286 | )
|                | Foreign |  |                         | (1,618 | )    |  |         | (5,644 | ) |  |        | (1,149 | )
|Deferred taxes: |         |  |                         |        |      |  |         |        |   |  |        |       
|                | Germany |  |                         | 23,914 |      |  |         | (2,430 | ) |  |        | (1,044 | )
|                | Foreign |  |                         | (431   | )    |  |         | 108    |   |  |        | (91    | )
|                |         |  |                         |        |      |  |         |        |   |  |        |       
|                |         |  | 22,721                  |        |      |  | (16,410 | )      |   |  | (4,570 | )     
|                |         |  |                         |        |      |  |         |        |   |  |        |       

Although Dialog is a UK company, its principal operations are located in
Germany and all of its operating subsidiaries are owned by its German
subsidiary. Accordingly, the following information is based on German corporate
tax law. Until the end of 2000 German corporate tax law applied a split-rate
imputation with regard to the taxation of the income of a corporation and its
shareholders. In accordance with the tax law, retained corporate income is
initially subject to a federal corporate tax of 40% in 2000 and 1999, plus a
solidarity surcharge of 5.5% on federal corporate taxes payable. Including the
impact of the surcharge, the federal corporate tax rate amounts to 42.2% in
2000 and 1999. In 2000 and 1999, upon distribution of retained earnings to
shareholders, the corporate income tax rate on the earnings is adjusted to 30%,
plus a solidarity surcharge of 5.5% on the distribution corporate tax, for a
total of 31.65%, by means of a refund for taxes previously paid.

In 2000 and 1999, the Company applied the distributed corporate income tax rate
of 30% to earnings of its German subsidiary as the Company plans to distribute
such earnings to the parent company.

In October 2000, the German government enacted new tax legislation which, among
other things, reduced the Companys statutory tax rate for its German
subsidiary from 40% on retained earnings and 30% on distributed earnings to a
uniform 25%, effective January 1, 2001. Including the impact of the solidarity
surcharge of 5.5%, the federal corporate tax rate amounts to 26.375 % in 2001.
The change in German tax law did not have a material effect on the valuation of
the Companys German source deferred tax assets and liabilities.

A reconciliation of income taxes determined using the German corporate tax rate
of 26.375% for 2001 and 31.65% for 2000 and 1999 plus the after federal tax
benefit rate for trade taxes of 11.225% for 2001 and 10.426% for 2000 and 1999,
for a combined statutory rate of 37.6% for 2001 and 42.076% for 2000 and 1999,
is as follows:

F-16

DIALOG SEMICONDUCTOR PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

|                                                              |  |                         |        |      |  |      |         |   |  |  |        |  
|------------------------------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------- | - |  |  | ------ | -
|                                                              |  | Year ended December 31,
|                                                              |  |                        
|                                                              |  | 2001                    |        | 2000 |  | 1999
|                                                              |  |                         |        |      |  |     
|Expected benefit (provision) for income taxes                 |  |                         | 24,214 |      |  |      | (18,081 | ) |  |  | (4,733 | )
|Credit for dividend distribution                              |  |                         |       |      |  |      | 273     |   |  |  | 177    |  
|Foreign tax rate differential                                 |  |                         | 395    |      |  |      | 2,200   |   |  |  | 343    |  
|Amortization of non-deductible Goodwill and
intangible assets |  |                         | (494   | )    |  |      | (439    | ) |  |  | (295   | )
|Write-down of investment                                      |  |                         | (1,163 | )    |  |      |        |   |  |  |       |  
|Others                                                        |  |                         | (231   | )    |  |      | (363    | ) |  |  | (62    | )
|                                                              |  |                         |        |      |  |      |         |   |  |  |        |  
|Actual benefit (provision) for income taxes                   |  |                         | 22,721 |      |  |      | (16,410 | ) |  |  | (4,570 | )
|                                                              |  |                         |        |      |  |      |         |   |  |  |        |  

Deferred income tax assets and liabilities are summarized as follows:

|                                                |  |      |        |      |  |      |        |   |  |  |        |  
|----------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  |  | ------ | -
|                                                |  | 2001 |        | 2000 |  | 1999
|                                                |  |      |        |      |  |     
|Property, plant and equipment                   |  |      | 157    |      |  |      | 101    |   |  |  | 145    |  
|Net operating loss and tax credit carryforwards |  |      | 24,526 |      |  |      | 526    |   |  |  | 415    |  
|Other                                           |  |      | 24     |      |  |      |       |   |  |  |       |  
|                                                |  |      |        |      |  |      |        |   |  |  |        |  
|Deferred tax assets                             |  |      | 24,707 |      |  |      | 627    |   |  |  | 560    |  
|                                                |  |      |        |      |  |      |        |   |  |  |        |  
|Property, plant and equipment                   |  |      | (2,905 | )    |  |      | (2,525 | ) |  |  | (575   | )
|Accounts receivable                             |  |      | (93    | )    |  |      | (208   | ) |  |  | (427   | )
|Prepaid expenses                                |  |      |       |      |  |      | (417   | ) |  |  |       |  
|Accounts payable                                |  |      | (1,172 | )    |  |      | (482   | ) |  |  | (177   | )
|                                                |  |      |        |      |  |      |        |   |  |  |        |  
|Deferred tax liabilities                        |  |      | (4,170 | )    |  |      | (3,632 | ) |  |  | (1,179 | )
|                                                |  |      |        |      |  |      |        |   |  |  |        |  
|Net deferred tax assets (liabilities)           |  |      | 20,537 |      |  |      | (3,005 | ) |  |  | (619   | )
|                                                |  |      |        |      |  |      |        |   |  |  |        |  

The deferred tax assets at December 31, 2001 reflect managements estimate of
the amount that will be realized as a result of future profitability. The
amount of the deferred tax asset considered realizable could be reduced if
estimates of future taxable income are reduced.

5. Additional Cash Flow Information

The following represents supplemental information with respect to cash flows:

|                  |  |                         |       |      |  |      |       |  |  |  |       | 
|----------------- |  | ----------------------- | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|                  |  | Year ended December 31,
|                  |  |                        
|                  |  | 2001                    |       | 2000 |  | 1999
|                  |  |                         |       |      |  |     
|Interest paid     |  |                         | 83    |      |  |      | 143   |  |  |  | 280   | 
|Income taxes paid |  |                         | 7,622 |      |  |      | 5,214 |  |  |  | 1,860 | 

F-17

DIALOG SEMICONDUCTOR PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

6. Inventories

Inventories are comprised of the following:

|                |  |              |        |      |  |      |        |  |  |  |        | 
|--------------- |  | ------------ | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                |  | December 31,
|                |  |             
|                |  | 2001         |        | 2000 |  | 1999
|                |  |              |        |      |  |     
|Raw materials   |  |              | 7,358  |      |  |      | 11,827 |  |  |  | 2,527  | 
|Work-in-process |  |              | 4,838  |      |  |      | 14,009 |  |  |  | 6,896  | 
|Finished goods  |  |              | 4,956  |      |  |      | 10,982 |  |  |  | 596    | 
|                |  |              |        |      |  |      |        |  |  |  |        | 
|                |  |              | 17,152 |      |  |      | 36,818 |  |  |  | 10,019 | 
|                |  |              |        |      |  |      |        |  |  |  |        | 

7. Prepaid Expenses

At December 31, 2001, the Company maintained deposits of $20 million with
Chartered Semiconductor Manufacturing Pte., Ltd., (CSM) and $6 million with
ESM. These deposits are classified in the balance sheet line item Loans.
Under the terms of these agreements, the deposits will guarantee access several
generations of process technologies ranging from current products at
0.60-micron and 0.35-micron and will extend down to, and beyond 0.18-micron
technologies. In addition, the Company paid a total of $21.5 million in 2000 as
an advance payment for future wafer deliveries. Such advance payment is
classified in the balance sheet line items Prepaid expenses. As described in
note 3 Write-down of Investment , we recorded a  42.4 million asset
write-down in 2001 which includes the $6 million deposit with ESM and advance
payments for future wafer deliveries of $8.3 million due to the financial
uncertainty of ESM. The outstanding balance of the advance payment is refunded
in proportion to the Companys purchases of wafers from CSM, and at this time,
the Company expects to have the entire advance payment refunded. During 2000 to
hedge the foreign currency exposure with respect to the $26 million of deposits
with CSM and ESM, the Company purchased foreign currency forward contracts to
effectively change the US dollar deposits into Euros (see Note 15).

8. Other long-term assets

Information with respect to changes to the companys property, plant and
equipment, net, intangible assets, goodwill, investments and loans is presented
in the consolidated Fixed Asset Schedule included herein.

Depreciation expense amounted to  12,801,  8,126, and  2,548 for the years
ended December 31, 2001, 2000 and 1999, respectively.

9. Financial Liabilities

At December 31, 2001, the Company had an unused short-term credit line of 
12,782. There are no amounts outstanding under this credit line at December 31,
2001.

F-18

DIALOG SEMICONDUCTOR PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

10. Cumulative Redeemable Preference Shares

In October 1999, Dialog repaid the carrying amount, including cumulative unpaid
dividends, of 5,640,194 shares of cumulative redeemable preference shares with
a par value of £1 per share, previously issued at a premium of £1 per share.
The carrying amount of redeemable preference shares had been increased by 
2,005 through a charge to retained earnings in 1999 and 1998 resulting in a
total repayment of  19,563.

On May 18, 2000, the Companys shareholders approved a resolution reclassifying
the 5,640,194 issued and redeemed preference shares of £ 1 per share as
56,401,940 ordinary shares of £ 0.10 per share ranking pari passu with the
existing ordinary shares of the Company.

11. Shareholders Equity

At December 31, 2001, Dialog had authorized 104,311,860 ordinary shares with a
par value of £ 0.10 per share. Issued and outstanding were 44,068,930 ordinary
shares.

On August 18, 1999, Dialog was re-registered as a public limited company under
the laws of England and Wales and changed its name to Dialog Semiconductor Plc.
Prior to that date, Dialog was incorporated as a private limited liability
company, registered in England and Wales.

On September 24, 1999, Dialog approved a five-for-one split of the Companys
ordinary shares and effected changes in its capital structure. In connection
with the changes in capital structure, the authorized number of ordinary shares
of the Company was increased by 9,500,000 shares. The Company also amended its
Articles to allow for only one class of ordinary shares and one class of
preference shares. All previously outstanding A and B ordinary shares have
been converted into an equal number of the Companys ordinary shares with a par
value of £ 0.10 per share (after adjustment for the five-for-one split). Each
ordinary share entitles the holder to one vote.

On October 13, 1999, the Company completed an initial public offering of
ordinary shares, receiving net proceeds (after deduction of underwriting
discounts, stamp duty and other offering expenses) of  59,152 from the sale of
7,500,000 new shares.

On May 18, 2000, the shareholders of the Company approved the following
resolutions related to the capital structure of Dialog that (i) subdivided the
23,954,960 authorized ordinary shares with a par value of £0.20 per share by
means of a two-for-one share split into 47,909,920 ordinary shares with a par
value of £0.10 per share, and (ii) reclassified the 5,640,194 issued and
redeemed cumulative redeemable preference shares with a par value of £1 per
share as 56,401,940 ordinary shares with a par value of £0.10 ranking pari
passu with the existing ordinary shares of the Company.

F-19

DIALOG SEMICONDUCTOR PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

On June 29, 2000, the Company completed an offering of ordinary shares in
Germany and the United States resulting in net proceeds (after deduction of
underwriting discounts, stamp duty and other offering expenses) of  105,627
from the sale of 2,000,000 new shares at  57.50 per share.

12. Employee Stock Purchase Plan

On March 26, 1998, the Company and its then majority owner, Apax, adopted the
Subscription and Shareholders Agreement under which employees and directors are
invited from time-to-time, at the discretion of the Board, to purchase up to
3,456,890 ordinary shares of the Company from Apax or an established Employee
Benefit Trust. The purchase price of the shares is equal to their estimated
fair value on the date the employee or director subscribes for those shares.
Employees and directors are immediately vested in their purchased shares.
During the first quarter of 1999, the Trust acquired 668,800 ordinary shares
from Apax for purposes of distributing them to employees under the Employee
Stock Purchase Plan. For the period from March 1, 1998 to December 31, 1998 and
for the year ended December 31, 1999, employees and directors purchased
2,581,360 and 473,480 ordinary shares, respectively, at fair value on the date
of purchase. During 2001 and 2000 the Trust distributed 159,006 and 57,108
shares, respectively, in connection with the exercise of employee stock
options. At December 31, 2001, the Trust continued to hold 216,616 shares.

13. Stock Option Plan

On August 7, 1998, the Company adopted a stock option plan (Plan) under which
employees and directors may be granted from time-to-time, at the discretion of
the Board, stock options to acquire up to 3,840,990 shares of the Companys
authorized but unissued ordinary shares. Stock options are granted with an
exercise price not less than the estimated fair value at the date of grant.
Stock options have terms of ten years and vest over periods of one to five
years from the date of grant.

The fair value of the stock option grants was estimated using the Minimum Value
Method prior to the Companys initial public offering in October 1999. The fair
value of all subsequent grants is estimated using the Black-Scholes option
pricing model. The following weighted-average assumptions were used for stock
option grants for the years ended December 31, 2001, 2000 and 1999.

|                                                      |  |                         |      |      |  |      |       |   |  |  |      |  
|----------------------------------------------------- |  | ----------------------- | ---- | ---- |  | ---- | ----- | - |  |  | ---- | -
|                                                      |  | Year ended December 31,
|                                                      |  |                        
|                                                      |  | 2001                    |      | 2000 |  | 1999
|                                                      |  |                         |      |      |  |     
|Expected dividend yield                               |  |                         | 0    | %    |  |      | 0     | % |  |  | 0    | %
|Expected volatility                                   |  |                         | 108  | %    |  |      | 70    | % |  |  |     |  
|Risk free interest rate                               |  |                         | 4.6  | %    |  |      | 4.8   | % |  |  | 4.0  | %
|Expected life (in years)                              |  |                         | 2.9  |      |  |      | 5     |   |  |  | 5    |  
|Weighted-average fair value of options granted (in ) |  |                         | 4.37 |      |  |      | 20.35 |   |  |  | 0.15 |  

F-20

DIALOG SEMICONDUCTOR PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Stock option plan activity for the years ended December 31, 2001, 2000 and 1999
was as follows:

|                                 |  |                         |            |                  |  |         |       |                  |  |         |           |                  |  |  |       |  |  |  |           |   |  |  |      | 
|-------------------------------- |  | ----------------------- | ---------- | ---------------- |  | ------- | ----- | ---------------- |  | ------- | --------- | ---------------- |  |  | ----- |  |  |  | --------- | - |  |  | ---- | 
|                                 |  | Year ended December 31,
|                                 |  |                        
|                                 |  | 2001                    |            | 2000             |  | 1999   
|                                 |  |                         |            |                  |  |        
|(prices in )                    |  | Options                 |            | Weighted average |  | Options |       | Weighted average |  | Options |           | Weighted average
|                                 |  |                         |            | exercise price   |  |         |       | exercise price   |  |         |           | exercise price  
|                                 |  |                         |            |                  |  |         |       |                  |  |         |           |                 
|Outstanding at
beginning of year |  |                         | 2,849,778  |                  |  |         | 14.01 |                  |  |         | 1,840,500 |                  |  |  | 0.54  |  |  |  | 1,077,710 |   |  |  | 0.28 | 
|Granted                          |  |                         | 1,193,460  |                  |  |         | 6.86  |                  |  |         | 1,192,520 |                  |  |  | 33.00 |  |  |  | 773,140   |   |  |  | 0.88 | 
|Exercised                        |  |                         | (159,006   | )                |  |         | 0.42  |                  |  |         | (57,108   | )                |  |  | 0.50  |  |  |  |          |   |  |  |     | 
|Forfeited                        |  |                         | (145,106   | )                |  |         | 20.41 |                  |  |         | (126,134  | )                |  |  | 3.54  |  |  |  | (10,350   | ) |  |  | 0.28 | 
|Cancelled                        |  |                         | (1,066,620 | )                |  |         | 32.80 |                  |  |         |          |                  |  |  |      |  |  |  |          |   |  |  |     | 
|                                 |  |                         |            |                  |  |         |       |                  |  |         |           |                  |  |  |       |  |  |  |           |   |  |  |      | 
|Outstanding at end
of year       |  |                         | 2,672,506  |                  |  |         | 3.78  |                  |  |         | 2,849,778 |                  |  |  | 14.01 |  |  |  | 1,840,500 |   |  |  | 0.54 | 
|                                 |  |                         |            |                  |  |         |       |                  |  |         |           |                  |  |  |       |  |  |  |           |   |  |  |      | 
|Options exercisable
at year end  |  |                         | 536,594    |                  |  |         | 0.89  |                  |  |         | 331,834   |                  |  |  | 0.38  |  |  |  |          |   |  |  |     | 

In June 2001, the Companys board of directors approved a resolution giving
employees the right to cancel their options granted in June and October 2000.
Employees elected to cancel a total of 250,040 options granted in June 2000
with an exercise price of  55 and 816,580 options granted in October 2000 with
an exercise price of  26. In December 2001, approximately 1.0 million options
were granted at an exercise price equal to fair value (at the date) ( 7 per
share).

The Company applies APB Opinion 25 in accounting for the Plan and, accordingly,
no compensation cost has been recognized for its stock options in the
consolidated financial statements. Had the Company determined compensation cost
based on the fair value at the grant date for its stock options under SFAS 123,
Accounting for Stock-Based Compensation, the Companys net income (loss)
would have been the pro forma amounts indicated below for the years ended
December 31, 2001, 2000 and 1999 (in thousands of Euro, except per share data):

|                                   |             |  |                         |       |      |  |        |      |  |  |       |      | 
|---------------------------------- | ----------- |  | ----------------------- | ----- | ---- |  | ------ | ---- |  |  | ----- | ---- | 
|                                   |             |  | Year ended December 31,
|                                   |             |  |                        
|                                   |             |  | 2001                    |       | 2000 |  | 1999  
|                                   |             |  |                         |       |      |  |       
|Net income (loss):                 |             |  |                         |       |      |  |        |      |  |  |       |     
|As reported                        |             |  | (41,679                 | )     |      |  | 26,557 |      |  |  | 6,680 |     
|Pro forma                          |             |  | (42,802                 | )     |      |  | 25,809 |      |  |  | 6,666 |     
|Net income (loss) per sharebasic: |             |  |                         |       |      |  |        |      |  |  |       |     
|                                   | As reported |  |                         | (0.95 | )    |  |        | 0.62 |  |  |       | 0.16 | 
|                                   | Pro forma   |  |                         | (0.98 | )    |  |        | 0.59 |  |  |       | 0.16 | 

F-21

DIALOG SEMICONDUCTOR PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The following table summaries information about stock options outstanding at
December 31, 2001:

|                         |  |                     |           |                     |  |                  |     |                 |  |                    |        |  |  |  |         |  |  |  |        | 
|------------------------ |  | ------------------- | --------- | ------------------- |  | ---------------- | --- | --------------- |  | ------------------ | ------ |  |  |  | ------- |  |  |  | ------ | 
|                         |  | Options Outstanding |           | Options Exercisable
|                         |  |                     |           |                    
|                         |  | Number Outstanding  |           | Weighted-Average    |  |                  |     |                 |  | Number Exercisable |        |  |  | 
|                         |  | at December 31,     |           | Remaining           |  | Weighted-Average |     | at December 31, |  | Weighted-Average  
|Range of Exercise Prices |  | 2001                |           | Contractual Life    |  | Exercise Price   |     | 2001            |  | Exercise Price    
|                         |  |                     |           |                     |  |                  |     |                 |  |                   
| 0.32 - 1.28            |  |                     | 1,446,366 |                     |  |                  | 7.1 |                 |  |                    | 0.61  |  |  |  | 533,070 |  |  |  | 0.67  | 
| 3.00 - 9.00            |  |                     | 1,191,740 |                     |  |                  | 9.9 |                 |  |                    | 6.86  |  |  |  |        |  |  |  |       | 
| 26.00                  |  |                     | 29,000    |                     |  |                  | 8.8 |                 |  |                    | 26.00 |  |  |  | 2,444   |  |  |  | 26.00 | 
| 55.00                  |  |                     | 5,400     |                     |  |                  | 8.5 |                 |  |                    | 55.00 |  |  |  | 1,080   |  |  |  | 55.00 | 
|                         |  |                     |           |                     |  |                  |     |                 |  |                    |        |  |  |  |         |  |  |  |        | 
| 0.32 - 55.00           |  |                     | 2,672,506 |                     |  |                  | 8.4 |                 |  |                    | 3.78  |  |  |  | 536,594 |  |  |  | 0.89  | 
|                         |  |                     |           |                     |  |                  |     |                 |  |                    |        |  |  |  |         |  |  |  |        | 

14. Lease Commitments

The Company leases design software, certain of its office facilities, office
and test equipment, and vehicles under operating leases. Total rentals under
operating leases, charged as an expense in the statement of income, amounted to
 8,446,  6,220 and  2,528 for the years ended December 31, 2001, 2000 and
1999, respectively.

Future minimum lease payments under rental and lease agreements which have
initial or remaining terms in excess of one year at December 31, 2001 are as
follows:

|                 |  |      |       |      |  |      |       |      |  |      |     |            |  |  |     |  |  |  |     |  |  |  |       | 
|---------------- |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | --- | ---------- |  |  | --- |  |  |  | --- |  |  |  | ----- | 
|                 |  | 2002 |       | 2003 |  | 2004 |       | 2005 |  | 2006 |     | Thereafter
|                 |  |      |       |      |  |      |       |      |  |      |     |           
|Operating leases |  |      | 9,938 |      |  |      | 2,713 |      |  |      | 678 |            |  |  | 572 |  |  |  | 504 |  |  |  | 1,018 | 

15. Derivative Financial Instruments and Hedging Activities

a) Use of Financial Instruments

Changes in exchange rates influence the Companys results of operations because
sales are primarily denominated in US dollars and Euros whereas purchases of
raw materials and manufacturing services are primarily denominated in US
dollars. In order to reduce foreign currency exposure, the Company attempts to
match cash inflows and outflows (sales with supply costs) in the same currency,
primarily the US dollar. In situations where the Company is not able to
effectively match cash inflows and outflows in the same currency, management
considers the use of derivative financial instruments. As a matter of policy,
the Company does not engage in derivatives trading, derivatives market-making
or other speculative activities.

The Company purchased foreign currency forward contracts in 2000 to effectively
change $26 million of deposits with its manufacturers into Euros. At December
31, 2001, these derivative financial instruments had a maximum maturity of 24
months. Because of the write-off of our investments in ESM, $6 million of
deposits no longer qualify for hedge accounting. Consequently, future changes
in the fair value of the related foreign currency forward contract will be
recognized in results of operations.

F-22

DIALOG SEMICONDUCTOR PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

b) Information with Respect to Cash Flow Hedges

Recognized foreign-currency-denominated assets or liabilities for which a
foreign currency transaction gain or loss is recognized in earnings qualify as
a hedged item under SFAS 138. Cash flow hedge accounting is used for
foreign-currency-denominated assets or liabilities hedging situations in which
all of the variability in the functional-currency-equivalent cash flows are
eliminated by the effect of the hedge. The hedging derivative is reported on
the balance sheet at its fair value and the remeasurement of the
foreign-currency-denominated assets or liabilities is based on the guidance in
SFAS 52, Foreign Currency Translation. Subsequent changes in exchange rates
result in the reclassification of unrealized gains or losses included in
accumulated other comprehensive income related to the hedging derivative into
earnings (financial income, net) in the same period as the changes in exchange
rates affect the foreign-currency-denominated assets or liabilities.

The Company anticipates that  21 of losses included in accumulated other
comprehensive income at December 31, 2001, which were also included in
accumulated other comprehensive income at January 1, 2001, will be reclassified
into earnings during the next year.

c) Fair value of financial instruments

The carrying amount of cash and cash equivalents, accounts receivable, other
current assets and current liabilities approximates fair value due to the short
maturity of these financial instruments.

At December 31, 2000 the notional amounts, carrying amounts and fair values of
the forward contracts and deposits were as follows:

|                   |  |                  |        |                  |  |             |        |  |  |  |        | 
|------------------ |  | ---------------- | ------ | ---------------- |  | ----------- | ------ |  |  |  | ------ | 
|                   |  | Notional amounts |        | Carrying amounts |  | Fair values
|                   |  |                  |        |                  |  |            
|Currency contracts |  |                  | 28,190 |                  |  |             |       |  |  |  | 1,194  | 
|Deposits           |  |                  |       |                  |  |             | 28,190 |  |  |  | 26,996 | 

The fair values of the forward foreign contracts were based on reference
exchange rates adjusted for the respective interest rate differentials.

16. Segment Reporting

The Company operates in one segment, the design and supply of semiconductor
chips.

F-23

DIALOG SEMICONDUCTOR PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Revenues by product-type consisted of the following:

|                       |  |                         |         |      |  |      |         |  |  |  |        | 
|---------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- |  |  |  | ------ | 
|                       |  | Year ended December 31,
|                       |  |                        
|                       |  | 2001                    |         | 2000 |  | 1999
|                       |  |                         |         |      |  |     
|Revenues               |  |                         |         |      |  |      |         |  |  |  |        | 
|Wireless communication |  |                         | 77,751  |      |  |      | 180,345 |  |  |  | 68,052 | 
|Wireline communication |  |                         | 2,623   |      |  |      | 9,501   |  |  |  | 2,953  | 
|Automotive             |  |                         | 5,923   |      |  |      | 7,948   |  |  |  | 6,980  | 
|Industrial             |  |                         | 14,222  |      |  |      | 15,221  |  |  |  | 7,852  | 
|Other                  |  |                         |        |      |  |      | 1,444   |  |  |  | 1,409  | 
|                       |  |                         |         |      |  |      |         |  |  |  |        | 
|                       |  |                         | 100,519 |      |  |      | 214,459 |  |  |  | 87,246 | 
|                       |  |                         |         |      |  |      |         |  |  |  |        | 

Revenues are allocated to countries based on the location of the shipment
destination.

|                         |  |                         |         |      |  |      |         |  |  |  |        | 
|------------------------ |  | ----------------------- | ------- | ---- |  | ---- | ------- |  |  |  | ------ | 
|                         |  | Year ended December 31,
|                         |  |                        
|                         |  | 2001                    |         | 2000 |  | 1999
|                         |  |                         |         |      |  |     
|Revenues                 |  |                         |         |      |  |      |         |  |  |  |        | 
|Germany                  |  |                         | 22,912  |      |  |      | 40,941  |  |  |  | 21,024 | 
|Sweden                   |  |                         | 16,169  |      |  |      | 57,866  |  |  |  | 29,679 | 
|United Kingdom           |  |                         | 4,356   |      |  |      | 21,480  |  |  |  | 5,737  | 
|Other European countries |  |                         | 17,534  |      |  |      | 35,726  |  |  |  | 19,136 | 
|China                    |  |                         | 20,084  |      |  |      | 2,562   |  |  |  |       | 
|Malaysia                 |  |                         | 7,773   |      |  |      | 35,582  |  |  |  | 5,145  | 
|Other countries          |  |                         | 11,691  |      |  |      | 20,302  |  |  |  | 6,525  | 
|                         |  |                         |         |      |  |      |         |  |  |  |        | 
|                         |  |                         | 100,519 |      |  |      | 214,459 |  |  |  | 87,246 | 
|                         |  |                         |         |      |  |      |         |  |  |  |        | 

Long-term assets are allocated according to their location.

|                 |  |                         |         |      |  |      |         |  |  |  |        | 
|---------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- |  |  |  | ------ | 
|                 |  | Year ended December 31,
|                 |  |                        
|                 |  | 2001                    |         | 2000 |  | 1999
|                 |  |                         |         |      |  |     
|Long-term assets |  |                         |         |      |  |      |         |  |  |  |        | 
|Germany          |  |                         | 95,795  |      |  |      | 116,386 |  |  |  | 36,079 | 
|Japan            |  |                         | 564     |      |  |      |        |  |  |  |       | 
|United Kingdom   |  |                         | 11,694  |      |  |      | 12,801  |  |  |  | 5,457  | 
|USA              |  |                         | 857     |      |  |      | 1,390   |  |  |  | 967    | 
|Sweden           |  |                         | 581     |      |  |      | 554     |  |  |  |       | 
|                 |  |                         |         |      |  |      |         |  |  |  |        | 
|                 |  |                         | 109,491 |      |  |      | 131,131 |  |  |  | 42,503 | 
|                 |  |                         |         |      |  |      |         |  |  |  |        | 

F-24

DIALOG SEMICONDUCTOR PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

17. Earnings Per Share

Earnings per share is determined as follows (in thousands of Euro, except
number of shares and earnings per share):

|                                                                     |  |                         |        |      |  |      |        |  |  |  |        |  
|-------------------------------------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | -
|                                                                     |  | Year ended December 31,
|                                                                     |  |                        
|                                                                     |  | 2001                    |        | 2000 |  | 1999
|                                                                     |  |                         |        |      |  |     
|Net income (loss)                                                    |  |                         | 41,679 |      |  |      | 26,557 |  |  |  | 6,680  |  
|Less preference share dividend                                       |  |                         |       |      |  |      |       |  |  |  | (1,026 | )
|                                                                     |  |                         |        |      |  |      |        |  |  |  |        |  
|Net income (loss) applicable to
ordinary shareholders                |  |                         | 41,679 |      |  |      | 26,557 |  |  |  | 5,654  |  
|                                                                     |  |                         |        |      |  |      |        |  |  |  |        |  
|Weighted average number of shares
outstanding (in
thousands)basic   |  |                         | 43,788 |      |  |      | 42,669 |  |  |  | 35,980 |  
|Dilutive effect of stock options (1)                                 |  |                         |       |      |  |      | 1,631  |  |  |  | 1,810  |  
|                                                                     |  |                         |        |      |  |      |        |  |  |  |        |  
|Weighted average number of shares
outstanding
(in thousands)diluted |  |                         | 43,788 |      |  |      | 44,300 |  |  |  | 37,790 |  
|                                                                     |  |                         |        |      |  |      |        |  |  |  |        |  
|Earnings (loss) per sharebasic                                      |  |                         | (0.95  | )    |  |      | 0.62   |  |  |  | 0.16   |  
|                                                                     |  |                         |        |      |  |      |        |  |  |  |        |  
|Earnings (loss) per sharediluted                                    |  |                         | (0.95  | )    |  |      | 0.60   |  |  |  | 0.15   |  
|                                                                     |  |                         |        |      |  |      |        |  |  |  |        |  

(1)  Options issued in 2000 were not included in the computation of diluted
earnings per share because the options underlying exercise price was greater
than the average market price for Dialog ordinary shares for the year ended
December 31, 2000. Because the Company reported a net loss for the year ended
December 31, 2001, only basic per share amount has been presented for this
period.

18. Subsequent Event

Following the placement of ESM Limited into receivership, as discussed in Note
3, we recently learned that the receiver had successfully completed
negotiations that will result in the sale of ESM Limited to International
Rectifier Corporation. Based on the terms of the sale agreement the Company
expects to recover approximately  6,000 of its investment in ESM Limited.
This recovery will be recognized in our financial statements when realized,
which is expected to be by the end of the first quarter of 2002.

F-25

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form 20-F, and has duly caused this registration
statements to be signed on its behalf by the undersigned, thereunto duly
authorized, in Stuttgart, Germany on March 27, 2002.

|                                     
|-------------------------------------
|DIALOG SEMICONDUCTOR PLC             
|                                     
|By: /s/ Roland Pudelko               
|                                     
|Roland Pudelko                       
|                                     
|Executive Director, CEO and President