UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                   FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934
    For the fiscal year ended December 31, 2005.

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
    For the transition period from                     to                    .

                        Commission File Number 0-25236

                    M I C R E L,   I N C O R P O R A T E D
            (Exact name of Registrant as specified in its charter)

              California                                   94-2526744
(State or other jurisdiction                            (I.R.S. Employer
of incorporation or Organization)                       Identification No.)


                 2180 Fortune Drive, San Jose, CA       95131
              (Address of principal executive offices) (Zip Code)

   Registrant's telephone number, including area code: (408) 944-0800

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, no
par value

   Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act.  Yes [X]   No [ ]

   Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.  Yes [ ]   No [X]

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

   Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  [ ]

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

   Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act.
Large accelerated filer [X]  Accelerated filer [ ]  Non-accelerated filer [ ]

   As of February 28, 2006, the aggregate market value of the voting stock
held by non-affiliates of the Registrant was approximately $996,827,576 based
upon the closing sales price of the Common Stock as reported on the Nasdaq
National Market on such date. Shares of Common Stock held by officers,
directors and holders of more than ten percent of the outstanding Common Stock
have been excluded from this calculation because such persons may be deemed to
be affiliates. The determination of affiliate status is not necessarily a
conclusive determination for other purposes.

   As of February 28, 2006, the Registrant had outstanding 83,932,193 shares
of Common Stock.

                      DOCUMENTS INCORPORATED BY REFERENCE:

   Portions of the Registrant's Proxy Statement for its Annual Meeting of
Shareholders to be held on May 25, 2006 are incorporated by reference in Part
III of this Report.

This Report on Form 10-K includes 71 pages with the Index to Exhibits located
on page 70.

<PAGE>
                              MICREL, INCORPORATED
                                    INDEX TO
                           ANNUAL REPORT ON FORM 10-K
                        FOR YEAR ENDED DECEMBER 31, 2005

                                                                           Page
                                     PART I                                ----

Item 1.  Business                                                            3
Item 1A. Risk Factors                                                       13
Item 1B. Unresolved Staff Comments                                          18
Item 2.  Properties                                                         18
Item 3.  Legal Proceedings                                                  19
Item 4.  Submission of Matters to a Vote of Security Holders                19

                                    PART II

Item 5.  Market for the Registrant's Common Equity, Related Shareholder
          Matters and Issuer Purchases of Equity Securities                 19
Item 6.  Selected Financial Data                                            21
Item 7.  Management's Discussion and Analysis of Financial Condition
          and Results of Operations                                         22
Item 7A. Quantitative and Qualitative Disclosures About Market Risk         34
Item 8.  Financial Statements and Supplementary Data                        34
Item 9.  Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure                                          34
Item 9A. Controls and Procedures                                            34
Item 9B. Other Information                                                  35

                                    PART III

Item 10. Directors and Executive Officers of the Registrant                 36
Item 11. Executive Compensation                                             36
Item 12. Security Ownership of Certain Beneficial Owners and Management
          and Related Shareholder Matters                                   36
Item 13. Certain Relationships and Related Transactions                     36
Item 14. Principal Accountant Fees and Services                             37
Item 15. Exhibits and Financial Statement Schedules                         37




         Signatures                                                         69
         Exhibit Index                                                      70
         Certifications                                                     73

                                       2
<PAGE>


                                     PART I

ITEM 1.  BUSINESS

The statements contained in this Report on Form 10-K that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, as amended,  including statements regarding the Company's expectations,
hopes, intentions or strategies regarding the future.  Forward-looking
statements include, but are not limited to: statements regarding future
revenues and dependence on standard products sales and international sales;
statements regarding the levels of international sales; statements regarding
future products or product development; statements regarding future research
and development spending and the Company's product development strategy;
statements regarding future expansion or utilization of manufacturing
capacity; statements regarding future expenditures; statements regarding
current or future acquisitions; and statements regarding the ability to meet
anticipated short term and long term cash requirements; and statements
regarding the future realization of tax benefits. In some cases, forward-
looking statements can be identified by the use of forward-looking terminology
such as "believe," "estimate," "may," "can," "will," "could," "would,"
"intend," "objective," "plan," "expect," "likely," "potential," "possible" or
"anticipate" or the negative of these terms or other comparable terminology.
All forward-looking statements included in this document are based on
information available to the Company on the date hereof, and the Company
assumes no obligation to update any such forward-looking statements. These
statements are subject to risks and uncertainties that could cause actual
results and events to differ materially from those expressed or implied by
such forward-looking statements. Some of the factors that could cause actual
results to differ materially are set forth below.  Some of the factors that
could cause actual results to differ materially are set forth in Item 1
("Business"), Item 1A ("Risk Factors"), Item 3 ("Legal Proceedings") and Item 7
("Management's Discussion and Analysis of Financial Condition and Results of
Operations".


General

   The Company was incorporated in California in July 1978. References to the
"Company" and "Micrel" refer to Micrel, Incorporated and subsidiaries, which
also does business as Micrel Semiconductor. The Company's principal executive
offices are located at 2180 Fortune Drive, San Jose, California 95131. The
Company's telephone number is (408) 944-0800. The Company maintains a
corporate website located at www.micrel.com. The Company's annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports are made available, free of charge, on the website
noted above as soon as reasonably practicable after filing with or being
furnished to the Securities and Exchange Commission.

   Micrel designs, develops, manufactures and markets a range of high-
performance analog power integrated circuits ("ICs"), mixed-signal and digital
ICs. The Company currently ships over 2,500 standard products and has derived
the majority of its product revenue for the year ended December 31, 2005 from
sales of standard analog and high speed communications ICs. These products
address a wide range of end markets including cellular handsets, portable
computing, enterprise and home networking, wide area and metropolitan area
networks and industrial equipment. For the years ended December 31, 2005,
2004, and 2003, the Company's standard products accounted for 96%, 96%, and
90%, respectively, of the Company's net revenues. The Company also
manufactures custom analog and mixed-signal circuits and provides wafer
foundry services for customers who produce electronic systems for
communications, consumer and military applications.

                                       3
<PAGE>


   Micrel develops and manufactures high performance power management analog
products which are characterized by high speed, low noise and maximum
efficiency in the smallest package.  Continuing trends to lower voltages and
higher currents in the communications, networking and computing markets have
created demand for high performance analog products to accurately control,
regulate, convert and route voltage and current in electronic systems. The
demand for high performance power management circuits has been further fueled
by the growth of portable communications and computing devices (e.g. cellular
handsets, portable media players and notebook computers). The Company also has
an extensive power management offering for the networking and communications
infrastructure markets including single-board and enterprise servers, network
switches and routers, storage area networks and wireless base stations. In
addition, the Company offers standard analog products that address other
markets, including industrial, defense and automotive electronics.

   In addition to power and thermal management products, Micrel also offers
two families of highly integrated radio frequency ("RF") products. Micrel's
QwikRadio(r) devices enable customers to develop wireless control systems
significantly improving the consumer experience of their products.
Applications for the QwikRadio(r) products include remote keyless entry for
automobiles, garage door openers and remote controls. Micrel's RadioWire(r)
transceivers provide a higher level of performance for more demanding
applications such as remote metering, security systems and factory automation.

   The Company's high bandwidth communications circuits are used primarily for
enterprise networks, storage area networks, and metropolitan area networks.
With form factor, size reductions, and ease of use critical for system
designs, Micrel utilizes innovative packaging and proprietary process
technology to address these challenges.

   The Company's family of Ethernet switch products target the digital home
and industrial/embedded networking markets. This product portfolio consists of
transceiver, switch, and system-on-chip ("SoC") devices that support various
Ethernet protocols supporting communication transmission speeds from 10
Megabits per second to 100 Megabits per second.

   In addition to standard analog and mixed signal products, Micrel offers
customers various combinations of design, process and foundry services.


Industry Background

   Analog Circuit, Mixed-Signal and Digital ICs Markets

   ICs may be divided into three general categories - digital, analog (also
known as "linear") and mixed-signal. Digital circuits, such as memories and
microprocessors, process information in the form of on-off electronic signals
and are capable of implementing only two values, "1" or "0." Analog circuits,
such as regulators, converters and amplifiers, process information in the form
of continuously varying voltages and currents that have an infinite number of
values or states. Analog circuits condition, process, and measure or control
real world variables such as current, sound, temperature, pressure or speed.
Mixed-signal ICs combine analog and digital functions on one chip.

   Analog circuits are used in virtually every electronic system, and the
largest markets for such circuits are computers, telecommunications and data
communications, industrial equipment, military, consumer and automotive
electronics. Because of their numerous applications, analog circuits have a
wide range of operating specifications and functions. For each application,
different users may have unique requirements for circuits with specific
resolution, linearity, speed, power and signal amplitude capability.

                                       4
<PAGE>


   Mixed-signal and digital ICs may be divided into six general categories,
LSI/MSI logic, data processing, signal processing, memory, FPGA and
application specific.

   Mixed-signal and digital ICs are used in computer and communication systems
and in industrial products. The primary markets for such circuits are
consumer, communications, personal and enterprise computer systems, networking
and industrial.

   As compared with the digital integrated circuit industry, the analog
integrated circuit industry has the following important characteristics:

  * Dependence on Individual Design Teams. The design of analog circuits
involves the complex and critical placement of various circuits. Analog
circuit design has traditionally been highly dependent on the skills and
experience of individual design engineers.

  * Interdependence of Design and Process. Analog designers, especially at
companies having their own wafer fabrication facility, are able to select
from several wafer fabrication processes in order to achieve higher
performance and greater functionality from their designs.

  *  Longer Product Cycles and More Stable Pricing. Analog circuits generally
have longer product cycles as compared to digital circuits.

   Analog, mixed-signal and digital ICs are sold to customers as either
standard products or custom products.


   Recent Trends in Analog Power Management, Mixed-Signal and Digital ICs

   Most electronic systems utilize analog circuits to perform power management
functions ("power analog circuits") such as the control, regulation,
conversion and routing of voltages and current. The computer and
communications markets have emerged as two of the largest markets for power
analog circuits. In particular, the recent growth and proliferation of
portable, battery-powered devices, such as cellular telephones, digital
cameras, portable media players and notebook computers, continue to increase
demand and create new technological challenges for power analog circuits.

   Cellular telephones, which are composed of components and subsystems that
utilize several different voltage levels, require multiple power analog
circuits to precisely regulate and control voltage. Manufacturers continue to
pack more processing power and functionality into smaller form factors placing
severe demands on the battery. To maintain or extend talk times, high
performance power management products are required.

   The rapid adoption of the Internet for information exchange, in business
and consumer markets, has led to a significant increase in the need for
broadband communications technology. In 2005, there was a significant
expansion in the number of broadband subscribers for both DSL, cable modem and
fiber to the home technologies. The increased bandwidth demand of these users
will continue to consume the installed capacity in metropolitan and wide area
networks. The additional demand of new wireless services utilizing the
transmission of video will further consume this installed capacity. It is
anticipated these trends will continue in 2006.

                                       5
<PAGE>


   In the networking market, Ethernet has been widely adopted as a
communication standard. Ethernet ports are now being provided on equipment
ranging from PCs and PC peripherals such as printers, media converters, set-
top boxes, industrial equipment, internet protocol ("IP") phones and game
consoles. This is driving rapid growth in both the digital home market to
connect multiple PCs and peripherals and the industrial market to connect
machinery to central control and monitoring equipment.


Micrel's Strategy

   Micrel seeks to capitalize on the growth opportunities within the high-
performance analog, mixed-signal and digital semiconductor markets. The
Company's core competencies are its analog design and process technology, its
large, in-house wafer fabrication capability and manufacturing expertise. The
Company also seeks to capitalize on growth opportunities within the
communications and networking markets and has successfully acquired companies
serving these market segments. The Company intends to build a leadership
position in its targeted markets by pursuing the following strategies:

  * Focus on Standard Products for High Growth Markets. Currently, Micrel ships
over 2,500 standard products, with net revenues from standard products
generating 96% of the Company's total net revenues for the year ended
December 31, 2005. The Company, however, will pursue additional custom and
foundry business as opportunities arise.

  * Target Power Analog, High-Speed Mixed-signal and Digital Markets. Micrel
has leveraged its expertise in power analog circuits by addressing market
opportunities in cellular telephones and other portable electronics, set-
top boxes, desktop and notebook computers as well as telecom and
networking.

  * Maintain Technological Leadership. The Company seeks to utilize its design
strengths and its process expertise to enhance what the Company believes
are its competitive advantages in linear and switching regulators, MOSFET
drivers, USB power switches, hot-swap-power controllers, high-speed
interface, and communications devices.

  * Develop/Acquire New Complementary Businesses. The Company seeks to identify
complementary business opportunities building on its core strengths in the
analog and mixed signal area.

  * Capitalize on In-house Wafer Fabrication Facility. The Company believes
that its in-house six-inch wafer fabrication facility provides a
significant competitive advantage because it facilitates close
collaboration between design and process engineers in the development of
the Company's products.

  * Maintain a Strategic Level of Custom and Foundry Products Revenue. Micrel
believes that its custom and foundry products business complements its
standard products business by generating a broader revenue base and
lowering overall per unit manufacturing costs through greater utilization
of its manufacturing facilities.

                                       6
<PAGE>


Products and Markets

   Overview

   The following table sets forth the net revenues attributable to the
Company's two segments, standard products and custom and foundry products
expressed in dollars and as a percentage of total net revenues.

<TABLE>
Net Revenues by Segment
(Dollars in thousands)                           Years Ended December 31,
                                            ---------------------------------
                                               2005        2004        2003
                                            ---------   ---------   ---------
<S>                                         <C>         <C>         <C>
Net Revenues:
Standard Products                           $ 239,177   $ 246,580   $ 191,134
Custom and Foundry Products                    11,179      10,971      20,592
                                            ---------   ---------   ---------
   Total net revenues                       $ 250,356   $ 257,551   $ 211,726
                                            =========   =========   =========
As a Percentage of Total Net Revenues:
Standard Products                                 96%         96%         90%
Custom and Foundry Products                        4           4          10
                                            ---------   ---------   ---------
   Total net revenues                            100%        100%        100%
                                            =========   =========   =========
</TABLE>

   The Company's products address a wide range of end markets. The following
table presents the Company's revenues by end market as a percentage of total
net revenues.

<TABLE>
                                                 Years Ended December 31,
                                            ---------------------------------
                                               2005        2004        2003
                                            ---------   ---------   ---------
<S>                                         <C>         <C>         <C>
As a Percentage of Total Net Revenues:
High-Speed Communications                         22%         24%         24%
Wireless Handsets                                 26          25          21
Computer                                          22          23          29
Industrial                                        27          25          24
Military & Consumer                                3           3           2
                                            ---------   ---------   ---------
   Total net revenues                            100%        100%        100%
                                            =========   =========   =========
</TABLE>

   For a discussion of the changes in net revenues from period to period, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."


   Standard Products

   In recent years, the Company has directed a majority of its development,
sales and marketing efforts towards standard products in an effort to address
the larger markets for these products and to expand its customer base. The
Company offers a broad range of high performance analog, mixed signal, and
digital ICs that address high growth markets including cellular telephones,
portable electronics, set-top boxes, desktop and notebook computers,
networking and communications. The majority of the Company's revenue is
derived from power management standard products that, in addition to the above
markets, are also used in the industrial, defense, and automotive electronics
markets.

   Portable Battery-Powered Computer Market. The Company makes power analog
circuits for notebook computers, tablet PCs, and PDAs. Products in this
growing market are differentiated on the basis of power efficiency, weight,
small size and battery life.

                                       7
<PAGE>


   Cellular Telephone Market.  Micrel offers a range of power control and
regulating analog circuits to address the demand for cellular telephones with
longer battery lives. Micrel supplies high performance low dropout ("LDO")
regulators and higher efficiency switching regulators that convert, regulate,
switch and control the DC voltages used in cellular telephones. In addition,
Micrel offers switch mode power supply ("SMPS") regulators for use in battery
chargers which convert household AC power to useable DC power in battery and
cellular base stations.

   Universal Serial Bus Market. USB has become the standard way of connecting
computers with computer peripherals. In addition to implementing data
communications between the connected devices, USB also provides a power source
capable of powering the peripheral. Micrel supplies USB transceivers for data
communication and for USB power; voltage regulators and current limiting power
switches.

   PCMCIA Card and Socket Markets. Micrel has been a leader in the design and
manufacture of ICs for power control in PCMCIA and CardBus sockets and is
involved in the creation of next generation PC card standards, including
Express Card.

   Power Supply Market. Most electronic equipment includes a power supply that
converts and regulates the electrical power source into usable current for the
equipment. Micrel has several families of high voltage switching controllers
for the networking, telecommunications and computing markets. These devices
offer high efficiency to minimize power loss through heat, and high switching
frequencies to provide a minimal solution size. In addition to SMPS
controllers and single chip SMPS regulators, Micrel offers a full line of
MOSFET drivers, smart switches, voltage supervisors and LDOs.

   General Purpose Analog. Micrel sells a variety of general purpose analog
products including high-speed operational amplifiers, low-power operational
amplifiers, comparators and intelligent protected power switches. Most of
these general purpose devices focus on low-voltage and low-current
applications.

   Thermal Management. Micrel's thermal management products address the need
to accurately measure temperature in several system locations and control
cooling fans. Applications for these products include notebook computers,
servers, enterprise storage, printers, copiers and set-top boxes.

   Hot Swap Power Controllers. Micrel's hot swap power controllers support the
requirement for 24/7 operation in high-performance enterprise servers,
enterprise storage, and telecommunication infrastructure equipment. These
products allow customers to upgrade or replace system boards without having to
power down the system. This portfolio offers the industry's most integrated,
dual-slot hot swap solutions for CompactPCI(tm), PCI-X, and PCI Express
applications. The Company also offers other low-voltage and high-voltage (+/-
48V) controllers for the telecommunications and networking equipment markets.

   Radio Frequency Data Communications. Micrel's QwikRadio(r) family of RF
receivers and transmitters are designed for use in any system requiring a
cost-effective, low-data-rate wireless link. Typical examples include garage
door openers, lighting and fan controls, automotive keyless entry and remote
controls. Micrel's RadioWire(r) transceivers provide a higher level of
performance for more demanding applications such as remote metering, security
systems and factory automation.

   Networking and High-Speed Communications Market. The Company's High
Bandwidth division develops and produces high speed integrated circuits for
communications products targeted at fiber optic modules as well as clock
recovery, clock distribution and level translation applications.

                                       8
<PAGE>


   Micrel's Ethernet division offers a broad range of physical layer ("PHY"),
media access controllers ("MAC"), switch and system-on-chip  products for the
10/100 Megabit Ethernet standard. The primary applications for the switch
products are digital home networks, Voice Over Internet Protocol ("VOIP")
phones, analog telephone adaptor ("ATA") and media converters, used to convert
signals transmitted optically over fiber to standard cable (copper) and vice
versa and other industrial/embedded Ethernet systems.

   The Company's future success will depend in part upon the timely
completion, introduction, and market acceptance of new standard products. The
standard products business is characterized by generally shorter product
lifecycles, greater pricing pressure, larger competitors and more rapid
technological change as compared to the Company's custom and foundry products
business.


   Custom and Foundry Products

   Micrel offers various combinations of design, process and foundry services
in order to provide customers with the following alternatives:

   Full Service Custom. Based on a customer's specification, Micrel designs
and then manufactures ICs.

   Custom and Semicustom. Based on a customer's high level or partial circuit
design, Micrel uses varying combinations of its design and process
technologies to complete the design and then manufactures ICs for the
customer.

   R&D Foundry. Micrel modifies a process or develops a new process for a
customer. Using that process and mask sets provided by the customer, Micrel
manufactures fabricated wafers for the customer.

   Foundry. Micrel duplicates a customer's process to manufacture fabricated
wafers designed by the customer.

   Micrel's full service custom, custom and semicustom products primarily
address high bandwidth communications, consumer, automotive and military
applications and use both analog and digital technologies. Military
applications include communications and transport aircraft.


Sales, Distribution and Marketing

   The Company sells its products through a worldwide network of independent
sales representative, independent distributor and stocking representative
firms and through a direct sales staff.

   The Company sells its products in Europe through a direct sales staff in
England and France as well as independent sales representative firms,
independent distributors and independent stocking representative firms. Asian
sales are handled through Micrel sales offices in Korea, Japan, Taiwan, China
and Singapore, independent distributors and independent stocking
representative firms. The stocking representative firms may buy and stock the
Company's products for resale or may act as the Company's sales representative
in arranging for direct sales from the Company to an OEM customer.

   Sales to customers in North America, Asia and Europe accounted for 25%, 65%
and 10% respectively, of the Company's net revenues for the year ended
December 31, 2005 compared to 24%, 66% and 10%, respectively, of the Company's
net revenues for the year ended December 31, 2004 and 30%, 60% and 10%,
respectively, of the Company's net revenues for 2003. The Company's standard

                                       9
<PAGE>


products are sold throughout the world, while its custom and foundry products
are primarily sold to North American customers. The Company's net revenues by
country, including the United States, are included in Note 12 of Notes to
Consolidated Financial Statements.

   The Company's international sales are primarily denominated in U.S.
dollars. Consequently, changes in exchange rates that strengthen the U.S.
dollar could increase the price in local currencies of the Company's products
in foreign markets and make the Company's products relatively more expensive
than competitors' products that are denominated in local currencies, leading
to a reduction in sales or profitability in those foreign markets. The Company
has not taken any protective measures against exchange rate fluctuations, such
as purchasing hedging instruments with respect to such fluctuations.


Customers

   For the year ended December 31, 2005 three customers, an Asian based
original equipment manufacturer, an Asian based stocking representative and a
worldwide distributor, accounted for 14%, 12% and 12%, respectively, of the
Company's net revenues. For the year ended December 31, 2004 the same three
customers, an Asian based original equipment manufacturer, a worldwide
distributor and an Asian based stocking representative, accounted for 13%, 12%
and 12%, respectively, of the Company's net revenues. For the year ended
December 31, 2003 two customers, a worldwide distributor and an Asian based
stocking representative, each accounted for 13% of the Company's net revenues.


Design and Process Technology

   Micrel's analog proprietary design technology depends on the skills of its
analog design team. The Company has experienced analog design engineers who
utilize an extensive macro library of analog and mixed-signal circuits and
computer simulation models.

   Micrel can produce ICs using a variety of manufacturing processes, some of
which are proprietary and provide enhanced product features. Designers at
companies that do not have in-house fabs or have a limited selection of
available processes often have to compromise design methodology in order to
match process parameters.

   The Company utilizes the following process technologies:
  * Bipolar
  * High Speed Bipolar
  * SuperBeta PNP(tm)
  * CMOS
  * BiCMOS - Bipolar/CMOS ("BiCMOS")
  * BCD - Bipolar/CMOS/DMOS ("BCD")
  * ASSET - All Spacer Separated Element Transistor ("ASSET").
  * Silicon Germanium - Silicon Germanium ("SiGe")

   The Company continues to develop process technologies to improve both the
performance and cost of its new products. Micrel is also developing new
process technologies to support its own product development and the needs of
its foundry customers.

                                       10
<PAGE>


   The Company utilizes third-party wafer fabrication foundries for advanced
CMOS fabrication processes and other advanced processes that are not available
in-house. For the year ended December 31, 2005, approximately 5% of Micrel's
wafer requirements were fabricated at third-party foundry suppliers, including
all of Micrel's Ethernet networking products.


Research and Development

   The ability of the Company to compete will substantially depend on its
ability to define, design, develop and introduce on a timely basis new
products offering design or technology innovations. Research and development
in the analog and mixed-signal integrated circuit industry is characterized
primarily by circuit design and product engineering that enables new
functionality or improved performance. The Company's research and development
efforts are also directed at its process technologies and focus on cost
reductions to existing manufacturing processes and the development of new
process capabilities to manufacture new products and add new features to
existing products. With respect to more established products, the Company's
research and development efforts also include product redesign, shrinkage of
device size and the reduction of mask steps in order to improve die yields per
wafer and reduce per device costs.

   The Company's analog design engineers principally focus on developing next
generation standard products. The Company's new product development strategy
emphasizes a broad line of standard products that are based on customer input
and requests.

   The Company's mixed-signal design engineers principally focus on high-
speed, low-noise media driving and clock/data recovery devices used in
communication and advanced computer systems.

   In 2005, 2004, and 2003 the Company spent $45.1 million $41.8 million, and
$47.0 million, respectively, on research and development. The Company expects
that it will continue to spend substantial funds on research and development
activities.


Patents and Intellectual Property Protection

   The Company seeks patent protection for those inventions and technologies
for which such protection is suitable and is likely to provide a competitive
advantage to the Company. The Company currently holds 150 United States
patents on semiconductor devices and methods, with various expiration dates
through 2024.  The Company has applications for 105 United States patents
pending. The Company holds 43 issued foreign patents and has applications for
29 foreign patents pending.


Supply of Materials and Purchased Components

   Micrel currently purchases certain components from a limited group of
vendors. The packaging of the Company's products is performed by, and certain
of the raw materials included in such products are obtained from, a limited
group of suppliers. The wafer supply for the Company's Ethernet products is
primarily dependent upon two large third-party wafer foundry suppliers.

                                       11
<PAGE>


Manufacturing

    The Company produces the majority of its wafers at the Company's wafer
fabrication facility located in San Jose, California while a small percentage
of wafer fabrication is subcontracted to outside foundries, including 100% of
Micrel's Ethernet product wafer requirements. The San Jose facility includes a
57,000 square foot office and manufacturing facility containing a 28,000
square foot clean room facility, which provides production processes.
Approximately 70% of the San Jose facility's clean room space is classified as
a Class 1 facility, which means that the facility achieves a clean room level
of fewer than 1 foreign particle larger than 0.3 microns in size in each cubic
foot of space. The remainder of the facility's clean room space is classified
as Class 10, achieving fewer than 10 foreign particles larger than 0.3 microns
in size in each cubic foot of space. The facility uses six-inch wafer
technology. The Company also owns approximately 63,000 square feet of
additional adjacent space in San Jose that is used as a testing facility.

   Generally, each die on the Company's wafers is electrically tested for
performance, and most of the wafers are subsequently sent to independent
assembly and final test contract facilities in Malaysia and certain other
Asian countries. At such facilities, the wafers are separated into individual
circuits and packaged. The Company's reliance on independent assemblers may
subject the Company to longer manufacturing cycle times. The Company from time
to time has experienced competition with respect to these contractors from
other manufacturers seeking assembly of circuits by independent contractors.


Competition

   The semiconductor industry is highly competitive and subject to rapid
technological change. Significant competitive factors in the market for
standard products include product features, performance, price, the timing of
product introductions, the emergence of new technological standards, quality
and customer support. The Company believes that it competes favorably in all
of these areas.

   Because the standard products market for analog ICs is diverse and highly
fragmented, the Company encounters different competitors in its various market
areas. The Company's principal analog circuit competitors include Linear
Technology Corporation, Maxim Integrated Products, Inc., and National
Semiconductor Corp. in one or more of its product areas. Other competitors
include Texas Instruments, Freescale Semiconductor (formerly Motorola),
Intersil, Fairchild Semiconductor, Semtech and ON Semiconductor. Each of these
companies has substantially greater technical, financial and marketing
resources and greater name recognition than the Company. The Company's
principal competitors for products targeted at the high bandwidth
communications market are ON Semiconductor, Analog Devices, Maxim Integrated
Products, Inc., Vitesse Semiconductor Corp., Integrated Device Technology and
Mindspeed. The primary competitors for Micrel's Ethernet products are Broadcom
Corp., Marvell Technology Group Ltd. and a number of Taiwanese companies.

   With respect to the custom and foundry products business, significant
competitive factors include product quality and reliability, established
relationships between customers and suppliers, timely delivery of products,
and price. The Company believes that it competes favorably in all these areas.

                                       12
<PAGE>


Backlog

   At December 31, 2005, the Company's backlog was approximately $45 million,
all of which was scheduled to be shipped during the first six months of 2006.
At December 31, 2004, the Company's backlog was approximately $27 million.
Orders in backlog are subject to cancellation or rescheduling by the customer,
generally with a cancellation charge in the case of custom and foundry
products. The Company's backlog consists of distributor and customer released
orders requesting shipment within the next six months. Shipments to United
States, Canadian and certain other international distributors who receive
significant return rights and price adjustments from the Company are not
recognized as revenue by the Company until the product is sold from the
distributor stock and through to the end-users. Because of possible changes in
product delivery schedules and cancellation of product orders and because an
increasing percentage of the Company's sales are shipped in the same quarter
that the orders are received, the Company's backlog at any particular date is
not necessarily indicative of actual sales for any succeeding period.


Environmental Matters

   Federal, state and local regulations impose various environmental controls
on the storage, handling, discharge and disposal of chemicals and gases used
in the Company's manufacturing process. The Company believes that its
activities conform to present environmental regulations.


Employees

   As of December 31, 2005, the Company had 884 full-time employees. The
Company's employees are not represented by any collective bargaining
agreements, and the Company has never experienced a work stoppage. The Company
believes that its employee relations are good.


ITEM 1A.  RISK FACTORS

Factors That May Affect Operating Results

    If a company's operating results are below the expectations of public
market analysts or investors, then the market price of its Common Stock could
decline. Many factors that can affect a company's quarterly and annual results
are difficult to control or predict.  Some of the factors which can affect a
multinational semiconductor business such as the Company are described below.

Geopolitical and Macroeconomic Risks That May Affect Multinational Enterprises
------------------------------------------------------------------------------
   Demand for semiconductor components is increasingly dependent upon the rate
of growth of the global economy.   If the rate of global economic growth slows,
or contracts, customer demand for products could be adversely affected, which
in turn could negatively affect revenues, results of operations and financial
condition.  Many factors could adversely affect regional or global economic
growth.  Some of the factors that could slow global economic growth include:
increased price inflation for goods, services or materials, rising interest
rates in the United States, a slowdown in the rate of growth of the Chinese
economy, a significant act of terrorism which disrupts global trade or
consumer confidence, and geopolitical tensions including war and civil unrest.
Reduced levels of economic activity, or disruptions of international
transportation, could adversely affect sales on either a global basis or in
specific geographic regions.


                                       13
<PAGE>


   The Company has generated a substantial portion of its net revenues from
export sales. The Company believes that a substantial portion of its future
net revenues will depend on export sales to customers in international
markets, including Asia. In 2005, 75% of the Company's revenues were derived
from export shipments. In addition, 65% of the Company's revenues were derived
from export shipments to customers in Asia.  International markets are subject
to a variety of risks, including changes in policy by the U.S. or foreign
governments, acts of terrorism, foreign government instability, social
conditions such as civil unrest, economic conditions including high levels of
inflation, fluctuation in the value of foreign currencies and currency
exchange rates and trade restrictions or prohibitions. Changes in exchange
rates that strengthen the U.S. dollar could increase the price of the
Company's products in the local currencies of the foreign markets it serves.
This would result in making the Company's products relatively more expensive
than its competitors' products that are denominated in local currencies,
leading to a reduction in sales or profitability in those foreign markets. The
Company has not taken any protective measures against exchange rate
fluctuations, such as purchasing hedging instruments. In addition, the Company
sells to domestic customers that do business worldwide and cannot predict how
the businesses of these customers may be affected by economic or political
conditions elsewhere in the world. Such factors could adversely affect the
Company's future revenues, financial condition, results of operations or cash
flows.

   The Company is reliant on certain key suppliers for wafer fabrication,
circuit assembly and testing services. Most of these suppliers are based
outside of the U.S. The Company's supply could be interrupted as a result of
any of the previously mentioned risk factors relating to international
markets.

   Market conditions may lead the Company to initiate additional cost
reduction plans, which may negatively affect near term operating results.
Weak customer demand, competitive pricing pressures, excess capacity, weak
economic conditions or other factors, may cause the Company to initiate
additional actions to reduce the Company's cost structure and improve the
Company's future operating results. The cost reduction actions may require
incremental costs to implement, which could negatively affect the Company's
operating results in periods when the incremental costs or liabilities are
incurred.


Semiconductor Industry Specific Risks
-------------------------------------
   The volatility of customer demand in the semiconductor industry limits a
company's ability to predict future levels of sales and profitability.
Semiconductor suppliers can rapidly increase production output, leading to a
sudden oversupply situation and a subsequent reduction in order rates and
revenues as customers adjust their inventories to true demand rates.  A rapid
and sudden decline in customer demand for products can result in excess
quantities of certain products relative to demand.  Should this occur the
Company's operating results may be adversely affected as a result of charges
to reduce the carrying value of the Company's inventory to the estimated
demand level or market price.  The Company's quarterly revenues are highly
dependent upon turns fill orders (orders booked and shipped in the same
quarter).  The short-term and volatile nature of customer demand makes it
extremely difficult to accurately predict near term revenues and profits.

   The semiconductor industry is highly competitive and subject to rapid
technological change, price-erosion and increased international competition.
Significant competitive factors include product features, performance and
price; timing of product introductions; emergence of new computer and
communications standards; quality and customer support.

   Many semiconductor companies face risks associated with a dependence upon
third parties that manufacture, assemble or package certain of its products.
These risks include reduced control over delivery schedules and quality;
inadequate manufacturing yields and excessive costs; the potential lack of
adequate capacity during periods of excess demand; difficulties selecting and
integrating new subcontractors; potential increases in prices; disruption in

                                       14
<PAGE>


supply due to civil unrest, terrorism or other events which may occur in the
countries in which the subcontractors operate; and potential misappropriation
of the Company's intellectual property.  The occurrence of any of these events
may lead to increased costs or delay delivery of the Company's products, which
would harm its profitability and customer relationships.  Additionally, the
Company's wafer and product requirements typically represent a relatively
small portion of the total production of the third-party foundries and outside
assembly, testing and packaging contractors.  As a result, Micrel is subject
to the risk that a foundry will provide delivery or capacity priority to other
larger customers at the expense of Micrel, resulting in an inadequate supply
to meet customer demand or higher costs to obtain the necessary product
supply.

   Customers are requiring that the Company offer its products in lead-free
packages.  Governmental regulations in certain countries and customers'
intention to produce products that are less harmful to the environment has
resulted in a requirement from many of the Company's customers to purchase
integrated circuits that do not contain lead.  The Company has responded by
offering its products in lead-free versions.  While the lead-free versions of
the Company's products are expected to be more friendly to the environment,
the ultimate impact is uncertain.  The transition to lead-free products may
produce sudden changes in demand depending on the packaging method used, which
may result in excess inventory of products packaged using traditional methods.
This may have an adverse affect on the Company's results of operations.  In
addition, the quality, cost and manufacturing yields of the lead free products
may be less favorable compared to the products packaged using more traditional
materials which may result in higher costs to the Company.

   During a period when economic growth and customer demand have been less
certain, both the semiconductor industry and the Company have experienced
significant price erosion since the beginning of 2001.  If price erosion
continues, it will have the effect of reducing revenue levels and gross
margins in future periods.  Furthermore, the trend for the Company's customers
to move their electronics manufacturing to Asian countries has brought
increased pricing pressure for Micrel and the semiconductor industry.  Asian
based manufacturers are typically more concerned about cost and less concerned
about the capability of the integrated circuits they purchase.  The increased
concentration of electronics procurement and manufacturing in the Asia Pacific
region may lead to continued price pressure and additional product advertising
costs for the Company's products in the future.

   An important part of the Company's strategy is to continue to focus on the
market for high-speed communications ICs.  If the growth in the
telecommunications infrastructure and wire line networking markets is not
sustainable, resulting in reduced demand for the Company's high bandwidth
products, the Company's future revenue growth and profitability could be
adversely affected.

   The short lead time environment in the semiconductor industry has allowed
many end consumers to rely on stocking representatives and distributors to
carry inventory to meet short term requirements and minimize their investment
in on-hand inventory.  The Company maintains a network of stocking
representatives and distributors, that carry inventory to service the
volatile short-term demand of the end customer.  Should the relationship with
a distributor or stocking representative be terminated, the future level of
product returns could be higher than the returns allowance established, which
could negatively affect the Company's revenues and results of operations.

   The markets that the Company serves frequently undergo transitions in which
products rapidly incorporate new features and performance standards on an
industry-wide basis.  If the Company's products are unable to support the new
features or performance levels required by OEMs in these markets, it would
likely lose business from existing or potential customers and would not have
the opportunity to compete for new design wins until the next product
transition. If the Company fails to develop products with required features or
performance standards, or experiences even a short delay in bringing a new
product to market, or if its customers fail to achieve market acceptance of
their products, its revenues could be significantly reduced for a substantial
period of time.

                                       15
<PAGE>


   Because the standard products market for ICs is diverse and highly
fragmented, the Company encounters different competitors in various market
areas.  Most of these competitors have substantially greater technical,
financial and marketing resources and greater name recognition than the
Company.  There can be no assurance that the Company will be able to compete
successfully in either the standard products or custom and foundry products
business in the future or that competitive pressures will not adversely affect
the Company's financial condition, results of operations, or cash flows.

   The significant investment in semiconductor manufacturing capacity and the
rapid growth of circuit design centers in China may present a competitive
threat to established semiconductor companies due to the current low cost of
labor and capital in China.  The emergence of low cost competitors in China
could reduce the revenues and profitability of established semiconductor
manufacturers.

   There is intense competition for qualified personnel in the semiconductor
industry, in particular design engineers.  The Company may not be able to
continue to attract and train engineers or other qualified personnel necessary
for the development of its business or to replace engineers or other qualified
personnel who may leave its employ in the future. Loss of the services of, or
failure to recruit, key design engineers or other technical and management
personnel could be significantly detrimental to the Company's product and
process development programs.

   The success of companies in the semiconductor industry depends in part upon
intellectual property, including patents, trade secrets, know-how and
continuing technology innovation. There can be no assurance that the steps
taken by the Company to protect its intellectual property will be adequate to
prevent misappropriation or that others will not develop competitive
technologies or products. There can be no assurance that any patent owned by
the Company will not be invalidated, circumvented or challenged, that the
rights granted thereunder will provide competitive advantages or that any of
its pending or future patent applications will be issued with the scope of the
claims sought, if at all. Furthermore, there can be no assurance that others
will not develop technologies that are similar or superior to the Company's
technology, duplicate technology or design around the patents owned by the
Company. Additionally, the semiconductor industry is characterized by frequent
litigation regarding patent and other intellectual property rights. There can
be no assurance that existing claims or any other assertions or claims for
indemnity resulting from infringement claims will not adversely affect the
Company's business, financial condition, results of operations, or cash flows.

   The Statement of Accounting Standards ("SFAS") No. 123R, "Share-Based
Payment" will require the Company to recognize the cost of employee services
received in exchange for awards of equity instruments, based on the grant date
fair value of those awards, in the financial statements.  As discussed in Note
1 of Notes to Consolidated Financial Statements, the effect of the adoption of
this accounting standard in 2006 is expected to significantly increase stock
based compensation expense in future periods after adoption.  The pro forma
effect to net income and earnings per share had the Company applied the fair
value method to stock-based awards has been disclosed in the Company's
previous Form 10-K filings and is contained in Note 1 of the Notes to
Consolidated Financial Statements of this Form 10-K.  However, the requirement
to recognize the cost of stock option awards as an expense in the financial
statements will reduce net income and earnings per share from the expensing of
stock option awards in the Company's future results of operation and may have
an adverse affect on the value of the Company's common stock.  If the Company
reduces the number of stock option grants to employees to minimize the cost
associated with share based incentive awards, it will most likely make it more
difficult for the Company to hire and retain employees.

                                       16
<PAGE>


   Companies in the semiconductor industry are subject to a variety of
federal, state and local governmental regulations related to the use, storage,
discharge and disposal of toxic, volatile or otherwise hazardous chemicals
used in its manufacturing process.  Any failure to comply with present or
future regulations could result in the imposition of fines, the suspension of
production, alteration of manufacturing processes or a cessation of
operations.  In addition, these regulations could restrict the Company's
ability to expand its facilities at their present locations or construct or
operate a new wafer fabrication facility or could require the Company to
acquire costly equipment or incur other significant expenses to comply with
environmental regulations or clean up prior discharges. The Company's failure
to appropriately control the use of, disposal or storage of, or adequately
restrict the discharge of, hazardous substances could subject it to future
liabilities and could have a material adverse effect on its business.


Company-Specific Risks
----------------------
   In addition to the risks that affect multinational semiconductor companies
listed above, there are additional risks which are more specific to the
Company such as:

   The Company's gross margin, operating margin and net income are highly
dependent on the level of revenue and capacity utilization that the Company
experiences.  Semiconductor manufacturing is a capital-intensive business
resulting in high fixed costs. If the Company is unable to utilize its
installed wafer fabrication or test capacity at a high level, the costs
associated with these facilities and equipment would not be fully absorbed,
resulting in higher average unit costs and lower profit margins.

   The cellular telephone (wireless handset) market comprises a significant
portion of the Company's standard product revenues.  The proportion of the
Company's annual revenues from customers serving the cellular telephone market
has been increasing over the last four years, growing from less than 20% of
worldwide sales in 2001 to approximately 25% in 2004 and 26% in 2005. Due to
the highly competitive and fast changing environment in which the Company's
cellular telephone customers operate, demand for the product the Company sells
into this end market can change rapidly and unexpectedly.  If the Company's
cellular telephone customers lose market share, or accumulate too much
inventory of completed handsets, the demand for the Company's products can
decline sharply which could adversely affect the Company's revenues and
results of operations.

   The Company is currently involved in a number of lawsuits.  The Company
currently has four significant pending litigations.  Litigation is by its
nature unpredictable and costly.  One case was tried in the fourth quarter of
2005, and the parties are awaiting the Court's ruling.  Two cases have not yet
been set for trial, but it is likely that one case will be tried in the second
half of 2006 and another will be tried in 2007.  In the fourth case, the
Company has filed a notice of its intent to appeal an adverse jury verdict.
The Company currently expects that outside legal expenses will continue to be
significant in 2006.  If the level of effort required to prosecute or defend
the Company's position in any of the lawsuits increases significantly, or if a
judgment is entered against the Company, the resulting expense could adversely
affect the Company's financial condition, results of operations and cash
flows.

   The Company derives a significant portion of its revenues from customers
located in certain geographic regions or countries.   A significant portion of
the Company's revenues come from customers located in South Korea. In the
event that political tensions surrounding North Korea evolve into military or
social conflict, or other factors disrupt the Korean economy, the Company's
revenues, results of operations, cash flow and financial condition could be
adversely affected.  A significant portion of the Company's revenues come from
customers located in Taiwan and China.  In the event that economic activity in
these two countries declines, or is disrupted by geopolitical events, the
Company's revenues and results of operations could be adversely affected.

                                       17
<PAGE>


   The Company manufactures most of its semiconductors at its San Jose,
California fabrication facilities.  The Company's existing wafer fabrication
facility, located in Northern California, may be subject to natural disasters
such as earthquakes.  A significant natural disaster, such as an earthquake
or prolonged drought, could have a material adverse impact on the Company's
business, financial condition and operating results.  Furthermore,
manufacturing semiconductors requires manufacturing tools that are unique to
each product being produced.  If one of these unique manufacturing tools was
damaged or destroyed, the Company's ability to manufacture the related
product would be impaired and its business would suffer until the tool was
repaired or replaced.  Additionally, the fabrication of ICs is a highly
complex and precise process.  Small impurities, contaminants in the
manufacturing environment, difficulties in the fabrication process, defects
in the masks used to print circuits on a wafer, manufacturing equipment
failures, wafer breakage or other factors can cause a substantial percentage
of wafers to be rejected or numerous die on each wafer to be nonfunctional.
The Company maintains approximately two to three months of inventory that has
completed the wafer fabrication manufacturing process.  This inventory is
generally located offshore at third party subcontractors and can act to
buffer some of the adverse impact from a disruption to the Company's San Jose
wafer fabrication activity arising from a natural disaster such as an
earthquake.


ITEM 1B.  UNRESOLVED STAFF COMMENTS

None.


ITEM 2.  PROPERTIES

   The majority of the Company's manufacturing operations are located in San
Jose, California in a 57,000 square foot facility and an adjacent 63,000
square foot facility which are owned by the Company. The Company fabricates
the majority of its wafers at this location in a 28,000 square foot clean room
facility, which provides all production processes. In addition to wafer
fabrication, the Company also uses this location as a testing facility. The
Company's main executive, administrative, and technical offices are located in
another 57,000 square foot facility in San Jose, California under a lease
agreement that expires in April 2011.

   Associated with the acquisition of ETC, the company owns a 12,175 square
foot design facility in Huxley, Iowa.

   The Company also leases small sales and technical facilities located in
Tempe, AZ, Medford, NJ; Richardson, TX; Irvine, CA; Raleigh, NC; Seoul, Korea;
Taipei, Taiwan; Shenzhen, P.R. China; Hong Kong; Singapore; Tokyo, Japan;
Masterton, New Zealand; Newbury, U.K.; Livingston, Scotland; Frankfurt On
Oder, Germany; Oslo, Norway; Solna, Sweden and Courtaboeuf Cedex, France.

   The Company believes that its existing and planned facilities are adequate
for its current manufacturing needs. The Company believes that if it should
need additional space, such space would be available at commercially
reasonable terms.

                                       18
<PAGE>


ITEM 3.  LEGAL PROCEEDINGS

   The information included in Note 11 of Notes to Consolidated Financial
Statements under the caption "Litigation" in Item 15 of Part III is
incorporated herein by reference.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

   In the fourth quarter of 2005, no matters were submitted to a vote of
security holders.



                                    PART II


ITEM 5.   MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS

   The Company did not sell any unregistered securities during the period
covered by this Annual Report on Form 10-K.

   The Company's Common Stock is listed on the Nasdaq National Market under the
Symbol "MCRL." The range of daily closing sales prices per share for the
Company's Common Stock from January 1, 2004 to December 31, 2005 was:

<TABLE>
    Year Ended December 31, 2005:                 High         Low
                                                -------      -------
<S>                                             <C>          <C>
   Fourth quarter                               $ 13.05      $  9.87
   Third quarter                                $ 13.27      $ 11.03
   Second quarter                               $ 12.00      $  8.07
   First quarter                                $ 10.59      $  8.27

    Year Ended December 31, 2004:                 High         Low
                                                -------      -------
   Fourth quarter                               $ 11.89      $  9.65
   Third quarter                                $ 10.85      $  8.40
   Second quarter                               $ 14.77      $ 11.99
   First quarter                                $ 19.20      $ 12.51
</TABLE>

   The reported last sale price of the Company's Common Stock on the Nasdaq
National Market on December 30, 2005 was $11.59. The approximate number of
holders of record of the shares of the Company's Common Stock was 563 as of
February 28, 2006. This number does not include shareholders whose shares are
held in trust by other entities. The actual number of shareholders is greater
than this number of holders of record. The Company estimates that the number of
beneficial shareholders of the shares of the Company's Common Stock as of
February 28, 2006 was approximately 7,000.

   The Company has authorized Common Stock, no par value and Preferred Stock,
no par value. The Company has not issued any Preferred Stock.

   The information required by this item regarding securities authorized for
issuance under equity compensation plans is incorporated by reference to the
information set forth in Item 12 of the Annual Report on Form 10-K.

                                       19
<PAGE>



Dividend Policy

   The Company has not paid any cash dividends on its capital stock. The
Company currently intends to retain its earnings to fund the development and
growth of its business and, therefore, does not anticipate paying any cash
dividends in the foreseeable future. In addition, the Company's existing
credit facilities prohibit the payment of cash or stock dividends on the
Company's capital stock without the lender's prior written consent. See Item 7
- "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" and Note 6 of Notes to
Consolidated Financial Statements contained in Item 8.

Issuer Purchases of Equity Securities

   In February 2002, the Company's Board of Directors approved a plan to
repurchase shares of the Company's common stock in the open market.  Shares of
common stock purchased pursuant to the repurchase program are cancelled upon
repurchase, and are intended to offset dilution from the Company's stock
option plans, employee stock purchase plans and 401(k) plan.  In August 2004,
the Board of Directors amended the repurchase program and authorized the
repurchase of common stock up to a maximum value of $75 million during the
period from January 1, 2004 through June 30, 2005. In March 2005, the Board of
Directors approved a $75 million share repurchase program for calendar year
2005.  This repurchase plan terminated on December 31, 2005. On November 17,
2005 the Company's Board of Directors adopted a new plan and authorized the
repurchase of common stock up to a maximum value of $75 million during the
period from January 1, 2006 through December 31, 2006.

   Repurchases of the Company's common stock during 2005 were as follows:

<TABLE>
                                                                Maximum Dollar
                                            Total Number of    Value of Shares
                      Total                Shares Purchased    that May Yet be
                     Number     Average       as Part of      Repurchased Under
                   of Shares  Price Paid  Publicly Announced     the Plans or
Period             Purchased   Per Share   Plans or Programs   Programs ($000)
-----------------  ---------  ----------  ------------------  -----------------
<S>                <C>        <C>         <C>                 <C>
January 2005         478,500    $ 9.19           478,500           $  31,216
February 2005        415,800    $ 8.85           415,800           $  27,535
March 2005           943,900    $ 9.61           943,900           $  57,852
April 2005           722,600    $ 8.69           722,600           $  51,574
May 2005             507,600    $10.30           507,600           $  46,348
June 2005            308,400    $11.67           308,400           $  42,746
July 2005            254,600    $12.35           254,600           $  39,601
August 2005          349,400    $11.83           349,400           $  35,466
September 2005       270,100    $12.11           270,100           $  32,194
October 2005         408,200    $10.59           408,200           $  27,870
November 2005        453,100    $10.46           453,100           $  23,130
December 2005        953,100    $12.10           953,100           $  75,000
                   ---------   -------         ---------
Total              6,065,300    $10.45         6,065,300
                   =========    ======         =========
</TABLE>

                                       20
<PAGE>

ITEM 6.   SELECTED FINANCIAL DATA

   The selected consolidated financial data below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and consolidated financial statements and related notes thereto.

<TABLE>
Income Statement Data:                    Years Ended December 31,
                              ------------------------------------------------
(in thousands, except per       2005(1)   2004(2)   2003      2002(3)   2001(4)
  share amounts)              --------  --------  --------  --------  --------
<S>                           <C>       <C>       <C>       <C>       <C>
Net revenues                  $250,356  $257,551  $211,726  $204,704  $217,808
Cost of revenues*              116,564   134,854   128,007   139,554   126,242
                              --------  --------  --------  --------  --------
  Gross profit                 133,792   122,697    83,719    65,150    91,566
                              --------  --------  --------  --------  --------
Operating expenses:
  Research and development      45,070    41,750    46,953    53,308    51,306
  Selling, general and
   administrative               45,709    37,327    28,987    32,160    32,862
  Amortization of deferred
   stock compensation*             611     1,986     3,034    22,535     9,572
  Manufacturing facility
   impairment                       -         -       (624)   23,357        -
  Restructuring expense             -        584       286     5,536        -
  Acquisition expenses*             -         -         -         -      8,894
  Purchased in-process
   technology                       -        303        -         -         -
  Litigation accrual             9,282        -         -         -         -
                              --------  --------  --------  --------  --------
   Total operating expenses    100,672    81,950    78,636   136,896   102,634
                              --------  --------  --------  --------  --------
Income (loss) from operations   33,120    40,747     5,083   (71,746)  (11,068)
Other income, net                4,180     1,712       619     1,056     6,086
                              --------  --------  --------  --------  --------
Income (loss) before
 income taxes                   37,300    42,459     5,702   (70,690)   (4,982)
Provision (benefit) for
 income taxes                   11,942    11,206       855   (29,690)   (5,534)
                              --------  --------  --------  --------  --------
Net income (loss)             $ 25,358  $ 31,253  $  4,847  $(41,000) $    552
                              ========  ========  ========  ========  ========
Net income (loss) per share:
  Basic                       $   0.29  $   0.34  $   0.05  $  (0.44) $   0.01
                              ========  ========  ========  ========  ========
  Diluted                     $   0.29  $   0.34  $   0.05  $  (0.44) $   0.01
                              ========  ========  ========  ========  ========
Shares used in computing per
 share amounts:
  Basic                         87,055    91,498    92,215    92,600    91,888
                              ========  ========  ========  ========  ========
  Diluted                       87,971    93,083    93,786    92,600    98,092
                              ========  ========  ========  ========  ========
*Amortization of deferred
 stock compensation related to:
  Cost of revenues            $    159  $    535  $  1,104  $  7,354  $  3,141
  Operating expenses:
   Research and development   $    161  $    723  $  1,604  $ 11,430  $  5,047
   Selling, general and
    administrative                 450     1,263     1,430    11,105     4,525
   Amortization of deferred
    stock compensation             611     1,986     3,034    22,535     9,572
   Acquisition expenses             -         -         -         -      2,007
                              --------  --------  --------  --------  --------
     Total operating expenses $    611  $  1,986  $  3,034  $ 22,535  $ 11,579
                              ========  ========  ========  ========  ========
</TABLE>
<TABLE>
                                                December 31,
Balance Sheet Data:           ------------------------------------------------
(in thousands)                  2005      2004      2003      2002      2001
                              --------  --------  --------  --------  --------
<S>                           <C>       <C>       <C>       <C>       <C>
  Working capital             $165,180  $186,822  $195,026  $182,155  $196,940
  Total assets                 319,540   334,146   337,439   330,675   354,813
  Long-term debt and other
   obligations                     475     2,047     8,179    19,237     5,200
  Total shareholders' equity   257,686   284,887   283,609   273,619   313,330
</TABLE>
_____________
(1) Operating results for the year ended December 31, 2005, include $9.3
million in accrued litigation expense related to a jury verdict against Micrel
in its suit against TRW Automotive and for TRW Automotive in its counter suit
against Micrel. (see Note 11 of Notes to Consolidated Financial Statements).
(2) Net income for the year ended December 31, 2004, includes $6.3 million in
net reversals of accrued income and payroll tax liabilities as a result of the
completion of a federal tax audit (see Note 8 of Notes to Consolidated
Financial Statements)
(3) Operating results for the year ended December 31, 2002, include $17.1
million in accelerated amortization of deferred stock compensation associated
with options cancelled pursuant to the employee option exchange program. In
addition, related to the closure of the Company's Santa Clara, California wafer
fabrication facility, the Company recorded $5.5 million in restructure expense
and $23.4 million in manufacturing facility impairment expense (see Note 13 of
Notes to Consolidated Financial Statements)
(4) Operating results for the year ended December 31, 2001, include $8.9
million in acquisition expenses related to the acquisition of Kendin
Communications.

                                       21
<PAGE>

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

Overview

   Micrel designs, develops, manufactures and markets a range of high-
performance analog power ICs, mixed-signal and digital ICs.  These circuits
are used in a wide variety of electronics products, including those in the
computer, telecommunications, industrial and networking markets.  In addition
to standard products, the Company manufactures custom analog and mixed-signal
circuits and provides wafer foundry services.

   In 2003 the Company returned to profitability after recording a loss on an
annual basis for the first time in its history in 2002.  The first half of
2003 was characterized by limited visibility into, and uncertainty of,
customer demand.  The uncertainty of demand was compounded in the first half
of 2003 by events such as the war in Iraq and the outbreak of severe acute
respiratory syndrome in Asia ("SARS").  The Company's quarterly revenues
remained relatively flat, averaging $50 million per quarter for the first
half of 2003.  In the second half of 2003, customer demand increased as the
United States' and Asian economies began to grow more rapidly.  The Company's
new order rates, or bookings, grew faster than revenue in the third and
fourth quarter of 2003, resulting in sequential growth in both revenues and
order backlog.  The growth in new orders and revenues in the second half of
2003 was driven by demand for the Company's standard products from customers
serving the communications, computing, industrial and wireless handset end
markets.  The Company also focused on reducing costs, including manufacturing
costs and aligning its cost structure with revenue levels while retaining
manufacturing capability and sustaining a level of research and development
to support the Company's future growth.  Gross margins and net income
increased in the second half of 2003 as the Company's manufacturing cost
reduction actions, such as the closure of the Santa Clara wafer fabrication
facility, began to be realized. The Company continued to generate positive
cash flows from operations on a quarterly basis throughout 2003.

   The Company's financial results continued to improve in 2004.  The
Company's 2004 revenues grew to the highest level since 2000, increasing 22
percent over 2003  The increase in customer demand in the first half of 2004
caused lead times for semiconductor components, including Micrel's, to expand
as customers and distributors became concerned about availability of supply.
The Company's revenues continued to grow in the first half of the year and
gross margin, operating margin and net income increased on a sequential basis
in both the first and second quarters.  By the end of the second quarter,
customers began to perceive that the supply of semiconductor components was
generally sufficient and lead times for certain components began to shrink.

   In the third and fourth quarter of 2004, demand was below normal seasonal
levels as customers reacted quickly to uncertain demand for their products,
decreasing semiconductor lead times and uncertain economic conditions by
reducing their order rates.  Customers in certain end markets such as
networking, enterprise computing and high speed communications experienced
lower demand for their end products than they had anticipated.  This factor,
combined with rapidly shrinking lead times from most semiconductor suppliers,
led to lower order rates for the Company's products in the second half of 2004
as customers attempted to control their inventory levels.  The Company's level
of on hand inventory remained above prior year levels to provide a high level
of customer service in response to shorter customer lead times.  As a result
of lower order rates, the Company's backlog and revenues declined in both the
third and fourth quarter of 2004.  Despite the decline in customer demand and
revenue in the second half of 2004, the Company's continued focus on
manufacturing cost reductions resulted in an eight percentage point increase
in gross margin from 39.5% in 2003 to 47.6% in 2004.

                                       22
<PAGE>

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS (CONTINUED)

   In the first quarter of 2005, demand as measured by order rates, improved
substantially over fourth quarter of 2004 levels.  First quarter bookings
increased by 40% over fourth quarter 2004 levels.  The improvement in order
rates was driven by customers serving the industrial, computing and
communications end markets. Bookings from Micrel's major distributors
increased in the first quarter after falling sharply in the second half of
2004 as distributors adjusted to shorter industry lead times and reduced their
inventory levels.  Despite increased bookings during the first quarter and
lean supply chain inventory levels, order lead times from Micrel's customers
continued to average two to three weeks.  First quarter 2005 gross margin
improved to 50.1%, 3.8 percentage points higher than the fourth quarter of
2004 and more than 5 percentage points above the year ago period on
approximately the same level of revenues.  Operating profit and net income in
the first quarter of 2005 also increased from both the first and fourth
quarters of 2004.

   In the second quarter of 2005, the ongoing short lead time environment
continued to cause customers to order only what was required for their short
term needs.  Second quarter order rates declined from first quarter levels
primarily due to lower order amounts from the Company's distributors and
certain customers serving the wireless handset end market.  Bookings from the
Company's major sell-through distributors declined from strong first quarter
levels and were less than overall resales for the second quarter as
distributors attempted to increase their inventory turns to improve their
return on working capital.  Inventories at the Company's Asia-based stocking
representatives also declined sequentially in the second quarter.  In the
wireless handset market, customers reduced both orders and production levels
in coordination with efforts to reduce channel inventories of handsets.

   Second quarter revenues increased sequentially by 2% but were 10% less than
the revenues of the year ago period.  The Company continued to exercise
pricing discipline for most of its products in an attempt to improve gross
profit.  Consequently, sales of certain products, such as those serving the
SOHO Ethernet market and the low end personal computer market, declined
resulting in a lower rate of revenue growth for the Company.  Gross margin
continued to improve in the second quarter, increasing to 52% from 49% in the
year ago period and 50% in the first quarter of 2005.  The increase in gross
margin was primarily due to: better pricing discipline, improved sales mix of
higher margin products, ongoing manufacturing cost reductions and lower
depreciation expense as a result of disciplined capital spending.

   Third quarter order rates increased substantially from second quarter
levels, increasing sequentially in all geographic regions.  Throughout the
third quarter customers continued to place orders with short delivery
requirements, even as the aggregate order level increased.  Order levels from
the Company's distributors increased in the third quarter, returning to a
level consistent with sales of Micrel's products to their end customers. Third
quarter revenues increased sequentially by 1% but were 8% below the revenue
level of the year ago period.  Although order rates were strong, third quarter
revenue growth was impacted by product shortages for Ethernet products due to
longer manufacturing cycle times at third party wafer suppliers and reduced
demand for certain commodity products possibly as a result of continued
pricing discipline.   Gross margin improved further in the third quarter,
increasing to 54% from 49% in the year ago period and 52% in the second
quarter.  The increase in gross margin was primarily a result of ongoing
manufacturing cost reductions and an improved sales mix of higher margin
products.

   Continued broad based demand, combined with lean channel inventories and
short lead times, resulted in higher order rates for the Company in the fourth
quarter of 2005.  Order strength in the quarter from customers serving the
industrial and communications end markets, and from the Company's major
distributors, resulted in the second highest quarterly booking level since
calendar year 2000.  Revenues increased 4% on a sequential basis in the fourth
quarter to $65.1 million and were 10% above the revenues in the year ago
period.  Gross margin increased by 3.4 percentage points to 57.5% from the
third to the fourth quarter and was 11.2 percentage points higher than the
fourth quarter of 2004 primarily due to a higher mix of sales with higher
gross margins, and increased factory utilization.  The fourth quarter gross

                                       23
<PAGE>

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS (CONTINUED)

margin was the third highest quarterly gross margin in the Company's history
and has returned to levels recorded in the year 2000.  This is notable since
the revenues and capacity utilization in the fourth quarter of 2005 were
approximately one-third lower than comparable peak levels in 2000.  Despite an
increase in legal expenses associated with an atypically high level of
litigation activity, the Company's operating income and operating margin
increased on both a sequential and year-over-year basis in the fourth quarter.
Although order rates increased in the fourth quarter, customer lead times
remained short, averaging three to four weeks.

   In 2005, the Company's commitment to improving gross margin resulted in the
third consecutive year of gross margin expansion.  Gross margin for the year
increased to 53.4% in 2005, up 5.8 percentage points from 47.6% in 2004.  The
gross margin improvement in 2005 was a result of pricing discipline, a greater
mix of higher gross margin products, ongoing manufacturing cost reduction
efforts and disciplined capital spending which allowed for continued reduction
in depreciation expense.  Operating margin in the second half of 2005 was
above the level in the second half of 2004 although revenues for the two
periods were roughly the same.  The Company continued to consistently generate
positive cash flows throughout 2005.  The Company generated the third highest
annual operating cash flow in the Company's history during 2005. Operating
cash flow less cash used for the purchase of property, plant and equipment
(commonly referred to as "free cash flow") was also the third highest annual
amount in the Company's history.

   In 2004, Micrel acquired BlueChip Communications AS ("BlueChip") of Oslo,
Norway.  BlueChip is a fabless semiconductor company that designs, develops
and markets high performance RF ICs and modules for the actuation and
connectivity markets.  The acquisition was accounted for as a purchase under
SFAS 141 "Business Combinations" and, accordingly, the results of operations
of BlueChip from the date of acquisition forward have been included in the
Company's consolidated financial statements. (see Note 2 of Notes to
Consolidated Financial Statements).

   The Company derives a substantial portion of its net revenues from
standard products. For 2005, 2004 and 2003 the Company's standard products
sales accounted for 96%, 96%, and 90%, respectively, of the Company's net
revenues. The Company believes that a substantial portion of its net revenues
in the future will depend upon standard products sales, although such sales
as a proportion of net revenues may vary as the Company adjusts product
output levels to correspond with varying economic conditions and demand
levels in the markets which it serves. The standard products business is
characterized by short-term orders and shipment schedules, and customer
orders typically can be canceled or rescheduled without significant penalty
to the customer. Since most standard products backlog is cancelable without
significant penalty, the Company typically plans its production and inventory
levels based on internal forecasts of customer demand, which is highly
unpredictable and can fluctuate substantially. In addition, the Company is
limited in its ability to reduce costs quickly in response to any revenue
shortfalls.

   The Company may experience significant fluctuations in its results of
operations.  Factors that affect the Company's results of operations include
the volume and timing of orders received, changes in the mix of products sold,
the utilization level of manufacturing capacity, competitive pricing pressures
and the successful development of new products.  These and other factors are
described in further detail later in this discussion and in Item 1A.  As a
result of the foregoing or other factors, there can be no assurance that the
Company will not experience material fluctuations in future operating results
on a quarterly or annual basis, which could materially and adversely affect
the Company's business, financial condition, results of operations or cash
flows.

                                       24
<PAGE>

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS (CONTINUED)

Critical Accounting Policies and Estimates

   The financial statements included in this Form 10-K and discussed within
this Management's Discussion and Analysis of Financial Condition and Results
of Operations have been prepared in accordance with accounting principles
generally accepted in the United States of America. Preparation of these
financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. On an on-going basis, management evaluates its estimates
and judgments. Management bases its estimates and judgments on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. For a detailed discussion
of the Company's significant accounting policies, see Note 1 of Notes to
Consolidated Financial Statements. The Company considers certain accounting
policies related to revenue recognition, inventory valuation, income taxes,
and litigation to be critical to the fair presentation of its financial
statements.

   Revenue Recognition and Receivables. Micrel generates revenue by selling
products to original equipment manufacturers ("OEM"s), distributors and
stocking representatives.  Stocking representative firms may buy and stock the
Company's products for resale or may act as the Company's sales representative
in arranging for direct sales from the Company to an OEM customer.  The
Company's policy is to recognize revenue from sales to customers when the
rights and risks of ownership have passed to the customer, when persuasive
evidence of an arrangement exists, the product has been delivered, the price
is fixed or determinable and collection of the resulting receivable is
reasonably assured.

   Micrel allows certain distributors, primarily located in North America and
Europe, and in certain countries in Asia, significant return rights, price
protection and pricing adjustments subsequent to the initial product shipment.
As these returns and price concessions have historically been significant,
and future returns and price concessions are difficult to reliably estimate,
the Company defers recognition of revenue and related cost of sales (in the
balance sheet line item "deferred income on shipments to distributors")
derived from sales to these distributors until they have resold the Company's
products to their customers. Although revenue recognition and related cost of
sales are deferred, the Company records an accounts receivable and relieves
inventory at the time of initial product shipment.  As standard terms are FOB
shipping point, payment terms are enforced from shipment date and legal title
and risk of inventory loss passes to the distributor upon shipment. In
addition, where revenue is deferred upon shipment and recognized on a sell-
through basis, the Company may offer price adjustments to its distributors to
allow the distributor to price the Company's products competitively for
specific resale opportunities. The Company estimates and records an allowance
for distributor price adjustments for which the specific resale transaction
has been completed, but the price adjustment claim has not yet been received
and recorded by the Company.

   Sales to OEM customers and Asian based stocking representatives are
recognized upon shipment.  The Company does not grant return rights, price
protection or pricing adjustments to OEM customers.  The Company offers
limited contractual stock rotation rights to stocking representatives.  In
addition, the Company is not contractually obligated to offer, but may
infrequently grant, price adjustments or price protection to certain stocking
representatives on an exception basis. At the time of shipment to OEMs and
stocking representatives, an allowance for returns is established based upon
historical return rates, and an allowance for price adjustments is established
based on an estimate of price adjustments to be granted. Actual future returns
and price adjustments could be different than the allowance established.

                                       25
<PAGE>

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS (CONTINUED)

   The Company also maintains an allowance for doubtful accounts for estimated
uncollectible accounts receivable. This estimate is based on an analysis of
specific customer creditworthiness and historical bad debts experience. Actual
future uncollectible amounts could exceed the doubtful accounts allowance
established.

   Inventory Valuation. Inventories are stated at the lower of cost (first-in,
first-out method) or market. The Company records adjustments to write down the
cost of obsolete and excess inventory to the estimated market value based on
historical and forecasted demand for its products. If actual future demand for
the Company's products is less than currently forecasted, additional inventory
adjustments may be required. Once a reserve is established, it is maintained
until the product to which it relates is sold or otherwise disposed of. This
treatment is in accordance with Accounting Research Bulletin 43 and SEC Staff
Accounting Bulletin 100 "Restructuring and Impairment Charges."

   Income Taxes. Deferred tax assets and liabilities result primarily from
temporary timing differences between book and tax valuation of assets and
liabilities, state and federal research and development credit carryforwards
and state manufacturers credit carryforwards.

   The Company must regularly assess the likelihood that future taxable income
levels will be sufficient to ultimately realize the tax benefits of these
deferred tax assets. As of December 31, 2005, the Company believes that future
taxable income levels will be sufficient to realize the tax benefits of these
deferred tax assets and has not established a valuation allowance. Should the
Company determine that future realization of these tax benefits is not likely,
a valuation allowance would be established, which would increase the Company's
tax provision in the period of such determination.

   In addition, the calculation of the Company's tax liabilities involves
dealing with uncertainties in the application of complex tax regulations. The
Company records liabilities for anticipated tax audit issues based on its
estimate of whether, and the extent to which, additional taxes may be due.
Actual tax liabilities may be different than the recorded estimates and could
result in an additional charge or benefit to the tax provision in the period
when the ultimate tax assessment is determined.

   During the second quarter of 2004, the Company reversed $3.8 million of
accrued income tax liabilities as a result of the completion of a federal
income tax audit. In addition, related to the federal tax audit completion,
the Company also reversed $3.9 million in accrued payroll tax liabilities.
This reduction in accrued payroll tax liabilities was recorded as a $1.1
million reduction in cost of revenues, a $1.7 million reduction in research
and development expense and a $1.1 million reduction in selling, general and
administrative expense in the second quarter of 2004 (see Note 8 of Notes to
Consolidated Financial Statements).

   Litigation.  The semiconductor industry is characterized by frequent
litigation regarding patent and other intellectual property rights.  The
Company is currently involved in such intellectual property litigation and
(see Note 11 of Notes to Consolidated Financial Statements).An estimated
liability is accrued when it is determined to be probable that a liability has
been incurred and the amount of loss can be reasonably estimated. The
liability accrual is charged to income in the period such determination is
made. The Company regularly evaluates current information available to
determine whether such accruals should be made.

                                       26
<PAGE>

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS (CONTINUED)

Results of Operations

   The following table sets forth certain operating data as a percentage of
total net revenues for the periods indicated.

<TABLE>
                                                   Years Ended December 31,
                                                 ----------------------------
                                                   2005      2004      2003
                                                 --------  --------  --------
<S>                                              <C>       <C>       <C>
Net revenues                                        100.0%    100.0%    100.0%
Cost of revenues                                     46.6      52.4      60.5
                                                 --------  --------  --------
  Gross profit                                       53.4      47.6      39.5
                                                 --------  --------  --------
Operating expenses:
  Research and development                           18.0      16.2      22.2
  Selling, general and administrative                18.3      14.5      13.7
  Amortization of deferred stock compensation         0.2       0.8       1.4
  Manufacturing facility impairment                    -         -       (0.3)
  Restructuring expense                                -        0.2       0.1
  Acquisition expenses                                 -        0.1        -
  Litigation accrual                                  3.7        -         -
                                                 --------  --------  --------
    Total operating expenses                         40.2      31.8      37.1
                                                 --------  --------  --------
Income from operations                               13.2      15.8       2.4
Other income, net                                     1.7       0.7       0.3
                                                 --------  --------  --------
Income before income taxes                           14.9      16.5       2.7
Provision for income taxes                            4.8       4.4       0.4
                                                 --------  --------  --------
Net income                                           10.1%     12.1%      2.3%
                                                 ========  ========  ========
</TABLE>

   Net Revenues. Net revenues decreased 3% to $250.4 million for the year
ended December 31, 2005 from $257.6 million in 2004 due to decreased standard
product revenues.

   Standard product revenues decreased 3% to $239.2 million, which
represented 96% of net revenues for the year ended December 31, 2005,
compared to $246.6 million and 96% of net revenues for 2004. These decreases
resulted primarily from decreased unit shipments of standard products to the
high speed communications and networking end markets.

   Custom and foundry revenues increased 2% to $11.2 million, which
represented 4% of net revenues for the year ended December 31, 2005, compared
to $11.0 million and 4% of net revenues for 2004.

   For the year ended December 31, 2004, net revenues increased 22% to $257.6
million from $211.7 million in 2003 primarily due to increased standard
product revenues, which were partially offset by decreased custom and foundry
revenues. Standard product revenues increased 29% to $246.6 million for the
year ended December 31, 2004, compared to $191.1 million for 2003. These
increases resulted primarily from increased unit shipments of standard
products to the telecommunications, computer, industrial, high speed
communications and networking end markets. Custom and foundry revenues
decreased 47% to $11.0 million for the year ended December 31, 2004, compared
to $20.6 million for 2003. Such decreases were due primarily to decreased
unit shipments of foundry products principally due to the cessation of
manufacturing for a single customer, Lexmark, at the end of 2003.

   Customer demand for semiconductors can change quickly and unexpectedly.
The Company's revenue levels have been highly dependent on the amount of new
orders that are received for which product is requested to be delivered to
the customer within the same quarter.  Within the semiconductor industry

                                       27
<PAGE>

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS (CONTINUED)

these orders that are booked and shipped within the quarter are called "turns
fill" orders.  When the turns fill level exceeds approximately 35% of
quarterly revenue, it makes it very difficult to predict near term revenues
and income.  Because of the long cycle time to build its products, the
Company's lack of visibility into demand when turns fill is high makes it
difficult to predict what product to build to match future demand.  The
Company averaged approximately 55% to 60% turns fill per quarter during 2005.

   Throughout 2005 customers maintained a focus on inventory control,
continuing the trend that began in the second half of 2004.  Overall
semiconductor industry channel inventories remained near historical low
levels throughout 2005.  Nevertheless, customers were cautious about
committing new orders, relying instead on short lead times and the
willingness of semiconductor manufacturers to hold inventory and react
quickly to supply their short term needs.  As a result, order lead times from
the Company's customers stayed relatively short throughout 2005.  When demand
for the Company's products increased in the third and fourth quarter, order
backlog increased and lead times from the Company's customers grew modestly
to three to four weeks, from approximately two to three weeks in the first
nine months of 2005.  Although higher backlog and slightly longer order lead
times provide modestly improved visibility into end demand, the ongoing
reliance on turns fill orders and the uncertain growth rate of the world
economy make it difficult to predict near term demand. The uncertainty in
demand arising from these factors, together with the effects of product mix
and pricing, make it difficult to precisely predict future levels of sales
and profitability.  In this environment the Company, its stocking
representatives and distributors may have to carry higher levels of inventory
to service anticipated customer demand.

   International sales represented 75%, 76%, and 70% of net revenues for the
years ended December 31, 2005, 2004 and 2003, respectively. On a dollar
basis, international sales decreased 5% to $187.2 million for the year ended
December 31, 2005 from $196.9 million for the comparable period in 2004.
These decreases resulted primarily from decreased shipments of high speed
communications products primarily in Asia and to a lesser extent Europe.

   The trend for the Company's customers to move their electronics
manufacturing to Asian countries has brought increased pricing pressure for
Micrel and other semiconductor manufacturers.  Asian based manufacturers are
typically more concerned about cost and less concerned about the capability of
the integrated circuits they purchase. This can make it more difficult for
United States based companies to differentiate themselves except by price. The
increased concentration of electronics procurement and manufacturing in the
Asia Pacific region has led, and may continue to lead, to continued price
pressure for the Company's products in the future.

   Gross Profit. Gross profit is affected by a variety of factors including
the volume of product sales, product mix, manufacturing capacity utilization,
product yields and average selling prices. The Company's gross margin
increased to 53% for the year ended December 31, 2005 from 48% for the year
ended December 31, 2004. The increase in gross margin resulted primarily from
a greater sales mix of higher margin products combined with decreased
depreciation, decreased wafer fabrication costs and decreased external
assembly and test costs. In addition, gross profit for the year ended
December 31, 2004 includes the reversal of $1.1 million of accrued payroll
tax liabilities, recorded in the second quarter of 2004, associated with the
conclusion of a tax audit (see Note 8 of Notes to Consolidated Financial
Statements). Depreciation and amortization (excluding amortization of
deferred stock compensation) as a percent of sales declined to 8% for the
year ended December 31, 2005 from 10% for the same period in 2004

   For the year ended December 31, 2004, the Company's gross margin increased
to 48% from 40% for the year ended December 31, 2003. The increase in gross
margin resulted primarily from a greater sales mix of higher margin products,

                                       28
<PAGE>

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS (CONTINUED)

decreased wafer fabrication costs, and decreased external assembly and test
costs. During the year ended December 31, 2004, the Company reduced sales of
low margin foundry products and increased sales of higher margin analog and
high speed communications standard products as compared to the same periods in
2003. In addition, during 2004, the Company benefited from decreased wafer
fabrication costs resulting from the Company's wafer fabrication consolidation
effort (see Note 13 of Notes to Consolidated Financial Statements) and lower
costs for external assembly and test manufacturing services. The Company's
gross profit margin has also benefited from spreading fixed costs over a higher
sales volume. In addition, gross profit for the year ended December 31, 2004
includes the reversal of $1.1 million of accrued payroll tax liabilities,
recorded in the second quarter of 2004, associated with the conclusion of a tax
audit (see Note 8 of Notes to Consolidated Financial Statements). Depreciation
and amortization (excluding amortization of deferred stock compensation) as a
percent of sales declined to 10% for the year ended December 31, 2004 from 14%
for the same period in 2003.

   Research and Development Expenses.  Research and development expenses as a
percentage of net revenues represented 18% and 16% for the years ended
December 31, 2005 and 2004, respectively. On a dollar basis, research and
development expenses increased $3.3 million or 8% to $45.1 million for the
year ended December 31, 2005 from $41.8 million in 2004. This increase was
primarily due to increased prototype fabrication costs combined with
increased staffing costs, which was partially offset by decreased
depreciation costs. In addition, 2004 included a benefit of $1.7 million from
the reversal of accrued payroll tax liabilities associated with the
conclusion of a tax audit (see Note 8 of Notes to Consolidated Financial
Statements). The Company believes that the development and introduction of
new products is critical to its future success and expects to continue
significant investment in research and development activities in the future.

   For the years ended December 31, 2004 and 2003, research and development
expenses as a percentage of net revenues represented 16% and 22%,
respectively. On a dollar basis, research and development expenses decreased
$5.2 million or 11% to $41.8 million for the year ended December 31, 2004
from $47.0 million in 2003. This decrease was primarily due to decreased
prototype fabrication costs and the reversal of $1.7 million of accrued
payroll tax liabilities in the second quarter of 2004, associated with the
conclusion of a tax audit (see Note 8 of Notes to Consolidated Financial
Statements).

   Selling, General and Administrative Expenses. As a percentage of net
revenues, selling, general and administrative expenses represented 18% and 15%
for the years ended December 31, 2005 and 2004, respectively. On a dollar
basis, selling, general and administrative expenses increased $8.4 million or
23% to $45.7 million for the year ended December 31, 2005 from $37.3 million
for the comparable period in 2004. The increase was principally attributable
to increased outside legal costs, primarily associated with litigation
activity, combined with increased staffing costs. In addition, 2004 included a
benefit of $1.1 million from the reversal of accrued payroll tax liabilities
associated with the conclusion of a tax audit. (see Note 8 of Notes to
Consolidated Financial Statements).

   For the years ended December 31, 2004 and 2003, as a percentage of net
revenues, selling, general and administrative expenses represented 15% and
14%, respectively. On a dollar basis, selling, general and administrative
expenses increased $8.3 million or 29% to $37.3 million for the year ended
December 31, 2004 from $29.0 million for the comparable period in 2003. The
increase was principally attributable to increased commissions related to
higher revenues, increased staffing costs and profit sharing accruals,
increased accounting and auditing fees associated with implementation of the
requirements of Section 404 of the Sarbanes-Oxley Act and increased outside
legal costs which were partially offset by the reversal of $1.1 million of
accrued payroll tax liabilities in the second quarter of 2004, associated with
the conclusion of a tax audit (see Note 8 of Notes to Consolidated Financial
Statements).

                                       29
<PAGE>

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS (CONTINUED)

   Amortization of Deferred Stock Compensation.  The Company accounts for
stock-based awards to employees using the intrinsic value method in accordance
with Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock
Issued to Employees". During the years 1996 through December 2001, certain of
the Company's option pricing practices resulted in stock compensation expense
under APB 25. In addition, the Company assumed certain stock options granted
to employees of Kendin Communications in connection with the acquisition of
Kendin Communications in 2001 which were compensatory under APB 25.

   For the year ended December 31, 2005, total amortization of deferred stock
compensation was $770,000 compared to $2.5 million in 2004. This decrease
resulted primarily from prior year additions becoming fully amortized.

   In December 2004, the Financial Accounting Standards Board ("FASB" or the
"Board") issued Statement of Accounting Standards ("SFAS") No. 123R, "Share-
Based Payment". SFAS No. 123R is a revision of SFAS No. 123, and supersedes
APB 25. Among other items, SFAS 123R eliminates the use of APB 25 and the
intrinsic value method of accounting, and requires companies to recognize in
the financial statements the cost of employee services received in exchange
for awards of equity instruments, based on the grant date fair value of those
awards on the grant date. The Company was required to adopt SFAS No. 123R
effective January 1, 2006. The Company currently estimates that the adoption
of SFAS 123R will result in additional amortization of stock based
compensation expense and a reduction of operating income for 2006 of
approximately $10 million to $15 million. However, the actual impact to net
income of adopting SFAS 123R in 2006 could differ from this estimate depending
upon the number and timing of options granted during 2006, as well as their
vesting period and vesting criteria, and the tax effect on stock compensation
expense due to the timing and quantity of incentive stock options exercised.
(for more discussion of SFAS No. 123R see the caption "New Accounting
Standards" included in Note 1 of Notes to Consolidated Financial Statements).

   Purchased in-process technology.  In 2004, Micrel acquired 100% of the
outstanding common stock and options to purchase common stock of BlueChip, in
a cash-for-stock transaction. Micrel paid approximately $2 million in cash and
incurred approximately $300,000 in direct acquisition costs for the
outstanding BlueChip securities and options. The fair value of the acquired
assets exceeded the purchase price by $1.3 million. The Company deferred $1.0
million of this excess amount as potential contingent consideration of $1.0
million was payable, under the terms of the agreement, if certain revenue and
gross profit targets were met by the BlueChip operations during calendar year
2004. As of December 31, 2004, it was determined that the additional
contingent consideration of $1.0 million, which was initially recorded in the
first quarter of 2004, would not be payable as certain revenue and gross
profit targets were not achieved by the BlueChip operation. As a result, the
additional contingent consideration was reversed in the fourth quarter of 2004
and the purchase cost allocation was adjusted accordingly (See Note 2 of Notes
to Consolidated Financial Statements).

   The purchase cost allocation, as adjusted for the final determination of
the contingent consideration, resulted in $1.7 million of the purchase cost
allocated to intangible assets.  Of that amount, $303,000 was expensed during
the year ended December 31, 2004 to purchased in-process technology, which had
not reached technological feasibility and had no alternative future.  The
remaining intangible assets of $1.4 million, consisting of $1.1 million in
existing technology and $282,000 in customer relationships, are included in
intangible assets in the accompanying consolidated balance sheets and are
being amortized on a straight line basis over their useful lives of three to
five years.

   Manufacturing Facility Impairment and Restructuring Expense. In September
2002, the Company approved a plan to close its Santa Clara, California wafer
fabrication facility to reduce costs and improve operating efficiencies.  The

                                       30
<PAGE>

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS (CONTINUED)

Company accrued $5.5 million in restructuring expenses associated with the
facility closure which consisted of $1.0 million for equipment disposal costs
and $4.5 million in net contractual building lease costs, excluding estimated
sublease income, that will provide no future benefit.

   During 2003, the Company ceased all manufacturing processes within the
Santa Clara facility and completed the relocation of all employees to its San
Jose, CA facilities. During 2003, the Company paid $1.3 million in
restructuring costs that reduced the previous restructuring accrual and
recorded an additional $286,000 in net restructuring accrual adjustments which
were charged to restructuring expense in 2003.

   During 2004, the Company paid $1.7 million in restructuring costs that
reduced the previous restructuring accrual. The Company also increased its
accrued restructuring expenses for contractual building lease costs by
$584,000 to eliminate remaining estimated future sub-lease income as efforts
to sub-lease the facility had been unsuccessful and the estimated probability
of future sub-lease was reduced to less than probable.

   During 2005, the Company paid $1.2 million in restructuring costs that
reduced the previous restructuring accrual. As of December 31, 2005, the
remaining restructuring accrual was $1.8 million (see Note 13 of Notes to
Consolidated Financial Statements) and is classified as other current
liabilities. Actual future costs may be different than these estimates and
would require an adjustment to restructuring expense in the period such
determination is made.

   Litigation Accrual.  On July 22, 2005, a jury ruled against Micrel in its
suit against TRW Automotive and for TRW automotive in its counter suit against
Micrel.  The suits were related to a contract dispute between the two
companies.  As a result of the jury's verdict, Micrel accrued $9.3 million in
litigation expense in the second quarter 2005 financial statements (see Note
11 of Notes to Consolidated Financial Statements).

   Other Income, Net. Other income, net reflects interest income from
investments in short-term and long-term investment grade securities and money
market funds and other non-operating income, offset by interest expense
incurred on term notes. Other income, net increased by $2.5 million to $4.2
million in 2005 from $1.7 million in 2004. The increase was primarily due to
an increase in the average interest rate earned on investment of cash and
short term investment balances.

   For the year ended December 31, 2004 other income, net increased by $1.1
million to $1.7 million in 2004 from $619,000 in 2003. The increase was
primarily due to increased interest income rate of returns on increased cash
and investment balances and decreased interest expense resulting from a
decrease in average debt as compared to the prior year.

   Provision for Income Taxes. For the year ended December 31, 2005, the
provision for income taxes was $11.9 million or 32% of income before taxes.
The 2005 provision for income taxes differs from taxes computed at the federal
statutory rate primarily due to the effect of federal research and development
credits, federal qualified production activities credits, state income taxes
and state research and development credits. For the year ended December 31,
2004, the provision for income taxes was $11.2 million or 26% of income before
taxes. The income tax provision for 2004 is based on the Company's estimated
annual statutory tax rate of 35% of pretax income, reduced by a $3.8 million
reversal of accrued income tax liabilities in the second quarter of 2004, as a
result of the completion of a federal income tax audit (see Note 8 of Notes to
Consolidated Financial Statements). The 2004 provision for income taxes
differs from taxes computed at the federal statutory rate primarily due to the
effect of federal export tax credits, state income taxes and state research
and development credits.

                                       31
<PAGE>

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS (CONTINUED)

Liquidity and Capital Resources

   Since inception, the Company's principal sources of funding have been its
cash from operations, bank borrowings and sales of common stock. Principal
sources of liquidity at December 31, 2005, consisted of cash and short-term
investments of $136.6 million and a $6.0 million revolving line of credit from
a commercial bank under which the Company could borrow $5.1 million (see Note 6
of Notes to Consolidated Financial Statements).

   Associated with the acquisition of BlueChip, the Company has $147,000
outstanding in term notes payable to the Norwegian Industrial and Regional
Development Fund.

   For the year ended December 31, 2005, cash flows provided by operating
activities of $57.7 million were primarily attributable to net income after
adding back non-cash activities of $41.6 million combined with a $5.3 million
decrease in inventories, a $4.3 million increase in accounts payable, a $7.3
million increase in other accrued liabilities and a $2.1 million increase in
accrued compensation, which were partially offset by a $3.5 million increase
in accounts receivables.

   For the year ended December 31, 2004, cash flows provided by operating
activities of $66.4 million were primarily attributable to net income after
adding back non-cash activities of $70.7 million combined with a $1.7 million
decrease in accounts receivable, a $3.0 million increase in accounts payable
and a $1.3 million increase in deferred income on shipments to distributors,
which were partially offset by a $4.4 million increase in inventory, a $2.9
million decrease in other accrued liabilities and a $2.5 million decrease in
income taxes payable.

   For the year ended December 31, 2005, the Company used cash of
$14.3 million in investing activities comprised of $14.4 million in purchases
of property, plant and equipment, which was partially offset by net proceeds
of $115,000 from the sale of short-term investments.

   For the year ended December 31, 2004, the Company used cash of
$68.6 million in investing activities comprised of net $48.5 million in net
investment purchases, $ 16.9 million in purchases of property, plant and
equipment, $2.0 million used for the purchase of BlueChip and $1.0 for the
purchase of intangible assets.

   Cash used by financing activities during the year ended December 31, 2005
of $56.6 million was the result of $63.4 million used to repurchase 6,065,300
shares of common stock which was partially offset by proceeds from the
issuance of common stock through employee stock transactions of $6.9 million.

   Cash used by financing activities during the year ended December 31, 2004
of $36.6 million was the result of $39.4 million used to repurchase 3,538,000
shares of common stock combined with $4.0 million in repayments of long-term
debt, which was partially offset by proceeds from the issuance of common
stock through employee stock transactions of $6.8 million.

   The Company currently intends to spend approximately $18 million to $25
million to purchase capital equipment and make facility improvements during
the next twelve months primarily for manufacturing equipment for wafer
fabrication and product testing and additional research and development
related software and equipment. The Company is currently authorized by its
Board of Directors to repurchase an additional $75.0 million of its common
stock through December 31, 2006. Since inception, the Company's principal
sources of funding have been its cash from operations, bank borrowings and
sales of common stock. The Company believes that its cash from operations,
existing cash balances and short-term investments, and its credit facility
will be sufficient to meet its cash requirements for 2006. In the longer
term, the Company believes future cash requirements will continue to be met
by its cash from operations, and future debt or equity financings as
required.

                                       32
<PAGE>

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS (CONTINUED)

Recently Issued Accounting Standards

   Please refer to the caption "New Accounting Standards" within Note 1 of
Notes to Consolidated Financial Statements for a discussion of the expected
impact of recently issued accounting standards.


Contractual Obligations and Commitments

   As of December 31, 2005, the Company had the following contractual
obligations and commitments (in thousands):

<TABLE>
                                           Payments Due By Period
                               ------------------------------------------------
                                        Less than    1-3       4-5      After 5
                                Total     1 Year    Years     Years      Years
                               --------  --------  --------  --------  --------
<S>                            <C>       <C>       <C>       <C>       <C>
Long-term debt (see Note 6
 of Notes to Consolidated
 Financial Statements)         $    147  $    147  $     -   $     -   $     -
Operating leases (see Note 9
 of Notes to Consolidated
 Financial Statements)            8,886     3,160     2,928     2,412       386
Accrued litigation liability
 (see Note 11 of Notes to
 Consolidated Financial
 Statements)                      9,282     9,282        -         -         -
Open purchase orders             19,500    19,500        -         -         -
                               --------  --------  --------  --------  --------
Total                          $ 37,815  $ 32,089  $  2,928  $  2,412  $    386
                               ========  ========  ========  ========  ========
</TABLE>

   Open purchase orders are defined as agreements to purchase goods or
services that are enforceable and legally binding and that specify all
significant terms, including: fixed or minimum quantities to be purchased;
fixed, minimum or variable pricing provisions; and the approximate timing of
the transactions.

   Borrowing agreements consisted of a $6.0 million revolving line of credit
from a commercial bank. The revolving line of credit agreement includes a
provision for the issuance of commercial or standby letters of credit by the
bank on behalf of the Company. The value of all letters of credit outstanding
reduces the total line of credit available. There were no borrowings under
the revolving line of credit at December 31, 2005 and there were $875,000 in
standby letters of credit outstanding. The letters of credit are issued to
guarantee payments for the Company's workers compensation program.

   The Company has no other off-balance sheet arrangements and has not
entered into any transactions involving unconsolidated, limited purpose
entities or commodity contracts.

                                       33
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   At December 31, 2005, the Company held $48.4 million in short-term
investments. Short-term investments consist primarily of liquid debt
instruments and are classified as available-for-sale securities. Investments
purchased with remaining maturity dates of greater than three months and less
than 12 months are classified as short-term. Investments purchased with
remaining maturity dates of 12 months or greater are classified as long-term.
The short-term investments held at December 31, 2005 are primarily fixed rate
securities. These available-for-sale securities are subject to interest rate
risk and will fall in value if market interest rates increase. If market
interest rates were to increase immediately and uniformly by 10 percent from
levels at December 31, 2005, the fair value of the short-term investments
would decline by an immaterial amount. The Company generally expects to have
the ability to hold its fixed income investments until maturity and therefore
would not expect operating results or cash flows to be affected to any
significant degree by the effect of a sudden change in market interest rates
on short-term investments.

   At December 31, 2005, the Company held an insignificant amount of fixed-
rate long-term debt subject to interest rate risk.


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

   The Company's financial statements and supplementary data are set forth on
pages 38 through 68, which follow Item 15.


ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

   Not applicable.


ITEM 9A.  CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

   The Company maintains disclosure controls and procedures, as such term is
defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of
1934, as amended (the Exchange Act).  In designing and evaluating the
disclosure controls and procedures, management recognizes that any disclosure
controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving the desired control objectives, and
management necessarily is required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.

   Under the supervision and with the participation of the Company's
management, including its principal executive officer and principal financial
officer, the Company conducted an evaluation of the effectiveness of its
disclosure controls and procedures as of the end of the period covered by this
report. Based on this evaluation, the Company's principal executive officer and
principal financial officer have concluded that the Company's disclosure
controls and procedures were effective at the reasonable assurance level as of
December 31, 2005.

                                       34
<PAGE>

Management's Report on Internal Control Over Financial Reporting

   The Company's management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is defined in
Exchange Act Rule 13a-15(f).  Internal control over financial reporting cannot
provide absolute assurance of achieving financial reporting objectives because
of its inherent limitations. Internal control over financial reporting is a
process that involves human diligence and compliance and is subject to lapses
in judgment and breakdowns resulting from human failures. Internal control over
financial reporting also can be circumvented by collusion or improper
management override. Because of such limitations, there is a risk that material
misstatements may not be prevented or detected on a timely basis by internal
control over financial reporting. However, these inherent limitations are known
features of the financial reporting process. Therefore, it is possible to
design into the process safeguards to reduce, though not eliminate, this risk.
Under the supervision and with the participation of the Company's management,
including its principal executive officer and principal financial officer, the
Company conducted an evaluation of the effectiveness of its internal control
over financial reporting based on the criteria set forth in the report entitled
"Internal Control - Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on its evaluation under the
criteria set forth in "Internal Control - Integrated Framework," management has
concluded that the Company's internal control over financial reporting was
effective as of December 31, 2005.  Management's assessment of the
effectiveness of the Company's internal control over financial reporting as of
December 31, 2005, has been audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm, as stated in their report which
appears herein.

Changes in Internal Control Over Financial Reporting

   There has been no change in the Company's internal controls over financial
reporting that occurred during the quarter ended December 31, 2005 that has
materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.


ITEM 9B.  OTHER INFORMATION

   None.

                                       35
<PAGE>

                                    PART III

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

   The information concerning the directors and officers of the Company is
included in the Company's Proxy Statement to be filed in connection with the
Company's 2006 Annual Meeting of Shareholders under the captions "Election of
Directors" and "Certain Information with Respect to Executive Officers,"
respectively, and is incorporated herein by reference.

   The Company has an Audit Committee composed of independent directors. The
information required by this item with respect to the Audit Committee and
"audit committee financial experts" is incorporated by reference from the
Company's Proxy Statement to be filed in connection with the Company's 2006
Annual Meeting of Shareholders under the caption, "Committees and Meetings of
the Board of Directors."

   The information concerning compliance with Section 16(a) of the Exchange
Act is included in the Company's Proxy Statement to be filed in connection
with the Company's 2006 Annual Meeting of Shareholders under the caption
"Section 16(A) Beneficial Ownership Reporting Compliance," and is incorporated
herein by reference.

   The Company has adopted a code of ethics that applies to the principal
executive officer, principal financial officer, principal accounting officer
or controller, or persons performing similar functions. The Company's code of
ethics has been filed as Exhibit 14 to the Company's Annual Report on Form
10-K for the year ended December 31, 2003 and is incorporated herein by
reference.  The Company's code of ethics can also be viewed at
www.micrel.com.



ITEM 11.   EXECUTIVE COMPENSATION

   The information required by this item is included under the captions
"Executive Compensation" and "Stock Option Grants and Exercise" in the
Company's Proxy Statement to be filed in connection with the Company's 2006
Annual Meeting of Shareholders and is incorporated herein by reference.


ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
           MANAGEMENT AND RELATED SHAREHOLDER MATTERS

   The information required by this item is included under the caption
"Security Ownership of Certain Beneficial Owners and Management" and "Equity
Compensation Plan Information" in the Company's Proxy Statement to be filed in
connection with the Company's 2006 Annual Meeting of Shareholders and is
incorporated herein by reference.


ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   The information required by this item is included under the caption "Certain
Transactions" in the Company's Proxy Statement to be filed in connection with
the Company's 2006 Annual Meeting of Shareholders and is incorporated herein by
reference.

                                       36
<PAGE>

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

   The information required by this item is included under the caption
"Independent Registered Public Accounting Firm" in the Company's Proxy
Statement to be filed in connection with the Company's 2006 Annual Meeting of
Shareholders and is incorporated herein by reference.


ITEM 15.   EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

   The following documents are filed as part of this Report:
   (a)  1.  Financial Statements. The following financial statements
            of the Company and the Report of PricewaterhouseCoopers LLP,
            Independent Registered Public Accounting Firm, are included in this
            Report on the pages indicated:
                                                                           Page
                                                                           ----

             Report of Independent Registered Public Accounting Firm        38
             Consolidated Balance Sheets as of December 31, 2005 and 2004   40
             Consolidated Statements of Operations for the Years Ended
              December 31, 2005, 2004 and 2003                              41
             Consolidated Statements of Shareholders' Equity and
              Comprehensive Income for the Years Ended
              December 31, 2005, 2004 and 2003                              42
             Consolidated Statements of Cash Flows for the Years Ended
              December 31, 2005, 2004 and 2003                              43
             Notes to Consolidated Financial Statements                     44
             Supplemental Quarterly Financial Summery                       67


        2.  Financial Statement Schedule. The following financial statement
            schedule of the Company for the years ended December 31, 2005, 2004
            and 2003, is filed as part of this report on Form 10-K and should
            be read in conjunction with the financial statements.

            Schedule   Title                                              Page
            --------   -----                                              ----
               II      Valuation and Qualifying Accounts                   68

            Schedules not listed above have been omitted because they are not
            applicable, not required, or the information required to be set
            forth therein is included in the Consolidated Financial Statements
            or notes thereto.

        3.  Exhibits. Those exhibits required by Item 601 of Regulation S-K
            to be filed or incorporated by reference as a part of this Report
            are listed on the Exhibit Index immediately preceding the exhibits
            filed herewith.

                                       37
<PAGE>

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Micrel, Incorporated:

We have completed integrated audits of Micrel, Incorporated's 2005 and 2004
consolidated financial statements and of its internal control over financial
reporting as of December 31, 2005, and an audit of its 2003 consolidated
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Our opinions, based on our
audits, are presented below.


Consolidated financial statements and financial statement schedule
------------------------------------------------------------------
In our opinion, the consolidated financial statements listed in the index
appearing under Item 15(a)(1) present fairly, in all material respects, the
financial position of Micrel, Incorporated and its subsidiaries at December
31, 2005 and 2004, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 2005 in

conformity with accounting principles generally accepted in the United States
of America.  In addition, in our opinion, the financial statement schedule
listed in the index appearing under Item 15(a)(2) presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.  We conducted
our audits of these statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States).  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
of financial statements includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation.  We believe that
our audits provide a reasonable basis for our opinion.

Internal control over financial reporting
-----------------------------------------
Also, in our opinion, management's assessment, included in Management's
Report on Internal Control Over Financial Reporting appearing under Item 9A,
that the Company maintained effective internal control over financial
reporting as of December 31, 2005 based on criteria established in Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), is fairly stated, in all
material respects, based on those criteria. Furthermore, in our opinion, the
Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2005, based on criteria established in
Internal Control - Integrated Framework issued by the COSO.  The Company's
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting.  Our responsibility is to express opinions
on management's assessment and on the effectiveness of the Company's internal
control over financial reporting based on our audit. We conducted our audit
of internal control over financial reporting in accordance with the standards
of the Public Company Accounting Oversight Board (United States).  Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting
was maintained in all material respects.  An audit of internal control over
financial reporting includes obtaining an understanding of internal control
over financial reporting, evaluating management's assessment, testing and
evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we consider necessary in the
circumstances.  We believe that our audit provides a reasonable basis for our
opinions.


                                       38
<PAGE>


A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles.  A company's
internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a
material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.



PricewaterhouseCoopers LLP
San Jose, California
March 6, 2006

                                       39
<PAGE>

<TABLE>
                             MICREL, INCORPORATED
                         CONSOLIDATED BALANCE SHEETS
                       AS OF DECEMBER 31, 2005 AND 2004
                     (In thousands, except share amounts)
______________________________________________________________________________

                                                           2005        2004
                                                        ---------   ---------
<S>                                                     <C>         <C>
ASSETS
CURRENT ASSETS:
  Cash and cash equivalents                             $  88,130   $ 101,282

  Short-term investments                                   48,433      46,503
  Accounts receivable, less allowances:
   2005, $4,144; 2004, $3,978                              35,524      32,055
  Inventories                                              30,419      35,744
  Prepaid expenses and other                                1,919       2,488
  Deferred income taxes                                    22,134      15,962
                                                        ---------   ---------
    Total current assets                                  226,559     234,034

LONG-TERM INVESTMENTS                                          -        2,012
PROPERTY, PLANT AND EQUIPMENT, NET                         77,554      81,605
INTANGIBLE ASSETS, NET                                      4,752       6,375
DEFERRED INCOME TAXES                                      10,264       9,663
OTHER ASSETS                                                  411         457
                                                        ---------   ---------
TOTAL                                                   $ 319,540   $ 334,146
                                                        =========   =========

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable                                      $  20,552   $  16,275
  Accrued compensation                                      6,951       4,899
  Accrued commissions                                       1,480       1,292
  Income taxes payable                                      4,939       4,960
  Other accrued liabilities                                13,241       5,974
  Deferred income on shipments to distributors             14,069      13,648
  Current portion of long-term debt                           147         164
                                                        ---------   ---------
    Total current liabilities                              61,379      47,212

LONG-TERM DEBT                                                 -           83
OTHER LONG-TERM OBLIGATIONS                                    -        1,389
DEFERRED RENT                                                 475         575

COMMITMENTS AND CONTINGENCIES (Notes 9 and 11)

SHAREHOLDERS' EQUITY:
  Preferred stock, no par value -
   authorized: 5,000,000 shares;
   issued and outstanding: none                                -           -
  Common stock, no par value -
   authorized: 250,000,000 shares;
   issued and outstanding:
   2005 - 84,646,680; 2004 - 89,825,994                    73,848     127,264
  Deferred stock compensation                                (294)     (1,118)
  Accumulated other comprehensive loss                        (52)        (85)
  Retained earnings                                       184,184     158,826
                                                        ---------   ---------
    Total shareholders' equity                            257,686     284,887

                                                        ---------   ---------
TOTAL                                                   $ 319,540   $ 334,146
                                                        =========   =========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
 statements

                                       40
<PAGE>

<TABLE>
                             MICREL, INCORPORATED
                    CONSOLIDATED STATEMENTS OF OPERATIONS
                YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                   (In thousands, except per share amounts)
______________________________________________________________________________

                                                 2005       2004       2003
                                              ---------  ---------  ---------

<S>                                           <C>        <C>        <C>
NET REVENUES                                  $ 250,356  $ 257,551  $ 211,726
COST OF REVENUES*                               116,564    134,854    128,007
                                              ---------  ---------  ---------
GROSS PROFIT                                    133,792    122,697     83,719

OPERATING EXPENSES:
  Research and development                       45,070     41,750     46,953
  Selling, general and administrative            45,709     37,327     28,987
  Amortization of deferred stock compensation*      611      1,986      3,034
  Purchased in-process technology                    -         303         -
  Restructuring expense                              -         584        286
  Manufacturing facility impairment                  -          -        (624)
  Litigation accrual                              9,282         -          -
                                              ---------  ---------  ---------
    Total operating expenses                    100,672     81,950     78,636
                                              ---------  ---------  ---------
INCOME FROM OPERATIONS                           33,120     40,747      5,083
OTHER INCOME (EXPENSE):
  Interest income                                 4,513      2,167      1,337
  Interest expense                                 (345)      (313)      (660)
  Other income (expense), net                        12       (142)       (58)
                                              ---------  ---------  ---------
    Total other income, net                       4,180      1,712        619
                                              ---------  ---------  ---------
INCOME BEFORE INCOME TAXES                       37,300     42,459      5,702
PROVISION FOR INCOME TAXES                       11,942     11,206        855
                                              ---------  ---------  ---------
NET INCOME                                    $  25,358  $  31,253  $   4,847
                                              =========  =========  =========
NET INCOME PER SHARE:
  Basic                                       $    0.29  $    0.34  $    0.05
                                              =========  =========  =========
  Diluted                                     $    0.29  $    0.34  $    0.05

                                              =========  =========  =========
WEIGHTED-AVERAGE SHARES USED IN
 COMPUTING PER SHARE AMOUNTS:
  Basic                                          87,055     91,498     92,215
                                              =========  =========  =========
  Diluted                                        87,971     93,083     93,786
                                              =========  =========  =========

*Amortization of deferred stock compensation:
  Included in cost of revenues                $     159  $     535  $   1,104
                                              =========  =========  =========
  Amortization of deferred stock compensation
   included in operating expenses related to:
    Research and development                  $     161  $     723  $   1,604
    Selling, general and administrative             450      1,263      1,430
                                              ---------  ---------  ---------
      Total operating expenses                $     611  $   1,986  $   3,034
                                              =========  =========  =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
 statements

                                       41
<PAGE>

<TABLE>
                                                                MICREL, INCORPORATED
                                                   CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                                              AND COMPREHENSIVE INCOME
                                                    YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                                                        (In thousands, except share amounts)
_________________________________________________________________________________________________________________________________
                                                                                Accumulated                              Compre-
                                                 Common Stock      Deferred        Other                     Total       hensive
                                          ---------------------      Stock     Comprehensive   Retained  Shareholders'    Income
                                             Shares     Amount   Compensation  Income(Loss)    Earnings     Equity        (Loss)
                                          -----------  --------  ------------  -------------  ---------  -------------  ---------
<S>                                       <C>          <C>       <C>           <C>            <C>        <C>            <C>
Balances, December 31, 2002                92,006,571   160,889       (9,971)          (25)     122,726       273,619
Net income                                         -         -            -             -         4,847         4,847   $   4,847
                                                                                                                        ---------
Comprehensive income                                                                                                    $   4,847
                                                                                                                        =========
Deferred stock compensation, net                   -     (1,879)       6,017            -            -          4,138
Repurchase of common stock                   (492,450)   (6,493)          -             -            -         (6,493)
Employee stock transactions                 1,008,392     7,541           -             -            -          7,541
Tax effect of employee stock transactions          -        (43)          -             -            -            (43)
                                          -----------  --------     --------      --------     --------      --------
Balances, December 31, 2003                92,522,513   160,015       (3,954)          (25)     127,573       283,609
Net income                                         -         -            -             -        31,253        31,253   $  31,253
Other comprehensive loss, Change in net
 unrealized losses from investments                                                    (60)                       (60)        (60)
                                                                                                                        ---------
Comprehensive income                                                                                                    $  31,193
                                                                                                                        =========
Deferred stock compensation, net                   -       (315)       2,836            -            -          2,521
Repurchase of common stock                 (3,538,000)  (39,388)          -             -            -        (39,388)
Employee stock transactions                   841,481     6,779           -             -            -          6,779
Tax effect of employee stock transactions          -        173           -             -            -            173
                                          -----------  --------     --------      --------     --------      --------
Balances, December 31, 2004                89,825,994   127,264       (1,118)          (85)     158,826       284,887
Net income                                         -         -            -             -        25,358        25,358   $  25,358
Other comprehensive loss, Change in net
 unrealized losses from investments                                                     33                         33          33
                                                                                                                        ---------
Comprehensive income                                                                                                    $  25,391
                                                                                                                        =========
Deferred stock compensation, net                   -        (54)         824            -            -            770
Repurchase of common stock                 (6,065,300)  (63,399)          -             -            -        (63,399)
Employee stock transactions                   885,986     6,949           -             -            -          6,949
Tax effect of employee stock transactions          -      3,088           -             -            -          3,088
                                          -----------  --------     --------      --------     --------      --------
Balances, December 31, 2005                84,646,680  $ 73,848     $   (294)     $    (52)    $184,184      $257,686
                                          ===========  ========     ========      ========     ========      ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
 statements

                                       42
<PAGE>

<TABLE>
                                    MICREL, INCORPORATED
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                 YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003

                                (In thousands)
______________________________________________________________________________

                                                  2005       2004       2003
                                               ---------  ---------  ---------
<S>                                            <C>        <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                   $  25,358  $  31,253  $   4,847
  Adjustments to reconcile net income to
   net cash provided by operating activities:
    Depreciation and amortization                 19,952     24,828     28,649
    Stock based compensation                         770      2,521      4,138
    Purchased in-process technology                   -         303         -
    Manufacturing facility impairment                 -          -        (624)
    Loss on disposal of assets                       140        283         56
    Deferred rent                                   (100)       (14)        22
    Deferred income taxes                         (6,773)    11,592      3,657
    Changes in operating assets and liabilities,
     net of effects of acquisition:
      Accounts receivable                         (3,469)     1,703     (3,507)
      Inventories                                  5,325     (4,456)     8,423
      Prepaid expenses and other assets              615       (156)       418
      Accounts payable                             4,277      2,967       (129)
      Accrued compensation                         2,052       (388)      (163)
      Accrued commissions                            188        (10)       357
      Income taxes payable                         3,067     (2,494)     4,178
      Other accrued liabilities                    7,267         18      1,313
      Other non-current accrued liabilities       (1,389)    (2,921)    (3,377)
      Deferred income on shipments
       to distributors                               421      1,376      2,440
                                               ---------  ---------  ---------
      Net cash provided by operating activities   57,701     66,405     50,698
                                               ---------  ---------  ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property, plant and equipment     (14,418)   (16,917)   (21,139)
  Purchase of intangible assets                       -      (1,030)        -
  Purchases of investments                       (74,620)   (57,575)        -
  Proceeds from sales and maturities
   of investments                                 74,735      9,000         -
  Purchase of BlueChip Communications, net
   of cash acquired                                   -      (2,033)        -
                                               ---------  ---------  ---------
      Net cash used in investing activities      (14,303)   (68,555)   (21,139)
                                               ---------  ---------  ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Repayments of long-term debt                      (100)    (4,018)    (7,911)
  Proceeds from the issuance of common stock       6,949      6,779      7,541
  Repurchase of common stock                     (63,399)   (39,388)    (6,493)
                                               ---------  ---------  ---------
      Net cash used in financing activities      (56,550)   (36,627)    (6,863)
                                               ---------  ---------  ---------
NET INCREASE (DECREASE) IN CASH AND
 CASH EQUIVALENTS                                (13,152)   (38,777)    22,696
CASH AND CASH EQUIVALENTS - Beginning of year    101,282    140,059    117,363
                                               ---------  ---------  ---------
CASH AND CASH EQUIVALENTS - End of year        $  88,130  $ 101,282  $ 140,059
                                               =========  =========  =========


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid during the year for:
   Interest                                     $    345  $     313  $     660
                                               =========  =========  =========
   Income taxes                                 $ 15,952  $   2,184  $     661
                                               =========  =========  =========
  Non-cash transactions:
   Deferred stock compensation reversal        $     (55) $    (315) $  (1,879)
                                               =========  =========  =========
</TABLE>


The accompanying notes are an integral part of these consolidated financial
 statements

                                       43
<PAGE>

                              MICREL, INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  Years Ended December 31, 2005, 2004 and 2003

1.   SIGNIFICANT ACCOUNTING POLICIES

Nature of Business - Micrel, Incorporated and its wholly-owned
subsidiaries (the "Company") develops, manufactures and markets analog,
mixed-signal and digital semiconductor devices. The Company also provides
custom and foundry services which include silicon wafer fabrication,
integrated circuit ("IC") assembly and testing. The Company's standard ICs
are sold principally in North America, Asia, and Europe for use in a
variety of products, including those in the computer, communication, and
industrial markets. The Company's custom circuits and wafer foundry
services are provided to a wide range of customers that produce electronic
systems for communications, consumer, automotive and military
applications. The Company produces the majority of its wafers at the
Company's wafer fabrication facilities located in San Jose, California.
After wafer fabrication, the completed wafers are then separated into
individual circuits and packaged at independent assembly and final test
contract facilities primarily located in Malaysia.

Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of Micrel, Incorporated and its wholly-
owned subsidiaries. All significant intercompany accounts and transactions
have been eliminated.

Reclassifications - Certain prior year amounts have been reclassified to
conform to the current-year presentation. These reclassifications had no
impact on the Company's results of operations or changes in stockholders'
equity.

Use of Estimates - In accordance with accounting principles generally
accepted in the United States of America, management utilizes certain
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. On an on-
going basis, management evaluates its estimates and judgments. Management
bases its estimates and judgments on historical experience and on various
other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily
apparent from other sources. The primary estimates underlying the
Company's financial statements include allowances for doubtful accounts
receivable, reserves for product returns and price adjustments, reserves
for obsolete and slow moving inventory, income taxes, litigation and
accrual for other liabilities. Actual results could differ from those
estimates.

Cash Equivalents - The Company considers all highly liquid debt
instruments purchased with remaining maturities of three months or less to
be cash equivalents.

Investments - Short-term and long-term investments consist primarily of
liquid debt instruments and are classified as available-for-sale securities
and are stated at market value with unrealized gains and losses included in
shareholders' equity. Unrealized losses are charged against income when a
decline in the fair market value of an individual security is determined to
be other than temporary. Realized gains and losses on investments are
included in other income or expense. Investments purchased with remaining
maturity dates of greater than three months and less than 12 months are
classified as short-term. Investments purchased with remaining maturity
dates of 12 months or greater are classified either as short-term or as
long-term based on maturities and the Company's intent with regards to
those securities (expectations of sales and redemptions).

                                       44
<PAGE>

                              MICREL, INCORPORATED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                  Years Ended December 31, 2005, 2004 and 2003

A summary of investments at December 31, 2005 is as follows (in thousands):

<TABLE>
                                                        Unrealized   Unrealized
                                 Amortized    Market      Holding     Holding
                                   Cost        Value       Gains      Losses
                                ----------  ----------  ----------  -----------
<S>                             <C>         <C>         <C>         <C>
Short-term investments           $  48,485   $  48,433   $     -      $      52
</TABLE>

As of December 31, 2005, all maturities of debt securities are less than
one year.

Certain Significant Risks and Uncertainties - Financial instruments that
potentially subject the Company to concentrations of credit risk consist
of cash and cash equivalents, investments and accounts receivable. Risks
associated with cash are mitigated by banking with creditworthy
institutions. Cash equivalents and investments consist primarily of
commercial paper, bank certificates of deposit, money market funds and
auction rate securities and are regularly monitored by management. Credit
risk with respect to the trade receivables is spread over geographically
diverse customers. The Company performs ongoing credit evaluations of its
customers and maintains an allowance for potential credit losses. At
December 31, 2005, three customers accounted for 18%, 15% and 15% of total
accounts receivable. At December 31, 2004, two customers accounted for 18%
and 15% of total accounts receivable. For the year ended December 31, 2005
three customers, an Asian based original equipment manufacturer, an Asian
based stocking representative and a worldwide distributor, accounted for
14%, 12% and 12%, respectively, of the Company's net revenues. For the
year ended December 31, 2004 the same three customers, an Asian based
original equipment manufacturer, a worldwide distributor and an Asian
based stocking representative, accounted for 13%, 12% and 12%,
respectively, of the Company's net revenues. For the year ended
December 31, 2003 two customers, a worldwide distributor and an Asian
based stocking representative, each accounted for 13% of the Company's net
revenues.

Micrel currently purchases certain components from a limited group of
vendors. The packaging of the Company's products is performed by, and
certain of the raw materials included in such products are obtained from,
a limited group of suppliers. The wafer supply for the Company's Ethernet
products is currently dependent upon two large third-party wafer foundry
suppliers. Although the Company seeks to reduce its dependence on limited
source suppliers, disruption or termination of any of these sources could
occur and such disruptions could have an adverse effect on the Company's
financial condition, results of operations, or cash flows.

The Company participates in a dynamic high technology industry and
believes that changes in any of the following areas could have a material
adverse effect on the Company's future financial position, results of
operations, or cash flows: changes in the overall demand for products
offered by the Company; competitive pressures in the form of new products
or price reductions on current products; advances and trends in new
technologies and industry standards; changes in product mix; changes in
third-party manufacturers; changes in key suppliers; changes in certain
strategic relationships or customer relationships; litigation or claims
against the Company based on intellectual property, patents (see Note 11),
product, regulatory or other factors; risks associated with the ability to
obtain necessary components; risks associated with the Company's ability
to attract and retain employees necessary to support its growth.

                                       45
<PAGE>

                              MICREL, INCORPORATED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                  Years Ended December 31, 2005, 2004 and 2003

Inventories - Inventories are stated at the lower of cost (first-in,
first-out method) or market. The Company records adjustments to write down
the cost of obsolete and excess inventory to the estimated market value
based on historical and forecasted demand for its products. Once a reserve
is established, it is maintained until the product to which it relates is
sold or otherwise disposed of. This treatment is in accordance with
Accounting Research Bulletin 43 and Staff Accounting Bulletin 100
"Restructuring and Impairment Charges."

Property, Plant and Equipment - Equipment, building and leasehold
improvements are stated at cost and depreciated using the straight-line
method. Equipment is depreciated over estimated useful lives of three to
five years. Buildings are depreciated over an estimated useful life of
thirty years. Building improvements are depreciated over estimated useful
lives of fifteen to thirty years. Leasehold improvements are amortized
over the shorter of the lease term or the useful lives of the improvements
which is generally 3 to 5 years.

Intangible Assets - In accordance with SFAS No. 142, beginning January 1,
2002, goodwill is no longer amortized, but is reviewed at least annually
for impairment. The Company has no goodwill. The Company applies the
provisions of SFAS No. 144 in evaluating whether any impairment indicators
exist for intangible assets and has determined that its intangible assets
were not impaired at December 31, 2005 and 2004. Acquired technology,
patents and other intangible assets continue to be amortized over their
estimated useful lives of 3 to 7 years using the straight-line method. No
changes were made to the useful lives of amortizable intangible assets or
the classification of intangible assets to goodwill in connection with the
adoption of SFAS No. 142. Components of intangible assets were as follows
(in thousands):

<TABLE>
                                   As of December 31, 2005            As of December 31, 2004
                              --------------------------------    -------------------------------
                                Gross                    Net       Gross                   Gross
                              Carrying   Accumulated  Carrying   Carrying  Accumulated   Carrying
                               Amount   Amortization   Amount     Amount   Amortization   Amount
                              --------  ------------  --------   --------  ------------  --------
<S>                           <C>       <C>           <C>        <C>       <C>           <C>
Developed and core technology $  8,718     $  7,626   $  1,092   $  8,718    $  7,209    $  1,509
Patents and tradename            8,717        5,084      3,633      8,717       4,009       4,708
Customer relationships           1,455        1,428         27      1,455       1,297         158
                              --------     --------   --------   --------    --------    --------
                              $ 18,890     $ 14,138   $  4,752   $ 18,890    $ 12,515    $  6,375
                              ========     ========   ========   ========    ========    ========
</TABLE>

Total intangible amortization expense for the year ended December 31, 2005
was $1.6 million, for the year ended December 31, 2004 was $1.8 million
and for the year ended December 31, 2003 was $2.6 million. Estimated
future intangible amortization expense for intangible assets as of
December 31, 2005, is expected to be approximately $1.6 million in 2006,

$1.5 million in 2007 and 2008 and $122,000 in 2009.

                                       46
<PAGE>

                              MICREL, INCORPORATED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                  Years Ended December 31, 2005, 2004 and 2003

Impairment of Long-Lived Assets - Pursuant to SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets," the Company
periodically assesses whether long-lived assets, including identifiable
intangible assets, have been impaired. An asset is initially evaluated for
impairment if its estimated future undiscounted cash flows are less than
the carrying value recorded on the Company's balance sheet. If a shortfall
exists, any impairment is measured based on the difference between the
fair value and the carrying value of the long-lived asset. The Company's
estimate of fair value is based on either fair market value information,
if available or based on the net present value of expected future cash
flows attributable to the asset. Predicting future cash flows attributable
to a particular asset is difficult, and requires the use of significant
judgment.

Revenue Recognition and Receivables - Micrel generates revenue by selling
products to original equipment manufacturers ("OEM"s), distributors and
stocking representatives.  Stocking representative firms may buy and stock
the Company's products for resale or may act as the Company's sales
representative in arranging for direct sales from the Company to an OEM
customer.  The Company's policy is to recognize revenue from sales to
customers when the rights and risks of ownership have passed to the
customer, when persuasive evidence of an arrangement exists, the product
has been delivered, the price is fixed or determinable and collection of
the resulting receivable is reasonably assured.

Micrel allows certain distributors, primarily located in North America and
Europe, and to a lesser extent Asia, significant return rights, price
protection and pricing adjustments subsequent to the initial product
shipment.  As these returns and price concessions have historically been
significant, and future returns and price concessions are difficult to
reliably estimate, the Company defers recognition of revenue and related
cost of sales (in the balance sheet line item "deferred income on
shipments to distributors") derived from sales to these distributors until
they have resold the Company's products to their customers. Although
revenue recognition and related cost of sales are deferred, the Company
records an accounts receivable and relieves inventory at the time of
initial product shipment.  As standard terms are FOB shipping point,
payment terms are enforced from shipment date and legal title and risk of
inventory loss passes to the distributor upon shipment. In addition, the
Company may offer to its distributors, where revenue is deferred upon
shipment and recognized on a sell-through basis, price adjustments to
allow the distributor to price the Company's products competitively for
specific resale opportunities. The Company estimates and records an
allowance for distributor price adjustments for which the specific resale
transaction has been completed, but the price adjustment claim has not yet
been received and recorded by the Company.

Sales to OEM customers and Asian based stocking representatives are
recognized upon shipment.  The Company does not grant return rights, price
protection or pricing adjustments to OEM customers.  The Company offers
limited contractual stock rotation rights to stocking representatives.  In
addition, the Company is not contractually obligated to offer, but may
infrequently grant, price adjustments or price protection to certain
stocking representatives on an exception basis. At the time of shipment to
OEMs and stocking representatives, an allowance for returns and price
adjustments is established based upon historical return rates and
estimated price protection rates.

The Company's accounts receivables balances represent trade accounts
receivables which have been recorded at invoiced amount and do not bear
interest.  The Company maintains an allowance for doubtful accounts for
estimated uncollectible accounts receivable. This estimate is based on an
analysis of specific customer creditworthiness and historical bad debts
experience.

                                       47
<PAGE>

                              MICREL, INCORPORATED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                  Years Ended December 31, 2005, 2004 and 2003

Litigation - An estimated liability is accrued when it is determined to be
probable that a liability has been incurred and the amount of loss can be
reasonably estimated. The liability accrual is charged to income in the
period such determination is made. The Company regularly evaluates current
information available to determine whether such accruals should be made.

Warranty Costs - The Company warrants products against defects for a
period of up to 30 days. The majority of Micrel's product warranty claims
are settled through the return of defective product and the reshipment of
replacement product. Warranty returns are included in Micrel's allowance
for returns, which is based on historical return rates. Actual future
returns could be different than the returns allowance established. In
addition, Micrel accrues a liability for specific warranty costs that are
expected to be settled other than through product return and replacement.
As of December 31, 2005 accrued warranty expense was $162,000. Future
actual warranty costs may be different from the accrued warranty expense.

Research and Development Expenses - Research and development expenses are
recognized as incurred and consist primarily of payroll and other
headcount related costs and cost of materials associated with the
development of new wafer fabrication processes and the definition, design
and development of standard products. The Company also expenses prototype
wafers and new production mask sets related to new products as research
and development costs until products based on new designs are fully
characterized by the Company and are demonstrated to support published
data sheets and satisfy reliability tests.

Self Insurance - The Company typically utilizes third-party insurance
subject to varying retention levels or self insurance. The Company is self
insured for a portion of the losses and liabilities primarily associated
with workers' compensation claims and health benefit claims. Losses are
accrued based upon the Company's estimates of the aggregate liability for
claims incurred using historical experience and certain actuarial
assumptions followed in the insurance industry.

Advertising Expenses - The Company expenses advertising costs as incurred.
Advertising expenses for fiscal 2005, 2004 and 2003 were $1.8 million,
$1.6 and $1.0 million respectively.

Income Taxes - Deferred tax assets and liabilities result from temporary
differences between book and tax bases of assets and liabilities, state
and federal research and development credit carryforwards and state
manufacturers credit carryforwards.  The Company had net current deferred
tax assets of $22.1 million and net long-term deferred tax assets of $10.3
million as of December 31, 2005.  The Company must assess the likelihood
that future taxable income levels will be sufficient to ultimately realize
the tax benefits of these deferred tax assets.  The Company currently
believes that future taxable income levels will be sufficient to realize
the tax benefits of these deferred tax assets and has not established a
valuation allowance.

In addition, the calculation of the Company's tax liabilities involves
dealing with uncertainties in the application of complex tax regulations.
The Company records liabilities for anticipated tax audit issues based on
its estimate of whether, and the extent to which, additional taxes may be
due.

                                       48
<PAGE>

                              MICREL, INCORPORATED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                  Years Ended December 31, 2005, 2004 and 2003

Stock-based Awards -  The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees".

Beginning in 1996, the Company began to follow a practice of granting
employee stock options on the date with the lowest closing price within
the thirty-day period subsequent to the employee's date of hire (the
"Thirty-Day Method").  The Company continued to utilize this method
generally but not uniformly, both for new hires and for replenishment
grants to existing employees, until December 20, 2001.  At that time, the
Company determined that options granted using the Thirty-Day Method were
compensatory under APB No 25, and discontinued use of the Thirty-Day
Method thereafter. For financial reporting purposes, per APB No 25, the
measurement date for determining compensation cost in stock option plans
is the first date on which are known both (1) the number of shares that an
individual is entitled to receive and (2) the option purchase price.
Compensation cost is calculated for any difference between the option
exercise price and the fair market value on the measurement date. When
applying APB 25 to the Thirty-Day Method described above, the measurement
date was the thirtieth day following a new-hire's commencement of
employment, when the lowest price (the exercise price) within the first
thirty days following employment commencement was known. Compensation
expense related to options granted under the Thirty-Day Method was
calculated based on the price difference between the exercise price and
the closing price on the thirtieth day following a new-hire's commencement
of employment multiplied by the number of options granted and recognized
as expense over the vesting period (generally five years).  The Company is
continuing to recognize stock compensation expense for amortization of
options granted under the Thirty-Day method.

In addition to the stock options granted using the Thirty-Day Method,
Micrel assumed certain stock options granted to employees of Kendin
Communications in connection with the acquisition of Kendin Communications
in the second quarter of 2001.  Because the fair market value of the
shares subject to those options assumed in the Kendin acquisition exceeded
their exercise prices as of the date Micrel assumed them, the Company
recorded deferred stock compensation expense for the unvested portion of
the assumed options.

Deferred stock compensation expense balances are recorded as a contra-
equity amount and amortized as a charge to operating results over the
applicable vesting periods.  As of December 31, 2005 total unamortized
stock compensation related to the Thirty-Day Method and the Kendin
Communication acquisition noted above was $294,000. Upon the adoption of
SFAS No. 123R (see "New Accounting Standards" below) the unamortized APB
25 stock compensation will be reversed with a corresponding reduction to
common stock.

SFAS No. 123, "Accounting for Stock-Based Compensation," requires the
disclosure of pro forma net income and earnings per share had the Company
applied the fair value method as of the beginning of fiscal 1995. Under
SFAS No. 123, the fair value of stock-based awards to employees is
calculated through the use of option pricing models, even though such
models were developed to estimate the fair value of freely tradable, fully
transferable options without vesting restrictions, which significantly
differ from the Company's stock option awards. These models also require
subjective assumptions, including future stock volatility and expected
time to exercise, which greatly affect the calculated values. The
Company's calculations for the fair value of stock options were made using
the Black-Scholes option pricing model.  Calculations are based on a
multiple option valuation approach with forfeitures recognized as they
occur and the following weighted average assumptions:

                                       49
<PAGE>
                              MICREL, INCORPORATED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                  Years Ended December 31, 2005, 2004 and 2003

<TABLE>

                                                   Years Ended December 31,
                                                 ----------------------------
                                                   2005      2004      2003
                                                 --------  --------  --------
<S>                                              <C>       <C>       <C>
Expected life (months)                              60        60        60
Stock volatility                                   76.9%     84.0%     85.4%
Risk free interest rates                            4.1%      3.4%      2.9%
Dividends during expected terms                    none      none      none
</TABLE>

The weighted average fair value of options granted under the stock option
plans during 2005, 2004 and 2003 was $6.86, $8.45 and $11.39 per share,
respectively.

The Company's calculations for the fair value of stock issued under the
employee stock purchase plan were made using the Black-Scholes option
pricing model with the following weighted average assumptions:

<TABLE>
                                                   Years Ended December 31,
                                                 ----------------------------
                                                   2005      2004      2003
                                                 --------  --------  --------
<S>                                              <C>       <C>       <C>
Expected life (months)                               6         6         6
Stock volatility                                   76.9%     84.0%     85.4%
Risk free interest rates                            3.6%      1.8%      1.0%
Dividends during expected terms                    none      none      none
</TABLE>

The weighted average fair value of stock issued under the employee stock
purchase plan during 2005, 2004 and 2003 was $4.02, $4.90 and $3.87 per
share.

SFAS No. 148 was issued in December 2002 and requires that disclosures of
the pro forma effect of using the fair value method of accounting for
stock-based employee compensation be displayed more prominently and in a
tabular format. The following table illustrates the effect on the
Company's net income (loss) and net income (loss) per share if it had
recorded compensation costs based on the estimated grant date fair value
as defined by SFAS No. 123 for all granted stock-based awards (in
thousands, except per share amounts):

<TABLE>
                                                   Years Ended December 31,
                                                 ----------------------------
                                                   2005      2004      2003
                                                 --------  --------  --------
<S>                                              <C>       <C>       <C>
Net income as reported                           $ 25,358  $ 31,253  $  4,847
Add:  stock-based employee compensation
 expense included in reported net income,
 net of tax effects                                   474     1,533     2,516
Deduct:  stock-based employee compensation
 expense determined under fair value based
 method, net of tax effects                       (10,181)  (12,608)  (14,282)
                                                 --------  --------  --------
Pro forma net income (loss)                      $ 15,651  $ 20,178  $ (6,919)
                                                 ========  ========  ========
Net income per share as reported:
  Basic                                          $   0.29  $   0.34  $   0.05
                                                 ========  ========  ========
  Diluted                                        $   0.29  $   0.34  $   0.05
                                                 ========  ========  ========
Pro forma net income (loss) per share:
  Basic                                          $   0.18  $   0.22  $  (0.08)
                                                 ========  ========  ========
  Diluted                                        $   0.18  $   0.22  $  (0.08)
                                                 ========  ========  ========
</TABLE>

For the years ended December 31, 2004 and 2003, pro forma stock
compensation amounts have been revised to reflect the estimated tax effect
of various stock option grants.  These revisions resulted in a decrease in
pro forma net income of $1.5 million in 2004 ($0.02 per diluted share) and
an increase in pro forma net loss of $1.4 million ($0.02 per diluted
share) in 2003.

                                       50
<PAGE>
                              MICREL, INCORPORATED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                  Years Ended December 31, 2005, 2004 and 2003

Net Income per Share - Basic earnings per share ("EPS") is computed by
dividing net income by the number of weighted-average common shares
outstanding. Diluted EPS reflects potential dilution from outstanding
stock options, using the treasury stock method. Reconciliation of
weighted-average shares used in computing earnings per share is as follows
(in thousands):

<TABLE>
                                                   Years Ended December 31,
                                                 ----------------------------
                                                   2005      2004      2003
                                                 --------  --------  --------
<S>                                              <C>       <C>       <C>
Weighted-average common shares outstanding         87,055    91,498    92,215
Dilutive effect of stock options outstanding,
 using the treasury stock method                      916     1,585     1,571
                                                 --------  --------  --------
Shares used in computing diluted earnings
 per share                                         87,971    93,083    93,786
                                                 ========  ========  ========
</TABLE>

For the years ended December 31, 2005, 2004 and 2003, 7.2 million, 4.9
million and 3.9 million stock options, respectively, have been excluded
from the weighted-average number of common shares outstanding for the
diluted net income per share computations as they are anti-dilutive.

Fair Value of Financial Instruments - Financial instruments included in
the Company's consolidated balance sheets at December 31, 2005 and 2004,
consist of cash, cash equivalents, accounts receivable and accounts
payable, short-term and long-term investments and long-term debt. For
cash, the carrying amount is the fair value. The carrying amount for cash
equivalents, accounts receivable and accounts payable approximates fair
value because of the short maturity of those instruments. The fair value
of short-term and long-term investments are based on quoted market prices.
The fair value of long-term debt approximates the carrying amount due to
the variable interest rate.

New Accounting Standards - In November 2004, the FASB issued Statement of
Financial Accounting Standards ("SFAS") No. 151, "Inventory Costs," which
clarifies the accounting for abnormal amounts of idle facility expense,
freight, handling costs, and wasted material. Companies will no longer be
permitted to capitalize inventory costs on their balance sheets when the
production defect rate varies significantly from the expected rate as SFAS
No. 151 requires that those items be recognized as current-period charges
regardless of whether they meet the criterion of "so abnormal".  It also
makes clear that fixed overhead should be allocated based on "normal
capacity" of the production facilities. SFAS No. 151 will be effective for
inventory costs incurred during fiscal years beginning after June 15,
2005, which is 2006 for the Company. The Company is currently evaluating
the potential impacts, if any, that the adoption of SFAS No. 151 may have
on the Company's consolidated financial statements.

In May 2005, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards  (SFAS) No. 154, "Accounting Changes and
Error Corrections."  This statement generally requires retrospective
application to prior periods' financial statements of voluntary changes in
accounting principles.  Under the prior rules, changes in accounting
principles were generally recognized by including in net income of the
period of the change the cumulative effect of changing to the new
accounting principle.  This statement does not change the previous
guidance for reporting the correction of an error in previously issued
financial statements, change in accounting estimate or justification of a
change in accounting principle on the basis of preferability.  This
statement is effective for accounting changes made in fiscal years
beginning after December 15, 2005.  Management does not expect the
adoption of this standard to have a material effect on the Company's
consolidated financial statements.

                                       51
<PAGE>

                              MICREL, INCORPORATED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                  Years Ended December 31, 2005, 2004 and 2003

In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment."
SFAS No. 123R is a revision of SFAS No. 123, and supersedes APB 25. Among
other items, SFAS No. 123R eliminates the use of APB 25 and the intrinsic
value method of accounting, and requires companies to recognize the cost
of employee services received in exchange for awards of equity
instruments, based on the fair value of those awards as of the grant date,
in the financial statements. As a result of the SEC's April 2005 deferral
of the effective date of SFAS No. 123R, the Company will be required to
adopt SFAS No. 123R effective January 1, 2006. SFAS No. 123R permits
companies to adopt its requirements using either a "modified prospective"
method, or a "modified retrospective" method. Under the "modified
prospective" method, compensation cost is recognized in the financial
statements beginning with the effective date, based on the requirements of
SFAS No. 123R for all share-based payments granted after that date, and
based on the requirements of SFAS No. 123 for all unvested awards granted
prior to the effective date of SFAS No. 123R. Under the "modified
retrospective" method, the requirements are the same as under the
"modified prospective" method, but that the entity restates its financial
statements of previous periods based on proforma disclosures made in
accordance with SFAS No. 123. The Company intends to use the modified
prospective method for implementing SFAS 123R.

The Company currently utilizes a standard option pricing model (Black-
Scholes) to measure the fair value of stock options granted to employees.
While SFAS No. 123R permits entities to continue to use such a model, the
standard also permits the use of a "lattice" model.

The adoption of SFAS 123R will reduce the Company's reported net income
and earnings per share. The Company currently estimates that the adoption
of SFAS 123R will result in additional amortization of stock based
compensation expense and a reduction of operating income for 2006 of
approximately $10 million to $15 million. However, the actual impact to
net income of adopting SFAS 123R in 2006 could differ from this estimate
depending upon the number and timing of options granted during 2006, as
well as their vesting period and vesting criteria, and the tax effect on
stock compensation expense due to the timing and quantity of incentive
stock options exercised . The Company's estimate is based on the expected
use of the Black-Scholes option pricing model and is affected by the
Company's stock price as well as assumptions regarding a number of complex
and subjective variables and the related tax impact. These variables
include, but are not limited to, the volatility of the Company's stock
price and employee stock option exercise behaviors. As such, the Company's
actual stock option expense may differ materially from this estimate.

In November 2005, the FASB issued FSP Nos. FAS 115-1 and FAS 124-1, "The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments (FSP 115-1)," which replaces the measurement and recognition
guidance set forth in the Emerging Issues Task Force (EITF) Issue No. 03-
1, "The Meaning of Other-Than-Temporary Impairment and Its Application to
Certain Investments," and codifies certain existing guidance on investment
impairment.  FSP 115-1 clarifies that an investor should recognize an
impairment loss no later than when the impairment is deemed other-than-
temporary, even if a decision to sell the security has not been made, and
also provides guidance on the subsequent accounting for an impaired debt
security.  FSP 115-1 also requires certain disclosures about unrealized
losses that have not been recognized as other-than-temporary impairments.
The guidance in FSP 115-1 amends SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" and is effective for reporting
periods beginning after December 15, 2005.  The Company plans to adopt the
provisions of FSP 115-1 beginning on January 1, 2006 and the adoption is
not expected to have a material impact on its financial condition or
results of operations.

                                       52
<PAGE>

                              MICREL, INCORPORATED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                  Years Ended December 31, 2005, 2004 and 2003

2.   ACQUISITION

On March 3, 2004, Micrel acquired a controlling interest in BlueChip
Communications AS ("BlueChip") of Oslo, Norway.  BlueChip is a fabless
semiconductor company that designs, develops and markets high performance
Radio Frequency integrated circuits and modules for the actuation and
connectivity markets.  During 2004, Micrel acquired 100% of the
outstanding BlueChip common stock and options to purchase BlueChip common
stock in a cash-for-stock transaction.  The acquisition was accounted for
as a purchase under SFAS 141 "Business Combinations" and, accordingly, the
results of operations of BlueChip from the date of acquisition forward
have been included in the Company's consolidated financial statements.
Under the terms of the agreement, Micrel paid approximately $2 million and
incurred approximately $300,000 in direct acquisition costs for the
outstanding BlueChip securities and options.  The fair value of the
acquired assets exceeded the purchase price by $1.3 million. The Company
deferred $1.0 million of this excess amount as potential contingent
consideration of $1.0 million was payable, under the terms of the
agreement, if certain revenue and gross profit targets were met by the
BlueChip operations during calendar year 2004.

As of December 31, 2004, it was determined that the additional contingent
consideration of $1.0 million, which was initially recorded in the first
quarter of 2004, would not be payable as certain revenue and gross profit
targets were not achieved by the BlueChip operations and accordingly, was
reversed in the fourth quarter of 2004. A summary of the purchase price
allocation recorded as of the acquisition date, and then as adjusted for
the final determination of the contingent consideration is as follows (in
thousands):

<TABLE>
                                               Allocation of Purchase Price for
                                                   BlueChip Communications
                                               --------------------------------
                                                Initially    Adjusted for Final
                                               Recorded at      Determination
                                               Acquisition      of Contingent
                                                   Date         Consideration
                                               -----------   ------------------
<S>                                            <C>           <C>
Current assets                                  $   1,117         $   1,117
Equipment and other, net                               44                28
Deferred tax assets                                   440               440
Intangible assets, purchased
 in-process technology                                480               303
Intangible assets, core technology                  1,714             1,075
Intangible assets, customer relationships             450               282
Liabilities assumed                                  (945)             (945)
                                                ---------         ---------
Acquisition cost                                $   3,300         $   2,300
                                                =========         =========
</TABLE>

Purchased in-process technology, which had not reached technological
feasibility and had no alternative future use, was recorded as a charge to
the line item purchased in-process technology in the consolidated
statement of operations for the year ended December 31, 2004. In-process
technology costs consist of five research and development projects that
had not yet reached technological feasibility at the time of acquisition.
In addition, the amounts above which have been allocated to existing
technology and customer relationships are included in intangible assets in
the accompanying consolidated balance sheet.  These intangible assets are
being amortized over their useful lives of five and three years,
respectively.  The amounts assigned to existing technology, customer
relationships and purchased in-process technology were determined by
management, based in part on a valuation by an independent appraisal firm
based on management's forecast of future revenues, cost of revenues and

                                       53
<PAGE>

                              MICREL, INCORPORATED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                  Years Ended December 31, 2005, 2004 and 2003

operating expenses related to the purchased technologies.  The calculation
gave consideration to relevant market sizes and growth factors, expected
industry trends, the anticipated nature and timing of new product
introductions, individual product cycles, and the estimated lives of each
of the products underlying the technology.

The Company has not presented supplemental pro-forma results of operations
reflecting the impact of the BlueChip acquisition as the effect is not
material.

In addition, Micrel has recorded an intangible asset of $800,000 for the
license of certain developed technology pursuant to a pre-acquisition
development and license agreement which was entered into with BlueChip in
2001.  This intangible asset is being amortized to cost of revenues over
its estimated useful life of five years.


3.   INVENTORIES

Inventories at December 31 consist of the following (in thousands):

<TABLE>
                                                         2005        2004
                                                       --------    --------
<S>                                                    <C>         <C>
Finished goods                                         $ 12,472    $ 15,912
Work in process                                          17,044      18,585
Raw materials                                               903       1,247
                                                       --------    --------
                                                       $ 30,419    $ 35,744
                                                       ========    ========
</TABLE>


4.   PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at December 31 consist of the following (in
thousands):

<TABLE>
                                                         2005        2004
                                                       --------    --------
<S>                                                    <C>         <C>
Manufacturing equipment                                $164,240    $170,364
Land                                                      6,635       6,635
Buildings and improvements                               42,541      41,721
Leasehold  improvements                                     739         662
Office furniture and research equipment                  11,765      12,648
                                                       --------    --------
                                                        225,920     232,030
Accumulated depreciation and amortization              (148,366)   (150,425)
                                                       --------    --------
                                                       $ 77,554    $ 81,605
                                                       ========    ========
</TABLE>

Depreciation expense for the years ended December 31, 2005 and 2004 and
2003 was $18.3 million, $23.0 million and $26.0 million, respectively

                                       54
<PAGE>

                              MICREL, INCORPORATED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                  Years Ended December 31, 2005, 2004 and 2003

5.   OTHER ACCRUED LIABILITES



Other accrued liabilities at December 31 consist of the following (in
thousands):

<TABLE>
                                                         2005        2004
                                                       --------    --------
<S>                                                    <C>         <C>
Accrued current liability under patent
 license agreement                                     $     -     $  1,852
Accrued current restructuring expenses                    1,759       2,021
Accrued workers compensation and health insurance         1,343       1,555
Accrued litigation                                        9,282          -
All other current accrued liabilities                       857         546
                                                       --------    --------
                                                       $ 13,241    $  5,974
                                                       ========    ========
</TABLE>


6.   BORROWING ARRANGEMENTS

Borrowing arrangements consist of a $6 million revolving line of credit
from a commercial bank.  The revolving line of credit agreement includes a
provision for the issuance of commercial or standby letters of credit by
the bank on behalf of the Company.  The value of all letters of credit
outstanding reduces the total line of credit available.  There were no
borrowings under the revolving line of credit at December 31, 2005, and
there were $875,000 in standby letters of credit outstanding.  The
revolving line of credit agreement expires on June 30, 2006.  Borrowings
under the revolving line of credit bear interest rates of, at the
Company's election, the prime rate (7.25% at December 31, 2005), or the
bank's revolving offshore rate, which approximates LIBOR (4.54% at
December 31, 2005) plus 2.0%.  The agreement contains certain restrictive
covenants that include a restriction on the declaration and payment of
dividends without the lender's consent.  The Company was in compliance
with all such covenants at December 31, 2005.

In September 2002, the Company borrowed $10.7 million through a commercial
mortgage financing agreement which was associated with the purchase of its
previously leased manufacturing facilities in San Jose, CA.  Borrowings
under this agreement bear interest, at the Company's election, at the
daily floating prime rate, or adjustable monthly LIBOR plus 1.5%.  The
principal balance of the loan was to be repaid in 59 consecutive monthly
installments of $16,890 and one final installment in the amount necessary
to pay in full the remaining outstanding principal balance, with no early
payment penalty.  In December 2003, the Company repaid $7.0 million of the
loan. In October 2004, the Company repaid the remaining loan balance of
$3.3 million resulting in no balance outstanding at December 31, 2004 and
2005.

Associated with the acquisition of BlueChip Communications, the Company
has $147,000 outstanding in term notes payable to the Norwegian Industrial
and Regional Development Fund.

Long-term debt at December 31 consists of the following (in thousands):

<TABLE>
                                                         2005        2004
                                                       --------    --------
<S>                                                    <C>         <C>
Notes payable bearing interest at 9.5%, payable in
 quarterly installments through March 2006.                 147         247
                                                       --------    --------
Total debt                                                  147         247
Current portion                                            (147)       (164)
                                                       --------    --------
Long-term debt                                         $     -     $     83
                                                       ========    ========
</TABLE>

                                       55
<PAGE>

                              MICREL, INCORPORATED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                  Years Ended December 31, 2005, 2004 and 2003

7.   SHAREHOLDERS' EQUITY

Preferred Stock

The Company has authorized 5,000,000 shares of preferred stock, no par
value, of which none were issued or outstanding at December 31, 2005. The
preferred stock may be issued from time to time in one or more series. The
Board of Directors is authorized to determine or alter the rights,
preferences, privileges and restrictions of such preferred stock.

Stock Repurchase Plan

On August 30, 2004, Micrel's Board of Directors amended the Company's
common stock repurchase program and authorized the repurchase of common
stock up to a maximum value of $75 million during the period from January
1, 2004 through June 30, 2005.  Shares of common stock purchased pursuant
to the repurchase program are cancelled upon repurchase, and are intended
to offset dilution from the Company's stock option plans, employee stock
purchase plans and 401(k) plan. The Company repurchased 3,538,000 shares
of its common stock for $39.4 million during the year ended December 31,
2004 and 492,450 shares for $6.5 million during the year ended
December 31, 2003.

In March of 2005 the Board of Directors approved a $75 million share
repurchase program for calendar year 2005.  The action superceded the
Company's previously approved authorization to repurchase Micrel common
stock announced on August 30, 2004. The March 2005 repurchase plan
terminated on December 31, 2005. The Company repurchased 6,065,300 shares
of its common stock for $63.4 million during the year ended December 31,
2005

On November 17, 2005 the Company's Board of Directors adopted a new plan
and authorized the repurchase of common stock up to a maximum value of $75
million during the period from January 1, 2006 through December 31, 2006.

Stock Option Plans

Under the Company's 2003 Incentive Award Plan, 1994 Stock Option Plan and
its 2000 Non-Qualified Stock Incentive Plan (the "Option Plans"),
39,958,672 shares of Common Stock are authorized for issuance to
employees. The Option Plans provide that the option price will be
determined by the Board of Directors at a price not less than the fair
value as represented by the closing price of the Company's Common Stock on
the last market trading day before the date of grant. Certain
shareholder/employees of the Company are granted options at 110% of the
current fair market value. Options granted under the 2000 Non-Qualified
Stock Incentive Plan are exercisable in 20% increments with the initial
20% vesting occurring six months after the date of grant and then in
annual increments of 20% per year from the date of grant. Options granted
under the 2003 Incentive Award Plan and 1994 Stock Option Plan typically
become exercisable in not less than cumulative annual increments of 20%
per year from the date of grant. At December 31, 2005, 17,174,450 total
shares were reserved for future issuance, of which 4,687,447 shares were
available for future grants under the Option Plans.

                                       56
<PAGE>

                              MICREL, INCORPORATED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                  Years Ended December 31, 2005, 2004 and 2003

Option activity under the Option Plans is as follows:
<TABLE>
                                                                      Weighted
                                                                       Average
                                                            Number    Exercise
                                                          of Shares     Price
                                                         -----------  ---------
<S>                                                      <C>          <C>
Outstanding, December 31, 2002 (5,625,721 exercisable
 at a weighted average price of $11.25 per share)          9,221,494   $ 12.92
Granted                                                    3,725,003     11.39
Exercised                                                   (738,195)     7.11
Canceled                                                    (690,317)    14.36
                                                         -----------
Outstanding, December 31, 2003 (7,353,219 exercisable
 at a weighted average price of $11.94 per share)         11,517,985     12.72
Granted                                                    1,665,000     12.43
Exercised                                                   (607,989)     7.53
Canceled                                                    (477,913)    15.04
                                                         -----------
Outstanding, December 31, 2004 (8,253,200 exercisable
 at a weighted average price of $12.76 per share)         12,097,083     12.85
Granted                                                    1,840,200     10.62
Exercised                                                   (683,661)     7.38
Canceled                                                    (766,619)    15.62
                                                         -----------
Outstanding, December 31, 2005                            12,487,003   $ 12.65
                                                         ===========
</TABLE>

Additional information regarding options outstanding as of December 31,
2005 is as follows:

<TABLE>
             Stock Options Outstanding                 Options Exercisable
----------------------------------------------------  ---------------------
                                Weighted
                                 Average    Weighted               Weighted
                                Remaining    Average                Average
    Range of         Number    Contractual  Exercise    Number     Exercise
Exercise Prices   Outstanding  Life(yrs)      Price   Exercisable   Price
----------------  -----------  -----------  --------  -----------  --------
<S>               <C>          <C>          <C>       <C>          <C>
$ 0.47 to $ 7.50    1,320,555       2.8      $ 6.48     1,238,174   $ 6.44
$ 7.51 to $ 9.00    1,002,596       4.1        8.55       748,456     8.52
$ 9.01 to $10.50    2,352,988       6.0        9.59     1,247,166     9.40
$10.51 to $12.00    2,732,947       7.9       10.91     1,577,462    10.77
$12.01 to $13.50    1,566,250       5.6       12.87       911,960    13.11
$13.51 to $15.00      863,780       6.2       13.98       469,980    14.18
$15.01 to $20.00    1,388,110       5.8       17.31       944,680    18.04
$20.01 to $30.00      990,577       4.4       21.91       884,482    21.72
$30.01 to $49.50      269,200       4.5       38.97       268,680    38.95
                   ----------                           ---------
$ 0.47 to $49.50   12,487,003       5.7      $12.65     8,291,040   $13.08
                   ==========                           =========
</TABLE>

Employee Stock Purchase Plan

Under the 1994 Employee Stock Purchase Plan, amended and restated as of
January 1, 1996, (the "Purchase Plan"), eligible employees are permitted
to have salary withholdings to purchase shares of Common Stock at a price
equal to 85% of the lower of the market value of the stock at the
beginning or end of each six-month offer period, subject to an annual
limitation. Shares of Common Stock issued under the Purchase Plan were
202,325 in 2005, 233,492 in 2004 and 270,197 in 2003 at weighted average
prices of $9.42, $9.41 and $8.49, respectively. At December 31, 2005,
there were 2,278,346 shares of Common Stock issued under the Purchase
Plan. The Purchase Plan expired on December 31, 2005.

                                       57
<PAGE>

                              MICREL, INCORPORATED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                  Years Ended December 31, 2005, 2004 and 2003

8.   INCOME TAXES

The provision for income taxes for the years ended December 31 consists of
the following (in thousands):

<TABLE>
                                                 2005       2004       2003
                                              ---------  ---------  ---------
<S>                                           <C>        <C>        <C>
Currently payable (receivable):
  Federal                                     $  19,807  $     (27) $    (904)
  State                                          (1,092)        81     (1,898)
                                              ---------  ---------  ---------
Total currently payable (receivable)             18,715         54     (2,802)
                                              ---------  ---------  ---------

Deferred income taxes:
  Federal                                        (7,452)    10,775      5,780
  State                                             679        377     (2,123)
                                              ---------  ---------  ---------
Total deferred                                   (6,773)    11,152      3,657
                                              ---------  ---------  ---------
Total provision                               $  11,942  $  11,206  $     855
                                              =========  =========  =========
</TABLE>

Pre-tax income from non-U.S. jurisdictions was not material in all periods
presented.

The calculation of the Company's tax liabilities involves dealing with
uncertainties in the application of complex tax regulations.  The Company
records liabilities for anticipated tax audit issues based on its estimate
of whether, and the extent to which, additional taxes may be due.  Actual
tax liabilities may be different than the recorded estimates and could
result in an additional charge or benefit to the tax provision in the
period when the ultimate tax assessment is determined.

During the second quarter of 2004, the Company reversed $3.8 million of
accrued income tax liabilities as a result of the completion of a federal
income tax audit.  In May 2004, the Company received an audit report from
the Internal Revenue Service ("IRS") which recommended no changes to
Micrel's federal tax return filings covering the tax years 1994 through
2001.  In addition, the Company subsequently received a notice dated July
6, 2004 from the Joint Committee on Taxation which stated that the
committee took no exceptions to conclusions in the IRS audit report.  This
reversal of accrued income tax liabilities was recorded as a reduction to
provision for income taxes in the second quarter of 2004.

In addition, related to the federal tax audit completion, the Company also
reversed in operating expenses $3.9 million (offset in part by a $1.4
million income tax effect) in accrued payroll tax liabilities, which were
recorded in prior periods.

The effects of these accrued tax liability reversals on the below-noted
items in the Company's statement of operations for the year ended December
31, 2004 is summarized as follows (in thousands):


<TABLE>
                                                          Increase
                                                         (Decrease)
                                                         ---------
<S>                                                      <C>
Reversal of accrued payroll tax liabilities:
   Cost of revenues                                      $  (1,111)
   Research and development                                 (1,697)
   Selling, general and administrative                      (1,140)
                                                         ---------
   Total reversed in operating expense                      (3,948)
Income tax effect of payroll tax liability reversal          1,382
Reversal of accrued income tax liabilities                  (3,760)
                                                         ---------
Net income                                               $   6,326
                                                         =========
</TABLE>

                                       58
<PAGE>

                              MICREL, INCORPORATED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                  Years Ended December 31, 2005, 2004 and 2003

A reconciliation of the statutory federal income tax rate to the effective
tax rate for the years ended December 31 is as follows:

<TABLE>
                                                 2005       2004       2003
                                              ---------  ---------  ---------
<S>                                           <C>        <C>        <C>
Statutory federal income tax rate                 35%        35%        35%
Research and development credit                   (2)         -          -
Qualified production activities credit            (1)         -          -
State income taxes (net of federal income
 tax benefit)                                     (1)          1       (21)
Extraterritorial income exclusion                  -          (3)        -
Effects of reversal of accrued income
 tax liabilities                                  (1)         (9)        -
Other                                              2           2         1
                                              ------      ------   -------
Effective tax rate                                32%         26%       15%
                                              ======      ======   =======
</TABLE>

Deferred tax assets and liabilities result primarily from temporary
differences between book and tax bases of assets and liabilities, state
and federal research and development credit carryforwards and state
manufacturers credit carryforwards.

Deferred tax assets and liabilities at December 31 are as follows (in
thousands):

<TABLE>
                                                         2005        2004
                                                       --------    --------
<S>                                                    <C>         <C>
Deferred tax assets:
  Accruals and reserves not currently deductible       $ 14,573    $ 11,566
  Deferred income                                         5,670       5,595
  Tax net operating loss and credit carryforwards        20,192      20,181
  Non-qualified stock compensation                        2,442          -
  Capitalized research and development                    1,832       2,749
                                                       --------    --------
Total deferred tax asset                                 44,709      40,091
                                                       --------    --------
Deferred tax liabilities:
  Depreciation                                           (4,562)     (6,480)
  State income taxes                                     (7,749)     (7,986)
                                                       --------    --------
Total deferred tax liability                            (12,311)    (14,466)
                                                       --------    --------
Net deferred tax asset (current and non-current)       $ 32,398    $ 25,625
                                                       ========    ========
</TABLE>

The Company must assess the likelihood that future taxable income levels
will be sufficient to ultimately realize the tax benefits of these
deferred tax assets.  The Company currently believes that future taxable
income levels will be sufficient to realize the tax benefits of these
deferred tax assets and has not established a valuation allowance.  Should
the Company determine that future realization of these tax benefits is not
likely, a valuation allowance would be established, which would increase
the Company's tax provision in the period of such determination.

Included in net deferred assets are net operating loss and credit
carryforwards. Due to the Company's acquisition of Synergy, the Company
has available pre-ownership change federal net operating loss
carryforwards of approximately $6 million which will begin to expire in
2006 if not utilized. Under Section 382 of the Internal Revenue Code,
these pre-ownership change net operating loss carryforwards are subject to
an annual limitation estimated to be approximately $500,000. The Company
believes that it is more likely than not that these net operating loss
carryforwards will be utilized before expiration. In addition, the Company
has available state credit carryforwards of approximately $17 million
consisting primarily of research credit carryforwards, of which
approximately $2 million represents pre-ownership change carryforwards

                                       59
<PAGE>

                              MICREL, INCORPORATED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                  Years Ended December 31, 2005, 2004 and 2003

subject to the Section 382 annual limitation. The state research credit
carryforwards are not subject to expiration and may be carried forward
indefinitely until utilized.


9.   COMMITMENTS AND CONTINGENCIES

Lease Agreements

The Company leases some of its facilities and equipment under operating
lease agreements that expire in the years 2005 through and 2011. Some of
the facility lease agreements provide for escalating rental payments over
the lease periods. Rent expense is recognized on a straight-line basis
over the term of the lease. Deferred rent represents the difference
between rental payments and rent expense recognized on a straight-line
basis.

Future minimum payments under these agreements are as follows (in
thousands):

<TABLE>
<S>                                                    <C>
Year Ending December 31,
   2006                                                 $  3,160
   2007                                                    1,528
   2008                                                    1,400
   2009                                                    1,219
   2010                                                    1,193
Thereafter                                                   386
                                                        --------
                                                        $  8,886
                                                        ========
</TABLE>

The contractual lease payments above include amounts associated with the
Company's Santa Clara, California wafer fabrication facility, of which
$4.1 million and $584,000 related to leases has been recognized in 2002
and 2004, respectively as restructuring expense associated with the
Company's plan to close this facility (Note 13).

Rent expense under operating leases for the years ended December 31, 2005,
2004, and 2003 was (in thousands): $1,443, $1,475 and $2,283,
respectively.

Open Purchase Orders

As of December 31, 2005, the Company had approximately $19.5 million in
open purchase orders. Open purchase orders are defined as agreements to
purchase goods or services that are enforceable and legally binding and
that specify all significant terms, including: fixed or minimum quantities
to be purchased; fixed, minimum or variable pricing provisions; and the
approximate timing of the transactions. These obligations primarily relate
to future purchases of wafer fabrication raw materials, foundry wafers,
assembly and testing services and manufacturing equipment. The amounts are
based on the Company's contractual commitments.

                                       60
<PAGE>

                              MICREL, INCORPORATED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                  Years Ended December 31, 2005, 2004 and 2003

Letters of Credit

Micrel's borrowing arrangements (see Note 6) include a provision for the
issuance of commercial or standby letters of credit by the bank on behalf
of the Company. At December 31, 2005 there were $875,000 in standby
letters of credit outstanding. The letters of credit are issued to
guarantee payments for the Company's workers compensation program.

Indemnification Obligations

Micrel is a party to a variety of contractual relationships pursuant under
which it may be obligated to indemnify the other party with respect to
certain matters. Typically, these obligations arise in the context of
contracts entered into by Micrel, or regular sales and purchasing
activities, under which Micrel may agree to hold the other party harmless
against losses arising from claims related to such matters as title to
assets sold, certain intellectual property rights, specified environmental
matters, certain income taxes, etc.  In these circumstances,
indemnification by Micrel is customarily conditioned on the other party
making a claim pursuant to the procedures specified in the particular
contract or in Micrel's standard terms and conditions, which procedures
may allow Micrel to challenge the other party's claims, or afford Micrel
the right to settle such claims in its sole discretion.  Further, Micrel's
obligations under these agreements may be limited in terms of time and/or
amount, and in some instances, Micrel may have recourse against third
parties for certain payments made by it under these agreements.

It is not possible to predict the maximum potential amount of future
payments or indemnification costs under these or similar agreements due to
the conditional nature of Micrel's obligations and the unique facts and
circumstances involved in each particular agreement. Historically,
payments made by Micrel under these agreements have not had a material
effect on its business, financial condition, cash flows, or results of
operations. Micrel believes that if it were to incur a loss in any of
these matters, such loss would not have a material effect on its business,
financial condition, cash flows or results of operations.


10.   PROFIT-SHARING 401(k) PLAN

The Company has a profit-sharing plan and deferred compensation plan (the
"Plan"). All employees completing one month of service are eligible to
participate in the Plan. Participants may contribute 1% to 15% of their
annual compensation on a before tax basis, subject to Internal Revenue
Service limitations. Profit-sharing contributions by the Company are
determined at the discretion of the Board of Directors. The Company
accrued $622,000 in contributions for the year ended December 31, 2005 and
made $617,000 in contributions to the Plan for the year ended December 31,
2004 and no contributions to the Plan for the year ended December 31,
2003. Participants vest in Company contributions ratably over six years of
service.

                                       61
<PAGE>

                              MICREL, INCORPORATED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                  Years Ended December 31, 2005, 2004 and 2003

11.   LITIGATION

On February 26, 1999, the Lemelson Medical, Education & Research
Foundation (the "Lemelson Partnership") filed a complaint which was served
on the Company on June 15, 1999, entitled Lemelson Medical, Education &
Research Foundation, Limited Partnership v. Lucent Technologies Inc., et
al. in the United States District Court in Phoenix, Arizona, against
eighty-eight defendants, including the Company, alleging infringement of
Lemelson Foundation patents.  The complaint in the lawsuit seeks
unspecified compensatory damages, treble damages and attorneys' fees, as
well as injunctive relief against further infringement of the Lemelson
patents at issue.  The case is moving very slowly through the motion and
hearing phase.  The Court has proposed a preliminary claim construction,
upon which the parties have not yet agreed.  The Company intends to
continue to defend itself against the claims in suit.

On May 9, 1994, Linear Technology Corporation ("Linear" or "LTC"), a
competitor of the Company, filed a complaint against the Company, entitled
Linear Technology Corporation v. Micrel, Incorporated, in the United
States District Court in San Jose, California, alleging patent and
copyright infringement and unfair competition.  All claims, except the
patent infringement claim, have been settled or dismissed.  After many
years of motions and appeals, a claim construction hearing (also called a
"Markman" hearing) was held before the District Court on December 16,
2003.  The Court issued its ruling on January 24, 2004, interpreting the
claims at issue in the litigation.  A bench trial on the merits was
commenced on November 30, 2005 and concluded on December 16, 2005.  The
parties filed post-trial briefs on January 20, 2006 and are awaiting
issuance of the Court's ruling.

On December 27, 2002, the Company filed a complaint against TRW, Inc.
("TRW") entitled Micrel, Incorporated v. TRW, Inc., dba TRW Automotive
Electronics Group, in the United States District Court, Northern District
of Ohio, Eastern Division, alleging various causes of action relating to
breach of a relationship surrounding the development of certain custom
products by Micrel for TRW.  In this lawsuit, Micrel is alleging that TRW
breached various agreements to assist in Micrel's development of, and to
purchase, certain Application Specific Integrated Circuits.  The complaint
seeks compensatory damages, attorneys' fees and costs of suit.  On
February 24, 2003, TRW filed an answer to the Company's complaint and a
counterclaim alleging various causes of action relating to breach of the
above-mentioned relationship concerning ASIC development.  On July 22,
2005, a jury ruled against the Company and in favor of TRW in its
counterclaim against Micrel.  The outcome of the jury trial was a judgment
on July 26, 2005 awarding damages for the benefit of TRW in the amount of
$9.3 million.  The damages amount was accrued in the Company's second
quarter 2005 financial statements.  On August 9, 2005, the Company filed a
Motion for an order setting aside the jury verdict and the subsequent
judgment and granting a new trial on the issue of the Company's breach of
contract claim against TRW, which Motion was denied by the Court.  On
January 13, 2006, the Company filed a notice of its intent to appeal the
jury's verdict.

On April 21, 2003, the Company filed a complaint against its former
principal accountants Deloitte & Touche LLP ("Deloitte") entitled Micrel,
Incorporated v. Deloitte & Touche LLP in the Superior Court of the State
of California, County of Santa Clara, alleging various causes of action
relating to certain professional advice received by Micrel from Deloitte.
In this lawsuit, Micrel is alleging that Deloitte negligently rendered
services as accountants to Micrel, breached certain agreements with Micrel
by failing to perform services using ordinary skill and competence and in
conformance with generally accepted principles for such work and made
certain false representations upon which Micrel justifiably relied.

                                       62
<PAGE>

                              MICREL, INCORPORATED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                  Years Ended December 31, 2005, 2004 and 2003

Specifically, beginning in 1996, the Company began to follow a practice of
granting employee stock options on the date with the lowest closing price
within the thirty-day period subsequent to the employee's date of hire
(the "Thirty-Day Method").  The Company began this practice after
receiving advice from Deloitte that options granted using the Thirty-Day
Method would not be compensatory under APB No 25.  The Company
subsequently determined that options granted using the Thirty-Day Method
were compensatory under APB No 25, and discontinued use of the Thirty-Day
Method thereafter.  As a direct result of Deloitte's actions, Micrel
alleges damages including: expenses incurred in the form of payments to
various professionals to address the impact on Micrel's financial
statements and other effects of the wrongful conduct; loss of cash as well
as equity from stock options; additional charges to earnings that Micrel
would not incur but for the wrongful advice and the harm to Micrel in both
financial and semiconductor markets resulting in loss of overall value of
the company as a whole.  Deloitte has denied all allegations in the
complaint.  The complaint seeks compensatory damages, costs of suit and
such other relief that the court may deem just and proper.  The case is
currently in the discovery and pre-trial phase.  The parties have
stipulated to continuation of initial and subsequent trial dates.  No new
trial date has been set.

On November 11, 2004, the Company filed a complaint against Monolithic
Power Systems ("MPS"), entitled Micrel, Inc. v. Monolithic Power Systems,
in the United States District Court, Northern District of California (the
"Court") alleging two causes of action for infringement by MPS of certain
patents owned by Micrel.  In the complaint, the Company alleges that MPS
has been and is infringing U.S. patent no. 5,517,046 (the "'046 patent")
and U.S. patent no. 5,556,796 (the " '796 patent").  Micrel alleges
damages attributable to MPS' infringement of the '046 and '796 patents as
a direct result of MPS' actions, including treble damages for wanton,
deliberate, malicious and willful conduct.  Subsequently, on November 29,
2004 the Company filed an amended complaint adding Michael R. Hsing, MPS'
President and Chief Executive Officer ("Hsing"), and James C. Moyer, MPS'
Chief Design Engineer ("Moyer") as defendants.  Hsing and Moyer are both
former employees of Micrel.  In addition to the original two causes of
action against MPS for infringement of the '046 and '796 Patents, the
amended complaint adds causes of action for statutory and common law
misappropriation of Micrel's trade secrets, breach of confidentiality
agreements by Hsing and Moyer, and violation of California's Unfair
Competition Law.  The amended complaint seeks compensatory damages, costs
of suit and such other relief that the Court may deem proper.  On December
16, 2004, MPS filed a Motion to Dismiss the Company's claims for statutory
and common law misappropriation of Micrel's trade secrets.  On April 8,
2005, the Court granted MPS' Motion to Dismiss with leave to amend the
complaint.  On May 2, 2005, Micrel filed a second amended complaint for
patent infringement, misappropriation of trade secrets, common law
misappropriation, breach of confidentiality agreement, and statutory
unfair competition.  On May 23, 2005, MPS filed a Motion to Dismiss the
Company's claims for statutory and common law misappropriation of trade
secrets contained in the second amended complaint.  A hearing was held on
September 30, 2005 on MPS' Motion to Dismiss.  On December 9, 2005, the
Court issued an order granting MPS' Motion to Dismiss with regard to the
statutory and common law misappropriation of trade secrets claims, but
denying the Motion with regard to the Company's claims of breach of
confidentiality agreements and violation of California Business and
Professions Code Section 17200.  The case is in the early discovery phase.

With the exception of the TRW litigation discussed above, for which the
company has recorded $9.3 million in litigation expense, the Company
believes that the ultimate outcome of the legal actions discussed will not
result in a material adverse effect on the Company's financial condition,
results of operation or cash flows, and the Company believes it is not
reasonably possible that a material loss has been incurred.  However,
litigation is subject to inherent uncertainties, and no assurance can be

                                       63
<PAGE>

                              MICREL, INCORPORATED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                  Years Ended December 31, 2005, 2004 and 2003

given that the Company will prevail in these lawsuits.  Accordingly, the
pending lawsuits, as well as potential future litigation with other
companies, could result in substantial costs and diversion of resources
and could have a material adverse effect on the Company's financial
condition, results of operations or cash flows.

The semiconductor industry is characterized by frequent litigation
regarding patent and other intellectual property rights.  To the extent
that the Company becomes involved in such intellectual property
litigation, in addition to litigation mentioned herein, it could result in
substantial costs and diversion of resources to the Company and could have
a material adverse effect on the Company's financial condition, results of
operation or cash flows.

In the event of an adverse ruling in any intellectual property litigation
that now exists or might arise in the future, the Company might be
required to discontinue the use of certain processes, cease the
manufacture, use and sale of infringing products, expend significant
resources to develop non-infringing technology or obtain licenses to the
infringing technology.  There can be no assurance, however, that under
such circumstances, a license would be available under reasonable terms or
at all.  In the event of a successful claim against the Company and the
Company's failure to develop or license substitute technology on
commercially reasonable terms, the Company's financial condition, results
of operations, or cash flows could be adversely affected.  Based on the
status of the litigation described above, the Company does not believe
that any material and specific risk exists related to the loss of use of
patents, products or processes.

Certain additional claims have been filed by or have arisen against the
Company in its normal course of business.  The Company believes that these
claims and lawsuits will not have a material adverse effect on the
Company's financial condition, results of operation or cash flows.


12.   SEGMENT REPORTING

The Company follows the provisions of SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. SFAS No. 131
establishes standards for reporting information regarding operating
segments in annual financial statements and requires selected information
for those segments to be presented in interim financial reports issued to
stockholders. SFAS No. 131 also establishes standards for related
disclosures about products and services and geographic areas. Operating
segments are identified as components of an enterprise about which
separate discrete financial information is available for evaluation by the
chief operating decision maker. The Company has two reportable segments:
standard products and custom and foundry products. The chief operating
decision maker evaluates segment performance based on revenue.
Accordingly, all expenses are considered corporate level activities and
are not allocated to segments. Therefore, it is not practical to show
profit or loss by reportable segments. Also, the chief operating decision
maker does not assign assets to these segments. Consequently, it is not
practical to show assets by reportable segments.

                                       64
<PAGE>

                              MICREL, INCORPORATED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                  Years Ended December 31, 2005, 2004 and 2003

<TABLE>
Net Revenues by Segment (in thousands):           Years Ended December 31,
                                              -------------------------------
                                                 2005       2004       2003
                                              ---------  ---------  ---------
<S>                                           <C>        <C>        <C>
Standard Products                             $ 239,177  $ 246,580  $ 191,134
Custom and Foundry Products                      11,179     10,971     20,592
                                              ---------  ---------  ---------
  Total net revenues                          $ 250,356  $ 257,551  $ 211,726
                                              =========  =========  =========
</TABLE>

For the year ended December 31, 2005, the Company recorded revenue from
customers throughout the United States; Canada and Mexico (collectively
referred to as "Other North American Countries"); the U.K., Italy,
Germany, France, Israel, Sweden, Hungary, Austria, Finland, Switzerland,
and other European countries (collectively referred to as "Europe");
Korea; Taiwan; Singapore; China; Japan; Hong Kong, Malaysia and other
Asian countries (collectively referred to as "Other Asian Countries").

<TABLE>
Geographic Information  (in thousands):
                                 2005                  2004             2003
                         -------------------   -------------------   ---------
                                      Long-                 Long-
                         Total Net    Lived    Total Net    Lived    Total Net
                         Revenues*   Assets    Revenues*   Assets    Revenues*
                         ---------  --------   ---------  --------   ---------
<S>                      <C>        <C>        <C>        <C>        <C>
United States of America  $ 42,706  $ 72,090    $ 45,489  $ 74,774    $ 48,647
Other North American
 Countries                  20,379        -       15,196        -       15,277
Korea                       63,865        92      62,221        66      42,508
Taiwan                      31,095       107      43,233        57      42,857
Singapore                   23,218        15      24,178        13      17,682
China                       17,171        49      23,827        83       8,081
Hong Kong                   12,515        -        3,332        -           -
Japan                       12,495        41      12,072         2      11,230
Other Asian Countries        2,193     4,948       1,555     6,386       3,416
Europe                      24,719       212      26,448       224      22,028
                         ---------  --------   ---------  --------   ---------
Total                     $250,356  $ 77,554    $257,551  $ 81,605    $211,726
                          ========  ========    ========  ========    ========
</TABLE>

* Total revenues are attributed to countries based on "ship to" location of
customer.

Long-lived assets consist of property, plant and equipment.


13.   RESTRUCTURING AND MANUFACTURING FACILITY IMPAIRMENT

In September 2002, the Company approved a plan to close its Santa Clara,
California wafer fabrication facility to reduce costs and improve
operating efficiencies.  The Company accrued $5.5 million in restructuring
expenses associated with the facility closure which consisted of $1.0
million for equipment disposal costs and $4.5 million in net contractual
building lease costs, excluding estimated sublease income, that will
provide no future benefit.  During July 2003, the Company ceased all
manufacturing processes within the Santa Clara facility and completed the
relocation of all employees to its San Jose, California facilities. During
2004, the Company increased its accrued restructuring expenses for
contractual building lease costs by $584,000 to eliminate remaining
estimated future sub-lease income as efforts to sub-lease the facility
have been unsuccessful to date and the estimated probability of future
sub-lease has been reduced to less than probable.

                                       65
<PAGE>

                              MICREL, INCORPORATED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                  Years Ended December 31, 2005, 2004 and 2003

During 2003, the Company incurred and paid severance costs of $320,000
related to the termination of 46 employees associated with the wafer
fabrication facility closure. The affected employees consisted primarily
of wafer fabrication operators and maintenance technicians. These
termination costs have been reported as restructuring expense in the
statement of operations.

A summary of restructuring expense accrual is as follows: ($000)
<TABLE>
                                             Contractual
                                  Severance   Facility    Equipment
                                    Costs       Costs      Disposal    Total
                                  ---------  -----------  ---------  ---------
<S>                              <C>        <C>          <C>        <C>
2002   Charges                   $      -     $   4,536   $   1,000  $   5,536
       Uses                             -            -           -          -
                                 ---------    ---------   ---------  ---------
       Balance December 31, 2002        -         4,536       1,000      5,536
2003   Charges                         320          466        (500)       286
       Uses                           (320)        (883)        (89)    (1,292)
                                 ---------    ---------   ---------  ---------
       Balance December 31, 2003        -         4,119         411      4,530
2004   Charges                          -           584          -         584
       Uses                             -        (1,654)        (51)    (1,705)
                                 ---------    ---------   ---------  ---------
       Balance December 31, 2004        -         3,049         360      3,409
2005   Charges                          -            -           -          -
       Uses                             -        (1,650)         -      (1,650)
                                 ---------    ---------   ---------  ---------
       Balance December 31, 2005 $      -     $   1,399   $     360  $   1,759
                                 =========    =========   =========  =========
</TABLE>

All of the $1.8 million in accrued restructuring costs has been included
within other accrued liabilities as of December 31, 2005. As of December
31, 2004, approximately $2.0 million in accrued restructuring costs was
included within other accrued liabilities and $1.4 million within other
long-term obligations. These restructuring costs are expected to be paid
in cash over the remaining facility lease term, which expires in October
2006. Actual future costs or actual sublease income may be different than
the Company's estimates and could require an adjustment to the
restructuring accrual in the period such determination is made.

                                       66
<PAGE>

              SUPPLEMENTAL QUARTERLY FINANCIAL SUMMARY - UNAUDITED

<TABLE>
(in thousands, except per                      Three Months Ended
  share amounts)                       --------------------------------------
                                       Mar. 31,  June 30,  Sept. 30, Dec. 31,
                                         2005     2005(1)    2005      2005
                                       --------  --------  --------  --------
<S>                                    <C>       <C>       <C>       <C>
Net revenues                           $ 60,685  $ 62,052  $ 62,472  $ 65,147
Gross profit                           $ 30,376  $ 32,152  $ 33,792  $ 37,472
Net income                             $  6,603  $  1,183  $  7,721  $  9,851
Net income per share:
  Basic                                $   0.07  $   0.01  $   0.09  $   0.12
  Diluted                              $   0.07  $   0.01  $   0.09  $   0.11

Weighted-average shares used in
 computing per share amounts:
  Basic                                  89,102    87,256    86,514    85,619
  Diluted                                89,624    88,097    88,047    86,641
</TABLE>


<TABLE>
(in thousands, except per                      Three Months Ended
  share amounts)                       --------------------------------------
                                       Mar. 31,  June 30,  Sept. 30, Dec. 31,
                                         2004     2004(2)    2004      2004
                                       --------  --------  --------  --------
<S>                                    <C>       <C>       <C>       <C>
Net revenues                           $ 61,261  $ 68,996  $ 67,853  $ 59,441
Gross profit                           $ 27,544  $ 34,378  $ 33,255  $ 27,520
Net income                             $  4,575  $ 14,048  $  7,536  $  5,094
Net income per share:
  Basic                                $   0.05  $   0.15  $   0.08  $   0.06
  Diluted                              $   0.05  $   0.15  $   0.08  $   0.06

Weighted-average shares used in
 computing per share amounts:
  Basic                                  92,518    92,259    91,252    90,007
  Diluted                                95,249    94,074    91,996    91,012
</TABLE>
__________
(1) Operating results for the quarter ended June 30, 2005, include pre-tax
$9.3 million in accrued litigation expense related to a jury verdict
against Micrel in its suit against TRW Automotive and for TRW Automotive
in its countersuit against Micrel. (see Note 11 of Notes to Consolidated
Financial Statements).
(2) Net income for the quarter ended June 30, 2004 includes $6.3 million
in net reversals of accrued income and payroll tax liabilities as a result
of the completion of a federal tax audit (see Note 8).

                                       67
<PAGE>

                                                                SCHEDULE II
<TABLE>
                                       MICREL, INCORPORATED
                               VALUATION AND QUALIFYING ACCOUNTS
                     For the Years Ended December 31, 2005, 2004, and 2003
                                     (Amounts in thousands)

                                        Balance at    Allowance   Returns and
                                    Beginning   Additions or     Price      Bad Debt    Balance at
         Description                 of Year    (Reductions)  Adjustments  Write-offs  End of Year
---------------------------------  -----------  ------------  -----------  ----------  -----------
<S>                                <C>          <C>           <C>          <C>         <C>
Year Ended December 31, 2005
----------------------------
Allowances for OEM and  stocking
 representative returns and
 price adjustments                   $  2,493     $  4,714      $ (4,542)   $     -      $  2,665
Allowances for unclaimed
 distributor price adjustments(1)       1,254       19,465       (19,479)         -         1,240
Allowances for doubtful accounts          231           11            -           (3)         239
                                     --------     --------      --------    --------     --------
   Total allowances                  $  3,978     $ 24,190      $(24,021)   $     (3)    $  4,144
                                     ========     ========      ========    ========     ========
Year Ended December 31, 2004
----------------------------
Allowances for OEM and stocking
 representative returns and
 price adjustments                   $  1,392     $  6,941      $ (5,840)   $     -      $  2,493
Allowances for unclaimed
 distributor price adjustments(1)       1,264       20,290       (20,300)         -         1,254
Allowances for doubtful accounts          180           51            -           -           231
                                     --------     --------      --------    --------     --------
   Total allowances                  $  2,836     $ 27,282      $(26,140)   $     -      $  3,978
                                     ========     ========      ========    ========     ========
Year Ended December 31, 2003
----------------------------
Allowances for OEM and stocking
 representative returns and
 price adjustments                   $  2,096     $  4,165      $ (4,869)   $     -      $  1,392
Allowances for unclaimed
 distributor price adjustments(1)         788       15,802       (15,326)         -         1,264
Allowances for doubtful accounts          421         (134)           -         (107)         180
                                     --------     --------      --------    --------     --------
   Total allowances                  $  3,305     $ 19,833      $(20,195)   $   (107)    $  2,836
                                     ========     ========      ========    ========     ========
</TABLE>
___________
(1) The Company estimates and records an allowance for distributor price
adjustments for which the specific resale transaction has been completed,
but the price adjustment claim has not yet been received from the
distributor and recorded by the Company. This allowance typically
represents approximately three to four weeks of unclaimed price
adjustments.

                                       68
<PAGE>

                                   SIGNATURES

   Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, in San Jose,
California on the 6th day of March, 2006.

                                               MICREL, INCORPORATED

                                              By /S/ Raymond D. Zinn
                                                ---------------------
                                                    Raymond D. Zinn
                                         President and Chief Executive Officer

                               POWER OF ATTORNEY

   KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Raymond D. Zinn and Richard D. Crowley, Jr., and
each of them, his attorneys-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any amendments to this Report on Form
10-K and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.

   Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the date indicated.

      Signature                          Title                         Date
      ---------                          -----                         ----

/S/ Raymond D. Zinn          President, Chief Executive Officer   March 6, 2006
---------------------------  and Chairman of the Board of
    Raymond D. Zinn          Directors (Principal Executive
                             Officer)

/S/ Richard D. Crowley       Vice President, Finance and Chief    March 6, 2006
---------------------------  Financial Officer (Principal
    Richard D. Crowley       Financial and Accounting Officer)

/S/ Donald Livingstone       Director                             March 2, 2006
---------------------------
    Donald Livingstone

/S/ George Kelly             Director                             March 2, 2006
---------------------------
    George Kelly

/S/ David W. Conrath         Director                             March 2, 2006
---------------------------
    David W. Conrath

/S/ Michael J. Callahan      Director                             March 2, 2006
---------------------------
    Michael J. Callahan

                                       69
<PAGE>

                              Micrel, Incorporated
                Exhibits Pursuant to Item 601 of Regulation S-K

Exhibit
Number                          Description
-------                         -----------

  2.1    Agreement and Plan of Merger and Reorganization among Micrel,
         Incorporated, Kournikova Acquisition Sub, Inc., Kendin Communications
         Inc., and with respect to Articles VIII and IX only, John C.C. Fan,
         as Stockholders' Agent, dated May 4, 2001. (8)
  3.1    Amended and Restated Articles of Incorporation of the Registrant. (1)
  3.2    Certificate of Amendment of Articles of Incorporation of the
         Registrant. (2)
  3.3    Amended and Restated Bylaws of the Registrant. (2)
  3.4    Certificate of Amendment of Articles of Incorporation of the
         Registrant. (7)
  4.1    Certificate for Shares of Registrant's Common Stock. (3)
 10.1    Indemnification Agreement between the Registrant and each of its
         officers and directors. (3)
 10.3    1994 Stock Option Plan and form of Stock Option Agreement. (1)*
 10.4    1994 Stock Purchase Plan. (3)
 10.5    2003 Incentive Award Plan. (13)*
 10.8    Form of Domestic Distribution Agreement. (2)
 10.9    Form of International Distributor Agreement. (2)
 10.10   Amended and Restated 1994 Employee Stock Purchase Plan, as amended
         January 1, 1996. (4)
 10.11   Commercial Lease between Harris Corporation and Synergy Semiconductor
         Corporation dated February 29, 1996. (5)
 10.12   Standard Industrial/Commercial Single-Tenant Lease Agreement Dated
         March 3, 2000 between the Registrant and Rose Ventures II (6)
 10.13   Loan and Security Agreement Dated June 29, 2001 between the Registrant
         and Bank of the West (9)
 10.14   Amendment No. Two to Loan and Security Agreement Dated June 29, 2001
         between the Registrant and Bank of the West (10)
 10.15   Commercial Mortgage Financing Agreement between Micrel, Incorporated
         and Bank of the West, dated September 27, 2002 (11)
 10.16   Credit Agreement between the Registrant and Bank of The West dated
         June 30, 2003 (12)
 14.1    Micrel, Incorporated Code of Ethics for Senior Officers
 23.1    Consent of Independent Registered Public Accounting Firm
 24.1    Power of Attorney. (See Signature Page.)
 31      Certification of the Company's Chief Executive Officer and Chief
         Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
         2002
 32      Certification of the Company's Chief Executive Officer and Chief
         Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of
         2002

 *       Management contract or compensatory plan or agreement.

 (1)     Incorporated herein by reference to the Company's Registration
         Statement on Form S-1 ("Registration Statement"), File No. 33-
         85694, in which this exhibit bears the same number, unless
         otherwise indicated.

 (2)     Incorporated by reference to Amendment No. 1 to the
         Registration Statement, in which this exhibit bears the same
         number, unless otherwise indicated.

 (3)     Incorporated by reference to the Company's Annual Report on
         Form 10-K for the year ended December 31, 1995, in which this
         exhibit bears the same number, unless otherwise indicated.

                                       70
<PAGE>

 (4)     Incorporated by reference to the Company's Annual Report on Form 10-K
         for the year ended December 31, 1996, in which this exhibit bears
         the number 10.14.

 (5)     Incorporated by reference to the Company's Annual Report on Form 10-K
         for the year ended December 31, 1998, in which this exhibit bears
         the number 10.14.

 (6)     Incorporated by reference to exhibit 10.1 filed with the
         Company's quarterly report on Form 10-Q for the period ended
         March 31, 2000.

 (7)     Incorporated by reference to exhibit 3.1 filed with the
         Company's quarterly report on Form 10-Q for the period ended
         September 30, 2000.

 (8)     Incorporated by reference to exhibit 10.1 filed with the
         Company's registration statement on Form S-3 filed with the
         S.E.C. on June 22, 2001.

 (9)     Incorporated by reference to exhibit 10.1 filed with the
         Company's quarterly report on Form 10-Q for the period ended
         June 30, 2001.

 (10)     Incorporated by reference to exhibit 10.16 filed with the
          Company's annual report on Form 10-K for the period ended
          December 31, 2002.

 (11)     Incorporated by reference to exhibit 10.1 filed with the
          Company's quarterly report on Form 10-Q for the period ended
          September 30, 2002.

 (12)     Incorporated by reference to exhibit 10.1 filed with the
          Company's quarterly report on Form 10-Q for the period ended
          June 30, 2003.

 (13)     Incorporated by reference to exhibit 1 filed with the
          Company's Schedule Proxy Statement on Schedule 14A dated May 9,
          2003.

                                       71
<PAGE>
                                                                  Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


We hereby consent to the incorporation by reference in the Registration

Statements on Form S-3 (No. 333-70876, 333-63620 and 333-37808) and S-8 (No.
333-63618, 33-87222, 33-90396, 333-10167, 333-89223, 333-52136, 333-37832 and
333-105862) of Micrel, Incorporated of our report dated March 6, 2006,
relating to the financial statements and financial statement schedule,
management's assessment of the effectiveness of internal control over
financial reporting and the effectiveness of internal control over financial
reporting, which appears in this Form 10-K.



/s/ PricewaterhouseCoopers LLP
San Jose, California
March 6, 2006

                                       72
<PAGE>
                                                                   Exhibit 31
                    Certification of Chief Executive Officer
           Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002


     I, Raymond D. Zinn, certify that:
1.   I have reviewed this annual report on Form 10-K of Micrel, Incorporated;
2.   Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3.   Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4.   The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as designed in the Exchange Act Rules 13a-15(d) and 15d-
15(f) for the registrant and have:
     (a)   designed such disclosure controls and procedures, or caused such
     disclosure controls and procedures to be designed under our supervision,
     to ensure that material information relating to the registrant,
     including its consolidated subsidiaries, is made known to us by others
     within those entities, particularly during the period in which this
     report is being prepared;
     (b)    designed such internal control over financial reporting, or
     caused such internal control over financial control to be designed under
     our supervision, to provide reasonable assurance regarding the
     reliability of financial reporting and the preparation of financial
     statements for external purposes in accordance with generally accepted
     accounting principles;
     (c)   evaluated the effectiveness of the registrant's disclosure
     controls and procedures and presented in this report our conclusions
     about the effectiveness of the disclosure controls and procedures, as of
     the end of the period covered by this report based on such
     evaluation; and
     (d)   disclosed in this report any change in the registrant's internal
     control over financial reporting that occurred during the registrant's
     most recent fiscal quarter (the registrant's fourth fiscal quarter in
     the case of an annual report) that has materially affected, or is
     reasonably likely to materially affect, the registrant's internal
     control over financial reporting; and
5.   The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
     (a)   all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
     (b)   any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
control over financial reporting.

Date:   March 6, 2006           /S/ Raymond D. Zinn
                                ------------------------------
                                Raymond D. Zinn
                                President, Chief Executive Officer and Director
                                (Principal Executive Officer)

                                       73
<PAGE>

                    Certification of Chief Financial Officer
            Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

       I, Richard D. Crowley, certify that:
1.   I have reviewed this annual report on Form 10-K of Micrel, Incorporated;
2.   Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3.   Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4.   The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as designed in the Exchange Act Rules 13a-15(d) and 15d-
15(f) for the registrant and have:
     (a)   designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this
report is being prepared;
     (b)    designed such internal control over financial reporting, or
caused such internal control over financial control to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
     (c)   evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
     (d)   disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5.   The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
     (a)   all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
     (b)   any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
control over financial reporting.

Date:   March 6, 2006           /S/ Richard D. Crowley
                                ------------------------------
                               Richard D. Crowley
                               Vice President, Finance and
                               Chief Financial Officer
                               (Principal Financial and Accounting Officer)


                                       74

<PAGE>
                                                                   Exhibit 32
                                Certifications of
              Chief Executive Officer and Chief Financial Officer
                      Pursuant to 18 U.S.C. Section 1350,
                             As Adopted Pursuant to
                  Section 906 of the Sarbanes-Oxley Act Of 2002

       In connection with the Annual Report of Micrel, Incorporated (the
"Company") on Form 10-K for the period ended December 31, 2005 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Raymond D. Zinn, Chief Executive Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002, that to my knowledge:

1.   The Report fully complies with the requirements of Section 13(a) or
15(d), of the Securities Exchange Act of 1934; and

2.   That information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.

Date:   March 6, 2006           /S/ Raymond D. Zinn
                                ------------------------------
                                Raymond D. Zinn
                                President, Chief Executive Officer and Director
                               (Principal Executive Officer)

       In connection with the Annual Report of Micrel, Incorporated (the
"Company") on Form 10-K for the period ended December 31, 2005 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Richard D. Crowley, Chief Financial Officer of the Company, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002, that to my knowledge:

1.   The Report fully complies with the requirements of Section 13(a) or
15(d), of the Securities Exchange Act of 1934; and

2.   That information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.

Date:   March 6, 2006           /S/ Richard D. Crowley
                                ------------------------------
                                Richard D. Crowley
                                Vice President, Finance and
                                Chief Financial Officer
                                (Principal Financial and Accounting Officer)

                                       75