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

                                   FORM 10-Q


(Mark One)
[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
      For the quarterly period ended June 30, 2006.

   or

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

   Commission File Number  0-25236


                     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 of             (I.R.S. Employer
         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



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 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 [ ]

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


As of July 31, 2006 there were 81,120,058 shares of common stock, no par value,
outstanding.

<PAGE>
                             MICREL, INCORPORATED
                                   INDEX TO
                              REPORT ON FORM 10-Q
                FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006

                                                                        Page
                                                                        ----

                        PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements:

         Condensed Consolidated Balance Sheets - June 30, 2006
          and December 31, 2005                                           3

         Condensed Consolidated Statements of Operations -
          Three and Six Months Ended June 30, 2006 and 2005               4

         Condensed Consolidated Statements of Cash Flows -
          Six Months Ended June 30, 2006 and 2005                         5

         Notes to Condensed Consolidated Financial Statements             6

Item 2.  Management's Discussion and Analysis of Financial
          Condition and Results of Operations                            16

Item 3.  Quantitative and Qualitative Disclosures about Market Risk      25

Item 4.  Controls and Procedures                                         25

                          PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings                                               26

Item 1A. Risk Factors                                                    26


Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds     30

Item 4.  Submission of Matters to a Vote of Security Holders             30

Item 6.  Exhibits                                                        31


         Signature                                                       32

                                       2
<PAGE>

ITEM 1.  FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

                             MICREL, INCORPORATED

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)
                      (In thousands, except share amounts)

                                                       June 30,   December 31,
                                                         2006        2005 (1)
                                                      ----------   ----------
<S>                                                   <C>          <C>
ASSETS
CURRENT ASSETS:
 Cash and cash equivalents                            $  107,372   $   88,130
 Restricted cash                                           2,629          --
 Short term investments                                   14,042       48,433
 Accounts receivable, net                                 41,014       35,524
 Inventories                                              34,633       30,419
 Prepaid expenses and other                                1,898        1,919
 Deferred income taxes                                    23,592       22,134
                                                      ----------   ----------
   Total current assets                                  225,180      226,559

PROPERTY, PLANT AND EQUIPMENT, NET                        78,377       77,554
DEFERRED INCOME TAXES                                     12,318       10,264
INTANGIBLE ASSETS, NET                                     3,941        4,752
OTHER ASSETS                                                 428          411
                                                      ----------   ----------
TOTAL                                                 $  320,244   $  319,540
                                                      ==========   ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
 Accounts payable                                     $   18,253   $   20,552
 Income taxes payable                                      2,742        4,939
 Deferred income on shipments to distributors             21,927       14,069
 Other current liabilities                                23,467       21,672
 Current portion of long-term debt                           120          147
                                                      ----------   ----------
   Total current liabilities                              66,509       61,379

OTHER LONG-TERM OBLIGATIONS                                  458          475

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:
   2006 - 82,454,858 shares;
   2005 - 84,646,680 shares                               51,427       73,848
 Deferred stock compensation                                 --          (294)
 Accumulated other comprehensive loss                        (26)         (52)
 Retained earnings                                       201,876      184,184
                                                      ----------   ----------
   Total shareholders' equity                            253,277      257,686
                                                      ----------   ----------
TOTAL                                                 $  320,244   $  319,540
                                                      ==========   ==========
</TABLE>

(1) Derived from the audited balance sheet included in the Annual Report on
Form 10-K of Micrel, Incorporated for the year ended December 31, 2005.

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


                                       3
<PAGE>


<TABLE>
<CAPTION>
                               MICREL, INCORPORATED

                  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                    (Unaudited)
                      (In thousands, except per share amounts)

                                       Three Months Ended    Six Months Ended
                                             June 30,             June 30,
                                       ------------------   ------------------
                                         2006      2005       2006      2005
                                       --------  --------   --------  --------
<S>                                    <C>       <C>        <C>       <C>
NET REVENUES                           $ 70,192  $ 62,052   $138,343  $122,737

COST OF REVENUES(1)                      29,940    29,900     58,197    60,209
                                       --------  --------   --------  --------
GROSS PROFIT                             40,252    32,152     80,146    62,528
                                       --------  --------   --------  --------

OPERATING EXPENSES:
  Research and development(1)            13,152    11,253     26,190    22,777
  Selling, general and administrative(1) 12,253    10,802     25,664    20,332
  Litigation accrual                        935     9,282        935     9,282
  Restructuring expense                      66       --          66       --
                                       --------  --------   --------  --------
    Total operating expenses             26,406    31,337     52,855    52,391
                                       --------  --------   --------  --------
INCOME FROM OPERATIONS                   13,846       815     27,291    10,137

OTHER INCOME, NET                         1,314     1,005      2,566     1,841
                                       --------  --------   --------  --------
INCOME BEFORE INCOME TAXES               15,160     1,820     29,857    11,978

PROVISION FOR INCOME TAXES                6,169       637     12,165     4,192
                                       --------  --------   --------  --------
NET INCOME                             $  8,991  $  1,183   $ 17,692  $  7,786
                                       ========  ========   ========  ========

NET INCOME PER SHARE:
  Basic                                $   0.11  $   0.01   $   0.21  $   0.09
                                       ========  ========   ========  ========
  Diluted                              $   0.11  $   0.01   $   0.21  $   0.09
                                       ========  ========   ========  ========

WEIGHTED-AVERAGE SHARES USED IN
 COMPUTING PER SHARE AMOUNTS:
  Basic                                  83,201    87,256     83,611    88,165
                                       ========  ========   ========  ========
  Diluted                                84,696    88,097     85,255    88,834
                                       ========  ========   ========  ========

(1) Stock-based compensation expense
     included in:
       Cost of revenues                $    520  $     41   $    702  $     92
       Research and development           1,046        39      2,111       103
       Selling, general and
        administrative                    1,042       110      2,151       296


</TABLE>

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

                                       4
<PAGE>

<TABLE>
<CAPTION>
                             MICREL, INCORPORATED

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)
                                 (In thousands)

                                                         Six Months Ended
                                                              June  30,
                                                        -------------------
                                                          2006       2005
                                                        --------   --------
<S>                                                     <C>        <C>
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
 Net income                                             $ 17,692   $  7,786
 Adjustments to reconcile net income to net cash
  provided by operating activities:
   Depreciation and amortization                           8,535     10,540
   Stock based compensation                                4,964        491
   Tax benefit on the exercise of employee stock options     519        --
   Excess tax benefits associated with stock compensation   (159)       --
   Loss on disposal of assets                                 11        102
   Deferred rent                                             (17)       (45)
   Deferred income taxes                                  (3,512)      (658)
    Changes in operating assets and liabilities:
     Accounts receivable                                  (5,490)       770
     Inventories                                          (3,864)     4,980
     Prepaid expenses and other assets                         4        709
     Accounts payable                                     (2,299)     1,264
     Income taxes                                         (2,197)    (5,154)
     Other current liabilities                             1,795      7,084
     Deferred income on shipments to distributors          7,858     (1,665)
                                                        --------   --------
       Net cash provided by operating activities          23,840     26,204
                                                        --------   --------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Change in restricted cash                                (2,629)       --
 Purchases of property, plant and equipment               (8,558)    (6,021)
 Proceeds from the sale of short-term investments, net    34,417     11,344
                                                        --------   --------
       Net cash provided by investing activities          23,230      5,323
                                                        --------   --------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Repayments of long-term debt                                (27)       (56)
 Proceeds from the issuance of common stock, net           2,234      3,011
 Repurchase of common stock                              (30,194)   (32,253)
 Excess tax benefits associated with stock compensation      159        --
                                                        --------   --------
       Net cash used in financing activities             (27,828)   (29,298)
                                                        --------   --------
NET INCREASE IN CASH AND CASH EQUIVALENTS

                 19,242      2,229
CASH AND CASH EQUIVALENTS - Beginning of period           88,130    101,282
                                                        --------   --------
CASH AND CASH EQUIVALENTS - End of period               $107,372   $103,511
                                                        ========   ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
 Interest                                               $    --    $     73
                                                        ========   ========
 Income taxes                                           $ 17,335   $ 10,264
                                                        ========   ========
</TABLE>

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


                                       5
<PAGE>


                             MICREL, INCORPORATED
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)


1.   SIGNIFICANT  ACCOUNTING  POLICIES

Interim Financial Information - The accompanying condensed consolidated
financial statements of Micrel, Incorporated and its wholly-owned
subsidiaries ("Micrel" or the "Company") as of June 30, 2006 and for the
three and six months ended June 30, 2006 and 2005 are unaudited.  In the
opinion of management, the condensed consolidated financial statements
include all adjustments (consisting only of normal recurring accruals) that
management considers necessary for a fair statement of its financial
position, operating results and cash flows for the interim periods
presented.  Operating results and cash flows for interim periods are not
necessarily indicative of results for the entire year. The Condensed
Consolidated Balance Sheet data as of December 31, 2005, was derived from
audited financial statements, but does not include all disclosures required
by accounting principles generally accepted ("GAAP") in the United States of
America. This financial data should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2005.
This financial data should also be read in conjunction with the Company's
critical accounting policies included in the Company's Annual Report on Form
10-K for the year ended December 31, 2005.

Restricted Cash - During the first quarter of 2006, the Company elected to
post a surety bond to stay payment of potential damages and interest arising
from a judgment awarded to TRW by a jury during 2005 (see Note 7 and Note
11).  As collateral for the surety bond, the Company placed $2.6 million in
a registered pledge account.  The amount pledged is classified as Restricted
Cash in the Company's Condensed Consolidated Balance Sheets, and is invested
in high quality, short-term investment securities consistent with the
Company's cash investment policy.  The interest earned on the pledged amount
accrues to the benefit of the Company.

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

<TABLE>
                                       Three Months Ended    Six Months Ended
                                             June 30,             June 30,
                                       ------------------   ------------------
                                         2006      2005       2006      2005
                                       --------  --------   --------  --------
<S>                                    <C>       <C>        <C>       <C>
Weighted-average common shares
 outstanding                             83,201    87,256

83,611    88,165
Dilutive effect of stock options
 outstanding using the treasury
 stock method                             1,495       841      1,644       669
                                       --------  --------   --------  --------
Shares used in computing diluted
 net income per share                    84,696    88,097     85,255    88,834
                                       ========  ========   ========  ========
</TABLE>

For the three and six months ended June 30, 2006, 5.6 million and 5.2
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 were anti-dilutive. For the three and six months
ended June 30, 2005, 7.7 million and 8.2 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
were anti-dilutive.


2.   RECENTLY ISSUED ACCOUNTING STANDARDS

In July 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an
Interpretation of FASB Statement No. 109" (FIN No. 48"). FIN No. 48
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise's financial statements in accordance with SFAS No. 109
"Accounting for Income Taxes".  FIN No. 48 prescribes a two-step process to
determine the amount of benefit to be recognized. First, the tax position
must be evaluated to determine the likelihood that it will be sustained upon
examination. If the tax position is deemed "more-likely-than-not" to be

                                       6
<PAGE>


                             MICREL, INCORPORATED
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)



sustained, the tax position is then measured to determine the amount of
benefit to recognize in the financial statements. The tax position is
measured at the largest amount of benefit that is greater than 50 percent
likely of being realized upon ultimate settlement. FIN No. 48 is effective
for fiscal years beginning after December 15, 2006.  The Company is
currently evaluating the effect that the adoption of FIN No. 48 will have on
its financial position and results of operations.

3.   SHARE-BASED COMPENSATION

In December 2004, the FASB issued SFAS No. 123R. Under the new standard,
companies are no longer able to account for share-based compensation
transactions using the intrinsic value method in accordance with APB No. 25.
Instead, companies are required to account for such transactions using a
fair-value method and recognize the expense in the consolidated statements
of operations. Effective January 1, 2006, the Company adopted SFAS No. 123R
using the modified-prospective-transition method. Under this transition
method, stock compensation cost recognized beginning January 1, 2006
includes: (a) compensation cost for all share-based payments granted prior
to, but not yet vested as of January 1, 2006, based on the grant date fair
value estimated in accordance with the original provisions of SFAS No. 123,
and (b) compensation cost for all share-based payments granted or modified
on or subsequent to January 1, 2006, based on the grant-date fair value
estimated in accordance with the provisions of SFAS No. 123R. In addition,
compensation cost to be recognized under SFAS No. 123R must consider an
estimate of options which will be forfeited. Results for prior periods have
not been restated.

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. The term of each stock option is no more than ten
years from the date of grant. A summary of the Company's stock option plan
activities for the six months ended June 30, 2006 is as follows:

<TABLE>
                                                         Weighted
                                             Weighted     Average    Aggregate
                                   Number     Average    Remaining   Intrinsic
                                     of      Exercise  Contractual     Value
                                   Shares      Price   Term (years)    ($000)
                                 ----------  --------  ------------  ---------
<S>                              <C>         <C>       <C>           <C>
Outstanding, December 31, 2005   12,487,003   $ 12.65
  Granted                         1,088,200     13.34
  Exercised                        (291,741)     7.64
  Forfeited or expired             (163,002)    12.61
                                 ----------
Outstanding, June 30, 2006       13,120,460   $ 12.83        5.6      $ 6,462
                                 ----------
Exercisable at June 30, 2006      8,680,149   $ 13.20        4.1      $ 5,688
Exercisable and expected to vest
 at June 30, 2006                12,202,150   $ 12.89        5.4      $ 6,302
</TABLE>



The weighted average fair value (computed using the Black-Scholes option
pricing model) of options granted under the stock option plans during the
three and six months ended June 30, 2006 was $6.85 and $7.79 per share,
respectively.  The total intrinsic value of options (which is the amount by
which the stock price exceeded the exercise price of the options on the date
of exercise) exercised during the three and six months ended June 30, 2006
was $512,000 and $1.6 million, respectively. During the three and six months
ended June 30, 2006, the amount of cash received from the exercise of stock
options was $758,000 and $2.2 million, respectively.

                                       7
<PAGE>


                             MICREL, INCORPORATED
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)


Employee Stock Purchase Plan - The Company's 1994 Employee Stock Purchase
Plan (the "1994 ESPP"), as amended and restated as of January 1, 1996,
terminated on January 1, 2006. On May 25, 2006 the Company's shareholders
approved a new Employee Stock Purchase Plan (the "2006 ESPP".)  Under the
terms of the 2006 ESPP, eligible employees are permitted to have salary
withholdings to purchase shares of Common Stock at a price equal to 95% of
the market value of the stock at the end of each three-month offer period,
subject to an annual limitation. The aggregate number of shares of common
stock which may be issued under the plan shall be no more than 2,000,000
shares. The first purchase period for the 2006 ESPP will commence July 1,
2006. The 2006 ESPP is considered non-compensatory under SFAS No. 123R.

Accounting for Stock-based Compensation - Under SFAS No. 123R, stock-based
compensation costs for stock option grants are based on the fair value

calculated from a stock option pricing model on the date of grant. The
Company has utilized the Black-Scholes option pricing model to determine the
fair value for stock option grants.  The fair value of stock option grants
issued from January 1, 2006 onwards are recognized as compensation expense
on a straight-line basis over the vesting period of the grants. Compensation
expense recognized is shown in the operating activities section of the
consolidated statements of cash flows.

Prior to adopting SFAS No. 123R, the Company accounted for stock option
grants under the recognition and measurement provisions of APB 25.
Compensation cost related to stock options granted at fair value under those
plans were not recognized in the consolidated statements of operations.
Compensation cost related to stock options granted below the fair market
value on the grant date were recognized in the consolidated statements of
operations. In addition, prior to adopting SFAS No. 123R, the Company
presented all tax benefits of deductions resulting from the exercise of
stock grants as operating cash flows in the consolidated statements of cash
flows. SFAS No. 123R requires the cash flows resulting from the tax benefits
from tax deductions in excess of the compensation cost recognized (excess
tax benefits) to be classified as financing cash flows.

The fair value of the Company's stock options granted under the Option
Plans was estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions:

<TABLE>
                                       Three Months Ended    Six Months Ended
                                             June 30,             June 30,
                                       ------------------   ------------------
                                         2006      2005       2006      2005
                                       --------  --------   --------  --------
<S>                                    <C>       <C>        <C>       <C>
Expected term (years)                     5.4       5.0        5.6       5.0
Stock volatility                         59.2%     78.6%      59.4%     80.2%
Risk free interest rates                  5.1%      3.7%       4.9%      4.0%
Dividends during expected terms          none      none       none      none
</TABLE>

Expected term is based on an analysis of historical exercises and the
remaining contractual life of options. The calculation of expected term
for previous SFAS No. 123 disclosure fair value estimates was based solely
on an analysis of historical exercises of stock options. The Company
believes that an analysis of historical exercises and remaining
contractual life of options provides a better estimate of future exercise
patterns.

Stock volatility is based upon a combination of both historical stock
price volatility and implied volatility derived from traded options on the
Company's stock in the marketplace.  The calculation of expected
volatility for previous SFAS No. 123 fair value disclosure estimates was
based solely on historical stock price volatility. The Company believes
that the combination of historical volatility and implied volatility
provides a better estimate of future stock price volatility.

The Company continues to base the estimate of risk-free rate on the U.S.
Treasury yield curve in effect at the time of grant.

The Company has never paid cash dividends and does not currently intend to
pay cash dividends, thus has assumed a 0% dividend yield.

                                       8
<PAGE>


                             MICREL, INCORPORATED
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)


As part of the requirements of SFAS No. 123R, the Company is required to
estimate potential forfeitures of stock grants and adjust compensation
cost recorded accordingly. The estimate of forfeitures will be adjusted
over the requisite service period to the extent that actual forfeitures
differ, or are expected to differ, from such estimates. Changes in
estimated forfeitures will be recognized through a cumulative catch-up
adjustment in the period of change and will also impact the amount of
stock compensation expense to be recognized in future periods.

The following table shows total stock-based compensation expense recognized
in the Condensed Consolidated Statement of Operations for the three and six
months ended June 30, 2006, pursuant to SFAS No. 123R and for the three and
six months ended June 30, 2005 pursuant to APB 25 (in thousands):

<TABLE>
                                       Three Months Ended    Six Months Ended
                                             June 30,             June 30,
                                       ------------------   ------------------
                                         2006      2005       2006      2005
                                       --------  --------   --------  --------
<S>                                    <C>       <C>        <C>       <C>
Cost of revenues                       $    520  $     41   $    702  $     92
Research and development                  1,046        39      2,111       103
Selling, general and administrative       1,042       110      2,151       296
                                       --------  --------   --------  --------
Pre-tax stock-based compensation expense  2,608       190      4,964       491
Less income tax effect                     (223)      (73)      (423)     (189)
                                       --------  --------   --------  --------
Net stock-based compensation expense   $  2,385  $    117   $  4,541  $    302
                                       ========  ========   ========  ========
</TABLE>

The Company's basic and diluted earnings per share for the three and six
months ended June 30, 2006 were lower by $0.03 and $0.05 per share,
respectively under SFAS No. 123R, than if the Company had continued to
account for share-based compensation under APB 25. Total stock-based
compensation cost capitalized as part of inventory for the three months
ended June 30, 2006 was $350,000. At June 30, 2006, there was $18.0
million of total unrecognized compensation cost related to non-vested
stock option awards which is expected to be recognized over a weighted-
average period of 4.1 years.

Pro Forma Information under SFAS No. 123 for Periods Prior to SFAS No. 123R
Adoption - As discussed above, results for prior periods have not been
restated to reflect the effects of implementing SFAS No. 123R. The following
table illustrates the effect on net income and earnings per share if the
Company had applied the fair value recognition provisions of SFAS No. 123 to
stock options granted under the Company's stock option plans and shares
issued under the employee stock purchase plan for the three and six months
ended June 30, 2005. For purposes of this pro forma disclosure, the value of
the stock options was estimated using a Black-Scholes option-pricing model
using a multiple option valuation approach with forfeitures recognized as
they occur (in thousands, except per-share amounts):

<TABLE>
                                                           Three       Six
                                                          Months      Months
                                                           Ended       Ended
                                                          June 30,    June 30,
                                                            2005        2005
                                                         ---------   ---------
<S>                                                      <C>         <C>
Net income as reported                                   $   1,183   $   7,786
                                                         =========   =========
Add:  stock-based employee compensation expense
 included in reported net income, net of tax effects           117         302
Deduct:  stock-based employee compensation expense
 determined under fair value based method, net of
 tax effects                                                (2,613)     (5,465)
                                                         ---------   ---------
Pro forma net income (loss)                              $  (1,313)  $   2,623
                                                         =========   =========

Net income per share as reported:
  Basic                                                  $    0.01   $    0.09
                                                         =========   =========
  Diluted                                                $    0.01   $    0.09
                                                         =========   =========

Pro forma net income per share:
  Basic                                                  $   (0.02)  $    0.03
                                                         =========   =========
  Diluted                                                $   (0.02)  $    0.03
                                                         =========   =========
</TABLE>

For the three and six months ended June 30, 2005, pro forma stock

                                       9
<PAGE>


                             MICREL, INCORPORATED
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)



compensation amounts have been revised to reflect the estimated tax effect
of various stock option grants.  These revisions resulted in an increase in
pro forma net loss of $176,000 ($0.01 per diluted share) for the three
months ended June 30, 2005 and a decrease in pro forma net income of
$782,000 ($0.01 per diluted share) for the six months ended June 30, 2005.


4.   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). A summary of investments
at June 30, 2006 is as follows (in thousands):

<TABLE>
                                                        Unrealized   Unrealized
                                 Amortized    Market      Holding     Holding
                                   Cost        Value       Gains      Losses
                                ----------  ----------  ----------  -----------
<S>                             <C>         <C>         <C>         <C>
    Short-term investments       $  14,068   $  14,042    $   --      $    26
</TABLE>

5.   INVENTORIES

Inventories consist of the following (in thousands):
<TABLE>
                                                       June 30,  December 31,
                                                         2006         2005
                                                      ----------   ----------
<S>                                                   <C>          <C>
    Finished goods                                    $   14,234   $   12,472
    Work in process                                       19,241       17,044
    Raw materials                                          1,158          903
                                                      ----------   ----------
                                                      $   34,633   $   30,419
                                                      ==========   ==========
</TABLE>

6.   OTHER CURRENT LIABILITES

Other current liabilities consist of the following (in thousands):
<TABLE>
                                                       June 30,  December 31,
                                                         2006         2005
                                                      ----------   ----------
<S>                                                   <C>          <C>
    Accrued current restructuring expenses            $    1,411   $    1,759
    Accrued workers compensation and health insurance      1,403        1,343
    Accrued litigation                                    10,217        9,282
    Accrued compensation                                   7,422        6,951
    Accrued commissions                                    1,798        1,480
    All other current accrued liabilities                  1,216          857
                                                      ----------   ----------
      Total other current liabilities                 $   23,467   $   21,672
                                                      ==========   ==========
</TABLE>

7.   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
direct borrowings under the revolving line of credit at June 30, 2006, and
there were $875,000 in standby letters of credit outstanding.  The revolving
line of credit agreement expires on June 30, 2007.  Borrowings under the

                                       10
<PAGE>


                             MICREL, INCORPORATED
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)



revolving line of credit bear interest rates of, at the Company's election,
the prime rate (8.25% at June 30, 2006), or the bank's revolving offshore
rate, which approximates LIBOR (5.5% at June 30, 2006) 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 June 30, 2006.

On February 23, 2006, the Company posted a surety bond in the amount of
$10.5 million in the United States District Court, Northern District of
Ohio, to stay payment of potential damages and interest arising from a
judgment awarded to TRW by a jury on July 26, 2005 (see Note 11).  The
Company is currently appealing the verdict.  As collateral for the surety
bond, the Company placed $2.6 million in a registered pledge account.  The
amount pledged is classified as Restricted Cash in the Company's Condensed
Consolidated Balance Sheet (see Note 1).

Associated with the acquisition of BlueChip Communications in 2004, the
Company has $120,000 outstanding in term notes payable to the Norwegian
Industrial and Regional Development Fund.

8.   SIGNIFICANT CUSTOMERS

During the six months ended June 30, 2006, three customers, two world wide
distributors and an Asian based stocking representative accounted for $23.3
million (17%), $14.6 million (11%) and $17.6 million (13%) of net revenues,
respectively. During the six months ended June 30, 2005, three customers, a
direct original equipment manufacturer ("OEM"), a world wide distributor and
an Asian based stocking representative accounted for $19.2 million (16%),
$14.1 million (11%) and $12.9 million (10%) of net revenues, respectively.

At June 30, 2006, three customers, an Asian based stocking representative
and two world wide distributors accounted for 19%, 16% and 14%,
respectively, of total accounts receivable. As of December 31, 2005, the
same three customers accounted for 18%, 15% and 15%, respectively, of total
accounts receivable.

9.   COMPREHENSIVE INCOME

Comprehensive income, which is comprised of the Company's net income for the
periods and changes in unrealized gains or losses on investments, was $9.0
million and $17.7 million for the three and six months ended June 30, 2006,
respectively, and $1.2 million and $7.8 million for the three and six months
ended June 30, 2005, respectively.

10.   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. 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.

                                       11
<PAGE>


                             MICREL, INCORPORATED
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)



<TABLE>
                            Net Revenues by Segment
                             (Dollars in thousands)

                                       Three Months Ended    Six Months Ended
                                             June 30,             June 30,
                                       ------------------   ------------------
                                         2006      2005       2006      2005
                                       --------  --------   --------  --------
<S>                                    <C>       <C>        <C>       <C>
    Net Revenues:
    Standard Products                  $ 66,896  $ 59,541   $131,903  $118,128
    Custom and Foundry Products           3,296     2,511      6,440     4,609
                                       --------  --------   --------  --------
      Total net revenues               $ 70,192  $ 62,052   $138,343  $122,737
                                       ========  ========   ========  ========
As a Percentage of Total Net Revenues:
    Standard Products                       95%       96%        95%       96%
    Custom and Foundry Products              5%        4%         5%        4%
                                       --------  --------   --------  --------
      Total net revenues                   100%      100%       100%      100%
                                       ========  ========   ========  ========
</TABLE>

11.   LITIGATION AND OTHER CONTINGENCIES

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  a number 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.  Based on a recent court ruling in another case brought by the
Lemelson Foundation against another set of defendants, the Foundation has
filed a motion to dismiss with prejudice 14 barcode and machine vision
patents asserted in the current case against the Company.  Otherwise, the
case continues to move very slowly through the motion and hearing phase.  The
Court has proposed a preliminary claim construction, to which each party has
filed objections.  The Court has not yet ruled on the parties objections.
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. On June 9, 2006 the Court ruled that Micrel had
willfully infringed the patent-in-suit, and awarded damages to LTC. As a
result of this judgment, the Company  has recorded $935,000 in accrued
litigation expense and $194,000 in accrued interest expense in the Company's
second quarter 2006 financial statements.

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

                                       12
<PAGE>


                             MICREL, INCORPORATED
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)



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 February 23,
2006, the Company posted a surety bond in the amount of $10.5 million in the
United States District Court, Northern District of Ohio, to stay payment of
damages and potential interest awarded to TRW (see Notes 1 and 7).  The
Company is currently appealing the verdict. 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.  The Company's opening brief has been filed and the response and
reply briefs are due to be filed in the next few months.

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.  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.  A trial
date of March 5, 2007 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.  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 statutory unfair competition.  On June 28,
2006 the Court issued a Claims Construction Order construing disputed terms
in the '046 and 796 patents. Micrel believes that the claim constructions
adopted by the Court are favorable to Micrel and based on Micrel's proposed
constructions.  On July 7, 2006, Micrel filed a Motion for Summary Judgment

                                       13
<PAGE>


                             MICREL, INCORPORATED
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)



that seeks to preclude MPS from arguing that the '046 and '796 Patents are
invalid based on the doctrine of assignor estoppel.  MPS has opposed Micrel's
Motion and Micrel has filed a reply in support of its motion. A hearing on
the Motion is scheduled for August 18, 2006. The case is in the discovery
phase. No trial date has yet been set.

On June 9, 2006, Deerfield 3250 Scott, LLC ("Deerfield"), the building owner
of Micrel's Santa Clara Wafer Fab facility which was closed in 2003 (see note
14), filed a complaint against the Company entitled "Deerfield 3250 Scott,
LLC vs. Micrel, Inc. et al" in the Superior Court of the State of California,
County of Santa Clara.  In February 2006, Micrel terminated this building
lease under the terms of the lease agreement due to major vandalism rendering
the building unusable.  Deerfield disputes that Micrel had a right to
terminate because they allege that the vandalism took place because of the
negligence of Micrel and that Micrel should not be able to benefit from its
own negligence.  The complaint seeks damages in an unspecified amount for
rent through the remaining term of the lease (from March 1 through October
31, 2006), alleged damages to the premises, and for wrongful removal of
equipment.  Micrel disputes Deerfield's allegation that the Company was
negligent and Deerfield's assessment of Micrel's right to terminate the lease
and will vigorously defend against the action.  On July 21, 2006, Micrel
answered the complaint with a denial of any liability and the filing of a
cross-complaint against Deerfield seeking return of the security deposit and
rent paid from the date of the casualty, January 20, 2006 through February
28, 2006.  The case is in the discovery phase and no trial date has yet been
set.

With the exception of the TRW and LTC litigation discussed above, for which
the Company has recorded $9.3 million and $935,000, respectively,  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 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.   STOCK REPURCHASE PROGRAM

On November 17, 2005 the Company's Board of Directors 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. 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. During the six months ended
June 30, 2006, the Company repurchased, 2,484,344 shares of its common stock
for $30.2 million.

                                       14
<PAGE>


                             MICREL, INCORPORATED
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)



13.   INCOME TAXES

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.  The Company had net current deferred tax assets of
$23.6 million and net long-term deferred tax assets of $12.3 million as of
June 30, 2006.  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.  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.

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.

The income tax provision for the three and six months ended June 30, 2006 is
based on the Company's estimated annual effective tax rate of 40.7% of pretax
income as compared to 35% of pretax income for the comparable periods in
2005. The tax rate increase is due primarily to the effects of nondeductible
stock-based compensation expense and the expiration of the federal research
and development credit at the end of 2005. No federal research and
development credit tax benefit for 2006 may be recorded unless the credit is
re-enacted by Congress, for which there is no assurance as to when or if such
credit would be re-enacted. The income tax provision for such interim periods
differs from taxes computed at the federal statutory rate primarily due to
the effect of nondeductible stock-based expense, state income taxes, state
research and development credits, and federal qualified production activity
deductions.

14.   RESTRUCTURING AND MANUFACTURING FACILITY IMPAIRMENT

During 2003 the Company closed its Santa Clara wafer fabrication facility. A
summary of restructuring expense accruals associated with this facility
closure is as follows: ($000)

<TABLE>
                                             Contractual    Other
                                              Facility     Disposal
                                                Costs       Costs      Total
                                             -----------  ---------  ---------
<S>                                         <C>          <C>        <C>
Balance December 31, 2004                     $  3,049    $    360    $  3,409
2005   Uses                                     (1,650)        --       (1,650)
                                              --------    --------    --------
Balance December 31, 2005                        1,399         360       1,759


2006   Additions                                    66         --           66
2006   Uses                                       (259)       (155)       (414)
                                              --------    --------    --------
Balance June 30, 2006                         $  1,206    $    205    $  1,411
                                              ========    ========    ========
</TABLE>

All of the $1.4 million in accrued restructuring costs has been included
within other current liabilities as of June 30, 2006. In February 2006, the
Company terminated the lease under the terms of the lease agreement due to
major vandalism rendering the building unusable.  The Lessor is disputing the
termination of the lease (see Note 11.)  Even though the Company is no longer
making payments to the Lessor, the restructuring costs shown above represent
the total potential amount owed under the lease prior to termination.  Other
disposal costs include estimated costs associated with the final closing of
the facility.  Actual future costs  may be different than these estimates and
could require an adjustment to the restructuring accrual in the period such
determination is made.

                                       15
<PAGE>

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

Overview

The statements contained in this Report on Form 10-Q 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 the Company's markets, product features and performance;
statements about product demand and inventory to service such demand;
statements regarding competitive threats and pricing pressure; statements
regarding the effect of dependence on third parties; statements about the
Company's future use and protection of its intellectual property; 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; statements regarding the Company's
need and ability to attract and retain certain personnel; statements regarding
the outcome of litigation and its effect on the Company; statements regarding
the future realization of tax benefits; statements regarding share based
incentive awards and expectations regarding future stock based compensation
expense and estimates made under SFAS No. 123R. 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.  Additional factors that may affect operating
results are contained within the Company's Form 10-K for the year ended
December 31, 2005.

   Micrel designs, develops, manufactures and markets a range of high-
performance analog power integrated circuits ("ICs"), mixed-signal and digital
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.  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.

   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.

                                       16
<PAGE>

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS


       Second quarter 2005 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 2005 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
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 the first quarter of 2006, broad based strength in customer demand,
combined with continued lean channel inventories resulted in the highest
quarterly booking level for Micrel since calendar year 2000.  Orders from
customers serving the communications and industrial end markets strengthened
in the first quarter.  Bookings from Micrel's major sell-through distributors
also increased sequentially in the first quarter.  Increased end customer
demand led these distributors to extend their order backlog with Micrel during
the quarter.  This resulted in a distributor book-to-bill substantially above
one as our distributors attempted to increase their inventories and ensure
availability of supply for the second quarter of 2006.  Bookings from our
direct OEM customers and sell-in stocking representatives also increased on a
sequential basis, despite typical seasonal slowness in the handset and
personal computing end markets.  Revenues increased 5% on a sequential basis
to $68.2 million and were 12% above the revenues of the year-ago period.
The sequential growth in revenues was primarily the result of increased demand
from customers serving the wireline communications end market and higher
resales of the Company's products through its distributors.  The first quarter
strength in sales to the communications and industrial end markets was
partially offset by seasonal declines in sales to the wireless handset
(primarily in Korea) and computing end markets.

In the first quarter of 2006, the Company recorded the highest quarterly gross
margin in its history.  The first quarter gross margin of 58.5% exceeded the
previous peak gross margins recorded in the year 2000, when revenue levels
were substantially higher.  The sequential improvement in gross margin was
primarily the result of a richer sales mix driven by increased sales of higher
margin wireline communications products.  Despite an increase of $2.0 million
in equity-based compensation expense as a result of the adoption of SFAS No.
123R, the Company's operating profit increased on both a sequential and year-
over-year basis.  Operating margin improved to 20% of revenues in the first
quarter of 2006 from 19% in the fourth quarter of 2005 and 15% in the year-ago
period.  The Company's inventory increased on a sequential basis in response

                                       17
<PAGE>

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


to higher demand and in order to provide competitive lead times to our
customers.  The sequential increase in inventory added approximately one
percentage point to first quarter gross margin, about the same as that
experienced in the fourth quarter of 2005.

In the second quarter of 2006, overall order rates moderated from the high
levels experienced in the first quarter.  Although orders from the Company's
sell-through distributors declined from the first quarter, the total dollar
amount of orders remained higher than the distributors' sales of Micrel's
products in the second quarter.  Orders from direct OEM customers in the
second quarter increased sequentially in both North America and Europe, while
bookings from Asia-based OEM's decreased from the first quarter of 2006,
primarily due to lower demand from customers serving the computing and handset
end markets.  Second quarter 2006 revenues of $70.2 million increased by 3%
sequentially and were 13% above the prior year period.  The growth in revenues
continued to be led by demand from customers serving the wireline
communications end market, partially offset by continued weakness in demand
from Korean-based customers serving the wireless handset end market continued
weak in the second quarter as they experienced a sequential decline in handset
shipments during the second quarter.

Second quarter 2006 gross margin of 57.3% declined by 1.2% sequentially but
was up from 51.8% in the year ago period.  The sequential decline in gross
margin was primarily the result of normal fluctuations in sales mix and
changes in inventory combined with a greater unfavorable impact from stock
compensation expense.  Operating margin of 19.7% was flat on a sequential
basis and up from 1.3% in the second quarter of 2005. Operating income for the
second quarters of 2006 and 2005 includes $935,000 and $9.3 million,
respectively, in accrued litigation expense (see Note 11 of Notes to Condensed
Consolidated Financial Statements.)  The Company's on-hand inventories

increased by $1.5 million on a sequential basis.  The majority of the second
quarter inventory growth was for purchased material for Ethernet products
driven by increased customer demand coupled with long 3rd party foundry cycle
times.  Micrel's channel inventories at both Asia-based stocking
representatives and sell-through distributors increased on a sequential basis
in the second quarter.  Resales of the Company's products through the
distribution channel increased by approximately 10% in the second quarter of
2006, while sales through Asian-based stocking representatives were roughly
flat in the second quarter.  Overall inventory turns for Micrel's sell-through
distributors and Asian-based stocking representatives remained within
historical average levels at the end of the second quarter of 2006.

    The Company derives a substantial portion of its net revenues from standard
products.  For the three and six month periods ended June 30, 2006 the
Company's standard products sales accounted for 95% of the Company's net
revenues.  For the three and six month periods ended June 30, 2005 the
Company's standard products sales accounted for 96% 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.  As a result of the
foregoing or other factors, the Company may 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.


Critical Accounting Policies and Estimates

   The financial statements included in this Form 10-Q 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

                                       18
<PAGE>

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


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. The Company considers
certain accounting policies related to revenue recognition, inventory
valuation, share-based compensation, income taxes, and litigation to be
critical to the fair presentation of its financial statements. For a detailed
discussion of the Company's significant accounting policies, see Note 1 of
Notes to Consolidated Financial Statements in Item 14 of the Company's Annual
Report on Form 10 K for the year ended December 31, 2005.

   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.

   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."

   Share-Based Compensation. Prior to fiscal 2006, the Company accounted for
stock-based compensation plans under the recognition and measurement
provisions of APB Opinion No. 25. Effective January 1, 2006, Micrel adopted

                                       19
<PAGE>

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


the provisions of SFAS No. 123R using the modified-prospective transition
method. Under SFAS No. 123R share-based compensation cost is measured at the
grant date based on the fair value of the award and is recognized as expense
in the statement of operations. To determine fair value, the Company uses the
Black-Scholes valuation model which requires input factors such as expected
term, stock price volatility, dividend rate and risk free interest rate. In
addition, SFAS No. 123R requires an estimate of expected forfeiture rates of
stock grants and stock-based compensation expense is to be only recognized for
those shares expected to vest. Determining the input factors, such as expected
term, expected volatility and estimated forfeiture rates, requires significant
judgment based on subjective future expectations.

   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 June 30, 2006, 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 more
likely than not, 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.

   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 (see
Note 11 of Notes to Condensed 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.

Results of Operations

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

<TABLE>
                                       Three Months Ended    Six Months Ended
                                             June 30,             June 30,
                                       ------------------   ------------------
                                         2006      2005       2006      2005
                                       --------  --------   --------  --------
<S>                                    <C>       <C>        <C>       <C>
Net revenues                             100.0%    100.0%     100.0%    100.0%
Cost of revenues                          42.7      48.2       42.1      49.1
                                       --------  --------   --------  --------
  Gross profit                            57.3      51.8       57.9      50.9
                                       --------  --------   --------  --------
Operating expenses:
  Research and development

                18.8      18.1       18.9      18.5
  Selling, general and administrative     17.5      17.4       18.6      16.5
  Litigation accrual                       1.3      15.0        0.7       7.6
  Restructuring expense                     -         -          -         -
                                       --------  --------   --------  --------
    Total operating expenses              37.6      50.5       38.2      42.6
                                       --------  --------   --------  --------
Income from operations                    19.7       1.3       19.7       8.3
Other income, net                          1.9       1.6        1.9       1.5
                                       --------  --------   --------  --------
Income before income taxes                21.6       2.9       21.6       9.8
Provision for income taxes                 8.8       1.0        8.8       3.5
                                       --------  --------   --------  --------
Net income                                12.8%      1.9%      12.8%      6.3%
                                       ========  ========   ========  ========
</TABLE>

                                       20
<PAGE>

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

   Net Revenues.  For the three months ended June 30, 2006, net revenues
increased 13% to $70.2 million from $62.1 million for the same period in the
prior year.  For the six months ended June 30, 2006, net revenues increased
13% to $138.3 million from $122.7 million for the same period in the prior
year. These increases were primarily due to increased standard products
revenues and to a lesser extent increased custom and foundry revenues.

    Standard products revenues for the three months ended June 30, 2006
increased 12% to $66.9 million from $59.5 million for the same period in the
prior year.  For the six months ended June 30, 2006, standard products
revenues increased 12% to $131.9 million from $118.1 million for the same
period in the prior year. These increases resulted primarily from increased
unit shipments of standard products to the industrial, networking and high-
speed communications and the computer products end markets.

    Custom and foundry products revenues for the three months ended June 30,
2006, increased 31% to $3.3 million from $2.5 million for the same period in
the prior year.  For the six months ended June 30, 2006, custom and foundry
products revenues increased 40% to $6.4 million from $4.6 million for the same
period in the prior year. These increases resulted from increased unit
shipments of custom and foundry products.

   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 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.  During the first
half of 2006, the turns fill rate for OEM and stocking representatives
averaged 45% to 50%.

   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.  In the first quarter of 2006, the order lead time once again
increased to approximately five to six weeks as a result of increased demand
from the Company's distributors and from customers serving the wireline
communications end market. In the second quarter of 2006, lead times decreased
to approximately four to five weeks as OEM customers, stocking representatives
and distributors became more comfortable with the Company's ability to supply
products on a timely basis.  Shorter lead times reduce visibility into end
demand and increase the reliance on turns fill orders.  Shorter lead times
when taken together with the uncertain growth rate of the world economy and
uncertainty how the typical seasonal strength in demand from customers serving
the wireless handset and computing end markets will materialize in the second
half of 2006, 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 uncertain customer demand.

    International sales represented 71% and 76% of net revenues for the three
months ended June 30, 2006 and 2005, respectively. For the six months ended
June 30, 2006 and 2005, international sales represented 72% and 76% of net
revenues, respectively. On a dollar basis, international sales increased 6% to
$49.8 million for the three months ended June 30, 2006 from $47.1 million for
the comparable period in 2005. For the six months ended June 30, 2006
international sales increased 7% to $99.5 million from $93.4 million for the
comparable period in 2005. These increases resulted primarily from increased
shipments of standard products to the industrial end markets, primarily in
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

                                       21
<PAGE>

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


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.

   Stock-Based Compensation. Effective January 1, 2006, the Company adopted
the fair value recognition provisions of SFAS No. 123R using the modified
prospective transition method and therefore has not restated results for prior
periods. The Company's results of operations for the three and six months
ended June 30, 2006 were impacted by the recognition of non-cash expense
related to the fair value of stock-based compensation awards. During the three
months ended June 30, 2006, Micrel recorded $2.6 million in pre-tax stock-
based compensation expense, of which $520,000 is included in cost of revenues,
$1.0 million is included in research and development expense and $1.0 million
is included in sales, general and administrative expense. Total impact of
stock-based compensation expense, net of tax, for the three months ended June
30, 2006 was $2.4 million.  For the six months ended June 30, 2006, Micrel
recorded $5.0 million in pre-tax stock-based compensation expense, of which
$702,000 is included in cost of revenues, $2.1 million is included in research
and development expense and $2.2 million is included in sales, general and
administrative expense. Total impact of stock-based compensation expense, net
of tax, for the six months ended June 30, 2006 was $4.5 million.

    Gross Profit.  Gross profit is affected by a variety of factors including
the volume of product sales, product mix, manufacturing utilization, product
yields and average selling prices.  The Company's gross margin increased to
57.3% for the three months ended June 30, 2006 from 51.8% for the comparable
period in 2005. For the six months ended June 30, 2006, gross margin increased
to 57.9% from 50.9% for the comparable period in 2005. The increases 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. Depreciation and amortization as a
percent of sales declined to 6.1% and 6.2% for the three and six months ended
June 30, 2006 as compared to 8.3% and 8.6% for the same periods in 2005. This
reduction in depreciation was primarily due to existing equipment becoming
fully depreciated, which was partially offset by additional depreciation on
new equipment purchases.

    Research and Development Expenses. Research and development expenses as a
percentage of net revenues represented 18.8% and 18.1%, for the three months
ended June 30, 2006 and 2005, respectively.  On a dollar basis, research and
development expenses increased $1.9 million or 17% to $13.2 million for the
three months ended June 30, 2006 from $11.3 million for the comparable period
in 2005. For the six months ended June 30, 2006 and 2005, research and
development expenses as a percentage of net revenues represented 18.9% and
18.5%, respectively.  On a dollar basis, research and development expenses
increased $3.4 million or 15% to $26.2 million for the six months ended June
30, 2006 from $22.8 million for the comparable period in 2005. These increases
were primarily due to increased stock-based compensation costs due to the
adoption of SFAS No. 123R (See Note 3 of Notes to Condensed Consolidated
Financial Statements) combined with increased prototype fabrication costs. The
Company believes that the development and introduction of new products is
critical to its future success and expects to continue its investment in
research and development activities in the future.

    Selling, General and Administrative Expenses.  As a percentage of net
revenues, selling, general and administrative expenses represented 17.5% and
17.4% for the three months ended June 30, 2006 and 2005, respectively.  On a
dollar basis, selling, general and administrative expenses increased $1.5
million or 13% to $12.3 million for the three months ended June 30, 2006 from
$10.8 million for the comparable period in 2005.  For the six months ended
June 30, 2006 and 2005, selling, general and administrative expenses as a
percentage of net revenues represented 18.6% and 16.5%, respectively.  On a
dollar basis, selling, general and administrative expenses increased $5.3
million or 26% to $25.7 million for the six months ended June 30, 2006 from
$20.3 million for the comparable period in 2005.  These increases were
primarily due to increased outside legal costs and increased stock-based
compensation costs due to the adoption of SFAS No. 123R (See Note 3 of Notes
to Condensed Consolidated Financial Statements) and increased staffing costs,
including salaries, sales commissions and profit sharing accruals.

   Litigation Accrual.  During the quarter ended June 30, 2006, the Company
accrued $935,000 in litigation expense due to an unfavorable ruling in a
patent infringement lawsuit brought by Linear Technology Corporation (see Note
11 of Notes to Condensed Consolidated Financial Statements). During the
quarter ended June 30, 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

                                       22
<PAGE>

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


expense in the second quarter 2005 financial statements (see Note 11 of Notes
to Condensed 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 and accrued interest related to accrued litigation
liabilities.  Other income, net increased $309,000 to $1.3 million for the
three months ended June 30, 2006 from $1.0 million for the comparable period
in 2005.  For the six months ended June 30, 2006, other income, net increased
$725,000 to $2.6 million from $1.8 million for the comparable period in 2005.
These increases were primarily due to an increase in average interest rates
and returns on investment balances, which was partially offset by increased
accrued interest expense related to accrued litigation liabilities.

    Provision for Income Taxes. The income tax provision for the three and six
months ended June 30, 2006 is based on the Company's estimated annual
effective tax rate of 40.7% of pretax income as compared to 35% of pretax
income for the comparable periods in 2005. The tax rate increase is due
primarily to the effects of nondeductible stock-based compensation expense and
the expiration of the federal research and development credit at the end of
2005. No federal research and development credit tax benefit for 2006 may be
recorded unless the credit is re-enacted by Congress, for which there is no
assurance as to when or if such credit would be re-enacted. The income tax
provision for such interim periods differs from taxes computed at the federal
statutory rate primarily due to the effect of nondeductible stock-based
expense, state income taxes, state research and development credits, and
federal qualified production activity deductions.


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 June 30, 2006, consisted of cash and short-term
investments of $121.4 million and a $6 million revolving line of credit from a
commercial bank (see Note 7 of Notes to Condensed Consolidated Financial
Statements).

    The Company generated $23.8 million in cash flows from operating activities
for the six months ended June 30, 2006, primarily attributable to net income
of $17.7 million plus additions for non-cash activities of $10.3 million
combined with $7.9 million increase is deferred income on shipments to
distributors and a $1.8 million increase in other accrued liabilities, which
was partially offset by $5.5 million increase in accounts receivable, $3.9
million increase in inventories combined with a $2.3 million decrease in
accounts payable and a $2.2 million decrease in income taxes payable.

    For the six months ended June 30, 2005, the Company generated $26.2 million
in cash flows from operating activities primarily attributable to net income
of $7.8 million plus additions for non-cash activities of $10.4 million and a
$5.0 million decrease in inventories combined with a $7.1 million increase in
other accrued liabilities, which were partially offset by a $5.2 million
decrease in income taxes payable.

    The Company generated $23.2 million of cash from investing activities
during the six months ended June 30, 2006 comprised of $34.4 million in
proceeds from net sales of short-term investments which was partially offset
by $8.6 million in purchases of property, plant and equipment and $2.6 million
increase in restricted cash (see Note 1 of Notes to Condensed Consolidated
Financial Statements).

    For the six months ended June 30, 2005, the Company generated $5.3 million
of cash from investing activities comprised of $11.3 million in proceeds from
net sales of short-term investments that were partially offset by $6.0 million
in purchases of property, plant and equipment.

    The Company used $27.8 million of cash in financing activities during the
six months ended June 30, 2006 primarily for the repurchase of $30.2 million
of the Company's common stock, which was partially offset by $2.2 million in
proceeds from employee stock transactions.

                                       23
<PAGE>

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


    For the six months ended June 30, 2005, the Company used $29.3 million of
cash in financing activities primarily for the repurchase of $32.3 million of
the Company's common stock, which was partially offset by $3.0 million in
proceeds from employee stock transactions.

    The Company currently intends to spend approximately $7 million to $12
million to purchase capital equipment and make facility improvements during
the remainder of 2006 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 $45 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, credit arrangements and future debt or equity financings as
required.


Recently Issued Accounting Standards

    Please refer to Note 2 of Notes to Condensed Consolidated Financial
Statements for a discussion of the expected impact of recently issued
accounting standards.


Contractual Obligations and Commitments

   As of June 30, 2006, 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                 $    120  $    120  $    --   $    --   $    --
Operating leases                  6,943     2,180     2,640     2,123       --
Open purchase orders             24,500    24,500       --        --        --
                               --------  --------  --------  --------  --------
Total                          $ 31,563  $ 26,800  $  2,640  $  2,123  $    --
                               ========  ========  ========  ========  ========
</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 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 direct borrowings
under the revolving line of credit at June 30, 2006 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.

                                       24
<PAGE>


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   At June 30, 2006, the Company held $14.0 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 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). The short-term investments
held at June 30, 2006 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 100 basis points from levels at June 30, 2006,
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 June 30, 2006, the Company held an insignificant amount of fixed-rate
long-term debt subject to interest rate risk.


ITEM 4:   CONTROLS AND PROCEDURES

     The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the Company's reports
under the Securities Exchange Act of 1934 is recorded, processed, summarized
and reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission, and that such information is accumulated
and communicated to the Company's management, including its chief executive
officer and chief financial officer, as appropriate, to allow timely decisions
regarding required disclosure.  In designing and evaluating the disclosure
controls and procedures, management recognizes that any 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.

     As required by Securities and Exchange Commission Rule 13a-15(b), the
Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's chief
executive officer and chief financial officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures as of
the end of the period covered by this report.  Based on the foregoing, the
Company's chief executive officer and chief financial officer have concluded
that the Company's disclosure controls and procedures are effective at the
reasonable assurance level as of June 30, 2006.

   There has been no change in the Company's internal control over financial
reporting during the Company's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.

                                       25
<PAGE>

                          PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

   The information included in Note 11 of Notes to Condensed Consolidated
Financial Statements under the caption "Litigation and Other Contingencies" in
Item 1 of Part I is incorporated herein by reference.


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.
Additional factors that may affect the Company and its operating results are
contained within the Company's Form 10-K for the year ended December 31, 2005.

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 and the rest of the world, 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.

   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. For the six months ended June 30, 2006 and 2005, international
sales represented 72% and 76% of net revenues, respectively. In addition,
Company's revenues derived from export shipments to customers in Asia were 60%
and 66% of net revenues for the six months ended June 30, 2006 and 2005,
respectively.  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.

                                       26
<PAGE>


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.

   An important part of the Company's strategy is to continue to focus on the
market for high-speed communications ICs.  Over the past three months, the
orders and revenues for the Company's high-speed communications products have
increased.  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.

   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.

   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
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.

                                       27
<PAGE>

   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.

   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.

   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.  The Company may not be able to compete successfully in either the
standard products or custom and foundry products business in the future and
competitive pressures may adversely affect the Company's financial condition,
results of operations, or cash flows.

   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, others may 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. Existing claims or other
assertions or claims for indemnity resulting from infringement claims could
adversely affect the Company's business, 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.

   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.

                                       28
<PAGE>

The Statement of Accounting Standards No.123R, "Share-Based Payment" requires
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 3 of the Notes to
Condensed Consolidated Financial Statements, the effect of the adoption of
this accounting standard in 2006 has significantly increased stock based
compensation expense in the current period and such expense is expected to
continue in future periods.  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 and 10-Q filings and is
contained in Note 3 of the Notes to Condensed Consolidated Financial
Statements of this form 10-Q.  The requirement to recognize the cost of stock
option awards as an expense in the financial statements has and will continue
to reduce net income and earnings per share 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 be more difficult for the Company
to hire and retain employees.

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.  The Company currently expects that outside
legal expenses will continue to be substantial 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.

   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

                                       29
<PAGE>

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 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Dividend Payment Restrictions

The Company has entered into borrowing agreements that contain restrictions on
the declaration and payment of dividends without the lender's consent.  In
addition, the Company currently intends to retain future earnings to fund
operations, and does not anticipate paying dividends on its common stock in
the foreseeable future.

Issuer Purchases of Equity Securities

In November 2005, 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. The plan
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.

<TABLE>


   Repurchases of the Company's common stock during 2006 were as follows:

                                                                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 2006         570,800   $ 11.63           570,800           $  68,360
February 2006        297,500   $ 13.76           297,500           $  64,267
March 2006           334,600   $ 13.71           334,600           $  59,678
                   ---------                   ---------
  Total Q1 2006    1,202,900   $ 12.74         1,202,900
April 2006           178,900   $ 15.04           178,900           $  56,987
May 2006             441,544   $ 11.94           441,544           $  51,715
June 2006            661,000   $ 10.45           661,000           $  44,806
                   ---------                   ---------
  Total Q2 2006    1,281,444   $ 11.61         1,281,444
                   ---------                   ---------
  Total 2006       2,484,344   $ 12.15         2,484,344
                   =========                   =========
</TABLE>


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

The Company's Annual Meeting of Shareholders (the "Annual Meeting") was held
on May 25, 2006.  At the Annual Meeting, shareholders voted on four matters:
(a) to elect the Board of Directors, and (b) to ratify the appointment of
PricewaterhouseCoopers LLP as the independent registered public accounting
firm of the Company for its fiscal year ending December 31, 2006, (c) to
approve the implementation of the Micrel, Incorporated 2006 Employee Stock
Purchase Plan, and (d) to approve an amendment to Section 3.2 of the Amended
and Restated Bylaws of the Company.  All nominees for directors were elected,
the selection of the independent auditor was ratified, the implementation of
the Micrel, Incorporated 2006 Employee Stock Purchase Plan was approved, and
the amendment to Section 3.2 of the Amended and Restated Bylaws of the Company
was approved.  The proposals were voted upon and approved in the manner set
forth below:

                                       30
<PAGE>

Proposal No. 1 - Election of members of the Board of Directors:

The following persons were duly elected to the Board of Directors by the
shareholders for a one year term and until their successors are elected and
qualified:


<TABLE>
        NOMINATION               FOR           WITHHELD
        ----------               ---           ---------
<S>                         <C>              <C>
   Raymond D. Zinn           58,632,233          849,890
   Michael J. Callahan       54,806,860        4,675,263
   David W. Conrath          54,789,790        4,692,333
   George Kelly              53,391,873        6,090,250
   Donald H. Livingstone     58,757,870          724,253
</TABLE>


Proposal No. 2 - Ratification of the appointment PricewaterhouseCoopers LLP as
the independent registered public accounting firm of the Company for its fiscal
year ending December 31, 2006:

<TABLE>
        NOMINATION               FOR           AGAINST
        ----------               ---           -------
<S>                         <C>              <C>
PricewaterhouseCoopers LLP   59,252,340          213,626
</TABLE>


Proposal No. 3 - To approve the implementation of the Micrel, Incorporated 2006
Employee Stock Purchase Plan:

<TABLE>
                                 FOR           AGAINST
                                 ---           -------
<S>                          <C>              <C>
                             52,051,903          285,101
</TABLE>

Proposal No. 4 - To approve an amendment to Section 3.2 of the Amended and
Restated Bylaws of the Company:

<TABLE>
                                 FOR           AGAINST
                                 ---           -------
<S>                          <C>              <C>
                             52,093,122          157,608
</TABLE>


ITEM 6.  EXHIBITS

Exhibit No.                Description
----------                 -----------
   31        Certifications of the Company's Chief Executive Officer and
             Chief Financial Officer pursuant to Section 302 of the
             Sarbanes-Oxley Act of 2002
   32        Certifications of the Company's Chief Executive Officer and
             Chief Financial Officer pursuant to Section 906 of the
             Sarbanes-Oxley Act of 2002

                                       31
<PAGE>

                                   SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                           MICREL, INCORPORATED
                                           --------------------
                                              (Registrant)



Date: August 8, 2006                By /s/ Richard D. Crowley, Jr.
                                       -----------------------------
                                       Richard D. Crowley, Jr.
                                       Vice President, Finance and
                                       Chief Financial Officer
                                       (Authorized Officer and
                                       Principal Financial Officer)


                                      32