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
March 31, 2009.
 
 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  1-34020
 
 MICREL,
INCORPORATED
 (Exact
name of Registrant as specified in its charter)
 
 California
              94-2526744(State
      or other jurisdiction of
              (I.R.S.
      Employer Identification No.)incorporation
      or organization)
 
 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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes  ̈   No
 ̈
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer” and” “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
 
 Large accelerated
filer ̈                                                                           Accelerated filerx
 Non-accelerated
filer  ̈                                                                             Smaller
reporting company  ̈
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.)  Yes  ̈ No
x
 
 
 As of
April 30, 2009 there were 65,380,090 shares of common stock, no par value,
outstanding.
 
  1
 Table
of Contents
  
 MICREL, INCORPORATED
                INDEX
      TO
                REPORT
      ON FORM 10-Q
                FOR
      THE THREE MONTHS ENDED March 31, 2009PagePART
      I.  FINANCIAL INFORMATIONItem 1.
              Financial
      Statements (Unaudited):Condensed Consolidated Balance Sheets - at
      March 31, 2009 and at December 31, 2008
              3Condensed Consolidated Statements of Operations -
      Three Months Ended March 31, 2009 and 2008
              4Condensed Consolidated Statements of Cash Flows - Three
      Months Ended March 31, 2009 and 2008
              5Notes to Condensed Consolidated Financial
      Statements
              6Item
      2.
              Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
              18Item
      3.
              Quantitative and Qualitative Disclosures about Market
      Risk
              27Item
      4.
              Controls and Procedures
              27PART
      II.  OTHER INFORMATIONItem
      1.
              Legal Proceedings
              28Item
      1A.
              Risk Factors
              28Item
      2.
              Unregistered Sales of Equity Securities and Use of
      Proceeds
              34Item
      6.
              Exhibits
              35Signature
              36
 
 
 
  2
 Table
of Contents
  
 ITEM
      1. FINANCIAL STATEMENTSMICREL, INCORPORATEDCONDENSED
      CONSOLIDATED BALANCE SHEETS(Unaudited)(In
      thousands, except share amounts)March 31,
              
              
              December 31,2009
              
              
              2008ASSETSCURRENT
      ASSETS:Cash and cash
      equivalents
              
              $
              32,201
              
              
              $
              48,343Short-term
    investments
              
              
              25,983
              
              
              
              25,852Accounts receivable, less
      allowances: 2009, $4,817; 2008, $2,937
              
              
              21,490
              
              
              
              20,643Inventories
              
              
              35,918
              
              
              
              37,440Income
      taxes receivable
              
              
              6,449
              
              
              
              6,783Prepaid expenses and
      other
              
              
              1,663
              
              
              
              1,781Deferred income
    taxes
              
              
              17,138
              
              
              
              17,752Total current
      assets
              
              
              140,842
              
              
              
              158,594LONG-TERM
      INVESTMENTS
              
              
              11,872
              
              
              
              12,628PROPERTY,
      PLANT AND EQUIPMENT, NET
              
              
              73,435
              
              
              
              76,200DEFERRED
      INCOME TAXES
              
              
              10,604
              
              
              
              11,135INTANGIBLE
      ASSETS, NET
              
              
              936
              
              
              
              1,338OTHER
      ASSETS
              
              
              423
              
              
              
              448TOTAL
              
              $
              238,112
              
              
              $
              260,343LIABILITIES
      AND SHAREHOLDERS’ EQUITYCURRENT
      LIABILITIES:Accounts payable
              
              $
              13,667
              
              
              $
              15,365Deferred income on shipments to
      distributors
              
              
              18,677
              
              
              
              21,136Other current
      liabilities
              
              
              6,241
              
              
              
              10,696Total current
      liabilities
              
              
              38,585
              
              
              
              47,197LONG-TERM
      INCOME TAXES PAYABLE
              
              
              4,645
              
              
              
              4,468ACCRUED
      RENT
              
              
              253
              
              
              
              272SHAREHOLDERS’
      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:  2009 – 65,379,455 shares; 2008 – 67,308,899
      shares
              
              
              --
              
              
              
              --Accumulated other comprehensive
      loss
              
              
              (2,710
              )
              
              
              (2,244
              )Retained earnings
              
              
              197,339
              
              
              
              210,650Total shareholders’
      equity
              
              
              194,629
              
              
              
              208,406TOTAL
              
              $
              238,112
              
              
              $
              260,343The
      accompanying notes are an integral part of these unaudited condensed
      consolidated financial statements.
  3
 Table
of Contents
  
 MICREL, INCORPORATEDCONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)(In
      thousands, except per share amounts)Three
      Months EndedMarch 31,2009
              
              
              2008NET
      REVENUES
              
              $
              46,986
              
              
              $
              66,052COST
      OF REVENUES (1)
              
              
              23,369
              
              
              
              28,870GROSS
      PROFIT
              
              
              23,617
              
              
              
              37,182OPERATING
      EXPENSES:Research and development (1)
              
              
              12,489
              
              
              
              14,126Selling, general and
      administrative (1)
              
              
              8,858
              
              
              
              11,925Restructuring expense
      (income)
              
              
              --
              
              
              
              (842
              )Proxy contest
    expense
              
              
              --
              
              
              
              331Total operating
      expenses
              
              
              21,347
              
              
              
              25,540INCOME
      FROM OPERATIONS
              
              
              2,270
              
              
              
              11,642OTHER
      INCOME (EXPENSE):Interest income
              
              
              316
              
              
              
              1,085Other income, net
              
              
              24
              
              
              
              11Total other income,
      net
              
              
              340
              
              
              
              1,096INCOME
      BEFORE INCOME TAXES
              
              
              2,610
              
              
              
              12,738PROVISION
      FOR INCOME TAXES
              
              
              1,064
              
              
              
              4,420NET
      INCOME
              
              $
              1,546
              
              
              $
              8,318NET
      INCOME PER SHARE:Basic
              
              $
              0.02
              
              
              $
              0.12Diluted
              
              $
              0.02
              
              
              $
              0.12WEIGHTED
      AVERAGE SHARES USED INCOMPUTING
      PER SHARE AMOUNTS:Basic
              
              
              66,175
              
              
              
              72,266Diluted
              
              
              66,223
              
              
              
              72,310(1)
      Share-based compensation expense included in:Cost of
revenues
              
              $
              144
              
              
              $
              233Research and
      development
              
              
              291
              
              
              
              604Selling, general and
      administrative
              
              
              273
              
              
              
              652The
      accompanying notes are an integral part of these unaudited condensed
      consolidated financial statements.
  4
 Table
of Contents
  
 MICREL, INCORPORATEDCONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)(In
      thousands)
              
              Three
      Months EndedMarch 31,2009
              
              
              2008NET
      CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:Net income
              
              $
              1,546
              
              
              $
              8,318Adjustments to reconcile net
      income to net cashprovided by operating activities:Depreciation and
      amortization
              
              
              4,389
              
              
              
              4,631Share-based compensation
      expense
              
              
              708
              
              
              
              1,489Tax benefit on the exercise of
      employee stock options
              
              
              12
              
              
              
              --Loss (gain) on disposal of
      assets
              
              
              1
              
              
              
              (1
              )Accrued rent
              
              
              (19
              )
              
              
              (10
              )Deferred income taxes
      provision
              
              
              593
              
              
              
              424Changes in operating assets and
      liabilities:Accounts
    receivable
              
              
              (847
              )
              
              
              (4,075
              )Inventories
              
              
              1,498
              
              
              
              849Income taxes
      receivable
              
              
              334
              
              
              
              2,942Prepaid expenses and other
      assets
              
              
              143
              
              
              
              1,228Accounts
payable
              
              
              (1,698
              )
              
              
              (2,820
              )Income taxes
      payable
              
              
              177
              
              
              
              881Other current
      liabilities
              
              
              (4,455
              )
              
              
              (4,455
              )Deferred income on shipments to
      distributors
              
              
              (2,459
              )
              
              
              464Net cash provided by (used in)
      operating activities
              
              
              (77
              )
              
              
              9,865CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchases of property, plant and
      equipment, net
              
              
              (1,223
              )
              
              
              (3,407
              )Purchases of
      investments
              
              
              (9,131
              )
              
              
              (3,807
              )Proceeds from the sale of
      investments
              
              
              9,000
              
              
              
              10,000Net cash provided by (used in)
      investing activities
              
              
              (1,354
              )
              
              
              2,786CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds from the issuance of
      common stock
              
              
              83
              
              
              
              95Repurchases of common
      stock
              
              
              (12,448
              )
              
              
              (16,988
              )Payment of cash
      dividends
              
              
              (2,346
              )
              
              
              (2,173
              )Excess tax benefits associated
      with share-based compensation
              
              
              --
              
              
              
              --Net cash used in financing
      activities
              
              
              (14,711
              )
              
              
              (19,066
              )NET
      DECREASE IN CASH AND CASH EQUIVALENTS
              
              
              (16,142
              )
              
              
              (6,415
              )CASH
      AND CASH EQUIVALENTS - Beginning of period
              
              
              48,343
              
              
              
              80,977CASH
      AND CASH EQUIVALENTS - End of period
              
              $
              32,201
              
              
              $
              74,562SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid during the period for:Interest
              
              $
              --
              
              
              $
              12Income taxes
              
              $
              5
              
              
              $
              91The
      accompanying notes are an integral part of these unaudited condensed
      consolidated financial statements.
 
  5
 Table
of Contents
 MICREL,
INCORPORATED
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  
 1.
              SIGNIFICANTACCOUNTING  POLICIES
 
 Interim Financial
Information -The accompanying
condensed consolidated financial statements of Micrel, Incorporated and its
wholly-owned subsidiaries (“Micrel” or the “Company”) as of March 31, 2009
and for the three months ended March 31, 2009 and 2008 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 as of December 31, 2008, 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. These financial statements 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,
2008.  These financial statements 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, 2008.
 
 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):
 Three
      Months EndedMarch 31,2009
              
              
              2008Weighted average common shares
      outstanding
              
              
              66,175
              
              
              
              72,266Dilutive effect of stock
      options outstanding using the treasury stock method
              
              
              48
              
              
              
              44Shares used in computing
      diluted net income per share
              
              
              66,223
              
              
              
              72,310
 
 For the
three months ended March 31, 2009 and 2008, 8.4 million and 11.7 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.
              REVISIONOF PRIOR PERIOD FINANCIAL
    STATEMENTS
 
 During
the fourth quarter of 2008, the Company identified an error related to its
calculation of deferred income on shipments to distributors ("deferred income").
Upon review of its calculations, management determined that the estimated
shipping margin percentage used to calculate the deferred income balance was
incorrect and this resulted in an understatement of deferred income and related
cost of sales. The Company assessed the materiality of this error on prior
periods’ financial statements in accordance with the SEC’s Staff Accounting
Bulletin No. 99 (“SAB 99”), and concluded that the error was not material to any
prior annual or interim periods but would be material to the year ended December
31, 2008 if the entire correction was recorded in that year. Accordingly, in
accordance with the SEC’s Staff Accounting Bulletin No. 108 (“SAB 108”), the
financial statements for the three months ended March 31, 2008 presented herein
have been revised to correct for the immaterial error.
  6
 Table
of Contents
 MICREL,
INCORPORATED
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  Set out
below are the line items within the consolidated financial statements as of and
for the three months ended March 31, 2008 that have been impacted by the
revisions.  The revision had no impact on the Company’s total cash
flows from operating, investing or financing activities.
 As
      of and for the
                Three
      Months Ended
                March 31, 2008(in
      thousands except per share amounts)
              
              As
                Reported
              
              
              As
                RevisedConsolidated Statement
      of Operations:Cost
      of revenues
              
              $
              28,761
              
              
              $
              28,870Gross
      Profit
              
              
              37,291
              
              
              
              37,182Income
      from operations
              
              
              11,751
              
              
              
              11,642Income
      before income taxes
              
              
              12,847
              
              
              
              12,738Provision
      for income taxes
              
              
              4,458
              
              
              
              4,420Net
      income
              
              
              8,389
              
              
              
              8,318Net
      income per share:Basic
              
              $
              0.12
              
              
              $
              0.12Diluted
              
              $
              0.12
              
              
              $
              0.12Consolidated Balance
      Sheets:Income
      taxes receivable
              
              $
              235
              
              
              $
              --Deferred
      income taxes
              
              
              18,960
              
              
              
              20,017Total
      current assets
              
              
              168,699
              
              
              
              169,521Total
      assets
              
              
              278,182
              
              
              
              279,004Deferred
      income on shipments to distributors
              
              
              20,593
              
              
              
              23,341Total
      current liabilities
              
              
              45,425
              
              
              
              48,426Retained
      earnings
              
              
              230,151
              
              
              
              227,972Total
      shareholders’ equity
              
              
              228,990
              
              
              
              226,811Total
      liabilities and shareholders’ equity
              
              
              278,182
              
              
              
              279,004
 
 
 3.
              RECENTLYISSUED ACCOUNTING
  STANDARDS
 
 In April
2009, the Financial Accounting Standards Board (FASB) issued FASB Staff Position
(FSP) Financial Accounting Standard (FAS) 157-4 “Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly”. Based on the
guidance, if an entity determines that the level of activity for an asset or
liability has significantly decreased and that a transaction is not orderly,
further analysis of transactions or quoted prices is needed, and a significant
adjustment to the transaction or quoted prices may be necessary to estimate fair
value in accordance with Statement of Financial Accounting Standards (SFAS) No.
157 “Fair Value Measurements”. This FSP is to be applied prospectively and is
effective for interim and annual periods ending after June 15, 2009 with early
adoption permitted for periods ending after March 15, 2009. The Company will
adopt this FSP for its quarter ending June 30, 2009. The Company is currently
evaluating the potential impact, if any, the adoption of this pronouncement will
have on its consolidated financial statements.
 
 In April
2009, the FASB issued FSP FAS 115-2 and FAS 124-2 “Recognition and Presentation
of Other-Than-Temporary Impairments”. The guidance applies to investments in
debt securities for which other-than-temporary impairments may be recorded. If
an entity’s management asserts that it does not have the intent to sell a debt
security and it is more likely than not that it will not have to sell the
security before recovery of its cost basis, then an entity may separate
other-than-temporary impairments into two components: 1) the amount related to
credit losses (recorded in earnings), and 2) all other amounts (recorded in
other comprehensive income). This FSP is to be applied prospectively and is
effective for interim and annual periods ending after June 15, 2009 with early
adoption permitted for periods ending after March 15, 2009. The Company will
adopt this FSP for its quarter ending June 30, 2009. The Company is currently
evaluating the potential impact, if any, the adoption of this pronouncement will
have on its consolidated financial statements.
  7
 Table
of Contents
 MICREL,
INCORPORATED
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  In April
2009, the FASB issued FSP FAS 107-1 and Accounting Principles Board (APB) 28-1
“Interim Disclosures about Fair Value of Financial Instruments”. The FSP amends
SFAS No. 107 “Disclosures about Fair Value of Financial Instruments” to require
an entity to provide disclosures about fair value of financial instruments in
interim financial information. This FSP is to be applied prospectively and is
effective for interim and annual periods ending after June 15, 2009 with early
adoption permitted for periods ending after March 15, 2009. The Company will
include the required disclosures in its financial statements for the quarter
ending June 30, 2009.
 
 In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” which
became effective January 1, 2009 via prospective application to business
combinations. This Statement requires that the acquisition method of accounting
be applied to a broader set of business combinations, amends the definition of a
business combination, provides a definition of a business, requires an acquirer
to recognize an acquired business at its fair value at the acquisition date and
requires the assets and liabilities assumed in a business combination to be
measured and recognized at their fair values as of the acquisition date (with
limited exceptions). The company adopted this Statement on January 1, 2009.
There was no impact upon adoption, and its effects on future periods will depend
on the nature and significance of business combinations subject to this
statement.
 
 In April
2009, the FASB issued FSP FAS 141(R)-1, “Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from Contingencies.”
This FSP requires that assets acquired and liabilities assumed in a business
combination that arise from contingencies be recognized at fair value if fair
value can be reasonably estimated. If fair value cannot be reasonably estimated,
the asset or liability would generally be recognized in accordance with SFAS No.
5, “Accounting for Contingencies” and FASB Interpretation No. 14, “Reasonable
Estimation of the Amount of a Loss”. Further, the FASB removed the subsequent
accounting guidance for assets and liabilities arising from contingencies from
SFAS No. 141(R). The requirements of this FSP carry forward without significant
revision the guidance on contingencies of SFAS No. 141, “Business Combinations”,
which was superseded by SFAS No. 141(R) (see previous paragraph). The FSP also
eliminates the requirement to disclose an estimate of the range of possible
outcomes of recognized contingencies at the acquisition date. For unrecognized
contingencies, the FASB requires that entities include only the disclosures
required by SFAS No. 5. This FSP was adopted effective January 1, 2009. There
was no impact upon adoption, and its effects on future periods will depend on
the nature and significance of business combinations subject to this
statement.
 
 In June
2008, the FASB issued FASB Staff Position EITF 03-6-1, “Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities” ("FSP EITF 03-6-1"). FSP EITF 03-6-1 addresses whether participating
share-based payment awards, that contain non-forfeitable rights to dividends or
dividend equivalents (paid or unpaid) prior to vesting, should be included in
the computation of earnings per share under the two-class method. FSP EITF
03-6-1 will be effective for financial statements issued for fiscal years
beginning after December 15, 2008. The adoption of FSP EITF 03-6-1 did not have
an impact on the Company’s Consolidated financial statements.
 
 In
April 2008, the FASB issued FSP FAS 142-3, “Determination of the Useful
Life of Intangible Assets”. The FSP states that in developing assumptions about
renewal or extension options used to determine the useful life of an intangible
asset, an entity needs to consider its own historical experience adjusted for
entity-specific factors. In the absence of that experience, an entity shall
consider the assumptions that market participants would use about renewal or
extension options. This FSP is to be applied to intangible assets acquired after
January 1, 2009. The adoption of this FSP did not have an impact on the
Company’s Consolidated Financial Statements.
  8
 Table
of Contents
 MICREL,
INCORPORATED
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  
 In
February 2008, the FASB issued FSP FAS 157-2, “Effective Date of FASB Statement
No. 157.” FSP FAS 157-2 delayed the effective date of SFAS No. 157 “Fair Value
Measurements” from 2008 to 2009 for all nonfinancial assets and nonfinancial
liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually). The adoption of
the provisions of SFAS No. 157 related to nonfinancial assets and nonfinancial
liabilities on January 1, 2009 did not have a material impact on the Company’s
Consolidated Financial Statements. See Note 5 for SFAS No.
157 disclosures
 
 In
December 2007, the FASB issued FAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51”, which
establishes the accounting and reporting for noncontrolling
interests.  Noncontrolling interests should be reported as a component
of equity separate from the parent’s equity, and purchases or sales of equity
interests that do not result in a change in control will be accounted for as
equity transactions. The amount of consolidated net income attributable to the
parent and to the noncontrolling interests should be identified and presented on
the face of the consolidated statement of income. The Company adopted FAS No.
160 effective January 1, 2009. The adoption of FAS No. 160 had no impact on the
Company’s Consolidated Financial Statements as the Company has no noncontrolling
interests.
 
 
 4.
              SHARE-BASED
COMPENSATION
 
 The
Company accounts for share-based compensation under the provisions of Statement
of Financial Accounting Standard No. 123 (revised 2004) ("SFAS 123R"),
“Share-Based Payment”. Share-based compensation is measured at the grant date,
based on the fair value of the award and is recognized over the employee's
requisite service period. For further details regarding the Company's
share-based compensation arrangements, refer to Note 7 of
Notes to Consolidated Financial Statements included in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2008. The following
table summarizes total share-based compensation expense included in the
Condensed Consolidated Statement of Operations:
 
 Three
      Months EndedMarch 31,2009
              
              
              2008Cost of
revenues
              
              $
              144
              
              
              $
              233Research and
      development
              
              
              291
              
              
              
              604Selling, general and
      administrative
              
              
              273
              
              
              
              652Pre-tax share-based compensation
      expense
              
              
              708
              
              
              
              1,489Less income tax
      effect
              
              
              (211
              )
              
              
              (301
              )Net share-based compensation
      expense
              
              $
              497
              
              
              $
              1,188
 
 During
the three months ended March 31, 2009 and 2008, the Company granted 274,000
and 931,140 stock options, respectively at weighted average fair values of $2.87
and $3.12 per share, respectively. 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:
 
 Three
      Months EndedMarch 31,2009
              
              
              2008Expected term
      (years)
              
              
              6.9
              
              
              
              6.3Stock
volatility
              
              
              49.7
              %
              
              
              49.0
              %Risk free interest
      rates
              
              
              2.3
              %
              
              
              2.8
              %Dividends during expected
      terms
              
              
              2.0
              %
              
              
              1.3
              %
 
 
 
 As of
March 31, 2009, there was $13.3 million of total unrecognized share-based
compensation related to non-vested stock option awards which is expected to be
recognized over a weighted-average period of 3.4 years. Total share-based
compensation capitalized as part of inventory as of March 31, 2009 and
December 31, 2008 was $78,000 and $102,000, respectively.
  9
 Table
of Contents
 MICREL,
INCORPORATED
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  
 5.
              INVESTMENTS
 
 The
Company accounts for its investment instruments in accordance with Statement of
Financial Accounting Standards No. 115 (“SFAS 115”), “Accounting for Certain
Investments in Debt and Equity 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 regard to those securities
(expectations of sales and redemptions). Short-term investments as of March 31,
2009 consist primarily of liquid corporate debt instruments and are classified
as available-for-sale securities. Long-term investments as of March 31, 2009,
consist of senior auction rate notes secured by student loans and are classified
as available-for-sale securities.  Per SFAS 115 available-for sale
securities 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.
 
 A summary
of the Company’s short-term investments at March 31, 2009 and December 31, 2008
is as follows (in thousands):
 
 As of March 31, 2009
              
              
              As of December 31,
2008Unrealized
              
              
              
              
              
              
              
              
              UnrealizedCost
              
              
              Gross
                Gains
              
              
              Gross
                Losses
              
              
              Fair
                Value
              
              
              Cost
              
              
              Gross
                Gains
              
              
              Gross
                Losses
              
              
              Fair
                ValueCorporate
      Securities
              
              $
              14,943
              
              
              $
              1
              
              
              $
              42
              
              
              $
              14,902
              
              
              $
              17,888
              
              
              $
              2
              
              
              $
              63
              
              
              $
              17,827Certificates
      of Deposits
              
              
              11,081
              
              
              
              —
              
              
              
              —
              
              
              
              11,081
              
              
              
              8,025
              
              
              
              —
              
              
              
              —
              
              
              
              8,025Total
              
              $
              26,024
              
              
              $
              1
              
              
              $
              42
              
              
              $
              25,983
              
              
              $
              25,913
              
              
              $
              2
              
              
              $
              63
              
              
              $
              25,852
 
 SFAS No.
157 establishes a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The hierarchy gives the highest priority
to unadjusted quoted prices in active markets for identical assets or
liabilities (level 1 measurements) and the lowest priority to unobservable
inputs (level 3 measurements). The three levels of the fair value hierarchy
under SFAS No. 157 are described below:
 
 •
              Level
      1 - Quoted prices in active markets for identical assets or
      liabilities.
 •
              Level
      2 - Inputs other than Level 1 that are observable, either directly or
      indirectly, such as quoted prices for similar assets or liabilities;
      quoted prices in markets that are not active; or other inputs that are
      observable or can be corroborated by observable market data for
      substantially the full term of the assets or
  liabilities.
 •
              Level
      3 - Unobservable inputs that are supported by little or no market activity
      and that are significant to the fair value of the assets or
      liabilities.
 
 A
financial instrument’s level within the fair value hierarchy is based on the
lowest level of any input that is significant to the fair value measurement.
Most of the Company’s financial instruments are classified within Level 1 or
Level 2 of the fair value hierarchy because they are valued using quoted market
prices, broker or dealer quotations, or alternative pricing sources with
reasonable levels of price transparency.
 
 The types
of instruments valued based on quoted market prices in active markets include
money market funds and commercial paper. Such instruments are generally
classified within Level 1 of the fair value hierarchy. The types of instruments
valued based on other observable inputs include U.S. agency securities. Such
instruments are generally classified within Level 2 of the fair value hierarchy.
The types of instruments valued based on unobservable inputs include the auction
rate notes held by the Company. Such instruments are generally classified within
Level 3 of the fair value hierarchy. The Company estimated the fair value of
these auction rate securities using a discounted cash flow model incorporating
assumptions that market participants would use in their estimates of fair value.
Some of these assumptions include estimates for interest rates, timing and
amount of cash flows and expected holding periods of the auction rate
securities.
  10
 Table
of Contents
 MICREL,
INCORPORATED
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  Financial
assets and liabilities measured at fair value on a recurring basis as of March
31, 2009 were as follows (in thousands):
 
 Fair Value Measurements as of March 31,
      2009Description
              
              Quoted
      Prices in Active Markets for Identical Assets
                Level 1
              
              
              Significant
      Other Observable Inputs
                Level 2
              
              
              Significant
      Unobservable Inputs
                Level 3
              
              
              TotalMoney
      market funds
              
              $
              25,721
              
              
              $
              4,465
              
              
              $
              −
              
              
              $
              30,186Short-term
      available-for-sale securities
              
              
              25,983
              
              
              
              −
              
              
              
              −
              
              
              
              25,983Auction
      rate notes
              
              
              −
              
              
              
              −
              
              
              
              11,872
              
              
              
              11,872Total
              
              $
              51,704
              
              
              $
              4,465
              
              
              $
              11,872
              
              
              $
              68,041
 
 As of
March 31, 2009, the Company had $11.9 million of auction rate notes, the fair
value of which has been measured using Level 3 inputs. Auction rate notes are
securities that are structured with short-term interest rate reset dates of
generally less than ninety days, but with contractual maturities that can be
well in excess of ten years. At the end of each reset period, which occurs every
seven or twenty eight days for the securities held by the Company, investors can
sell or continue to hold the securities at par. During the first quarter of 2008
and continuing through the first quarter of 2009, the auction rate securities
market experienced a significant increase in the number of failed auctions,
which occurs when sell orders exceed buy orders. Auctions for the student
loan-backed notes held by the Company have failed as of March 31, 2009. To date
the Company has collected all interest payable on all of its auction-rate
securities when due and expects to continue to do so in the future. The
principal associated with failed auctions will not be accessible until a
successful auction occurs, a buyer is found outside of the auction process, the
issuers redeem the securities, the issuers repay principal over time from cash
flows prior to final maturity or final payments come due according to
contractual maturities ranging from 24 to 37 years.  As a result, the
Company has classified all auction rate notes as long-term investments as of
March 31, 2009. In the event of a failed auction, the notes bear interest at a
predetermined maximum rate based on the credit rating of notes as determined by
one or more nationally recognized statistical rating
organizations.  For the auction rate notes held by the Company as of
March 31, 2009, the maximum interest rate is generally one month LIBOR plus 1.5%
based on the notes’ AAA rating as of that date.
 
 The
Company has used a discounted cash flow model to determine the estimated fair
value of its investment in auction rate notes as of March 31, 2009. The
assumptions used in preparing the discounted cash flow model include estimates
for interest rates, estimates for discount rates using yields of comparable
traded instruments adjusted for illiquidity and other risk factors, amount of
cash flows and expected holding periods of the auction rate
notes.  Based on this assessment of fair value, as of March 31, 2009,
the Company determined there was a decline in the fair value of its auction rate
notes of approximately $4.3 million (recorded net of tax as an unrealized loss
in accumulated other comprehensive loss), which was deemed temporary as the
Company currently has the ability and intent to hold these investments until a
recovery of the auction process occurs, the issuers redeem the securities or
principal is repaid by the issuers over time or at the contractual maturity
date. For the three months ended March 31, 2009 the changes in the Company’s
Level 3 securities are as follows (in thousands):
 Fair
      Value Measurements Using Significant Unobservable Inputs
                (Level 3)Beginning
      balance, December 31, 2008
              
              $
              12,628Transfers
      in and/or out of Level 3
              
              
              --Total
      gains or losses (unrealized), before tax:
              
              
              (756
              )Settlements
              
              
              --Ending
      balance, March 31, 2009
              
              $
              11,872
 
  11
 Table
of Contents
 MICREL,
INCORPORATED
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  
 6.
              INVENTORIES
 
 Inventories
consist of the following (in thousands):
 March 31,
              
              
              December 31,2009
              
              
              2008Finished goods
              
              $
              12,168
              
              
              $
              12,669Work in process
              
              
              21,531
              
              
              
              22,213Raw materials
              
              
              2,219
              
              
              
              2,558$
              35,918
              
              
              $
              37,440
 
 
 7.
              PROPERTY, PLANT AND
EQUIPMENT
 
 Property,
      plant and equipment consist of the following (in
    thousands):
 March 31,
              
              
              December 31,2009
              
              
              2008Manufacturing
      equipment
              
              $
              182,475
              
              
              $
              181,514Land
              
              
              6,636
              
              
              
              6,636Buildings and
      improvements
              
              
              47,788
              
              
              
              47,513Leasehold
      Improvements
              
              
              746
              
              
              
              746Office
      furniture and research
              
              
              13,545
              
              
              
              13,560251,190
              
              
              
              249,969Accumulated
      depreciation
              
              
              (177,755
              )
              
              
              (173,769
              )$
              73,435
              
              
              $
              76,200
 
 Depreciation
      expense for the three months ended March 31, 2009 and 2008 was $ 4.0
      million and $4.2 million,
respectively.
 
 
 8.
              INTANGIBLEASSETS
 
 Components
of intangible assets were as follows (in thousands):
 
 As of March 31, 2009
              
              
              As of December 31,
2008Gross
                Carrying
                Amount
              
              
              Accumulated
                Amortization
              
              
              Net
                Carrying
                Amount
              
              
              Gross
                Carrying
                Amount
              
              
              Accumulated
                Amortization
              
              
              Net
                Carrying
                AmountDeveloped and core
      technology
              
              $
              8,718
              
              
              $
              8,678
              
              
              $
              40
              
              
              $
              8,718
              
              
              $
              8,620
              
              
              $
              98Patents and trade
      name
              
              
              10,318
              
              
              
              9,422
              
              
              
              896
              
              
              
              10,318
              
              
              
              9,078
              
              
              
              1,240Customer
      relationships
              
              
              1,455
              
              
              
              1,455
              
              
              
              --
              
              
              
              1,455
              
              
              
              1,455
              
              
              
              --$
              20,491
              
              
              $
              19,555
              
              
              $
              936
              
              
              $
              20,491
              
              
              $
              19,153
              
              
              $
              1,338
 
 Acquired
technology, patents and other intangible assets continue to be amortized over
their estimated useful lives of 3 to 7 years using the straight-line method.
Total intangible amortization expense for the three month periods ended March
31, 2009 and 2008 was $402,000 and $422,000, respectively.
 
 The
estimated future amortization expense of intangible assets as of March 31,
2009 was as follows (in thousands):
 
 Year Ending
      December 31,2009 (nine
months)
              
              $
              4272010
              
              
              2552011
              
              
              254Thereafter
              
              
              -$
              936
 
  12
 Table
of Contents
 MICREL,
INCORPORATED
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  
 
 9.
              OTHERCURRENT
LIABILITIES
 
 Other
current liabilities consist of the following (in thousands):
 
 March 31,
              
              
              December 31,2009
              
              
              2008Accrued workers compensation
      and health insurance
              
              $
              857
              
              
              $
              880Accrued
      compensation
              
              
              3,043
              
              
              
              7,082Accrued
    commissions
              
              
              2,074
              
              
              
              2,366All other current accrued
      liabilities
              
              
              267
              
              
              
              368Total other current
      liabilities
              
              $
              6,241
              
              
              $
              10,696
 
 
 10.
              BORROWINGARRANGEMENTS
 
 Borrowing
arrangements consist of a $6 million revolving line of credit from a commercial
bank.  The revolving line of credit agreement includes a provision for
the issuance of commercial or standby letters of credit by the bank on behalf of
the Company.  The value of all letters of credit outstanding reduces
the total line of credit available.  There were no borrowings under
the revolving line of credit at March 31, 2009, and there were $325,000 in
standby letters of credit outstanding.  The revolving line of credit
was replaced May 7, 2009, with a new credit facility (see Note
20).
 
 
 11.
              SIGNIFICANTCUSTOMERS
 
 During
the three months ended March 31, 2009, three customers accounted for more
than 10% of net revenues. An original equipment manufacturer accounted for $5.7
million (12%) and two worldwide distributors accounted for $8.0 million (17%)
and $6.7 million (14%) of net revenues, respectively. During the three months
ended March 31, 2008, no original equipment manufacturer accounted for more
than 10% of net revenues and two worldwide distributors, accounted for $9.3
million (14%) and $9.2 million (14%) of net revenues, respectively.
 
 As of
March 31, 2009, two worldwide distributors and an original equipment
manufacturer accounted for 27%, 21% and 12%, respectively, of total accounts
receivable. At December 31, 2008, three world-wide distributors and a stocking
representative, accounted for 21%, 13%, 11% and 10%, respectively, of total
accounts receivable.
 
 
 12.
              COMPREHENSIVEINCOME
 
 Comprehensive
income, which was comprised of the Company's net income for the periods and
changes in unrealized gains or losses on investments, net of tax, was $1.1
million and $7.2 million for the three months ended March 31, 2009 and
2008, respectively. Comprehensive income for the three months ended
March 31, 2009 and 2008 includes an unrecognized loss, net of tax, on
available-for-sale auction rate notes of $466,000 and $1.1 million, respectively
(see Note 5).
 
  13
 Table
of Contents
 MICREL,
INCORPORATED
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  
 13.
              SEGMENTREPORTING
 
 The
Company follows the provisions of SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS No. 131 establishes standards for
reporting information regarding operating segments in annual financial
statements and requires selected information for those segments to be presented
in interim financial reports issued to stockholders. SFAS No. 131 also
establishes standards for related disclosures about products and services and
geographic areas. Operating segments are identified as components of an
enterprise about which separate discrete financial information is available for
evaluation by the chief operating decision maker. The Company has two reportable
segments: standard products and other products, which consist primarily of
custom and foundry products and revenues from the license of patents. 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 relevant to show assets by
reportable segments.
 
 Net Revenues by
      Segment
              
              Three
      Months Ended(dollars in
      thousands)
              
              March 31,2009
              
              
              2008Net Revenues:Standard
    Products
              
              $
              45,561
              
              
              $
              61,307Other Products
              
              
              1,425
              
              
              
              4,745Total net
revenues
              
              $
              46,986
              
              
              $
              66,052As a Percentage of Total Net
      Revenues:Standard
    Products
              
              
              97
              %
              
              
              93
              %Other Products
              
              
              3
              %
              
              
              7
              %Total net
revenues
              
              
              100
              %
              
              
              100
              %
 
 
 14.
              LITIGATIONAND OTHER
  CONTINGENCIES
 
 
 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, 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,
alleging 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 sought 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.   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.  On February 13,
2008, the parties participated in a mediation session.  Ultimately, on
March 5, 2008, the Company and Deerfield entered into a Settlement Agreement,
agreeing to dismiss with prejudice all claims and counterclaims in the
litigation.  Under the terms of the Agreement, the Company paid
Deerfield $875,000 in the first quarter of 2008 (see Note
18).
 
 Additional
claims have been filed by or have arisen against the Company in its normal
course of business.  The Company believes that the ultimate resolution
of these claims and lawsuits will not have a material adverse effect on the
Company's financial condition, results of operations or cash flows.
 
 Generally,
litigation is subject to inherent uncertainties, and no assurance can be given
that the Company will prevail in any particular lawsuit.  Accordingly,
any 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.
  14
 Table
of Contents
 MICREL,
INCORPORATED
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  
 
 15.
              SHAREREPURCHASE
PROGRAM
 
 On
December 30, 2008, the Company's Board of Directors approved a $50 million share
repurchase program for calendar year 2009. The timing and amount of any
repurchase of shares will be determined by the Company’s management, based on
its evaluation of market conditions and other factors. Share repurchases are
recorded as a reduction of common stock to the extent available. Any amounts in
excess of common stock are recorded as a reduction of retained
earnings.
 
 During
the three months ended March 31, 2009, the Company repurchased 1,945,920 shares
of its common stock for an aggregate price of $12.4 million. Included in the
first quarter 2009 share repurchases were 1,600,000 shares purchased from Obrem
Capital Offshore Master, LP and Obrem Capital (QP), LP, at a price per share of
$6.25 and an aggregate price of $10 million.
 
 
 16.
              PROXYCONTEST
EXPENSE
 
 During
the first quarter of 2008, the Company became engaged in a proxy contest with a
small activist hedge fund, Obrem Capital Management LLC (“OCM”).  The
proxy contest resulted in Micrel incurring incremental expenses of $331,000 in
the first quarter, $2.4 million in the second quarter, $349,000 in the third and
$1.1 million in the fourth quarter of 2008. These expenses consist primarily of
outside consulting and legal fees.  Following a special meeting of
shareholders on May 20, 2008, at which the Company’s shareholders rejected all
proposals set forth by OCM, OCM agreed to withdraw its slate of nominees for the
Company’s Board of Directors, and support Micrel’s Board of Directors nominees
at the upcoming annual meeting of shareholders. Micrel’s slate of directors was
subsequently elected by shareholders at the Company’s annual meeting on October
1, 2008.
 
 
 17.
              INCOMETAXES
 
 The
income tax provision for the three months ended March 31, 2009, as a percentage
of income before taxes, was 40.8%, as compared to 34.7% for the comparable
period in the prior year. This increase resulted primarily from an increase to
the Q1 2009 tax provision which represented the cumulative effect of California
state tax law changes. Certain provisions of the California Budget Act of 2008
signed on February 20, 2009 will allow a taxpayer to elect an alternative method
to attribute taxable income to California for tax years beginning on or after
January 1, 2011. The Company expects to make the election to use the alternative
method to attribute taxable income to California for our fiscal year ending
December 31, 2011. The Company recognized an expense of $240,000 during the
three months ended March 31, 2009 to reduce the amount of non-current deferred
tax assets that are not expected to be realized by January 1, 2011, due to the
effect of a lower apportionment rate. The income tax provision for such interim
periods differs from taxes computed at the federal statutory rate primarily due
to the effect of non-deductible share-based compensation expense, state income
taxes, federal and state research and development credits and federal qualified
production activity deductions.
 
 As of
March 31, 2009, the gross liability for uncertain tax positions was $9.0
million, the same amount as of December 31, 2008. The net liability as of
March 31, 2009, reduced for the federal effects of potential state tax
exposures, was $6.7 million as compared to $6.5 million as of December 31,
2008. If these uncertain tax positions are sustained upon tax authority audit,
or otherwise become certain, the net $6.7 million would favorably affect the
Company’s tax provision in such future periods.  Included in the $6.7
million is $2.1 million which has not yet reduced income tax payments, and,
therefore, has been netted against non-current deferred tax
assets.  The remaining $4.6 million liability is included in long-term
income taxes payable. The Company does not anticipate a significant change to
the net liability for uncertain income tax positions within the next 12
months.
  15
 Table
of Contents
 MICREL,
INCORPORATED
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  
 The Company continues to recognize
interest and penalties related to income tax matters as part of the income tax
provision. As of March 31, 2009 and December 31, 2008, the Company had
$514,000 and $450,000, respectively, accrued for interest and $0 accrued for
penalties for both periods. These accruals are included as a component of
long-term income taxes payable.
 
 The
Company is required to file U.S. federal income tax returns as well as income
tax returns in various states and foreign jurisdictions. The Company may be
subject to examination by the Internal Revenue Service (“IRS”) for calendar
years 2004 and forward. Significant state tax jurisdictions include California,
New York and Texas, and generally, the Company is subject to routine examination
for years 2003 and forward in these jurisdictions. In addition, any research and
development credit carryforwards that were generated in prior years and utilized
in these years may also be subject to examination by respective state taxing
authorities. Generally, the Company is subject to routine examination for years
2002 and forward in various immaterial foreign tax jurisdictions in which it
operates.
 
 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
$17.1 million and net long-term deferred tax assets of $10.6 million as of March
31, 2009.  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.
 
 
 18.
              RESTRUCTURINGAND MANUFACTURING FACILITY
      IMPAIRMENT
 
 In 2003
the Company closed its Santa Clara wafer fabrication facility. In February 2006,
the Company terminated the facility lease under the terms of the lease agreement
due to major vandalism rendering the building unusable.  The facility
Lessor disputed the termination of the lease.  In March 2008, the
Company entered into a Settlement and Mutual Release agreement with the Lessor.
Under the terms of the agreement, the Company paid $875,000 to the Lessor and
released a $70,000 security deposit for full settlement of all obligations under
the lease (see Note 14).  The remaining unused
restructuring expense accruals were credited to restructuring charges (credits)
in the statement of operations during the first quarter of 2008. A summary of
restructuring expense accruals associated with this facility closure is as
follows: ($000)
 
 Contractual
      Facility Costs
              
              
              Disposal
                Costs
              
              
              TotalBalance
      December 31, 2005
              
              $
              1,399
              
              
              $
              360
              
              
              $
              1,7592006
      Charges
              
              
              117
              
              
              
              152
              
              
              
              269Uses
              
              
              (259
              )
              
              
              (195
              )
              
              
              (454
              )Balance
      December 31, 2006
              
              
              1,257
              
              
              
              317
              
              
              
              1,5742007
      Charges
              
              
              128
              
              
              
              --
              
              
              
              128Other
              
              
              85
              
              
              
              --
              
              
              
              85Balance
      December 31, 2007
              
              
              1,470
              
              
              
              317
              
              
              
              1,7872008
      Uses
              
              
              (945
              )
              
              
              —
              
              
              
              (945
              )Other
      reductions
              
              
              (525
              )
              
              
              (317
              )
              
              
              (842
              )Balance
      December 31, 2008
              
              $
              —
              
              
              $
              —
              
              
              $
              —
 
  16
 Table
of Contents
 MICREL,
INCORPORATED
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  
 19.
              DIVIDENDS
 
 On
January 29, 2009 the Company’s Board of Directors declared a cash dividend
of $0.035 per outstanding share of common stock. The payment of $2.3 million was
made on February 25, 2009 to shareholders of record as of February 11,
2009.
 
 
 20.
              SUBSEQUENTEVENTS
 
 On April
24, 2009 the Company's Board of Directors declared a cash dividend of $0.035 per
outstanding share of common stock payable on May 22, 2009, to shareholders of
record at the close of business on May 6, 2009. This dividend will be recorded
in the second quarter of 2009 and is expected to be approximately $2.3
million.
 
 Effective
May 7, 2009, a new $20 million credit facility replaced the Company’s existing
line of credit. The new credit facility consists of a $5 million revolving line
of credit and a $15 million term loan facility. Borrowings under the credit
facility bear interest rates of, at the Company's election, the bank’s variable
rate (defined as the greater of the bank’s prime rate plus 1%, the federal funds
rate plus 1.5% or LIBOR plus 2%), a floating rate equal to one month LIBOR plus
2.25%, or a fixed rate for one to six months based on LIBOR plus 2.25%. The new
credit facility contains certain restrictive covenants, which the Company
intends to fully comply with for the term of the credit facility, which ends on
April 30, 2011.
 
 On May 7,
2009, the Company borrowed $15 million under the term loan facility. Borrowings
under the term loan facility are amortized over 21 equal monthly periods,
beginning on August 31, 2009. The borrowed funds were used to repurchase shares
of the Company’s common stock held by the Obrem entities.
 
 On May 7,
2009, the Company entered into a Stock Purchase Agreement with the Obrem
entities to purchase shares of the Company’s common stock owned by the Obrem
entities in a privately negotiated transaction. The Company purchased 3,100,000
shares at a price per share of $6.50 and an aggregate price of $20 million. The
purchase was made as part of the Company’s share repurchase program previously
announced on December 30, 2008. The shares purchased by the Company will return
to the status of authorized but unissued shares of common stock of the
Company.
 
  17
 Table
of Contents
 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; the levels of international sales; the
effect of global market conditions on revenue levels, profitability and results
of operations: future products or product development; statements regarding
fluctuations in the Company’s results of operations; future returns and price
adjustments and allowance; future uncollectible amounts and doubtful accounts
allowance; future products or product development; future research and
development spending and the Company’s product development strategy; the
Company’s markets, product features and performance; product demand and
inventory to service such demand; competitive threats and pricing pressure; the
effect of dependence on third parties; the Company’s future use and protection
of its intellectual property; future expansion or utilization of manufacturing
capacity; future expenditures; current or future acquisitions; the ability to
meet anticipated short term and long term cash requirements; effect of changes
in market interest rates on investments; the Company’s need and ability to
attract and retain certain personnel; the cost and outcome of litigation and its
effect on the Company; the future realization of tax benefits; and 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 of this report, 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,
2008.
 
 Micrel designs, develops, manufactures
and markets a range of high-performance analog power integrated circuits
("ICs"), mixed-signal and digital ICs. The Company currently ships over 3000
standard products and has derived the majority of its product revenue from sales
of standard analog and high speed communications ICs. These products address a
wide range of end markets including cellular handsets, portable computing,
enterprise and home networking, wide area and metropolitan area networks,
digital televisions 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.
 
 To enhance the readers' understanding
of the Company's performance, the following chronological overview of the
Company's results for the quarterly periods from January 1, 2008 through
March 31, 2009 has been provided.
 
 In the first quarter of 2008, bookings
levels rebounded from the fourth quarter of 2007, resulting in the highest
quarterly booking level since Q1 2006 and a book-to-bill ratio significantly
above one.  First quarter revenues of $66.1 million increased 2%
sequentially compared to fourth quarter 2007 revenues of $64.6
million.  The increase in revenues was primarily due to stronger
demand from the wire line communications, digital television, industrial and
voice-over-IP end markets, which offset seasonal declines in sales to the
computing and wireless handset end markets.  Revenues through Micrel’s
sell-through distributors increased in the first quarter of 2008 and the number
of weeks of distribution channel inventory decreased slightly on a sequential
basis.  Gross margin improved to 56.3% in the first quarter of 2008
from 55.7% in the fourth quarter of 2007 while at the same time inventory levels
were reduced.  First quarter 2008 operating profit was $11.6 million,
or 18% of revenues. Earnings per diluted share for the first quarter of 2008
increased to $0.12 per share from $0.11 per share reported in the fourth quarter
of 2007.
 
 During the first quarter of 2008, the
Company became engaged in its first proxy contest since going public in 1994,
with a small activist hedge fund, Obrem Capital Management LLC (“OCM”). This
issue resulted in Micrel incurring incremental operating expenses on this matter
of $331,000 in the first quarter, $2.4 million in the second quarter, $349,000
in the third quarter and $1.1 million in the fourth quarter of 2008. See
“Management Discussions and Analysis of Financial Conditions and Results of
Operations – Proxy Contest Expense” for additional
information.
  18
 Table
of Contents
 MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
  
 
 In the second quarter of 2008, total
bookings remained firm, resulting in a book-to-bill ratio above one. Second
quarter 2008 bookings were paced by demand from customers serving the
communications, industrial, and wireless handset end
markets.  Customers remained very cautious, which continued to keep
order lead times in the 4 to 5 week range. In the second quarter of 2008, Micrel
posted its highest sequential revenue growth rate in four
years.  Second quarter 2008 revenues of $70.6 million came in at the
high end of the Company’s guidance, increasing by $4.5 million, or 7%, from the
first quarter of 2008.  The growth in revenues was led by stronger
demand from customers serving the wireline communications, wireless handset, and
wi-fi voice-over-IP end markets, combined with record sales through the
Company’s global sell-through distributors.  The turns fill percentage
for the second quarter of 2008 was slightly above 50%.  Gross margin
was 56.4%, which was similar to gross margin in the first quarter of
2008.  Second quarter 2008 operating profit was $11.1 million, or 16%
of sales.  A total of $2.4 million of proxy contest expenses reduced
Micrel’s operating income by approximately 18% in the second quarter of 2008,
and also had the effect of reducing operating margin by approximately 3% in the
second quarter of 2008.  Second quarter 2008 net income was $7.4
million, or $0.10 per diluted share.  This compares with first quarter
2008 net income of $8.3 million, or $0.12 per diluted share.  Expenses
related to the Company’s proxy contest reduced net income by $0.02 per share in
the second quarter of 2008.
 
 Financial markets in the United States,
Europe and Asia experienced extreme disruption in the second half 2008,
including, among other things, extreme volatility in security prices, severely
diminished liquidity and credit availability, ratings downgrades of certain
investments and declining valuations of others. In the third quarter of 2008,
concerns related to the deterioration in the global financial and credit
markets, including with respect to the availability and cost of credit,
contributed to instability in worldwide capital and credit markets and
diminished expectations for the U.S. and global economy.  These
conditions worsened in the fourth quarter of 2008, and combined with uncertainty
about the global economy in general, contributed to volatility of unprecedented
levels and a further economic slowdown.  Although governments have
taken unprecedented actions in an attempt to alleviate the credit crisis,
customers and consumers began to cut back on spending in order to conserve cash
in the third quarter of 2008.  This resulted in the slowing of orders
from Micrel’s distributors and direct OEM customers, which continued into the
fourth quarter of 2008.
 
 During the third quarter of 2008, total
bookings were less than revenues, resulting in a book-to-bill ratio of less than
one. Third quarter 2008 bookings decreased abruptly in the last two weeks of the
quarter. Notwithstanding the order decrease, resales of the Company’s products
from global sell-through distributors remained strong throughout the quarter and
were at the highest levels ever experienced by the Company. In the third quarter
of 2008, Micrel posted $67.5 million in revenue, a decrease of 4% from the
second quarter of 2008. The sequential quarter decrease in sales primarily
resulted from reduced demand from customers serving the wireline communications,
Wi-FI voice-over IP and foundry sales to a major solar end customer. This was
offset by slight increases in the computer and consumer markets. The OEM turns
fill percentage for the third quarter of 2008 was approximately 50%. Third
quarter gross margin was 55.3%, down 1.1% from 56.4% in the second quarter of
2008. Research and development spending was $13.8 million, or 20% of revenues in
the third quarter of 2008 compared to $14.8 million or 21% of revenues in the
second quarter of 2008. Selling, general and administrative expenses were $11.3
million, or 17% of sales, down from $11.6 million in the second quarter of 2008.
Operating income was $11.9 million, or 18% of sales. This compares to operating
income of $11.1 million in the second quarter of 2008. Other income, net was
unchanged quarter to quarter at $700,000. The effective tax rate was 38.9% for
the third quarter. Third quarter 2008 net income was $7.7 million, or $0.11 per
diluted share. This compares with second quarter 2008 net income of $7.4
million, or $0.10 per diluted share.
 
 Fourth quarter 2008 revenue of $55.2
million decreased by $12.4 million, or 18%, from $67.5 million in the third
quarter of 2008. The decrease in revenues was due to tight year-end inventory
control in most geographies, channels and end markets as a result of the
worldwide financial crisis. The worldwide macroeconomic recession in the fourth
quarter caused the Company’s customers to focus on maintaining lean
inventories.  The Company’s global distributors and a number of major
OEM customers took action to minimize inventories at year-end.  As a
consequence, customer orders and purchases declined in November and December
after strong activity in October.  For the fourth quarter 2008,
Micrel’s overall book-to-bill ratio was below one. Order lead times from the
Company’s customers remained relatively short at from three to six weeks during
the quarter.
  19
 Table
of Contents
 MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
  
 Fourth quarter 2008 gross margin was
52.0%, compared to 55.3% in the third quarter of 2008.  The decrease
in gross margin was the result of factory underutilization and additional
inventory reserves due to a lower sales forecast. Fourth quarter 2008 net income
of $4.9 million, or $0.07 per diluted share compares with third quarter 2008 net
income of $7.7 million, or $0.11 per diluted share.
 
 For the year ended December 31, 2008,
Micrel’s financial performance continued to be strong, especially in light of
the current economic conditions. 2008 revenues of $259.4 million were up
slightly, compared with $258.0 million in 2007.  Net income for 2008
was $28.3 million, or $0.40 per diluted share, compared with net income of $44.1
million, or $0.57 per diluted share in 2007.  2007 net income included
a $15.5 million pre-tax gain associated with a first quarter legal settlement,
which after income taxes, is equivalent to $0.12 per diluted share. Gross
margins for 2008 were 55.1% compared to 56.9% in 2007.  The Company’s
design efforts resulted in a record number of new product releases in
2008.  Solid cash flows from operations of $53.3 million during the
year enabled the repurchase of 7.1 million shares of common stock, or
approximately 9.6% of the shares outstanding at the beginning of
2008.  In addition, during the year ended December 31, 2008, the
Company paid cash dividends of $9.5 million.
 
 The worldwide macroeconomic
recession continued to impact demand in the first quarter of 2009 and the
Company’s customers continued to maintain lean inventory levels. Despite the
difficult environment, first quarter bookings increased significantly over
fourth quarter levels and resulted in a book to bill ratio above one for both
the OEM and distribution sales channels.  Micrel’s financial
performance for the first quarter of 2009 was solid and results were within the
expected guidance ranges for the key metrics of revenues and net income. The
Company’s first quarter revenues were $47.0 million, compared to $55.2 million
in the fourth quarter of 2008.  First quarter gross margin was 50.3%,
compared to 52% in the prior quarter.  The decrease in gross margin
was primarily the result of factory capacity under-utilization as Micrel
continued to control its inventory levels. First quarter 2009 net income was
$1.5 million, or $0.02 per diluted share as compared to fourth quarter 2008 net
income of $4.9 million, or $0.07 per diluted share. In addition to solid first
quarter 2009 financial results, the Company continued to enhance shareholder
value by maintaining its quarterly three and one-half cent per share dividend
and repurchasing 1.9 million shares under its stock repurchase
plan.
 
 The Company derives a
substantial portion of its net revenues from standard products.  For
the three month period ended March 31, 2009 the Company's standard products
sales accounted for 97% of the Company's net revenues as compared to 93% of net
revenues in the comparable period in 2008.  The Company believes that
a substantial portion of its net revenues in the future will depend upon
standard products sales, although such sales as a proportion of net revenues may
vary as the Company adjusts product output levels to correspond with varying
economic conditions and demand levels in the markets which it serves. The
standard products business is characterized by short-term orders and shipment
schedules, and customer orders typically can be canceled or rescheduled without
significant penalty to the customer. Since most standard products backlog is
cancelable without significant penalty, the Company typically plans its
production and inventory levels based on internal forecasts of customer demand,
which is highly unpredictable and can fluctuate substantially. In addition, the
Company is limited in its ability to reduce costs quickly in response to any
revenue shortfalls.
 
 The Company may experience significant
fluctuations in its results of operations.  Factors that affect the
Company's results of operations include the volume and timing of orders
received, changes in the mix of products sold, the utilization level of
manufacturing capacity, competitive pricing pressures and the successful
development of new products.  These and other factors are described in
further detail later in this discussion and in Item 1A.  As a result
of the foregoing or other factors, there can be no assurance that the Company
will not experience material fluctuations in future operating results on a
quarterly or annual basis, which could materially and adversely affect the
Company's business, financial condition, results of operations or cash
flows.
 
  20
 Table
of Contents
 MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
  
 Revision
of Prior Period Financial Statements
 
 During the fourth quarter of 2008, the
Company identified an error related to its calculation of deferred income on
shipments to distributors ("deferred income"). Upon review of its calculations,
management determined that the estimated shipping margin percentage used to
calculate the deferred income balance was incorrect and this resulted in an
understatement of deferred income and related cost of sales. The Company
assessed the materiality of this error on prior periods financial statements in
accordance with the SEC’s Staff Accounting Bulletin No. 99 (“SAB 99”), and
concluded that the error was not material to any prior annual or interim periods
but would be material to the three and twelve months periods ended December 31,
2008 if the entire correction was recorded in those periods. In accordance with
the SEC’s Staff Accounting Bulletin No. 108 (“SAB 108”), the 2006, and 2007 and
first three quarters of 2008 financial statements have been revised to correct
for the immaterial error. In addition, an adjustment was also recorded to reduce
the beginning retained earnings at January 1, 2006 for the cumulative impact of
this error on prior periods. The revision had no net impact on the Company’s
Consolidated Statement of Cash Flows (See Note 2 of Notes
to Condensed Consolidated Financial Statements).
 
 
 Critical
Accounting Policies and Estimates
 
 The financial statements included in
this Quarterly Report on 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 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 and valuation of receivables, 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 8 of the Company's Annual Report on Form 10-K for
the year ended December 31, 2008.
 
 Revenue Recognition and
Receivables. Micrel generates revenue by selling products to 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
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 and related cost of sales are not recognized, 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.
  21
 Table
of Contents
 MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
  
 
 Sales to OEM customers and stocking
representatives are recognized based upon the shipment terms of the sale
transaction when all other revenue recognition criteria have been
met.  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 an inventory write-down provision 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.
Effective January 1, 2006, Micrel adopted the provisions of SFAS No. 123R using
the modified-prospective transition method. Under SFAS No. 123R share-based
compensation 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 yield and risk
free interest rate. In addition, SFAS No. 123R requires an estimate of expected
forfeiture rates of stock grants and share-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, and state research and
development 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 March 31, 2009, 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.
 
 Effective January 1, 2007, the Company
adopted the provisions of FASB Interpretation (FIN) No. 48, Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109. FIN
No. 48 contains a two-step approach to recognizing and measuring uncertain tax
positions accounted for in accordance with SFAS No. 109. The first step is to
evaluate the tax position for recognition by determining if the weight of
available evidence indicates it is more likely than not that the position will
be sustained on audit, including resolution of related appeals or litigation
processes, if any. The second step is to measure the tax benefit as the largest
amount which is more than 50% likely of being realized upon ultimate settlement.
The Company considers many factors when evaluating and estimating its tax
positions and tax benefits, which may require periodic adjustments and which may
not accurately anticipate actual outcomes.
 
 Litigation.The
semiconductor industry is characterized by frequent litigation regarding patent
and other intellectual property rights.  During the past three years,
the Company has resolved litigation involving intellectual property
claims.  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.
  22
 Table
of Contents
 MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
  
 Results
of Operations
 
 The following table sets forth certain
operating data as a percentage of total net revenues for the periods
indicated:
 
 Three
      Months EndedMarch 31,2009
              
              
              2008Net
      revenues
              
              
              100.0
              %
              
              
              100.0
              %Cost
      of revenues
              
              
              49.7
              
              
              
              43.7Gross profit
              
              
              50.3
              
              
              
              56.3Operating
      expenses:Research and
      development
              
              
              26.6
              
              
              
              21.4Selling, general and
      administrative
              
              
              18.8
              
              
              
              18.1Restructuring expense
      (income)
              
              
              --
              
              
              
              (1.3
              )Proxy contest
    expense
              
              
              --
              
              
              
              0.5Total operating
      expenses
              
              
              45.4
              
              
              
              38.7Income
      from operations
              
              
              4.9
              
              
              
              17.6Other
      income (expense):Interest income
              
              
              0.7
              
              
              
              1.6Interest expense
              
              
              --
              
              
              
              0.1Other income, net
              
              
              --
              
              
              
              --Total other income,
      net
              
              
              0.7
              
              
              
              1.7Income
      before income taxes
              
              
              5.6
              
              
              
              19.3Provision
      for income taxes
              
              
              2.3
              
              
              
              6.7Net
      income
              
              
              3.3
              %
              
              
              12.6
              %
 
 Net Revenues.  For
the three months ended March 31, 2009, net revenues decreased 29% to $47.0
million from $66.1 million for the same period in the prior year. This decrease
was the result of decreased unit shipments across all product lines and
geographies due to a reduction in demand caused by the worldwide macroeconomic
recession. Standard products revenues for the three months ended March 31,
2009 decreased 26% to $45.6 million from $61.3 million for the same period in
the prior year. For the three months ended March 31, 2009, other products, which
consist primarily of custom and foundry products revenues, decreased 71% to $1.4
million compared to $4.9 million for the same period in the prior
year.
 
 The current global economic slowdown,
unprecedented volatility in the capital markets and severely diminished
liquidity and credit availability has exacerbated the ongoing weakness in the
semiconductor industry. This has materially softened demand for the Company’s
products, and management is not able to predict whether macroeconomic conditions
will continue to deteriorate or improve. The persistence of such conditions
could have a significant adverse effect on the Company’s revenues, profitability
and results of operations.
 
 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.
 
 As noted in Item 1A “Risk Factors”, a
trend has developed over the last several years whereby customers in the
semiconductor supply chain have worked to minimize the amount of inventory of
semiconductors they hold. As a consequence, customers are generally providing
less order backlog to the Company and other semiconductor suppliers, and relying
on short lead times to buffer their build schedules.  Shorter lead
times reduce visibility into end demand and increase the reliance on turns fill
orders.  To deal with these market forces while maintaining reliable
service levels, the Company and other semiconductor suppliers are carrying
higher relative levels of inventory compared with historical averages prior to
2001.  The reluctance of customers to provide order backlog together
with short lead times and the uncertain growth rate of the world economy, make
it difficult to precisely predict future levels of sales and
profitability.
  23
 Table
of Contents
 MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
  
 
 Sales to customers in Asia represented
59% of net revenues for the three months ended March 31, 2009 and 54% of the
Company’s net revenues for the three months ended March 31, 2008. The trend for
the Company’s customers to move their electronics manufacturing to Asian
countries has resulted in increased pricing pressure for Micrel and other
semiconductor manufacturers. Asian based manufacturers are typically more
concerned about cost and less concerned about the capability of the integrated
circuits they purchase. This can make it more difficult for United States based
companies to differentiate themselves in any manner other than by lowering
prices. 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.
 
 Share-Based Compensation. The
Company accounts for share-based compensation under the fair value recognition
provisions of SFAS 123R. The Company's results of operations for the three month
periods ended March 31, 2009 and 2008 included $708,000 and $1.5 million,
respectively, of non-cash expense related to the fair value of share-based
compensation awards (see Note 4 of Notes to Condensed
Consolidated Financial Statements).
 
 Gross
Profit.  Gross profit is affected by a variety of factors
including the volume of product sales, product mix, manufacturing capacity
utilization, product yields and average selling prices.  The Company's
gross margin decreased to 50.3% for the three months ended March 31, 2009
from 56.3% for the comparable period in 2008. This decrease in gross margin
resulted primarily from decreased manufacturing capacity utilization as compared
to the same period in 2008.
 
 Research and Development Expenses.Research and development expenses as a percentage of net revenues
represented 26.6% for the three months ended March 31, 2009 and 21.4% for the
three months ended March 31, 2008.  On a dollar basis, research
and development expenses decreased $1.6 million or 12% to $12.5 million for the
three months ended March 31, 2009 from $14.1 million for the comparable
period in 2008. This decrease was primarily due to decreased staffing 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 18.8% for the three months ended March
31, 2009 and 18.1% for the three months ended March 31, 2008.  On
a dollar basis, selling, general and administrative expenses decreased $3.1
million to $8.9 million for the three months ended March 31, 2009 from
$11.9 million for the comparable period in 2008. This decrease was primarily due
to decreased staffing costs and decreased profit sharing accruals.
 
 Restructuring charges
(credits). During 2003, the Company closed its Santa Clara wafer
fabrication facility. In February 2006, the Company terminated the facility
lease under the terms of the lease agreement due to major vandalism rendering
the building unusable.  The facility Lessor disputed the termination
of the lease.  In March 2008, the Company entered into a Settlement
and Mutual Release agreement with the Lessor. Under the terms of the agreement,
the Company paid $875,000 to the Lessor and released a $70,000 security deposit
for full settlement of all obligations under the lease (see Note 14 of Notes to Condensed Consolidated Financial
Statements).  The remaining $842,000 unused restructuring expense
accruals were credited to restructuring charges (credits) in the statement of
operations during the first quarter of 2008 (see Note 18
of Notes to Condensed Consolidated Financial Statements).
 
 ProxyContest Expense During the first quarter of 2008, the Company became
engaged in its first proxy contest since going public in 1994, with OCM. The
proxy contest resulted in Micrel incurring incremental expenses of $331,000 in
the first quarter of 2008, $2.4 million in the second quarter of 2008, $349,000
in the third quarter of 2008 and $1.1 million in the fourth quarter of 2008.
These expenses consisted primarily of outside consulting and legal
fees.  Following a special meeting of shareholders on May 20, 2008, at
which the Company’s shareholders rejected all proposals set forth by OCM, OCM
agreed to withdraw its slate of nominees for the  Board of Directors,
and support Micrel’s Board of Director nominees at the upcoming annual meeting
of shareholders. Micrel’s slate of directors was subsequently elected by
shareholders at the Company’s annual meeting on October 1, 2008.
 
  24
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of Contents
 MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
  
 Other Income
(Expense).  Other income (expense) reflects interest income
from investments in short-term and long-term investments and money market funds
and other non-operating income.  For the three months ended
March 31, 2009, interest income decreased to $316,000 from $1.1 million for
the comparable period in the prior year. This decrease resulted from a decrease
in average cash and investment balances combined with reduced average interest
rates earned.
 
 Provision for Income
Taxes.The income tax provision for the three months ended
March 31, 2009, as a percentage of income before taxes, was 40.8%, as
compared to 34.7% for the comparable period in the prior year. This increase
resulted primarily from a $240,000 increase to the first quarter 2009 tax
provision which represented the cumulative effect of California state tax law
changes. The income tax provision for such interim periods differs from taxes
computed at the federal statutory rate primarily due to the effect of
non-deductible share-based compensation expense, state income taxes, federal and
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 March 31, 2009,
consisted of cash and short-term investments of $58.2 million and a $6 million
revolving line of credit from a commercial bank. Effective May 7, 2009, the
Company replaced its existing line of credit with a new $20 million credit
facility.  See “Management Discussions and Analysis of Financial
Conditions and Results of Operations – Subsequent
Events” for additional information.
 
 The Company used $77,000 in cash from
operating activities for the three months ended March 31, 2009. Significant
cash flows included cash provided by net income of $1.5 million plus additions
for non-cash activities of $5.7 million (consisting primarily of $4.4 million in
depreciation and amortization, $708,000 in share-based compensation expense and
a $593,000 decrease in deferred tax provisions) combined with a $1.5 million
decrease in inventories, which were offset by a $4.5 million decrease in other
current liabilities, a $2.5 million decrease in deferred income on shipments to
distributors and a $1.7 million decrease in accounts payable.
 
 For the three months ended
March 31, 2008, the Company generated $9.9 million in cash flows from
operating activities, primarily attributable to net income of $8.3 million plus
additions for non-cash activities of $6.5 million (consisting primarily of $4.6
million in depreciation and amortization, $1.5 million in share-based
compensation expense and a $424,000 decrease in deferred tax provisions)
combined with a $2.9 million decrease in income taxes receivable, a $1.2 million
decrease in prepaid expenses and other assets and a $849,000 decrease in
inventories, which were partially offset by a $4.5 million decrease in other
current liabilities, a $2.8 million decrease in accounts payable and a $4.1
million increase in accounts receivable.
 
 The Company used $1.4 million of cash
from investing activities during the three months ended March 31, 2009,
comprised of $1.2 million in purchases of property, plant and equipment and
$131,000 in net purchases of investments.
 
 For the three months ended
March 31, 2008, the Company provided $2.8 million of cash from investing
activities, comprised of $6.2 million in net proceeds from the maturities of
investments which was partially offset by $3.4 million in purchases of property,
plant and equipment.
 
 The Company used $14.7 million of cash
in financing activities during the three months ended March 31, 2009
primarily for the repurchase of $12.4 million of the Company's common stock and
$2.3 million for the payment of cash dividends.
 
 For the three months ended
March 31, 2008, the Company used $19.1 million of cash in financing
activities primarily for the repurchase of $17.0 million of the Company's common
stock and $2.2 million for the payment of cash dividends.
  25
 Table
of Contents
 MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
  
 The Company currently intends to spend
approximately $10 million to $15 million to purchase capital equipment and make
facility improvements during the next 12 months primarily for wafer fabrication
and product testing and additional research and development related software and
equipment.  On April 24, 2009, the Company's Board of Directors
declared a $0.035 per common share cash dividend, payable May 22, 2009 to
shareholders of record on May 6, 2009. The cash dividend payout by the
Company on May 22, 2009 is expected to be approximately $2.3 million. 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 flows from operations, existing cash balances and short-term
investments, and its credit facility will be sufficient to meet its cash
requirements for at least the next 12 months. 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
3 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 March 31, 2009, the Company
had the following contractual obligations and commitments:
 
 (in thousands)
              
              Payments Due By PeriodTotal
              
              
              Less
      than
                1 Year
              
              
              1-3
                Years
              
              
              4-5
                Years
              
              
              After
      5
                YearsOperating
leases
              
              $
              4,158
              
              
              $
              2,010
              
              
              $
              2,068
              
              
              $
              80
              
              
              $
              --Open purchase
      orders
              
              
              11,715
              
              
              
              11,715
              
              
              
              --
              
              
              
              --
              
              
              
              --Total
              
              $
              15,873
              
              
              $
              13,725
              
              
              $
              2,068
              
              
              $
              80
              
              
              $
              --
 
 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.
 
 As of March 31, 2009, the
Company had $6.7 million of non-current unrecognized tax benefits recorded in
accordance with FIN 48.  Included in the $6.7 million is $2.1 million
that has not yet reduced income tax payments, and, therefore, has been netted
against non-current deferred tax assets.  The remaining $4.6 million
liability is included in long-term income taxes payable. The Company is not able
to provide a reasonably reliable estimate of the timing of future payments
relating to these obligations.
 
 Off-Balance
Sheet Arrangements
 
 The Company has no other off-balance
sheet arrangements and has not entered into any transactions involving
unconsolidated, limited purpose entities or commodity contracts.
 
 
 Subsequent Events
 
 Effective May 7,
2009, a new $20 million credit facility replaced the Company’s existing line of
credit. The new credit facility consists of a $5 million revolving line of
credit and a $15 million term loan facility. On May 7, 2009, the Company
borrowed $15 million under the term loan facility (see Note
20 of Notes to Condensed Consolidated Financial Statements).
 
 On May 7, 2009, the
Company purchased 3,075,000 shares of its Common Stock at a price per share of
$6.50 and an aggregate price of $20 million from the Obrem entities in a
privately negotiated transaction (see Note 20 of Notes to
Condensed Consolidated Financial Statements).
  26
 Table
of Contents
  ITEM
3.  QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
 
 At March 31, 2009, the Company held
$26.0 million in short-term investments. Short-term investments consist
primarily of liquid debt instruments and are classified as available-for-sale
securities. The short-term investments held at March 31, 2009 are primarily
fixed rate securities. These available-for-sale securities are subject to
interest rate risk and will fall in value if market interest rates increase. If
market interest rates were to increase immediately and uniformly by 10 percent
from levels at March 31, 2009, the fair value of the short-term investments
would decline by an immaterial amount.
 
 At March 31, 2009, the Company held $16.2 million in principal of senior auction
rate notes secured by student loans. Auctions for these auction rate notes have
failed as of March 31, 2009.  The funds associated with failed
auctions will not be accessible until a successful auction occurs, a buyer is
found outside of the auction process, the issuers redeem the securities or the
underlying securities have matured. As a result, the Company’s ability to
liquidate its investment and fully recover the carrying value of its investment
in the near term may be limited or not exist. During 2008 and the first quarter
of 2009, the Company has recorded a $4.3 million pre-tax temporary impairment of
these securities to other comprehensive income, a component of shareholders’
equity.  If it is determined that the fair value of these securities
is other than temporarily impaired, the Company would record a loss, which could
be material, in its statement of operations in the period such other than
temporary decline in fair value is determined. The Company currently has the
ability and intent to hold these investments until a recovery of the auction
process occurs or the issuers redeem the securities. For additional information
regarding the Company's investments, see Note 5 of Notes to
Condensed Consolidated Financial Statements.
 
 At March 31, 2009, the Company had no
fixed-rate long-term debt subject to interest rate risk.
 
 
 ITEM
4:  CONTROLSAND PROCEDURES
 
 The Company maintains disclosure
controls and procedures, as such term is defined under Rule 13a-15(e)
promulgated under the Securities Exchange Act of 1934, as amended (the Exchange
Act).  In designing and evaluating the disclosure controls and
procedures, management recognizes that any disclosure controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives, and management necessarily is
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
 
 Under the supervision and with the
participation of the Company's management, including its principal executive
officer and principal financial officer, the Company conducted an evaluation of
the effectiveness of its disclosure controls and procedures as of the end of the
period covered by this report. Based on this evaluation, the Company's principal
executive officer and principal financial officer have concluded that the
Company's disclosure controls and procedures were effective at the reasonable
assurance level as of March 31, 2009.
 
 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.
  27
 Table
of Contents
  
 
 PART
II.  OTHER INFORMATION
 
 ITEM
1.  LEGALPROCEEDINGS
 
 The information included in Note 14 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.
 
 Geopolitical and
Macroeconomic Risks That May Affect Multinational
Enterprises
 
 The current
global recession and unprecedented volatility in global capital markets could
have a material adverse effect on the Company’s business, results of operations,
and financial condition, and the Company does not expect these conditions to
improve in the near future.  The current global economic
downturn and unprecedented volatility in global capital markets has worsened the
ongoing weakness in the semiconductor industry, and the Company expects that the
future economic environment may continue to be considerably less favorable than
that of the recent years. The semiconductor industry has traditionally been
highly cyclical and has often experienced significant downturns in connection
with, or in anticipation of, declines in general economic conditions, and the
Company cannot accurately predict how severe and prolonged this downturn might
be. The global recession and credit crisis in the financial markets has resulted
in a decrease in orders for the Company’s products, which may continue or worsen
for the foreseeable future, and which may materially adversely affect the
Company’s revenues, results of operations and financial condition. In addition
to reduction in sales, the Company’s profitability may decrease during this
economic downturn because it may not be able to reduce costs at the same rate as
its sales decline.
 
 Recent
macroeconomic turmoil in the world financial markets is affecting commercial and
consumer markets.  Financial markets in the United States,
Europe and Asia have been experiencing extreme disruption in recent months,
causing customers and consumers to cut back on spending in order to conserve
cash.  Additionally, many of the Company’s customers procure its
products on credit. If credit is not available to them, it may be difficult or
impossible for customers to purchase the Company’s products. The Company’s
operating results in one or more segments may be materially adversely affected
by the current economic conditions, and if such conditions remain uncertain,
persist, or deteriorate further, the Company may experience material impacts on
its business, operating results, and financial condition.
 
 Demand for semiconductor
components is increasingly dependent upon the rate of growth of theglobaleconomy.  The current global economic downturn and any
worsening in the global economy could cause demand for the Company’s products to
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 further slow global economic growth include: continued volatility in the
United States and global credit markets, increased price inflation for goods,
services or materials, 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.
  28
 Table
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 Market conditions may lead the
Company to initiate additional cost reduction plans, which may negatively affect
near term operating results.  Weaker 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.
 
 The current tightening of the credit
markets may adversely affect the Company’s business in a number of ways.The unprecedented contraction and extreme disruption in recent months in
the credit and financial markets in the United States, Europe, and Asia has led
to, among other things, extreme volatility in security prices, severely
diminished liquidity and credit availability, rating downgrades of certain
investments and declining valuation of others. While the Company does not
currently require access to credit markets to finance its operations, these
economic developments may adversely affect the Company’s business in a number of
ways. The current tightening of credit in financial markets may limit the
ability of the Company’s customers and suppliers to obtain financing for capital
purchases and operations. This could result in a decrease in or cancellation of
orders for the Company’s products or reduced ability to finance operations to
supply products to the Company. The Company cannot predict the likely duration
and severity of the current disruption in financial markets and adverse economic
conditions in the U.S. and other countries. Further, the worldwide economic
slowdown makes it is extremely difficult for the Company to forecast future
sales levels based on historical information and trends. Visibility into
customer demand continues to be limited due to short order lead times. Portions
of the Company’s expenses are fixed and other expenses are tied to expected
levels of sales activities. To the extent the Company does not achieve its
anticipated levels of sales, its gross profit and net income could be adversely
affected until such expenses are reduced to an appropriate level.
 
 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.  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.
 
 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; and
quality and customer support. If the Company is unable to compete favorably in
these areas, revenues and profits could be negatively affected.
  29
 Table
of Contents
  
 
 The short lead time environment in
the semiconductor industry has allowed many end consumers to rely on
semiconductor suppliers, stocking representatives and distributors to carry
inventory to meet short term requirements and minimize their investment in
on-hand inventory.Over the past several years, customers have
worked to minimize the amount of inventory of semiconductors they
hold.  As a consequence, customers are generally providing less order
backlog to the Company and other semiconductor suppliers, resulting in short
order lead times and reduced visibility into customer demand.  As a
consequence of the short lead time environment and corresponding
unpredictability of customer demand, the Company has increased its inventories
over the past five to six years to maintain reliable service
levels.  If actual customer demand for the Company’s products is
different from the Company’s estimated demand, product inventory may have to be
scrapped, or the carrying value reduced, which could adversely affect the
Company's business, financial condition, results of operations, or cash flows.
In addition, 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.
 
 During periods when economic growth
and customer demand have been less certain, both the semiconductor industry and
the Company have experienced significant price erosion.  If
price erosion occurs, 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
as a whole.  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.
 
 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, natural disasters 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. The Company does
not have long-term supply contracts with any of its third-party vendors.
Therefore, the vendors are not obligated to perform services or supply products
to the Company for any specific period, in any specific quantities, or at any
specific price, except as may be provided in a particular accepted purchase
order 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 third-party supplier 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.
 
 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.  Many 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.
  30
 Table
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 The success of companies in the
semiconductor industry depends in part upon intellectual property, including
patents, trade secrets, know-how and continuing technology innovation.
The success of companies like Micrel may depend on their ability to obtain
necessary intellectual property rights and protect such rights. 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. Claims alleging infringement of
intellectual property rights have been asserted against the Company in the past
and could be asserted against the Company in the future. These claims could
result in the Company having to discontinue the use of certain processes; cease
the manufacture, use and sale of infringing products; incur significant
litigation costs and damages; attempt to obtain a license to the relevant
intellectual property and develop non-infringing technology. The Company may not
be able to obtain or renew such licenses on acceptable terms or to develop
non-infringing technology. 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.  In addition, the Company relies on third parties for certain
technology that is integrated into some of its products. If the Company is
unable to continue to use or license third-party technologies used in its
products on acceptable terms, or the technology fails to operate, the Company
may not be able to secure alternatives in a timely manner and its business would
be harmed.
 
 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.
 
 In addition, equity awards
generally comprise a significant portion of the Company’s compensation packages
for key employees. As a result of the recent decline in the Company’s stock
price, many of its key employees hold options with exercise prices in excess of
the current stock price, and therefore retention of these key employees may be
difficult in a highly competitive market. SFAS 123R requires the Company to
expense the fair value of equity awards to its employees Any modifications of
existing equity awards or grants of new equity awards that are intended to
retain key employees may increase the Company’s operating expenses.
 
 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.
 
  31
 Table
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 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:
 
 An important part of the
Company's strategy is to continue to focus on the market for high-speed
communications IC’s.  Should demand from the Company’s
customers in this end market decrease, or if lower customer demand for the
Company’s high bandwidth products materializes, the Company's future revenue
growth and profitability could be adversely affected.
 
 The cellular telephone (wireless
handset) market comprises a significant portion of the Company’s standard
product revenues.  The Company derives a significant portion of
its net revenues from customers serving the cellular telephone market. 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 acceptance of Micrel’s products
decreases, or if these customers lose market share, or accumulate too much
inventory of completed handsets, the demand for the Company’s products could
decline sharply which could adversely affect the Company’s revenues and results
of operations.
 
 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 Company has invested in
certain auction rate securities that may not be accessible for in excess of 12
months and these auction rate securities may experience an other than temporary
decline in value, which would adversely affect the Company’s income.At
March 31, 2009, the Company held $16.2 million in principal of senior auction
rate notes secured by student loans. As of March 31, 2009, all of these auction
rate securities have failed to auction successfully due to sell orders exceeding
buy orders. During 2008 and the first quarter of 2009, the Company has recorded
a $3.5 million and $779,000, respectively, pre-tax temporary impairment of these
securities to other comprehensive income, a component of shareholders’
equity.  If it is determined that the fair value of these securities
is other than temporarily impaired, the Company would record a loss, which could
be material, in its statement of operations in the period such other than
temporary decline in fair value is determined. For additional information
regarding the Company's investments, see Note 5 of Notes to
Condensed Consolidated Financial Statements.
 
 The Company faces various risks
associated with the trend toward increased shareholder
activism.  In 2008, the Company became engaged in a proxy
contest with a large shareholder. This dispute led to a significant increase in
operating expenses which appreciably reduced the Company’s operating profit and
net income.  The Company prevailed in the contest and has subsequently
repurchased 1,600,000 shares of the Company’s Common Stock from the activist
shareholder and entered into a standstill agreement with the shareholder
restricting their actions as a shareholder of the Company.  While we
believe this dispute has been resolved, the Company could become engaged in
another proxy contest in the future.  Another proxy contest would
require significant additional management time and increased operating expenses,
which could adversely affect the Company’s profitability and cash
flows.
 
 Ownership of the Company’s stock
is highly concentrated.  As of March 31, 2009, affiliates of
the Company, which include directors, officers, an institutional holder of more
than 10% of the Company’s Common Stock and an individual holder of more than 10%
of the Company’s Common Stock, held approximately 42% of the Company’s Common
Stock in the aggregate. As a result, a limited number of shareholders may have
the ability to significantly influence the outcome of corporate actions
requiring stockholder approval.  Additionally, significant sales or
purchases of the Company’s Common Stock by these shareholders may cause the
price of the Company’s Common Stock to fluctuate.
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 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, 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 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.  The Company does not believe
that any material and specific risk currently exists related to the loss of use
of patents, products or processes.
 
 The complexity of the Company’s
products may lead to errors or defects, which could subject the Company to
significant costs or damages and adversely affect market acceptance of its
products. Although the Company’s customers and suppliers rigorously test
its products, these products may contain undetected errors, weaknesses or
defects. If any of the Company’s products contain production defects,
reliability, quality or compatibility problems that are significant, the
Company’s reputation may be damaged and customers may be reluctant to continue
to buy its products. This could adversely affect the Company’s ability to retain
and attract new customers. In addition, these defects could interrupt or delay
sales of affected products, which could adversely affect the Company’s results
of operations.
 
 If defects are discovered after
commencement of commercial production, the Company may be required to incur
significant costs to resolve the problems. This could result in significant
additional development costs and the diversion of technical and other resources
from other development efforts. The Company could also incur significant costs
to repair or replace defective products or may agree to be liable for certain
damages incurred. These costs or damages could have a material adverse effect on
the Company’s financial condition and results of operations.
 
 The Company will continue to expend
substantial resources developing new products, applications or markets and may
never achieve the sales volume that it anticipates for these products, which may
limit the Company’s future growth and harm its results of operations.The
Company’s future success will depend in part upon the success of new products.
The Company has in the past, and will likely in the future, expend substantial
resources in developing new and additional products for new applications and
markets. The Company may experience unforeseen difficulties and delays in
developing these products and experience defects upon volume production and
broad deployment. The markets the Company enters will likely be highly
competitive and competitors may have substantially more experience in these
markets. The Company’s success will depend on the growth of the markets it
enters, the competitiveness of its products and its ability to increase market
share in these markets. If the Company enters markets that do not achieve or
sustain the growth it anticipates, or if the Company’s products are not
competitive, it may not achieve volume sales, which may limit the Company’s
future growth and would harm its results of operations.
 
 If the Company is unable to convert
a significant portion of its design wins into revenue, the Company’s business,
financial condition and results of operations could be materially and adversely
impacted.The Company has secured a significant number of design wins for
new and existing products. Such design wins are necessary for revenue growth.
However, many of the Company’s design wins may never generate revenues if
end-customer projects are unsuccessful in the marketplace or the end-customer
terminates the project, which may occur for a variety of reasons. Mergers and
consolidations among customers may lead to termination of certain projects
before the associated design win generates revenue. If design wins do generate
revenue, the time lag between the design win and meaningful revenue is typically
between six months to greater than eighteen months. If the Company fails to
convert a significant portion of its design wins into substantial revenue, the
Company’s business, financial condition and results of operations could be
materially and adversely impacted.
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 If the Company’s distributors or
sales representatives stop selling or fail to successfully promote its products,
the Company’s business, financial condition and results of operations could be
adversely impacted.Micrel sells many of its products through sales
representatives and distributors. The Company’s non-exclusive distributors and
sales representatives may carry its competitors’ products, which could adversely
impact or limit sales of the Company’s products. Additionally, they could reduce
or discontinue sales of the Company’s products or may not devote the resources
necessary to adequately sell the Company’s products. The Company’s agreements
with distributors contain limited provisions for return of products, including
stock rotations whereby distributors may return a percentage of their purchases
based upon a percentage of their most recent three months of shipments. In
addition, in certain circumstances upon termination of the distributor
relationship, distributors may return some portion of their prior purchases. The
loss of business from any of the Company’s significant distributors or the delay
of significant orders from any of them, could materially and adversely harm the
Company’s business, financial conditions and results of operations.
 
 In addition, the Company depends on the
continued viability and financial resources of these distributors and sales
representatives, some of which are small organizations with limited working
capital. In turn, these distributors and sales representatives are subject to
general economic and semiconductor industry conditions. If some or all of the
Company’s distributors and sales representatives experience financial
difficulties, or otherwise become unable or unwilling to promote and sell the
Company’s products, its business, financial condition and results of operations
could be adversely impacted.
 
 The Company manufactures most of its
semiconductors at its San Jose, California fabrication
facilities.  The Company's existing wafer fabrication facility,
located in Northern California, may be subject to natural disasters such as
earthquakes.  A significant natural disaster, such as an earthquake or
prolonged drought, could have a material adverse impact on the Company's
business, financial condition and operating results.  Furthermore,
manufacturing semiconductors requires manufacturing tools that are unique to
each product being produced.  If one of these unique manufacturing
tools was damaged or destroyed, the Company's ability to manufacture the related
product would be impaired and its business would suffer until the tool was
repaired or replaced.  Additionally, the fabrication of ICs is a
highly complex and precise process.  Small impurities, contaminants in
the manufacturing environment, difficulties in the fabrication process, defects
in the masks used to print circuits on a wafer, manufacturing equipment
failures, and 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.
 
 The Company’s results of
operations could vary as a result of the methods, estimations and judgments used
in applying its accounting policies.The methods, estimates and judgments
used by the Company in applying its accounting policies have a significant
impact on its results of operations. Such methods, estimates and judgments are,
by their nature, subject to substantial risks, uncertainties, assumptions and
changes in rulemaking by the regulatory bodies, and factors may arise over time
that lead the Company to change its methods, estimates, and judgments. Changes
in those methods, estimates and judgments could significantly impact the
Company’s results of operations.
 
 
 ITEM
      2.  UNREGISTERED SALES OF EQUITY
      SECURITIES AND USE OF PROCEEDS
 
 
 On December 30, 2008, the Company's
Board of Directors approved a $50 million share repurchase program for calendar
year 2009. The timing and amount of any repurchase of shares will be determined
by the Company’s management, based on its evaluation of market conditions and
other factors. Share repurchases are recorded as a reduction of common stock to
the extent available. Any amounts in excess of common stock are recorded as a
reduction of retained earnings.
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 Repurchases
of the Company's common stock during the first quarter of 2009 were as
follows:
 Period
              
              Total
      Number ofShares
      Purchased
              
              
              Average
      Price
                Paid Per Share
              
              
              Total
      Number of Shares Purchased as Part of Publicly Announced
                Plans or Programs
              
              
              Maximum
      Dollar Value of Shares that May Yet be Repurchased Under the
                Plans or Programs ($000)January 2009
              
              
              279,277
              
              
              $
              6.97
              
              
              
              279,277
              
              
              $
              48,053February 2009
              
              
              1,666,643
              
              
              $
              6.30
              
              
              
              1,666,643
              
              
              $
              37,552March 2009
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              $
              37,552Total Q1 2009
              
              
              1,945,920
              
              
              $
              6.40
              
              
              
              1,945,920
 
 
 ITEM
6.  EXHIBITS
 
 Exhibit
      No.
              Description4.1
              4.1           First
      Amendment to Rights Agreement, dated as of March 23, 2009, between Micrel,
      Incorporated and Mellon Investor Services LLC, as Rights Agent, which
      includes the amended form of Right Certificate as Exhibit B (amending the
      Original Agreement, which was filed as Exhibit 4.2 to the Company’s
      Current Report on Form 8-K filed with the SEC on March 28,
      2008)(incorporated by reference to Exhibit 4.1 to the Current Report on
      Form 8-K filed on March 24, 2009).10.1
              Stock
      Purchase Agreement, dated as of February 11, 2009, by and among the
      sellers listed on Schedule I attached thereto, and Micrel, Incorporated
      and each of the purchasers listed on Schedule II attached thereto
      (incorporated by reference to Exhibit 10.1 to the Current Report on Form
      8-K filed on February 11, 2009).10.2
              10.2           Standstill
      Agreement, dated as of March 19, 2009, between Micrel, Incorporated, Obrem
      Capital Offshore Master, LP and Obrem Capital (QP), LP (incorporated by
      reference to Exhibit 10.1 to the Current Report on Form 8-K filed on March
      24, 2009).31
              Certifications
      of the Company’s Chief Executive Officer and Chief Financial Officer
      pursuant to Section 302 of the Sarbanes-Oxley Act of
  200232
              Certifications
      of the Company’s Chief Executive Officer and Chief Financial Officer
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002
 
 
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 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:
      May 11, 2009
              By           /s/ Clyde R.
      WallinClyde R. WallinVice President, Finance
      andChief Financial
      Officer(Authorized Officer
      andPrincipal Financial
      Officer)
 
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  EXHIBIT
31
 Certification
of Chief Executive Officer
 Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
 
 I,
Raymond D. Zinn, certify that:
 
 1.             I
have reviewed this quarterly report on Form 10-Q of Micrel,
Incorporated;
 
 2.             Based
on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
 
 3.             Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
 
 4.             The
registrant’s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant
and have:
 
 a)                designed
such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
 
 b)                designed
such internal control over financial reporting, or caused such internal control
over financial control to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
 
 c)                evaluated
the effectiveness of the registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation;
 
 d)               disclosed in this report
any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s
fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
 
 5.             The
registrant’s other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of registrant’s board of directors
(or persons performing the equivalent function):
 
 a)                all
significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
 
 b)                any
fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal control over financial
reporting.
 
 Date:
      May 11, 2009
              By           /s/ Raymond D. ZinnRaymond D. ZinnPresident, Chief Executive
      Officer and Director(Principal Executive
      Officer)
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  Certification
of Chief Financial Officer
 Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
 
 I, Clyde
R Wallin, certify that:
 
 1.             I
have reviewed this quarterly report on Form 10-Q of Micrel,
Incorporated;
 
 2.             Based
on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
 
 3.             Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
 
 4.             The
registrant’s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant
and have:
 
 a)                designed
such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
 
 b)                designed
such internal control over financial reporting, or caused such internal control
over financial control to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
 
 c)                evaluated
the effectiveness of the registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation;
 
 d)                
disclosed in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
 
 5.             The
registrant’s other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of registrant’s board of directors
(or persons performing the equivalent function):
 
 a)                all
significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
 
 b)                any
fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal control over financial
reporting.
 
 Date:
      May 11, 2009
              By           /s/ Clyde R. WallinClyde R. WallinVice President, Finance
      andChief Financial
      Officer(Principal Financial and
      Accounting Officer)
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  EXHIBIT
32
 
 Certification
of Chief Executive Officer
 Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
 
 Pursuant to 18 U.S.C. § 1350, as
created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned
officer of Micrel, Incorporated (the “Company”) hereby
certifies, to such officer’s knowledge, that:
 
 (i)           the
accompanying Quarterly Report on Form 10-Q of the Company for the quarterly
period ended March 31, 2009 (the “Report”) fully
complies with the requirements of Section 13(a) or Section 15(d), as applicable,
of the Securities Exchange Act of 1934, as amended; and
 
 (ii)           the
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
 
 
 Date:
      May 11, 2009
              By           /s/ Raymond D. ZinnRaymond D. ZinnChief Executive
      Officer
 
 
 
 Certification
of Chief Financial Officer
 Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
 
 Pursuant to 18 U.S.C. § 1350, as
created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned
officer of Micrel, Incorporated (the “Company”) hereby
certifies, to such officer’s knowledge, that:
 
 (i)           the
accompanying Quarterly Report on Form 10-Q of the Company for the quarterly
period ended March 31, 2009 (the “Report”) fully
complies with the requirements of Section 13(a) or Section 15(d), as applicable,
of the Securities Exchange Act of 1934, as amended; and
 
 (ii)           the
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
 
 
 Date:
      May 11, 2009
              By           /s/ Clyde R. WallinClyde R. WallinChief Financial
      Officer
 
 
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