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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form 10-K


|   |  |                                                                                                 
|-- |  | ------------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934    
|   |  | For the fiscal year ended December 31,
    2003                                                 
|  
|or
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
    15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934
|   |  | For the transition period
    from           to           .                                     

Commission File Number 0-9653

Xicor, Inc.

(Exact name of Registrant as specified in its
Charter)


|                                                                                           |  |                                                   
|------------------------------------------------------------------------------------------ |  | --------------------------------------------------
|California(State or other jurisdiction of
    incorporation or organization)               |  | 94-2526781(I.R.S. Employer
    Identification No.)
|933 Murphy Ranch Road
    Milpitas, California(Address of principal executive
    offices) |  | 95035(Zip Code)                                   

Registrants telephone number, including
area code:

(408) 432-8888


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

None


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

Common Stock, Without Par Value


Preferred Share Rights (currently attached to
and trading only with Common Stock)

(Title of Class)


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 and (2) has been
subject to such filing requirements for the past
90 days.     Yes     þ          No     o

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

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

As of June 29, 2003, the last business day
of the Registrants most recently completed second fiscal
quarter, there were 27,016,531 shares of the Registrants
Common Stock outstanding and the aggregate market value of such
shares held by non-affiliates of the Registrant, based on the
closing sale price of such shares on the Nasdaq National Market
on June 29, 2003, was approximately $121,339,000. Shares of
Common Stock held by each executive officer and director and by
each person who beneficially owns more than 5% of the
outstanding Common Stock have been excluded in that such persons
may under certain circumstances be deemed to be affiliates. This
determination of executive officer or affiliate status is not
necessarily a conclusive determination for other purposes.

The aggregate number of outstanding shares of
Common Stock, without par value, of the Registrant was
29,118,692 on February 18, 2004.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the
Registrants 2004 Annual Meeting of Shareholders are
incorporated by reference in Part III of this
Form 10-K.









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TABLE OF CONTENTS



|                  |                                                                                               |  |  |  |  |  |  | 
|----------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I           
|                  | Item 1. Business                                                                             
|                  | Item 2. Properties                                                                           
|                  | Item 3. Legal Proceedings                                                                    
|                  | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II          
|                  | Item 5. Market for Registrants Common Stock and Related Stockholder Matters                 
|                  | Item 6. Selected Financial Data                                                              
|                  | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                  | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                          
|                  | Item 8. Consolidated Financial Statements and Supplementary Data                             
|                  | Item 9. Changes In and Disagreements with Accountants On Accounting and Financial Disclosure 
|                  | Item 9A. Controls and Procedures                                                             
|PART III         
|                  | Item 10. Directors and Executive Officers of the Registrant                                  
|                  | Item 11. Executive Compensation                                                              
|                  | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|                  | Item 13. Certain Relationships and Related Transactions                                      
|                  | Item 14. Principal Accountant Fees and Services                                              
|PART IV          
|                  | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                     
|SIGNATURES       
|INDEX TO EXHIBITS
|EXHIBIT 21       
|EXHIBIT 23       
|EXHIBIT 31.1     
|EXHIBIT 31.2     
|EXHIBIT 32.1     



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XICOR, INC.

FORM 10-K

For the Year Ended December 31,
2003


TABLE OF CONTENTS

|                  |  |                                                                                           |  |   
|----------------- |  | ----------------------------------------------------------------------------------------- |  | --
|PART I            |  | 2                                                                                        
|Item 1.           |  | Business                                                                                  |  | 2 
|Item 2.           |  | Properties                                                                                |  | 10
|Item 3.           |  | Legal Proceedings                                                                         |  | 10
|Item 4.           |  | Submission of Matters to a Vote of Security
    Holders                                   |  | 10
|PART II           |  | 10                                                                                       
|Item 5.           |  | Market for Registrants Common Stock and
    Related Stockholder Matters                  |  | 10
|Item 6.           |  | Selected Financial Data                                                                   |  | 12
|Item 7.           |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations |  | 13
|Item 7A.          |  | Quantitative and Qualitative Disclosures About
    Market Risk                            |  | 27
|Item 8.           |  | Consolidated Financial Statements and
    Supplementary Data                              |  | 28
|Item 9.           |  | Changes In and Disagreements With Accountants On
    Accounting and Financial Disclosure  |  | 49
|Item 9A.          |  | Controls and Procedures                                                                   |  | 49
|PART III          |  | 50                                                                                       
|Item 10.          |  | Directors and Executive Officers of the Registrant                                        |  | 50
|Item 11.          |  | Executive Compensation                                                                    |  | 50
|Item 12.          |  | Security Ownership of Certain Beneficial Owners
    and Management                        |  | 50
|Item 13.          |  | Certain Relationships and Related Transactions                                            |  | 50
|Item 14.          |  | Principal Accountant Fees and Services                                                    |  | 50
|PART IV           |  | 50                                                                                       
|Item 15.          |  | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K                       |  | 50
|Signatures        |  | 52                                                                                       
|Index to Exhibits |  | 53                                                                                       

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PART I

This report contains forward-looking statements
within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of
1934. Words such as anticipate,
believes, expects, future,
intends, assuming,
projected, plans and similar expressions
are used to identify forward-looking statements. Although we
believe the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Accordingly,
you should not place undue reliance on these forward-looking
statements, which in any case apply only as of the date of this
report. Actual results could differ materially from those
projected in the forward-looking statements for many reasons,
including the risk factors listed in the Risk Factors
Affecting Future Results section of
Managements Discussion & Analysis of Financial
Conditions and Results of Operations included in Part II,
Item 7 of this report and the risk factors included in
Item 1 below.




Item 1.     Business

Overview

Xicor, Inc., a California corporation, was
founded in 1978. For many years our primary focus was on the
development of electrically erasable programmable read only
memory devices, or EEPROMs. During 1998 we began to develop and
implement a manufacturing strategy to leverage outside wafer
fabrication technology and capacity. As a fabless semiconductor
company we also began the process of transitioning our product
development effort to the area of high performance analog
mixed-signal integrated circuits. Today we have two major
product areas, our core Analog Mixed-Signal Products and our
legacy Memory Products.

We design, develop and market high performance
analog mixed-signal integrated circuits used in communications,
computing, networking, consumer and industrial applications. We
have three fundamental technology approaches to differentiate
ourselves from competition and add value to our customers
products. First we have the ability to utilize EEPROM technology
as a feature in our integrated analog mixed-signal designs. This
integration provides significant flexibility and increases
performance in many applications. The second technology approach
utilizes the proprietary non-volatile technology that we
developed as an EEPROM supplier to implement precision analog
mixed-signal integrated circuits with significantly lower power
consumption than traditional approaches. These products add
significant value in battery powered precision applications
where power consumption and heat dissipation are critical. The
third technology approach utilizes an industry standard
0.18-micron logic process to implement high frequency analog
mixed-signal designs for data conversion and signal processing
applications.

Our Mixed-Signal Products include data conversion
products, power management integrated circuits, application
specific standard products and time-keeping devices. We are
focused on providing innovative, differentiated analog
mixed-signal products that serve the trends toward flexibility,
portability and increased processing power in electronic
systems. The increased complexity of system design and higher
levels of analog content have created a greater need for
programmability in the system. Our programmable analog
mixed-signal components regulate, control, convert and manage
various voltages and currents without manual adjustment. The
growth in portable digital electronics has created a greater
need for precision low-power analog mixed-signal products to
perform a variety of critical analog tasks such as setting a
voltage reference as a standard in the system or comparing
signals to determine appropriate system response to a change in
circumstances. The increased processing power available to
system designers today has created a demand for more data.
Incoming analog information must first be converted to a digital
code before it can be processed. Commonly referred to as
analog-to-digital conversion, this application requires very
fast or high-frequency products that can convert millions of
samples of analog information per second. Our products are
designed to meet the needs of systems designed for flexibility,
low power consumption and sophisticated signal processing.

Our legacy Memory Products are electrically
erasable programmable read-only memories, or EEPROMs. Generally,
EEPROMs are nonvolatile memory products that can be altered
(reprogrammed) electrically while the device is still
installed in a system. EEPROM products are divided into two
broad categories: parallel EEPROMs and serial EEPROMs. Because
of their performance characteristics, parallel EEPROMs tend to
be used in non-consumer devices, such as communications
infrastructure equipment,

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instrumentation and other industrial applications
as well as telemetry, avionics and military electronic
equipment. Serial EEPROMs are typically commodity parts. As a
result, parallel EEPROMs tend to have higher average selling
prices and gross margins than serial EEPROMs. In March 2001, we
announced our plan to exit the more commodity-like serial EEPROM
business while continuing to provide parallel EEPROM products to
our customers. We substantially completed our exit from the
serial EEPROM business in 2002.


Industry Background

Integrated circuits may be divided into three
broad categories: analog, digital and mixed-signal. Analog
products condition and regulate real-world physical
properties, such as temperature, pressure, weight, speed, sound
and electrical current. This information can be detected,
measured and controlled using analog integrated circuits that
represent these real-world properties as continuously varying
voltages and currents. Digital circuits, such as memory devices
and microprocessors, use threshold voltages which function as on
and off switches expressed in binary code as
1s and 0s where voltages at
or above the threshold voltage represent on and
voltages below the threshold voltage represent off.
The digital components process and manipulate the data while the
analog components condition the inputs or signals. Mixed-signal
devices incorporate both analog and digital functions into a
single integrated circuit. In most cases, these devices can
serve as either a bridge converting analog signals to digital
signals or may be used to improve the performance of the
specific analog application. Generally speaking, mixed-signal
products are more difficult to design because they require
designers to understand two fundamentally different design
methodologies, analog and digital. In many cases products with a
large amount of analog content in the mixed-signal market are
referred to as analog mixed-signal.

A growing opportunity in the analog mixed-signal
market is for innovation in the area of system sensing
technology. This refers to electronic equipment that is capable
of automatically calibrating a system to adjust to predetermined
performance constraints or measured changes in the environment.
Traditionally, many analog devices, and systems that
incorporated these devices, were limited by the need to make
manual adjustments to tune or calibrate the analog functions.
Analog mixed-signal components with embedded memory and a
separate microcontroller are able to make the same adjustments
through programming thus eliminating the costly, time-consuming,
and often inaccurate results associated with manual tuning. For
the system manufacturer, programmable mixed-signal technology
can: (1) mitigate the costly physical malfunction of
expensive equipment by detecting and preventing failure before
it occurs; (2) reduce system downtime preventing large
potential revenue loss; (3) capture sensor-based data which
may be analyzed; and (4) enable smart system
functionality, where overall system utility is enhanced given
performance and hardware parameters. There are increasingly
important applications for system sensing technology within the
power management requirements of electronic systems and bias and
modulation current control within the signal path of
communications systems.

Another opportunity in the analog mixed-signal
market is for low power technology. As portable digital
electronics proliferate in communication, computing and
industrial environments, the need to extend the operating time
between charging the battery has become a crucial aspect of
differentiation for equipment providers. Laptop and notebook
computer users are particularly sensitive to the issue of
battery-life. Industrial applications for point-of-sale
(POS) terminals and test equipment are even more rigorous
in their requirements for low power precision analog
mixed-signal products. The availability of low power electronic
components provides a vehicle for extended run-time on similar
battery chemistry and configuration. As battery chemistry
evolves, the requirements for programmability and low-power
consumption tend to converge and drive a need for integrated
solutions that are both flexible and require minimum supply
current for operation.

Additional growth opportunities for high
performance analog mixed-signal products have been created by
the advances in digital processing power. As microprocessor
technology improves and processing power grows, the requirement
for real-word data increases. This effect is compounded by the
availability of low cost digital signal processors
(DSP) dedicated to specific applications in communications,
multimedia and computation. The combination of precision and
speed in data converter products is an important facet in the
design of high

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performance electronic systems. With an increase
in processing power, customers expect a high degree of accuracy
in their equipment. Digital imaging products are expected to
have finer resolution, flat panel displays are expected to be
larger and provide a better picture and test equipment is
expected to detect variations at a more precise level. All of
these requirements place demands on the analog-to-digital
converter (ADC) used in such systems.


Xicors Mixed-Signal Solutions, Products
and Applications

Our products leverage proprietary nonvolatile
technology, industry standard EEPROM technology and industry
standard fine-line CMOS processes to provide differentiated high
performance analog mixed-signal products. We have three
technology approaches that provide customers a variety of
features and benefits. Many of our products leverage nonvolatile
EEPROM memory to provide a design engineer the ability to design
systems that are self-calibrating or that can be altered easily.
Other products utilize our proprietary nonvolatile technology to
implement analog circuits that provide very high precision and
require extremely low power. We have also developed high
frequency analog-to-digital converters that are mixed-signal
products utilizing an industry standard fine-line CMOS process.
These products provide high resolution, high speed, low minimum
operating voltage and low power for use in systems that have
large amounts of analog information that must be processed
digitally. By using our products, manufacturers and end-users
can customize microcontroller and microprocessor-based products
to address specific system sensing and signal processing
applications with flexibility, accuracy and high frequency
solutions that are cost effective while minimizing power supply
needs.

Analog mixed-signal product sales were
approximately 76% of total net sales in 2003, 63% in 2002, 50%
in 2001 and 35% in 2000. Our Analog Mixed-Signal Products
include the following products:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Data Conversion
    Products:Digitally Controlled
    Potentiometers or XDCPs represent the most established product
    line in our Mixed-Signal Product group. XDCPs are digitally
    controlled solid-state electronic variable resistors that give
    designers more flexibility and the ability to design more
    accurate systems. Applications for these devices include
    controlling the Liquid Crystal Display (LCD) brightness in
    cell phone handsets and laptop computers, power amplifier
    control for communications systems and wireless radio frequency
    power settings, and high-resolution data acquisition systems for
    industrial control, test instrumentation and medical equipment.
    In 2003 we introduced a family of extremely low power precision
    voltage references based on proprietary Xicor process technology
    and design expertise. These devices address a wide range of
    applications in industrial test and measurement equipment,
    portable digital electronics as well as communications equipment
    by establishing a precision voltage as a system reference point.
    In addition to better overall accuracy than competing solutions,
    these products support the need for minimum power consumption in
    battery applications and low power dissipation where thermal
    regulation is important. Through the use of proprietary floating
    gate analog (FGA) technology we can achieve levels of
    performance that have been difficult to attain with traditional
    voltage reference products. We have applied for eight patents in
    this area and continue to define a strong base of intellectual
    property in the area of floating gate technology in analog
    circuit design.
|
| | Power Management Products:Our power management products include
    central processing unit (CPU) supervisory or voltage
    monitoring chips for microcontroller and microprocessor based
    systems, battery management circuits, programmable hot swap and
    programmable power sequencing chips as well as nonvolatile
    random access memories (NOVRAMs) that include CPU and voltage
    monitoring functions. Power management products such as our CPU
    supervisor, programmable hot swap and programmable power
    sequencing products are targeted for systems that require
    controlled power-up and orderly, predictable power-down and
    reliable recovery in the event of system failure. Typical
    applications for these products include devices such as routers,
    LAN switches and cellular base stations. Our battery management
    semiconductors are targeted at three and four cell lithium ion
    and lithium polymer applications that require cell balancing for
    optimal performance such as laptop and notebook computers. Some
    of these products include EEPROM on the integrated circuit and
    enable the device to be reprogrammed to accommodate changing
    system design parameters.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Application Specific Standard
    Products:We market products targeted
    at the fiber optic market that integrate several major control
    and monitoring functions for laser diode modules and fiber optic
    applications in Local Area Network (LAN) and Metropolitan
    Area Networks (MAN) as well as long-haul transmission
    applications. These products support the requirements for bias
    and modulation current control of the laser diode in
    gigabit-Ethernet, fiber channel, 10-gigabit Xenpak and dense
    wave division multiplexing (DWDM) applications. Other
    application specific products for communications applications
    serve the needs of wireless applications in base stations for
    adjusting the power in an RF power amplifier by controlling bias
    current. In 2003 we introduced a family of high performance
    analog-front-ends (AFE) for the flat panel display
    (FPD) market. These products convert analog signals sent
    from a computer to a high resolution FPD. We are focused on
    supporting the needs of larger format displays and supplying a
    family of analog-front-ends that can digitize analog signals at
    speeds above 200 million samples per second (MSPS).
    Additionally, these products address the requirements in digital
    television for capturing the video inputs from a wide variety of
    sources such as set-top boxes, DVDs and other consumer
    electronic devices.
|
| | Time-keeping Products.We market real time clock products for
    timekeeping and date stamping in applications that require
    accuracy over time and temperature. Common applications are in
    utility meters, DVD players and recorders, set top boxes and
    cable modems. These devices are used to maintain an accurate
    clock to record events without repeated calibration as systems
    are in use for extended periods of time.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

Nonvolatile Memory Products and
Applications

Memory Product sales were approximately 24% of
total net sales in 2003, 37% in 2002, 50% of sales in 2001 and
65% of sales in 2000. Our Memory Products consist primarily of
parallel EEPROM and, to a lesser extent, serial EEPROM devices.

Historically, we focused our efforts on EEPROM
products which are nonvolatile memories that can be reprogrammed
in-system hundreds of thousands of times and can be altered one
byte or several bytes at a time. EEPROMs are termed serial or
parallel depending on their connection to the systems
processor. Serial EEPROM devices transmit data through a single
input-output port while parallel devices transmit data through
multiple ports concurrently.

In March 2001, we announced our plan to exit the
serial EEPROM market. We have substantially completed our exit
from the serial EEPROM business.

Marketing and Sales

Our products are sold worldwide for a broad range
of applications, including communications, computing, networking
and industrial applications. We market our products directly
from our headquarters in Milpitas, California and from regional
domestic and foreign sales offices. We sell our products to OEM
customers either directly or indirectly through distributors or
contract manufacturers. Products are marketed domestically
through a national network of independent sales representatives,
each of which has been granted an exclusive sales territory, and
through non-exclusive national stocking distributors that also
handle competitive products. Our products are also marketed
internationally through a network of independent exclusive and
non-exclusive sales representatives and non-exclusive stocking
distributors. Certain of our shipments are made to distributors
under agreements that allow a right of return and price
protection on unsold inventory. Our policy is to defer
recognition of sales and related costs on such shipments until
the distributors sell the products.

In new applications, particularly for newly
introduced devices, our products generally require long
design-in cycles for customer applications and
extensive support by our field application engineers. We
consider close support of our customers design efforts to
be an important aspect of our marketing strategy. The design
engineering community that we address with our products is large
and in order to communicate effectively requires significant
advertising and public relations efforts. We invest in
advertising our products in a wide variety of publications in
many countries. We support the needs of engineers for technical
literature with data sheets and applications notes that are
available in print or via our web site www.xicor.com.

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Sales outside of North America constituted
approximately 66% of total net sales in 2003, 64% in 2002, and
54% in 2001. Our international sales are generally denominated
in U.S. dollars.

One distributor accounted for 25% of total net
sales in 2003, 28% in 2002 and 23% in 2001. Another distributor
accounted for 14% of total sales in 2003 and 15% in 2002.
Distributors are not themselves end users of our products, but
rather serve as a channel of sale to many end users of our
products. During 2003, purchases by one contract manufacturer,
MFS Technology (S) Pte Ltd., accounted for 10% of our
sales.

Manufacturing

We have been a fabless semiconductor company
since November of 2000. Historically, we manufactured all
silicon wafers used to provide the semiconductor devices for our
products. However, the rapidly escalating capital investments
necessary to keep pace with technological advances and the
increasing need for larger factories in order to efficiently
spread the high level of fixed costs associated with complex
semiconductor manufacturing operations have led to the emergence
of wafer fabrication foundries, enabling many semiconductor
companies to outsource portions or all of their wafer
requirements.

During 1998 we announced and began to implement a
restructuring plan to change our manufacturing and procurement
strategies to significantly increase outsourcing of wafer
fabrication and product testing to overseas subcontractors and
to streamline operations. This change was in response to market
conditions that made it more economical to outsource
manufacturing. Presently, Yamaha Corporation and ZMD GmbH
provide substantially all of our wafers. In 2003 we qualified
two more foundries, TSMC and Chartered Semiconductor. In 2003
TSMC began manufacturing our application specific solution for
the high resolution flat panel display market using their
0.18 micron CMOS logic process. In 2003 we used Chartered
Semiconductors 0.6 micron analog mixed-signal and
EEPROM process for certain new products and we recently received
first silicon on a 0.18 micron product.

Each device on the fabricated wafer is tested by
one of our subcontractors. Subcontractors in various countries
including Taiwan, Thailand, South Korea, the Philippines, China
and Malaysia separate the wafers into individual units. Each
functional chip is encapsulated in a plastic or ceramic package
having external leads to which the unit is connected by
extremely fine wires. The packaged units undergo comprehensive
electrical testing offshore at one of our independent
subcontractors located in various countries including Taiwan,
Thailand, South Korea, the Philippines and China. A limited
amount of testing is also performed in Milpitas. Chip-scale
products are processed by subcontractors based in the United
States and tested in Taiwan. In accordance with industry
practice, we provide a limited warranty for our devices against
defects in materials and workmanship for periods ranging from
90 days to one year.

The principal raw materials utilized in the
production process used to manufacture our products are polished
silicon wafers, ultra-pure metals, chemicals and gases. We rely
on overseas wafer fabrication, sort, assembly and test
contractors to manufacture our parts. The encapsulation
materials that enclose the chip and provide the external
connecting leads are provided by the independent assembly
contractors or are purchased by us and shipped to such
contractors. We also rely on overseas contractors to maintain
and ship our inventories. Information regarding risks attendant
to our foreign operations is set forth below under the heading
Risk Factors Affecting Future Results in
Part II, Item 7.

Research and Development

Our focus is on providing integrated circuits
with higher levels of analog mixed-signal integration. We
differentiate our products by virtue of leveraging our expertise
in nonvolatile technology and high frequency signal processing
in standard logic processes. This strategy requires process and
design expertise as well as applications engineering support.
Continuing to utilize increasingly advanced processes and new
product development are essential to maintaining and enhancing
our competitive position.

Research and development expenditures were
$10.8 million or 26% of sales in 2003, $13.1 million
or 34% of sales in 2002, and $13.6 million or 19% of sales
in 2001. Research and development activities require a high
degree of complexity in design and manufacturing process, and
consequently we must continuously invest a

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significant percentage of sales in research and
development and in the pre-production engineering activity
related to new products and technologies. Approximately 40% of
our workforce is engaged in research and development activities,
which are performed primarily in the Silicon Valley.


Patents and Licenses

We hold approximately 50 United States
patents and several foreign patents covering various circuit
designs and device structures. Further, additional patent
applications for products are pending in the United States and
abroad. Similar to other semiconductor manufacturers, we have
granted licenses under our patents and may continue to do so in
the future. We believe that, due to the rapidly changing
technology in the semiconductor industry, our future success
will be dependent primarily upon the technical expertise and
creative skills of our personnel rather than patent protection.

Acquisitions

Poweready,
Inc.

In the fourth quarter of 2003, we acquired
Poweready, Inc., a privately held company. The acquisition of
Poweready provides Xicor intellectual property and customer
relationships necessary to expand our presence in the smart
battery management area. Applications for this technology
include battery packs for notebook and laptop computers as well
as handheld digital test and measurement equipment.

Analog
Integration Partners, LLC

In the second quarter of 2002 we established our
Signal Processing Group with the acquisition of Analog
Integrated Partners, LLC (AIP), a privately held company.
Founded in 1999, AIP was led by engineering veterans from Exar
Corporation, Micropower Systems and Sage, Inc. Our Signal
Processing Group designs and develops high performance analog
mixed-signal products for signal processing and data conversion
applications. Applications for this technology include high
resolution flat panel displays (FPD), graphics and imaging
processing, wired and wireless communication systems and test
and measurement equipment.

Competition

The semiconductor industry is highly competitive.
Important elements determining success include product
performance, quality and reliability, delivery capability,
price, diversity of product line, application support, financial
strength and the ability to respond rapidly to technological
innovations. We compete with major semiconductor companies such
as Analog Devices, Atmel Corporation, Linear Technology
Corporation and Maxim Integrated Products. We pursue a strategy
of innovation and differentiation in order to compete in the
high performance analog mixed-signal market.

Insurance

We presently carry various insurance coverage
including property damage, business interruption and general
liability including certain product liability coverage. We have
been unable to obtain pollution and earthquake insurance at
reasonable costs and limits.

Employees

At December 31, 2003 we had 126 employees,
approximately 40% of whom were engaged in research and
development activities. None of our employees are represented by
a labor organization and we consider our employee relations to
be good. Many of our employees are highly skilled and we believe
our success will depend upon our ability to hire and retain key,
qualified human resources.

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Officers of the Registrant

Information regarding each of our current
officers is set forth below:

|                    |  |     |    |        |  |                                                                           
|------------------- |  | --- | -- | ------ |  | --------------------------------------------------------------------------
|Name                |  | Age |    | Office
|                    |  |     |    |       
|Louis DiNardo*      |  |     | 44 |        |  | Co-Chairman, President and Chief Executive Officer                        
|Geraldine N. Hench* |  |     | 46 |        |  | Vice President, Finance and Administration and
    Chief Financial Officer
|R. Todd Smathers*   |  |     | 55 |        |  | Senior Vice President, Operations                                         
|Steven R. Bakos*    |  |     | 37 |        |  | Vice President, Sales                                                     
|Davin Lee*          |  |     | 33 |        |  | Vice President, Marketing                                                 
|Sandeep Agarwal     |  |     | 42 |        |  | Vice President, Engineering, Display Products                             
|John M. Caruso      |  |     | 53 |        |  | Vice President, Engineering, Signal Processing
    Products               
|Carlos Laber        |  |     | 52 |        |  | Vice President, Engineering, Linear Products                              
|Jim McCreary        |  |     | 57 |        |  | Vice President, Technology                                                
|John Sramek         |  |     | 52 |        |  | Vice President, Business Development                                      



---



|  |                           
|- | --------------------------
|* | Denotes Executive Officer.

Louis DiNardo, Co-Chairman, President and
Chief Executive Officer.Mr. DiNardo joined Xicor as
President and Chief Executive Officer in November 2000. He has
been involved in sales, marketing and operations within the
semiconductor industry for over 20 years. Mr. DiNardo
came to Xicor from Linear Technology Corporation (LTC), where he
was General Manager of Mixed-Signal Products. During his
13 years at LTC, Mr. DiNardo held positions as Vice
President  Marketing, Director of North American
Distribution, and Area Sales Manager. Prior to LTC,
Mr. DiNardo worked for 8 years at Analog Devices,
where he was involved primarily in Field Sales and Applications.
Mr. DiNardo received his bachelors degree from
Ursinus College.

Geraldine N. Hench, Vice President, Finance
and Administration and Chief Financial Officer.Ms. Hench, a certified public
accountant, joined Xicor in November 1987 and became a Vice
President in June 1993 and Xicors Chief Financial Officer
in January 1998. Prior to Xicor, Ms. Hench was an Audit
Manager at PricewaterhouseCoopers LLP. Ms. Hench received
the degree of Bachelor of Science in Accounting from Santa Clara
University and the degree of Master of Business Administration
from St. Marys College.

R. Todd Smathers, Senior Vice President,
Operations.Mr. Smathers joined
Xicor in October 2001 as Senior Vice President, Operations.
Mr. Smathers has over 30 years of industry experience
in engineering, operations and general management. During his
eighteen years with Linear Technology Corporation (LTC) he
held a variety of senior management positions including General
Manager of the Mixed-Signal Business Unit and Director of
Operations. Prior to his affiliation with LTC, Mr. Smathers
served at National Semiconductor Corporation where he assumed
increasing levels of responsibility in engineering management
for the linear products group. He holds a BS degree in
Electrical Engineering from Clemson University (SC).

Steven R. Bakos, Vice President, Sales.Mr. Bakos joined Xicor in October
2002 as Vice President, Sales. Mr. Bakos brings fifteen
years experience in the industry. He spent the last eleven years
at Linear Technology Corporation, where he most recently served
as Northwest Area Sales Manager. He also had other management
positions in sales and marketing, including responsibility for
North American Distribution Marketing. Prior to his affiliation
with Linear, Mr. Bakos spent three years at National
Semiconductor Corporation. He holds a B.S. degree in
Engineering from Cornell University (New York).

Davin Lee, Vice President, Marketing.Mr. Lee joined Xicor in December
2001 as Senior Director of Sales for North America and was
appointed Vice President, Marketing in February 2003.
Mr. Lee brings 12 years experience in the industry.
From 2000 to 2001 Mr. Lee was at Altera Corporation as a
Strategic Business Manager. From 1994 to 2000 he was employed by
National Semiconductor in a variety of sales and

8



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##### Table of Contents



marketing positions. He holds a B.S. degree
in Electrical Engineering from The University of
Texas (Austin) and an M.B.A from Kellogg School of
Management at Northwestern University (Illinois).


Sandeep Agarwal, Vice President, Engineering,
Display Products.Mr. Agarwal
joined Xicor in April 2002 as Director of Engineering, Signal
Processing Products and was appointed Vice President,
Engineering, Display Products in October 2003. Mr. Agarwal
came to Xicor through the acquisition of Analog Integration
Partners, LLC where he served as Director of Engineering from
July 2001 to April 2002. From 1998 to 2001 Mr. Agarwal was
employed at Sage Incorporated as Director of Analog Engineering.
Prior to that, from 1995 to 1997 he worked at Arcus Technology
in Bangalore, India. Mr. Agarwal received the degrees of
Master of Science in Electrical Engineering from Indian
Institute of Technology, Mumbai and Ph.D. from Indian
Institute of Technology, Kanpur.

John M. Caruso, Vice President, Engineering,
Signal Processing Products.Mr. Caruso joined Xicor in April 2002 as Vice President,
Technology in connection with our acquisition of Analog
Integration Partners, LLC (AIP) and was appointed Vice
President, Engineering, Signal Processing Products in February
2003. Mr. Caruso was one of the founders of AIP, where he
was President and CEO from late 1998 through January 2002. Prior
to founding AIP, Mr. Caruso was employed by Exar
Corporation as Director of Strategic Planning, and prior to that
as Director of the Video and Imaging business unit. Prior to
Exar, he was an owner and the Vice President of Design for Micro
Power Systems. Mr. Caruso has a BSEE from the University of
Cincinnati.

Carlos Laber, Vice President, Engineering,
Linear Products.Mr. Laber joined
Xicor in July 2002 as Vice President, Engineering, Linear
Products. Mr. Laber has more than 24 years of design
and management experience in mixed-signal analog circuit design
and new product definition. Mr. Laber came to Xicor from
Micrel Semiconductor where he was Vice President, Design
Engineering since March 2000. Prior to Micrel, Micro Linear
Corporation employed Mr. Laber from 1984 to 2000 where he
held the positions of Vice President of Design Engineering,
Director of Engineering, and Principal Engineer. Prior to 1984,
National Semiconductor and Intel Corporation employed
Mr. Laber in various design engineering positions. He holds
a Masters Degree in Electrical Engineering from the University
of Minnesota (Minneapolis) and an Electrical Engineering degree
from the University of Buenos Aires, Argentina.

James McCreary, Vice President, Technology.Mr. McCreary joined Xicor in
October 1998 as Vice President, Engineering and was appointed
Vice President, Technology in February 2003. From 1996 through
1998 Mr. McCreary was involved in private business
ventures. In 1983 Mr. McCreary co-founded Micro Linear
Corporation where he was Vice President of Engineering from 1983
through 1995. Mr. McCreary received the degrees of Master
of Science in Electrical Engineering and Ph.D. from the
University of California, Berkeley and is a holder of several
patents.

John Sramek, Vice President, Business
Development.Mr. Sramek joined
Xicor in April 2002 as General Manager, Signal Processing
Products in connection with our acquisition of Analog
Integration Partners, LLC (AIP), and was appointed Vice
President, Business Development in July 2003. Mr Sramek
joined AIP as President in December 2001. From 1997 to 2001,
Mr. Sramek was the Vice President and General Manager of
Exars Video and Imaging Division, a leading AFE supplier
to DSC and scanner manufacturers. He has also held senior
marketing and applications positions at Micro Power Systems and
Harris Semiconductor. He received BSEE and BA English Literature
degrees from Bucknell University and an MBA from Santa Clara
University.

Where You Can Find More Information

We file reports, proxy statements and other
information with the Securities and Exchange Commission, or SEC,
in accordance with the Securities Exchange Act of 1934, or the
Exchange Act. You may read and copy our reports, proxy
statements and other information filed by us at the public
reference room of the SEC in Washington, D.C. Please call
the SEC at 1-800-SEC-0330 for further information about the
public reference rooms. Our reports, proxy statements and other
information filed with the SEC are available to the public over
the Internet at the SECs website at
http://www.sec.gov and through a hyperlink on our
Internet website at http://www.xicor.com.

9



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##### Table of Contents






Item 2.Properties

Our executive offices are located in an
approximately 62,000 square-foot building at
933 Murphy Ranch Rd., Milpitas, California. This
facility, which houses our design, research and development and
reliability operations and executive, marketing and
administrative offices, is leased. The lease expires in 2010 and
provides for an annual base rental of $981,788 in 2004
increasing 3.5% annually and requires us to pay all real estate
taxes, utilities and insurance and to maintain the building and
premises. We believe our facility is adequate for our
foreseeable needs.




Item 3.Legal
Proceedings

Information regarding legal proceedings is set
forth in Note 11 of the Notes to Consolidated Financial
Statements which information is hereby incorporated by reference.




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

No matters were submitted to a vote of the
security holders during the quarter ended December 31, 2003.




PART II




Item 5.Market
for Registrants Common Stock and Related Stockholder
Matters

Our Common Stock trades on the Nasdaq National
Market tier of the Nasdaq StockSM under the symbol
XICO. The table below sets forth the high and low sales prices
for our Common Stock as reported by Nasdaq for each calendar
quarter.

|                                    |                |      |   |       |  |  |   |      | 
|----------------------------------- | -------------- | ---- | - | ----- |  |  | - | ---- | 
|                                    |                | High |   | Low  
|                                    |                |      |   |      
|Fiscal year ended December 31, 2003 |                |      |   |       |  |  |   |     
|                                    | First Quarter  |      | $ | 5.19  |  |  | $ | 3.05 | 
|                                    | Second Quarter |      |   | 6.79  |  |  |   | 4.24 | 
|                                    | Third Quarter  |      |   | 10.68 |  |  |   | 6.30 | 
|                                    | Fourth Quarter |      |   | 13.28 |  |  |   | 9.60 | 

|                                    |                |      |   |       |  |  |   |      | 
|----------------------------------- | -------------- | ---- | - | ----- |  |  | - | ---- | 
|                                    |                | High |   | Low  
|                                    |                |      |   |      
|Fiscal year ended December 31, 2002 |                |      |   |       |  |  |   |     
|                                    | First Quarter  |      | $ | 12.95 |  |  | $ | 7.50 | 
|                                    | Second Quarter |      |   | 11.45 |  |  |   | 3.97 | 
|                                    | Third Quarter  |      |   | 5.88  |  |  |   | 3.27 | 
|                                    | Fourth Quarter |      |   | 4.70  |  |  |   | 2.05 | 

There were approximately 910 shareholders of
record on February 18, 2004.

Dividend Policy

We have never declared or paid any cash dividend
on our capital stock and do not anticipate paying any cash
dividends on our capital stock in the foreseeable future. We
currently intend to retain future earnings, if any, for use in
our business.

10



---



##### Table of Contents



Equity Compensation Plan Information

The following table summarizes the number of
outstanding options granted to employees and directors, as well
as the number of securities remaining available for future
issuance, under our compensation plans as of December 31,
2003.

|                                                                  |  |                   |       |                   |  |                  |      |  |  |  |       |    
|----------------------------------------------------------------- |  | ----------------- | ----- | ----------------- |  | ---------------- | ---- |  |  |  | ----- | ---
|                                                                  |  |                   |       |                   |  | (c)             
|                                                                  |  |                   |       |                   |  | Number of       
|                                                                  |  |                   |       |                   |  | Securities      
|                                                                  |  |                   |       |                   |  | Remaining       
|                                                                  |  | (a)               |       |                   |  | Available for   
|                                                                  |  | Number of         |       |                   |  | Future Issuance 
|                                                                  |  | Securities to be  |       | (b)               |  | Under Equity    
|                                                                  |  | Issued Upon       |       | Weighted-average  |  | Compensation    
|                                                                  |  | Exercise of       |       | Exercise Price of |  | Plans (excluding
|                                                                  |  | Outstanding       |       | Outstanding       |  | securities      
|                                                                  |  | Options, Warrants |       | Options, Warrants |  | reflected in    
|Plan Category                                                     |  | and Rights        |       | and Rights        |  | column (a))     
|                                                                  |  |                   |       |                   |  |                 
|                                                                  |  | (In thousands)    |       |                   |  | (In thousands)  
|Equity compensation plans approved by security
    holders        |  |                   | 1,656 |                   |  | $                | 5.70 |  |  |  | 2,514 | (1)
|Equity compensation plans not approved by
    security holders(2) |  |                   | 5,199 |                   |  |                  | 4.88 |  |  |  | 53    |    
|                                                                  |  |                   |       |                   |  |                  |      |  |  |  |       |    
|Total                                                             |  |                   | 6,855 |                   |  | $                | 5.08 |  |  |  | 2,567 |    
|                                                                  |  |                   |       |                   |  |                  |      |  |  |  |       |    



---



|    |                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Included in this amount are 380,000 shares
    available for future issuance under our Employee Stock Purchase
    Plan.                                
|   
|(2) | Amounts correspond to our 1998 Plan, which is not
    subject to shareholder approval, described in Note 7 to the
    consolidated financial statements.

11



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##### Table of Contents






Item 6.Selected
Financial Data

Financial Operating Information

|                                       |                                              |                                          |        |        |  |      |         |        |   |      |         |        |   |   |         |        |   |   |         |        |  
|-------------------------------------- | -------------------------------------------- | ---------------------------------------- | ------ | ------ |  | ---- | ------- | ------ | - | ---- | ------- | ------ | - | - | ------- | ------ | - | - | ------- | ------ | -
|                                       |                                              |                                         
|                                       |                                              | Year Ended December 31,                 
|                                       |                                              |                                         
|                                       |                                              | 2003                                     |        | 2002   |  | 2001 |         | 2000   |   | 1999
|                                       |                                              |                                          |        |        |  |      |         |        |   |     
|                                       |                                              |                                         
|                                       |                                              | (In thousands, except per share amounts)
|Operations Data:                       |                                              |                                          |        |        |  |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|Net sales                              |                                              | $                                        | 41,448 |        |  | $    | 38,534  |        |   | $    | 70,073  |        |   | $ | 122,849 |        |   | $ | 114,887 |       
|Cost of sales                          |                                              |                                          | 18,779 |        |  |      | 19,076  |        |   |      | 45,100  |        |   |   | 71,672  |        |   |   | 80,474  |       
|                                       |                                              |                                          |        |        |  |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|                                       | Gross profit                                 |                                          |        | 22,669 |  |      |         | 19,458 |   |      |         | 24,973 |   |   |         | 51,177 |   |   |         | 34,413 |  
|                                       |                                              |                                          |        |        |  |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|Operating expenses:                    |                                              |                                          |        |        |  |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|                                       | Research and development                     |                                          |        | 10,811 |  |      |         | 13,056 |   |      |         | 13,613 |   |   |         | 15,880 |   |   |         | 14,560 |  
|                                       | Selling, general and administrative          |                                          |        | 10,419 |  |      |         | 11,033 |   |      |         | 18,235 |   |   |         | 26,122 |   |   |         | 22,360 |  
|                                       | Restructuring and facilities charge (credit) |                                          |        |       |  |      |         | 1,936  |   |      |         | 3,205  |   |   |         | (3,841 | ) |   |         | 23,719 |  
|                                       | Amortization of purchased intangible assets  |                                          |        | 1,135  |  |      |         | 739    |   |      |         |       |   |   |         |       |   |   |         |       |  
|                                       | In-process research and development          |                                          |        |       |  |      |         | 1,800  |   |      |         |       |   |   |         |       |   |   |         |       |  
|                                       |                                              |                                          |        |        |  |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|                                       |                                              |                                          | 22,365 |        |  |      | 28,564  |        |   |      | 35,053  |        |   |   | 38,161  |        |   |   | 60,639  |       
|                                       |                                              |                                          |        |        |  |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|Income (loss) from operations          |                                              |                                          | 304    |        |  |      | (9,106  | )      |   |      | (10,080 | )      |   |   | 13,016  |        |   |   | (26,226 | )     
|Interest expense                       |                                              |                                          | (959   | )      |  |      | (3,259  | )      |   |      | (524    | )      |   |   | (817    | )      |   |   | (1,407  | )     
|Interest income                        |                                              |                                          | 366    |        |  |      | 789     |        |   |      | 1,237   |        |   |   | 1,458   |        |   |   | 704     |       
|Other income and (expense) net         |                                              |                                          | 2,718  |        |  |      | (1,206  | )      |   |      |        |        |   |   |        |        |   |   |        |       
|                                       |                                              |                                          |        |        |  |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|Income (loss) before income taxes      |                                              |                                          | 2,429  |        |  |      | (12,782 | )      |   |      | (9,367  | )      |   |   | 13,657  |        |   |   | (26,929 | )     
|Provision for income taxes             |                                              |                                          |       |        |  |      |        |        |   |      | 102     |        |   |   | 491     |        |   |   |        |       
|                                       |                                              |                                          |        |        |  |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|Net income (loss)                      |                                              | $                                        | 2,429  |        |  | $    | (12,782 | )      |   | $    | (9,469  | )      |   | $ | 13,166  |        |   | $ | (26,929 | )     
|                                       |                                              |                                          |        |        |  |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|Net income (loss) per share:           |                                              |                                          |        |        |  |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|                                       | Basic                                        |                                          | $      | 0.09   |  |      | $       | (0.55  | ) |      | $       | (0.43  | ) |   | $       | 0.62   |   |   | $       | (1.32  | )
|                                       |                                              |                                          |        |        |  |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|                                       | Diluted                                      |                                          | $      | 0.08   |  |      | $       | (0.55  | ) |      | $       | (0.43  | ) |   | $       | 0.57   |   |   | $       | (1.32  | )
|                                       |                                              |                                          |        |        |  |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|Shares used in per share calculations: |                                              |                                          |        |        |  |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|                                       | Basic                                        |                                          |        | 26,413 |  |      |         | 23,265 |   |      |         | 21,803 |   |   |         | 21,189 |   |   |         | 20,324 |  
|                                       |                                              |                                          |        |        |  |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|                                       | Diluted                                      |                                          |        | 29,101 |  |      |         | 23,265 |   |      |         | 21,803 |   |   |         | 23,286 |   |   |         | 20,324 |  
|                                       |                                              |                                          |        |        |  |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       

|                    |                                             |                   |   |          |   |      |   |          |   |      |   |          |   |  |   |          |   |  |   |          |  
|------------------- | ------------------------------------------- | ----------------- | - | -------- | - | ---- | - | -------- | - | ---- | - | -------- | - |  | - | -------- | - |  | - | -------- | -
|                    |                                             |                  
|                    |                                             | December 31, 2001
|                    |                                             |                  
|                    |                                             | 2003              |   | 2002     |   | 2001 |   | 2000     |   | 1999
|                    |                                             |                   |   |          |   |      |   |          |   |     
|                    |                                             |                  
|                    |                                             | (In thousands)   
|Balance Sheet Data: |                                             |                   |   |          |   |      |   |          |   |      |   |          |   |  |   |          |   |  |   |         
|                    | Cash, cash equivalents and investments      |                   | $ | 22,320   |   |      | $ | 38,381   |   |      | $ | 56,367   |   |  | $ | 29,121   |   |  | $ | 22,233   |  
|                    | Working capital                             |                   |   | 17,507   |   |      |   | 28,835   |   |      |   | 38,563   |   |  |   | 11,559   |   |  |   | 3,573    |  
|                    | Total assets                                |                   |   | 58,660   |   |      |   | 67,096   |   |      |   | 80,451   |   |  |   | 64,323   |   |  |   | 54,794   |  
|                    | Long-term obligations, less current portion |                   |   | 274      |   |      |   | 32,976   |   |      |   | 32,634   |   |  |   | 715      |   |  |   | 9,794    |  
|                    | Accumulated deficit                         |                   |   | (131,212 | ) |      |   | (133,641 | ) |      |   | (120,859 | ) |  |   | (111,390 | ) |  |   | (124,556 | )
|                    | Shareholders equity                        |                   |   | 44,773   |   |      |   | 15,575   |   |      |   | 16,916   |   |  |   | 20,215   |   |  |   | 4,449    |  

12



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##### Table of Contents






Item 7.Managements
Discussion and Analysis of Financial Condition and Results of
Operations

The statements in this Managements
Discussion and Analysis of Financial Condition and Results of
Operations that are forward-looking are based on current
expectations and beliefs and involve numerous risks and
uncertainties that could cause actual results to differ
materially from expectations. See Safe Harbor
Statement and Risk Factors Affecting Future
Results sections following.

The following discussion should be read in
conjunction with the Consolidated Financial Statements and Notes
thereto appearing on pages 28 to 47.

Results of Operations



| |                 
| | ----------------
| | Overview of 2003

Xicor designs, develops and markets high
performance analog mixed-signal integrated circuits used in
communications, computing, networking and industrial
applications. Xicors Mixed-Signal Products include data
conversion products, power management integrated circuits,
application specific standard products and time-keeping devices.
Xicors programmable analog mixed-signal components
regulate, control, convert and manage various voltages and
currents through the use of a serial interface and internal
EEPROM.

Our key objectives for 2003 were to return to
profitability and expand our Served Addressable Market
(SAM) and base of technology. Net income for the year was
$2.4 million, or $0.08 per diluted share, on sales of
$41.4 million. Our return to profitability in 2003 was
based on a number of trends that highlight our progress in key
areas. Our analog and mixed-signal revenue in 2003 rose 30%
year-over-year to $31.6 million or more than 75% of our
total sales. This growth more than offset the decline in our
legacy memory sales of $4.3 million for the year. We
increased our gross margin percentage to 55% on an improved
product mix and expense reductions. During the year we also
eliminated our long-term convertible debt, which resulted in a
gain of $2.7 million, significantly improved our debt to
equity ratio and reduced our net interest expense.

We increased our SAM significantly through the
introduction of three high performance general purpose product
lines: precision voltage references, real-time clocks and power
sequencing devices and two application specific standard
products (ASSP): analog-front-ends and battery management
integrated circuits. The new high performance general purpose
product lines add to our established digital potentiometer and
voltage supervisor product lines that tend to have long life
cycles and serve a broad range of customers and applications.
The addition of ASSP products in 2003 enhances our ability to
address high growth markets with a limited customer base. Our
new and existing products address requirements for analog and
mixed-signal devices in consumer electronics products such as
digital televisions, cellular handsets and portable computers.
Additionally, we address requirements in communications systems
for wireline and wireless infrastructure, as well as industrial,
test and measurement and medical electronics

We continue to focus on delivering innovative
analog and mixed-signal products to our customers in order to
drive revenue and earnings growth. In fiscal 2004, we expect to
see continued growth in our mixed-signal business.

Sales

Our sales are derived from two product groups,
analog and mixed-signal products and memory products. Analog and
mixed-signal product sales represent our core market and
accounted for approximately 76% of total net sales in 2003,
compared to 63% of total net sales in 2002, 50% of total net
sales in 2001 and 35% of

13



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##### Table of Contents



net sales in 2000. Memory product sales consist
of two legacy businesses, parallel EEPROMs, which we are
retaining, and serial EEPROMs, which we have exited. Annual
sales by product group were:


|                              |  |                         |        |      |  |      |        |  |  |   |        | 
|----------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                              |  |                        
|                              |  | Year Ended December 31,
|                              |  |                        
|                              |  | 2003                    |        | 2002 |  | 2001
|                              |  |                         |        |      |  |     
|                              |  |                        
|                              |  | (In thousands)         
|Analog and mixed-signal sales |  | $                       | 31,585 |      |  | $    | 24,371 |  |  | $ | 34,942 | 
|Memory sales                  |  |                         | 9,863  |      |  |      | 14,163 |  |  |   | 35,131 | 
|                              |  |                         |        |      |  |      |        |  |  |   |        | 
|Total sales                   |  | $                       | 41,448 |      |  | $    | 38,534 |  |  | $ | 70,073 | 
|                              |  |                         |        |      |  |      |        |  |  |   |        | 

For 2003, total sales were $41.4 million
compared to $38.5 million in 2002. Fiscal year 2002 sales
included a benefit of $0.4 million resulting from putting
all our global distribution partners on our fiscal calendar in
connection with the realignment of our distribution channel to
better serve fulfillment and demand creation efforts.

For 2003, analog and mixed-signal sales were
$31.6 million up 30% from $24.4 million in 2002. Our
analog and mixed-signal product sales growth in 2003 was
primarily due to higher unit sales of power management products
and secondarily due to higher unit sales of data conversion
products used to control LCD brightness in cellular handsets. To
a lesser extent, engineering revenues generated by the Signal
Processing Group, which increased to $1.6 million in 2003
from $0.4 million in 2002, contributed to the
year-over-year increase in mixed-signal sales.

In 2002, overall economic and industry-wide
conditions were weak which negatively impacted our 2002 revenues
in all product groups compared to 2001. In particular, the
communications market segments that we sell our products into
were adversely impacted by the severe economic downturn that was
characterized by a significant drop in end user demand and
exacerbated by excess inventory in global sales channels.

In 2002 mixed-signal product sales decreased 31%
from 2001 primarily due to lower demand in the communications
market as well as an overall decline in general economic
conditions. Mixed-signal sales were level sequentially in the
first two quarters of 2001 and then declined in the second half
of the year on lower unit sales. In the first quarter of 2002,
mixed-signal sales remained relatively stable compared to the
fourth quarter of 2001. Mixed-signal sales increased 27%
sequentially in the second quarter of 2002 on higher unit sales,
increased 8% sequentially in the third quarter of 2002 on higher
unit sales and then remained relatively stable sequentially in
the fourth quarter of 2002.

As shown in the table below, sales of our legacy
memory products declined 30% in 2003 and 60% in 2002 compared to
the immediately preceding year:

|                      |  |                         |       |      |  |      |        |  |  |   |        | 
|--------------------- |  | ----------------------- | ----- | ---- |  | ---- | ------ |  |  | - | ------ | 
|                      |  |                        
|                      |  | Year Ended December 31,
|                      |  |                        
|                      |  | 2003                    |       | 2002 |  | 2001
|                      |  |                         |       |      |  |     
|                      |  |                        
|                      |  | (In thousands)         
|Parallel EEPROM sales |  | $                       | 7,672 |      |  | $    | 9,901  |  |  | $ | 19,330 | 
|Serial EEPROM sales   |  |                         | 2,191 |      |  |      | 4,262  |  |  |   | 15,801 | 
|                      |  |                         |       |      |  |      |        |  |  |   |        | 
|Total memory sales    |  | $                       | 9,863 |      |  | $    | 14,163 |  |  | $ | 35,131 | 
|                      |  |                         |       |      |  |      |        |  |  |   |        | 

In 2003 parallel EEPROM product sales decreased
23% from 2002 primarily due to lower unit shipments of high
density parallel EEPROMs as the overall market for these
products has contracted. Parallel EEPROM sales decreased 49%
from 2001 to 2002 principally due to lower unit shipments as the
overall market for these products contracted and weak economic
conditions persisted. Serial EEPROM product sales declined in
2003 and 2002 due to our exit from this business. Serial sales
decreased 49% from 2002 to 2003 and 73% from 2001 to 2002. The
serial EEPROM sales decreases were primarily due to lower unit
shipments and, to a lesser extent, lower average selling prices.
We expect serial EEPROM sales to continue to decrease and
parallel EEPROM sales to remain relatively stable in 2004.

In 2003 our growth in analog and mixed-signal
sales helped offset the decline in memory sales of
$4.3 million discussed above. We have completed several
initiatives that will allow us to further consolidate

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our effort in the high performance analog area.
We obsoleted several legacy system management products which
contributed over $3 million in mixed-signal revenue in
2003, but were not strategic and required significant
engineering effort and expense to maintain, we exited the serial
memory area which contributed over $2 million in revenue in
2003 and we completed the intellectual property contract
development commitments associated with our acquisition of
Analog Integration Partners which generated revenue of
approximately $1.6 million in 2003. During 2004, we expect
growth in strategic product areas such as data conversion, real
time clocks, battery management and display products to offset
the impact from obsoleting legacy system management products.




| |                                   
| | ----------------------------------
| | Cost of Sales and Gross
    Profit

Our gross profit percentage is expected to
fluctuate as a result of changes in product mix, product costs
and average selling prices. Over the past several years we have
been transitioning the company from a manufacturer of commodity
memory with low gross margin products into a fabless
semiconductor company focused on the high-performance analog and
mixed-signal segment of the semiconductor market with higher
margins.

For 2003, gross profit as a percentage of sales
was 55% compared to 50% in 2002, and 36% in 2001. As discussed
below, cost of sales for the first quarter of 2001 included an
$8.2 million charge to write down inventories. Cost of
sales for 2002 and 2001 included a $1.9 million and
$2.5 million benefit, respectively, related to the
amortization of the deferred gain on the sale of the fab assets.
The benefit from the amortization of the deferred gain ended in
the third quarter of 2002 due to the early termination of the
related foundry agreement. The net benefit to gross margin
resulting from the sale of products that had been previously
written down was less than $0.5 million in each of the
years ended December 31, 2003, 2002 and 2001.

The 2003 gross profit percentage benefited from
lower manufacturing overhead expenses compared to 2002, which
offset the impact of the benefit from the amortization of the
deferred gain on the sale of the fab assets ending in 2002.
Additionally, the gross profit percentage for 2003 improved
compared to 2002 due to a product mix that consisted of a higher
proportion of mixed-signal products which carry higher average
margins than our memory products. The gross margin improvement
in 2003 compared to 2002 was partially offset by a decline in
the gross profit percentage of parallel memory sales resulting
from a change in the product mix towards lower density,
commodity parallel parts.

Compared to 2001, the gross profit percentage in
2002 benefited from a shift in the product mix to a larger
percentage of higher margin mixed-signal and parallel EEPROM
sales and a smaller percentage of lower margin serial EEPROM
sales, the amortization of $1.9 million of the deferred
gain on the sale of the fab assets over a lower sales level and
lower manufacturing costs due to spending controls. These
benefits were partially offset by lower absorption of fixed
costs as manufacturing volumes were reduced in 2002 due to the
weak industry-wide economic conditions.



| |                         
| | ------------------------
| | Research and Development

In 2003, research and development expenses
amounted to $10.8 million or 26% of sales compared to
$13.1 million or 34% of sales in 2002, and
$13.6 million or 19% of sales in 2001. Research and
development expenses decreased by approximately
$2.2 million in 2003 compared to 2002 primarily due to the
completion of the development phase of several products and, to
a lesser extent, reduced personnel costs resulting from
headcount reductions. The absolute dollar amount of research and
development expenses in 2002 was relatively consistent with the
2001 expense level as the benefits from spending controls were
largely offset by the increased personnel costs resulting from
the second quarter 2002 acquisition of our Signal Processing
Group, formerly Analog Integration Partners LLC (AIP).



| |                                        
| | ---------------------------------------
| | Selling, General and
    Administrative

In 2003 selling, general and administrative
expenses amounted to $10.4 million or 25% of sales compared to
$11.0 million or 29% of sales in 2002 and
$18.2 million or 26% of sales in 2001. The
$0.6 million decrease in selling, general and
administrative expenses in 2003 compared to 2002 was primarily
due to spending controls,

15



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reduced personnel costs related to headcount
reductions and lower depreciation expense partially offset by an
increase in advertising to promote new products. The decrease in
the dollar amount of selling, general and administrative
expenses in 2002 compared to 2001 is primarily due to reduced
personnel expenses of $2.5 million related to headcount
reductions and $1.6 million lower commission expenses
related primarily to the decreased sales in 2002 and to a lesser
extent overall spending controls.




| |                                    
| | -----------------------------------
| | Restructuring and Other
    Charges

We have been transforming Xicor from a
manufacturer of commodity memory semiconductors into a fabless
semiconductor company focused on the high-performance analog and
mixed-signal segment of the semiconductor market. This effort
demanded comprehensive changes in virtually every element of the
company and, compounded by the weak overall economic and
industry-wide conditions in 2001 and 2002, resulted in
restructuring and other charges as the transformation took
place. Charges by year were as follows:

|                             |  |                         |   |      |  |      |       |  |  |   |        | 
|---------------------------- |  | ----------------------- | - | ---- |  | ---- | ----- |  |  | - | ------ | 
|                             |  |                        
|                             |  | Year Ended December 31,
|                             |  |                        
|                             |  | 2003                    |   | 2002 |  | 2001
|                             |  |                         |   |      |  |     
|                             |  |                        
|                             |  | (In thousands)         
|Restructuring and facilities |  | $                       |  |      |  | $    | 1,936 |  |  | $ | 3,205  | 
|Inventory write-down         |  |                         |  |      |  |      |      |  |  |   | 8,200  | 
|                             |  |                         |   |      |  |      |       |  |  |   |        | 
|Total                        |  | $                       |  |      |  | $    | 1,936 |  |  | $ | 11,405 | 
|                             |  |                         |   |      |  |      |       |  |  |   |        | 

At the beginning of 2001, we had a restructuring
accrual of $2.5 million that consisted of $2.0 million
of accrued severance costs to reduce our workforce by
approximately 50 employees primarily in administrative,
manufacturing and support groups and $0.5 million of other
restructuring related costs.

In the first quarter of 2001, we announced our
plan to exit from offering serial EEPROM memory products and
complete the move to fully outsourced test and assembly
operations. Accordingly, our first quarter 2001 results included
an $8.2 million charge to cost of sales to write down
inventories to their net realizable value and a
$3.2 million restructuring charge. The $3.2 million
restructuring charge consisted of $1.5 million of
severance-related costs for an additional reduction in our
workforce of approximately 95 employees, $1.2 million of
fixed asset write-offs principally related to leasehold
improvements in the facility that housed our test operation and
$0.5 million of other restructuring-related costs.

During 2001, we reduced our workforce by
approximately 140 employees and utilized $3.1 million of
the restructuring reserve for related severance costs and
$0.7 million for other restructuring related costs. At
December 31, 2001, the restructuring accrual of
$0.7 million consisted of $0.4 million of severance
costs (including costs to reduce the workforce by approximately
10 employees primarily in sales and administrative groups) and
$0.3 million of other costs associated with vacated sales
offices.

In 2002, due to the ongoing weak industry
conditions, we implemented two additional reductions in force
that affected employees in all areas of the company. In the
second quarter of 2002 we reduced our workforce by
33 employees, which resulted in a $0.8 million
restructuring charge for severance-related costs. Quarterly cost
reductions of approximately $0.7 million associated with
the second quarter 2002 reduction in workforce were partially
offset by increased research and development expenses. In the
fourth quarter of 2002, we notified 16 employees that their
employment would cease on various dates in the fourth quarter of
2002 and first quarter of 2003, which resulted in a
$0.2 million restructuring charge for severance-related
costs. The $0.4 million of quarterly cost reductions
resulting from the fourth quarter 2002 reduction in workforce
were realized in 2003.

In the fourth quarter of 2002 we entered into a
lease agreement for a facility to be used as our corporate
headquarters. We vacated our prior headquarters facility in the
fourth quarter of 2002, and a third party assumed the related
lease in the first quarter of 2003. In the fourth quarter of
2002 we also vacated our leased Bay Area sales office facility
and the leased facility that we assumed as part of the AIP
acquisition and relocated the employees from both facilities to
our corporate headquarters.

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Terminating our prior facility lease and entering
into the new facility lease allowed us to consolidate our
operations in a more efficient facility and reduce our future
minimum lease commitments, exclusive of restructuring related
lease payments, by approximately $0.3 million per year in
2003 through 2009. Our minimum lease commitment increased by
$1.2 million in 2010 as the new facility lease term is one
year longer than the prior facility lease term. The facilities
abandonment resulted in a fourth quarter 2002 facilities related
restructuring charge of $0.9 million consisting of
$0.5 million for the non-cash abandonment of leasehold
improvements, equipment and furniture and $0.4 million of
exit costs consisting primarily of rent after abandonment of the
facilities.

During 2002, we reduced our workforce by
approximately 50 employees and utilized $1.1 million
of the restructuring reserve for related severance costs and
$0.3 million for other restructuring related costs. At
December 31, 2002, the restructuring accrual of
$0.7 million consisted of $0.2 million of severance
costs payable to terminated employees and $0.5 million of
costs associated with vacated facilities.

During 2003, we completed the restructuring and
utilized the $0.7 million balance of the restructuring
accrual for $0.4 million of exit costs consisting primarily
of rent for the period after abandonment of the facilities,
$0.2 million for severance costs to terminated employees
and $0.1 million for other restructuring costs.

Acquisitions

Amortization of purchased intangible assets was
$1.1 million in 2003 and $0.7 million in 2002. The
amortization of intangible assets increased in 2003 compared to
2002 due to the acquisition of Poweready, Inc. in October 2003
and to a lesser extent a full year of amortization related to
AIP (acquired in April 2002). There was no amortization expense
in 2001 as our first acquisition was completed in 2002. Based on
our purchased intangible assets as of December 31, 2003,
the estimated amortization of purchased intangible assets will
increase to approximately $1.7 million in 2004.

Poweready,
Inc.

On October 28, 2003, we acquired Poweready,
Inc. (PRI), a privately held company that engages in the design,
manufacture and distribution of battery management systems, for
total consideration of $12.8 million, consisting of
$9.4 million of stock (947,368 shares of Xicor common
stock valued at $9.95 per share, the average closing price
the 5 days surrounding the signing of the definitive
agreement), $3.0 million in cash and direct acquisition
costs of $0.4 million for legal, appraisal and accounting
fees. Additional consideration of up to $3.0 million will
be payable in stock if certain performance milestones are met in
2004 through 2006. The amounts assigned to the intangible assets
acquired in the PRI purchase were allocated by management based
upon various factors, including an independent appraisal, and
consisted of $2.4 million of current technology which is
being amortized over 5 years from the date of acquisition,
$0.7 million for customer contracts and relationships which
is being amortized over 5 years, $0.3 million for a
non-compete agreement which is being amortized over 3 years
and $0.2 million for order backlog which is being amortized
over 3 months. None of the $9.5 million in goodwill is
expected to be deducted for tax purposes, and in accordance with
SFAS No. 142 will not be amortized but instead reviewed
annually for impairment and evaluated periodically to determine
whether events or circumstances have occurred indicating that
goodwill might be impaired.

Analog
Integration Partners, LLC

On April 16, 2002, we acquired Analog
Integration Partners LLC (AIP), a privately held company that
designs and develops high-performance analog signal processing
and data conversion circuits, for total consideration of
$15.5 million, consisting of $10.2 million of stock
(1,012,758 shares of Xicor common stock valued at $10.05
per share, the average closing price for the three consecutive
days ended April 16, 2002), $5.0 million in cash and
direct acquisition costs of $0.3 million for legal,
appraisal and accounting fees. The $2.7 million of the
purchase price allocated to current technology and
$0.1 million allocated to customer contracts for
professional services are being amortized using the
straight-line method over their useful lives of 3 years and
8 months, respectively. In accordance with SFAS
No. 142, the $10.8 million of the purchase price

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allocated to goodwill is not being amortized but
instead reviewed annually for impairment and evaluated
periodically to determine whether events or circumstances have
occurred indicating that goodwill might be impaired. In the
fourth quarter of 2003, we completed the annual impairment test
of the goodwill recorded as a result of the purchase of AIP and
concluded that there was no impairment of goodwill. For tax
purposes, the goodwill is being amortized on a straight-line
basis over 15 years.


The $1.8 million of the purchase price of
AIP allocated to in-process research and development expense in
the second quarter of 2002 related to AIPs engineering
effort that was focused on developing the analog front-end for
the high-end flat panel display market using a standard digital
0.18 micron CMOS process. Management determined the value
of the in-process research and development based upon various
factors, including an independent appraisal. The appraisal used
a discounted cash flow method and several factors including
projected financial results, relative risk of successful
development, time value of money and level of completion.
Projected financial results were based on a number of estimates
including market growth rates, the companys competitive
position, the product roadmap, the companys cost
structure, development timelines, resource requirements and the
long-term effective tax rate. The risk-adjusted discount rate
used for projected cash flows was 50%. As of the acquisition
date, the project was estimated to be approximately
5% complete and the estimated cost to complete the project
was approximately $3 million. Initial revenues related to
products developed under this project commenced in the fourth
quarter of 2003 and the actual cost of the project approximated
the estimate.

Other Income
and Expense

In 2003 interest expense decreased compared to
2002 due to the repurchase in April 2003 of all $35 million
of our outstanding 5.5% convertible subordinated notes.
Interest expense increased in 2002 compared to 2001 due to
interest expense and amortization resulting from our November
2001 issuance of $35 million of 5.5% convertible
subordinated notes and warrants.

In 2003 interest income decreased compared to
2002 primarily as a result of a decrease in the average balance
invested and, to a lesser extent, lower interest rates. Interest
income decreased in 2002 compared to 2001 primarily as a result
of lower interest rates, partially offset by an increase in the
average balance invested. The average cash and investments
balance was higher in 2002 than in 2001 primarily due to funds
generated from the November 2001 issuance of convertible
subordinated notes and warrants, partially offset by funds used
in 2002 operating activities and for the second quarter 2002
acquisition of AIP.

For the year ended December 31, 2003, other
income consists of a one-time gain of $2.7 million
resulting from the repurchase of all $35 million of our
outstanding convertible subordinated notes. Other expense for
the year ended December 31, 2002 includes a non-cash
impairment charge of $2.5 million to write-off an
investment held in a private company. Other income for the year
ended December 31, 2002 includes $700,000 from a favorable
sales tax audit, a $400,000 benefit associated with the sale of
our wafer fabrication facility in 2000 and $194,000 from the
early termination of a wafer foundry agreement with Standard
MEMS.

Taxes

While net income was generated in 2003, no taxes
were provided due to offsetting tax deductions. No taxes were
provided in 2002 due to the net loss. The provision for income
taxes for 2001 consisted primarily of federal and state minimum
taxes, which resulted from limitations on the use of net
operating loss carryforwards, and foreign taxes. Net deferred
tax assets of $67.4 million at the end of 2003 remain fully
reserved because of the uncertainty regarding the ultimate
realization of these assets.

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Liquidity and Capital Resources

|                                                             |  |                |        |      |  |      |        |   |  |   |        |  
|------------------------------------------------------------ |  | -------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                             |  |               
|                                                             |  | December 31,  
|                                                             |  |               
|                                                             |  | 2003           |        | 2001 |  | 2002
|                                                             |  |                |        |      |  |     
|                                                             |  |               
|                                                             |  | (In thousands)
|Cash, cash equivalents & investments                         |  | $              | 22,320 |      |  | $    | 38,381 |   |  | $ | 56,367 |  
|Total long-term obligations                                  |  |                | 520    |      |  |      | 33,408 |   |  |   | 33,475 |  
|Shareholders equity                                         |  |                | 44,773 |      |  |      | 15,575 |   |  |   | 16,916 |  
|Total capitalization (long-term obligations plus
    equity) |  |                | 45,293 |      |  |      | 48,983 |   |  |   | 50,391 |  
|Long-term obligations to total capitalization                |  |                | 1      | %    |  |      | 68     | % |  |   | 66     | %

Our debt to equity ratio improved substantially
in 2003 compared to 2002 because we repurchased all
$35 million of our outstanding convertible subordinated
notes for total consideration of $27.5 million or
79 cents on each dollar of face value in April 2003. The
consideration for the note repurchase consisted of
$14.4 million in cash and $13.1 million of common
stock (2.9 million shares of common stock valued at the
closing price on the respective repurchase dates).

In 2003 we used $1.6 million of cash in
operating activities (including $0.7 million associated
with restructuring activities). Cash used in investing
activities was $11.2 million in 2003, consisting of net
investments in cash-based, available-for-sale securities of
approximately $7.3 million, the $3.0 million cash
portion of the consideration paid to acquire Poweready, Inc. and
$0.9 million of equipment purchases. We used
$10.6 million of net cash from financing activities in
2003, consisting of the $14.4 million cash portion of the
consideration paid to repurchase our outstanding convertible
subordinated notes and $0.4 million of cash used to repay
long-term capital lease obligations, partially offset by
$4.2 million of cash generated from the issuance of common
stock under employee stock plans.

In 2003 we used $1.6 million of cash in
operating activities. During the year we had net income of
$2.4 million. Working capital consumed $4.2 million of
cash principally due to a $3.4 million reduction in our
accounts payable and accrued liabilities as we reduced spending
in 2003 and completed our restructuring. Additionally, we
generated $2.2 million in cash as we decreased our
inventory to be consistent with our current business and
consumed $2.6 million as our distributors reduced their
inventory. Cash used in investing activities was
$11.7 million in 2002, consisting of net investments in
cash-based, available-for-sale securities of $5.7 million,
the $5.0 cash portion of the consideration paid to acquire AIP
and $0.9 million of equipment purchases. We generated
$0.6 million of net cash from financing activities in 2002,
consisting of $1.3 million of cash generated from the
issuance of common stock under employee stock plans, partially
offset by $0.7 million of cash used to repay long-term
capital lease obligations.

In 2001 we used $4.0 million of cash in
operating activities (including $3.8 million associated
with restructuring activities). Cash used in investing
activities was $2.8 million in 2001, consisting of
$2.5 million invested in Standard MEMS and
$0.3 million for equipment purchases ($1.3 million of
equipment purchases, net of $1.0 million of equipment
financing). We generated $34.0 million of net cash from
financing activities in 2001, principally due to our November
2001 issuance of $35.0 million of 5.5% convertible
notes and warrants. The net proceeds of the offering after
payment of the underwriting discount and expenses of the
offering of $2.8 million were $32.2 million. We also
generated $2.6 million of cash from the issuance of stock
under employee stock plans and used $0.9 million to repay
long-term capital lease obligations in 2001.

Consistent with 2003, capital expenditures for
2004 are currently planned at less than $1 million and are
primarily related to test and product design equipment. At
December 31, 2003, we had entered into commitments for
equipment purchases aggregating less than $0.5 million. At
December 31, 2003, our principal sources of liquidity were
cash, cash equivalents and short-term investments aggregating
$22.3 million. Management believes that our existing
sources of liquidity will be adequate to support our activities
for the next twelve months.

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Below is a summary of fixed payments related to
certain contractual obligations. Payment timing may be subject
to change.

|                        |  |                        |      |       |  |       |     |       |  |      |     |  |  |   |     |  |  |   |     | 
|----------------------- |  | ---------------------- | ---- | ----- |  | ----- | --- | ----- |  | ---- | --- |  |  | - | --- |  |  | - | --- | 
|                        |  |                       
|                        |  | Payments Due by Period
|                        |  |                       
|                        |  |                        |      | 2005- |  | 2007- |     | After
|                        |  | Total                  |      | 2004  |  | 2006  |     | 2008  |  | 2008
|                        |  |                        |      |       |  |       |     |       |  |     
|                        |  |                       
|                        |  | (In millions)         
|Operating leases        |  | $                      | 7.8  |       |  | $     | 1.1 |       |  | $    | 2.1 |  |  | $ | 2.2 |  |  | $ | 2.4 | 
|Capital leases          |  |                        | 0.6  |       |  |       | 0.3 |       |  |      | 0.3 |  |  |   |     |  |  |   |     | 
|Purchase commitments(1) |  |                        | 14.2 |       |  |       | 3.7 |       |  |      | 4.2 |  |  |   | 4.2 |  |  |   | 2.1 | 
|                        |  |                        |      |       |  |       |     |       |  |      |     |  |  |   |     |  |  |   |     | 
|Total                   |  | $                      | 22.6 |       |  | $     | 5.1 |       |  | $    | 6.6 |  |  | $ | 6.4 |  |  | $ | 4.5 | 
|                        |  |                        |      |       |  |       |     |       |  |      |     |  |  |   |     |  |  |   |     | 



---



|    |                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents open purchase orders or contractual
    commitments at December 31, 2003 for which goods and
    services have not been received, of which less than
    $0.5 million relates to capital commitments.

Off Balance Sheet Arrangements

As part of our on-going business, we do not
participate in transactions that generate relationships with
unconsolidated entities or partnerships, such as entities often
referred to as structured finance or special purpose entities
(SPEs), which would have been established for the purpose of
facilitating off-balance sheet arrangements or other
contractually narrow or limited purposes. As of
December 31, 2003, we are not involved in any
unconsolidated SPE transactions.

Critical Accounting Policies

The preparation of financial statements requires
us to make estimates and assumptions that affect amounts
reported therein. We use a combination of historical results and
anticipated future events to estimate and make assumptions
relating to our financial statements. Actual results could
differ from our estimates. The Securities and Exchange
Commission defines critical accounting policies as those that
are, in managements view, most important to the portrayal
of the companys financial condition and results of
operations and most demanding in their calls on judgment. We
believe our most critical accounting policies relate to:

Revenue
Recognition

Our customers include original equipment
manufacturers, distributors and contract manufacturers. We
recognize revenue from sales when the rights and risks of
ownership have passed to the customer, when persuasive evidence
of an arrangement exists, the product has been shipped, the
price is fixed or determinable and collection of the resulting
receivable is reasonably assured. Sales are reduced for
estimated returns and adjustments. We base these estimates on
historical data and other known factors. Actual results could be
different from our estimates resulting in future charges or
credits to earnings.

Certain of our sales to distributors are
contractually subject to rights of return and price concessions
on unsold inventory. Because of frequent sales price reductions
on standard products, the distributors return rights and
rapid technological obsolescence in the industry, we defer
recognition of such sales until the distributors sell the
inventory. From time to time we terminate distributors,
contractually eliminate their rights of return and price
concessions or obsolete parts in the distribution channel. In
such cases, we recognize revenue after the distributors
return rights lapse and the price is fixed.

Amounts billed to the distributors, net of
estimated price concessions, are included as accounts receivable
and the related gross profit is deferred and reflected as a
current liability until the revenue is recognized. The amount of
gross profit recognized by us in future periods could differ
from the deferred income on shipments to distributors due to the
distributors contractual rights of return and price
concessions on unsold inventory.

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Allowance for
Doubtful Accounts

We maintain allowances for doubtful accounts for
estimated losses resulting from the inability of our customers
to make required payments. Accounts receivable at
December 31, 2003 and 2002 are presented net of an
allowance for doubtful accounts of $0.5 million. If the
financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments,
additional allowances may be required.

Inventory
Valuation

Inventories are stated at the lower of cost or
market. Each quarter we evaluate our inventories for excess
quantities and obsolescence. Inventories on hand in excess of
forecasted demand are not valued and we write off inventories
that are considered obsolete. Remaining inventory balances are
adjusted to approximate the lower of cost or market value.
Product and technology transitions announced by us or our
competitors, changes in the purchasing patterns of our customers
and distribution partners, or adverse global economic conditions
may materially affect estimates of our inventory reserve
requirements resulting in additional inventory write downs.
During 2001, we recorded an $8.2 million charge to cost of
sales to write down inventories to their net realizable value in
connection with our plan to exit from offering serial EEPROM
memory products.

Long-Lived
Assets

Long-lived assets are principally comprised of
investments, fixed assets and goodwill and purchased intangible
assets from acquisitions accounted for under the purchase
method. The purchase method of accounting for acquisitions
requires extensive use of accounting estimates and judgments to
allocate the purchase price paid to the fair value of the net
tangible and intangible assets acquired, including in-process
research and development. The amounts and useful lives assigned
to intangible assets impact future amortization. The amount
assigned to in-process research and development is expensed
immediately. We review long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Factors impacting the
impairment review include significant negative industry trends,
significant underutilization of the assets, significant changes
in how we use the assets or our plans for their use,
underperformance relative to historical or projected future
operating results, changes in market demand and competition and
significant changes in company strategy. If our review
determines the future undiscounted cash flows related to these
assets will not be sufficient to recover their carrying value,
we will reduce the carrying values of these assets down to our
estimate of fair market value and continue depreciating them
over their remaining useful lives. Our estimates of fair market
value are generally based on discounted cash flow analyses or
outside appraisals.

Restructuring

In connection with restructuring plans, we are
required to make estimates about the effects of matters, or
future events that are inherently uncertain. Among other items,
we estimate the salvage value of assets impaired, which requires
judgments concerning such factors as fluctuating equipment
markets and timing and method of disposal and the cost and
timing of closing leased facilities, which requires judgments
concerning such factors as fluctuating real estate markets and
timing of disposal. In 2001, we recorded a $3.2 million
restructuring charge associated with the move to fully
outsourced test and assembly operations and the exit from
offering serial EEPROM memory products. In 2002, we recorded
$1.9 million of restructuring and facilities charges
associated with workforce reductions and the relocation of our
corporate headquarters.

Income
Taxes

Management judgment is required in determining
our provision for income taxes, our deferred tax assets and
liabilities and the valuation allowance recorded against our net
deferred tax assets. Our net deferred tax assets of
$67.4 million at December 31, 2003 remain fully
reserved because of the uncertainty regarding the ultimate
realization of these assets. In the event we determine that we
will be able to realize our deferred tax assets in the future,
an adjustment to the deferred tax assets will be recorded as a
credit to income in the period the determination is made.

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Contingencies
and litigation

From time to time, we are a defendant or
plaintiff in various legal actions, which arise in the normal
course of business. We are required to assess the likelihood of
any adverse judgments or outcomes to these matters as well as
potential ranges of probable losses. A determination of the
amount of reserves required for these contingencies, if any,
which would be charged to earnings, is made after careful
analysis of each individual issue. The required reserves may
change in the future due to new developments in each matter or
changes in circumstances. Changes in required reserves could
increase or decrease our earnings in the period the changes are
made.

Recent Accounting Pronouncements

In January 2003, the FASB issued FASB
Interpretation No. 46, Consolidation of Variable
Interest Entities, an Interpretation of
ARB No. 51 (FIN 46). FIN 46 requires
certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the
entity do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46
is effective immediately for all new variable interest entities
created or acquired after January 31, 2003. In December
2003, the FASB issued FIN 46R which supercedes FIN 36.
FIN 46R will be applicable to all non-SPEs created prior to
February 1, 2003 by Public Entities that are not small
business issuers at the end of the first interim or annual
reporting period ending after March 15, 2004. We believe
that the adoption of this standard will have no material impact
on our financial statements.

In December 2003, the SEC issued Staff Accounting
Bulletin (SAB) No. 104, Revenue Recognition, which
codifies, revises and rescinds certain sections of
SAB No. 101, Revenue Recognition, in order to make
this interpretive guidance consistent with current authoritative
accounting and auditing guidance and SEC rules and regulations.
The changes noted in SAB No. 104 did not have a
material effect on our consolidated results of operations,
consolidated financial position or consolidated cash flows.

Safe Harbor Statement Under the
Private Securities Litigation Reform Act of 1995

This Annual Report contains forward-looking
statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including without limitation the
expectation for the addition of ASSP products in 2003 to enhance
our ability to address high growth markets with a limited
customer base; the plan to deliver innovative analog and
mixed-signal products to drive revenue and earnings growth; the
expectation to see continued growth in our mixed-signal business
in 2004; the expectation for serial EEPROM sales to continue to
decrease and parallel EEPROM sales to remain relatively stable
in 2004; the expectation for growth in strategic product areas
such as data conversion, real time clocks, battery management
and display products in 2004 to offset the impact from
obsoleting legacy system management products; the expectation
that the gross profit percentage will fluctuate as a result of
changes in product mix, product costs and average selling
prices; the estimation for the amortization of purchased
intangible asset to increase to approximately $1.7 million
in 2004; the estimated amounts and timing of fixed payments
related to contractual obligations; the projection that 2004
capital expenditures will be less than $1.0 million; and
the expectation that our existing sources of liquidity will be
adequate to support operations for the next twelve months.

Forward-looking statements are subject to certain
risks and uncertainties that could cause the actual results to
differ materially from those projected. Factors that could cause
actual results to differ materially include the
following: general economic conditions and conditions
specific to the semiconductor industry; fluctuations in customer
demand, including loss of key customers, order cancellations or
reduced bookings; product mix; competitive factors such as
pricing pressures on existing products and the timing and market
acceptance of new product introductions (both by us and our
competitors); our ability to have available an appropriate
amount of low cost foundry production capacity in a timely
manner; our foundry partners timely ability to
successfully manufacture products for us using our proprietary
technology; any disruptions of our foundry relationships;
manufacturing efficiencies; the ability to continue effective
cost reductions; currency

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fluctuations; the successful and timely
development and introduction of new products and submicron
processes; and the risk factors listed from time to time in our
SEC reports, including but not limited to the Risk Factors
Affecting Future Results section following and
Part I, Item 1. of this Annual Report on
Form 10-K. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only
as of the date hereof. We undertake no obligation to publicly
release or otherwise disclose the result of any revision to
these forward-looking statements that may be made as a result of
events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.


Risk Factors Affecting Future
Results

The risks described below are not the only
ones facing our Company. Additional risks not presently known to
us or that we currently believe are not material may also impair
our business operations.

Our operating results fluctuate significantly,
and an unanticipated decline in revenue may disappoint
securities analysts or investors and result in a decline in our
stock price.

You should not use our past financial performance
to predict future operating results. We have incurred net losses
in two of the last three years. Our recent quarterly and annual
operating results have fluctuated, and will continue to
fluctuate, due to the following factors, all of which are
difficult to forecast and many of which are out of our
control: the cyclical nature of both the semiconductor
industry and the markets addressed by our products; competitive
pricing pressures and related changes in selling prices; new
product announcements and introductions of competing products by
us or our competitors; market acceptance and subsequent
design-in of new products; unpredictability of changes in demand
for, or in the mix of, our products; the timing of significant
orders including the fact that the sales level in any specific
quarter depends significantly on orders received during that
quarter; the gain or loss of significant customers; the
availability, timely deliverability and cost of products
manufactured on our behalf by third-party suppliers; product
obsolescence; lower of cost or market inventory adjustments;
changes in the channels through which our products are
distributed; exchange rate fluctuations; general economic,
political and environmental-related conditions, such as natural
disasters; difficulties in forecasting, planning and managing of
inventory levels; and unanticipated research and development
expenses associated with new product introductions.

Our markets are subject to rapid technological
change and, therefore, our success depends on our ability to
develop and introduce new products.

The markets for our products are characterized by
rapidly changing technologies; evolving and competing industry
standards; changing customer needs; frequent new product
introductions and enhancements; increased integration with other
functions; and rapid product obsolescence.

To develop new products for our target markets,
we must develop, gain access to and use leading technologies in
a cost-effective and timely manner and continue to expand our
technical and design expertise. In addition, we must have our
products designed into our customers future products and
maintain close working relationships with key customers in order
to develop new products that meet their rapidly changing needs.

We cannot assure you that we will be able to
identify new product opportunities successfully, develop and
bring to market new products at competitive costs, achieve
design wins or respond effectively to new technological changes
or product announcements by our competitors. Furthermore, we may
not be successful in developing or using new technologies or in
developing new products or product enhancements that achieve
market acceptance. Our pursuit of necessary technological
advances may require substantial time and expense. Failure in
any of these areas could harm our business, operating results
and financial condition and potentially impair the
$20.3 million assigned to goodwill.

We do not typically enter into long-term
contracts with our customers and we cannot be certain as to
future order levels from our customers.

The composition of our major customer base
changes as the market demand for our customers products
change. A small number of customers have accounted for a
substantial portion of our sales. A reduction, delay,

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or cancellation of orders from a large customer
could harm our business. The loss of, or reduced orders by, any
of our key customers could result in a significant decline in
our sales.


We depend on distributors and
manufacturers representatives to generate a majority of
our sales.

Distributors serve as a channel of sale to many
end users of our products. Our distributors and
manufacturers representatives could discontinue selling
our products at any time. The loss of any significant
distributor or manufacturers representative could
seriously harm our operating results by impairing our ability to
sell our products.

Our backlog may not result in future revenue,
which would seriously harm our business.

Due to possible customer changes in delivery
schedules and cancellations of orders, our backlog at any
particular date is not necessarily indicative of actual sales
for any succeeding period. A reduction of backlog during any
particular period, or the failure of our backlog to result in
future revenue, could harm our business.

Our dependence on third-party foundries to
manufacture our products and on subcontractors to sort, assemble
and test our products and ship our products to customers
subjects us to a number of risks.

We out-source all manufacturing operations to
subcontractors located in Asia and Europe. Our reliance on
third-party foundries and subcontractors to manufacture, sort,
assemble and test our products and to ship our products to
customers involves the following significant risks:



| |   |                                                                                           
| | - | ------------------------------------------------------------------------------------------
| |  | reduced control over delivery schedules and
    quality;                                  
|
| |  | the potential lack of adequate capacity,
    particularly during periods of strong demand;
|
| |  | difficulties selecting and integrating new
    foundries and subcontractors;              
|
| |  | limited warranties by third-party manufacturers
    on products supplied to us; and       
|
| |  | potential increases in product costs due to
    capacity shortages and other factors.     

These risks may lead to a possible loss of sales,
increased costs, delayed product delivery or loss of competitive
advantage, which would harm our profitability and customer
relationships. Additionally, as we shift manufacturing of
existing products between foundries and third-party
subcontractors, certain customers require requalification of
such products prior to accepting delivery. Delays in customer
qualification schedules or lack of qualification of such
products could result in the loss of sales, which could
seriously harm our operating results.

The selling prices for our products are
volatile and have historically declined over the life of a
product. In addition, the cyclical nature of the semiconductor
industry produces fluctuations in our operating
results.

The semiconductor industry has historically been
cyclical, characterized by wide fluctuations in product supply
and demand. From time to time, the industry has also experienced
significant downturns, often in connection with, or in
anticipation of, maturing product cycles and declines in general
economic conditions. Downturns are generally characterized by
diminished product demand, production over-capacity and
accelerated decline of average selling prices, and in some cases
have lasted for more than one year. Our success depends, in
part, on the supply and demand balance within the industry and
the various electronics industries that use semiconductors,
including networking, communications and industrial companies,
returning to more normal buying patterns.

Our future success depends in part on the
continued services of our key design, engineering, sales,
marketing and executive personnel and our ability to identify,
recruit and retain qualified personnel.

There is significant competition for qualified
personnel in the semiconductor industry, in particular for the
highly skilled engineers involved in the design and development
of our mixed-signal products. At times competition has been
especially intense in Silicon Valley, where our design, research
and development, and

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corporate headquarters are located. The failure
to recruit and retain key design engineers or other technical
and management personnel would likely harm our business.


We may fail to successfully integrate our
business and technologies with those of the company that we
recently acquired.

We completed the acquisition of Poweready, Inc.
in October 2003. If we fail to integrate this business
successfully or properly, our quarterly and annual results may
be seriously harmed. Integrating people, technology, products
and services with our existing business could be expensive,
time-consuming and a strain on our resources. Specific issues
that we face with regard to our acquisition include the
difficulty of integrating acquired technology, the need to
integrate and coordinate geographically separated organizations,
the potential disruption of our ongoing business and distraction
of management, the failure to successfully develop acquired
technology resulting in the impairment of amounts capitalized as
intangible assets, unanticipated expenses related to technology
integration and the potential unknown liabilities associated
with the acquired business.

Our operating expenses are relatively fixed,
and we order materials in advance of anticipated customer
demand. Therefore, we have limited ability to reduce expenses
quickly in response to any revenue shortfalls.

Our operating expenses are relatively fixed, and
we therefore have limited ability to reduce expenses quickly in
response to any revenue shortfalls. Consequently, our operating
results will be harmed if our sales do not meet our revenue
projections. Revenue shortfalls can occur for any of the
following reasons: economic slowdowns in the markets we
serve; significant pricing pressures that occur because of
declines in selling prices over the life of a product; the
reduction, rescheduling or cancellation of customer orders; and
sudden shortages of raw materials or fabrication, sort, test or
assembly capacity constraints that lead our suppliers to
allocate available supplies or capacity to other customers
which, in turn, harms our ability to meet our sales obligations.

In addition, we typically plan our production and
inventory levels based on internal forecasts of customer demand,
which are highly unpredictable and can fluctuate substantially.
From time to time, in response to anticipated long lead times to
obtain inventory and materials from our outside suppliers and
foundries, we order materials and produce finished products in
advance of anticipated customer demand. This advance ordering
and production has resulted in, and may continue to result in,
excess inventory levels or inventory write-downs if expected
orders fail to materialize or prices decrease substantially.

We presently have minimum wafer purchase
commitments with a foundry that were made in exchange for a
capacity commitment from them. Should demand for our products be
less than the capacity commitment, we may be required to make
payments for unused capacity which would cause our costs to
increase.

Because our products typically have lengthy
sales cycles, we may experience substantial delays between
incurring expenses related to research and development and the
generation of sales.

Due to the length of the product design-in cycle,
we usually require more than nine months to realize volume
shipments after a customer first samples our product. We first
work with customers to achieve a design win, which may take
three months or longer. Our customers then complete the design,
testing and evaluation process and begin to ramp up production,
a period which typically lasts an additional six months or
longer. As a result, a significant period of time may elapse
between our research and development efforts and our realization
of revenue, if any, from volume purchasing of our products by
our customers.

We face intense competition from companies
with significantly greater financial, technical and marketing
resources that could adversely affect sales of our
products.

We compete with major semiconductor companies
such as Analog Devices, Atmel Corporation, Linear Technology
Corporation and Maxim Integrated Products, that have
substantially greater financial, technical, marketing,
distribution and other resources than we do and have their own
facilities for the production of

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semiconductor components. In addition, our
foundry partners have the right to develop and fabricate
products based on our process technology.


From time to time, we may have to defend
lawsuits in connection with the operation of our
business.

We are subject to litigation in the ordinary
course of our business. If we do not prevail in any lawsuit
which may occur we could be subject to significant liability for
damages, our patents and other proprietary rights could be
invalidated, and we could be subject to injunctions preventing
us from taking certain actions. If any of the above occurs, our
business and financial position could be harmed.

Our cost of sales may increase if we are
required to purchase additional manufacturing capacity in the
future.

To obtain additional manufacturing capacity in
the future, we may be required to make deposits, equipment
purchases and loans and enter into joint ventures, equity
investments or technology licenses in or with wafer fabrication
companies. These transactions could involve a commitment of
substantial amounts of our capital and technology licenses in
return for production capacity. We may be required to seek
additional debt or equity financing in order to secure this
capacity and we may not be able to obtain such financing.

Our ability to compete successfully will
depend, in part, on our ability to protect our intellectual
property rights, which we may not be able to do
successfully.

We rely on a combination of patents, trade
secrets, copyright and mask work production laws and rights,
nondisclosure agreements and other contractual provisions and
technical measures to protect our intellectual property rights.
Our business, operating results and financial condition could be
seriously harmed by the failure to be able to protect our
intellectual property. Policing unauthorized use of our
intellectual property, however, is difficult, especially in
foreign countries. Litigation may be necessary to enforce our
intellectual property rights, to protect our trade secrets, to
determine the validity and scope of the proprietary rights of
others, or to defend against claims of infringement or
invalidity. Litigation of this type can result in substantial
costs and diversion of resources and can harm our business,
operating results and financial condition regardless of the
outcome of the litigation.

If we or any of our foundries or third-party
subcontractors is accused of infringing the intellectual
property rights of other parties, we may become subject to
time-consuming and costly litigation. If we lose or settle
claims, we could suffer a significant negative impact on our
business and be forced to pay royalties and damages.

Third parties have and may continue to assert
that our products infringe their proprietary rights, or may
assert claims for indemnification resulting from infringement
claims against us. Any such claims may cause us to delay or
cancel shipment of our products or pay royalties and damages
that could seriously harm our business, financial condition and
results of operations. In addition, irrespective of the validity
or the successful assertion of such claims, we could incur
significant costs in defending against such claims.

We have received notices claiming infringement of
patents from third parties with respect to certain aspects of
our processes and devices, and these matters are under
investigation and review. Although patent holders typically
offer licenses and we have entered into such license agreements
in the past, we may not be able to obtain licenses on acceptable
terms, and disputes may not be resolved without costly
litigation.

Our business may suffer due to risks
associated with international sales and operations.

Sales outside of North America, based upon the
location to which the product was shipped, accounted for
approximately 66% of total net sales in 2003. Our international
business activities are subject to a number of risks, any of
which could impose unexpected costs on us that would have an
adverse effect on our operating results. These risks include
difficulties in complying with regulatory requirements and
standards; tariffs and other trade barriers; costs and risks of
localizing products for foreign countries; severe currency
fluctuations and economic deflation; reliance on third parties
to distribute our products; longer accounts receivable

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payment cycles; potentially adverse tax
consequences; and burdens of complying with a wide variety of
foreign laws.


We may require additional capital in order to
bring new products to market, and the issuance of new equity
securities will dilute your investment in our common
stock.

To implement our strategy of diversified product
offerings, we need to bring new products to market. Bringing new
products to market and ramping up production requires
significant working capital. We may sell additional shares of
our stock or seek additional borrowings or outside capital
infusions. We cannot assure you that such financing options will
be available on terms acceptable to us, if at all. In addition,
if we issue shares of our common stock, our shareholders will
experience dilution of their investment.

Changes in stock option accounting rules may
adversely impact our operating results prepared in accordance
with generally accepted accounting principles.

Technology companies like ours have a history of
using broad based employee stock option programs to hire,
incentivize and retain our workforce in a competitive
marketplace. Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based
Compensation, allows companies the choice of either using
a fair value method of accounting for options which would result
in expense recognition for all options granted, or using an
intrinsic value method, as prescribed by Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25), with a pro forma disclosure of
the impact on net income (loss) of using the fair value
option expense recognition method. We have elected to apply APB
25 and accordingly we generally do not recognize any expense
with respect to employee stock options as long as such options
are granted at exercise prices equal to the fair value of our
common stock on the date of grant.

On March 12, 2003, the Financial Accounting
Standards Board (FASB) announced its plans to re-deliberate the
appropriate accounting for employee stock options with a goal to
have one standard applicable to all companies. The FASB expects
to have the new standard become effective sometime in 2005. If
the FASB requires expensing of employee stock options by all
companies, our results of operations prepared in accordance with
generally accepted accounting principles would be adversely
impacted.

Business interruptions could harm our
business.

Our operations and those of our foundries and
other manufacturing subcontractors are vulnerable to
interruption by fire, earthquake, power loss, telecommunications
failure and other events beyond our control. Business
interruption insurance may not provide protection due to the
deductible periods or be enough to compensate us for losses that
may occur. Additionally, we have been unable to obtain
earthquake insurance of reasonable costs and limits.






|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    About Market Risk

We do not use derivative financial instruments in
our investment portfolio. We have an investment portfolio of
fixed income securities that are classified as
available-for-sale securities. These securities,
like all fixed income instruments, are subject to interest rate
risk and will fall in value if market interest rates increase.
We attempt to limit this exposure by investing primarily in
short-term securities. Due to the short duration and
conservative nature of our investment portfolio a movement of
10% by market interest rates would not have a material impact on
our operating results and the total value of the portfolio over
the next fiscal year.

We are exposed to risks associated with foreign
exchange rate fluctuations due to our international
manufacturing and sales activities. We generally have not hedged
currency exposures. These exposures may change over time as
business practices evolve and could negatively impact our
operating results and financial condition. All of our sales are
denominated in U.S. dollars. An increase in the value of
the U.S. dollar relative to foreign currencies could make our
products more expensive and therefore reduce the demand for our
products. Such a decline in the demand could reduce sales and/or
result in operating losses.

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|        |                                                             
|------- | ------------------------------------------------------------
|Item 8. | Consolidated Financial Statements and
    Supplementary Data

XICOR, INC.

CONSOLIDATED BALANCE SHEETS

|                                                                         |                                                                                                            |                           |        |          |        |   |        |          |        | 
|------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------- | ------------------------- | ------ | -------- | ------ | - | ------ | -------- | ------ | 
|                                                                         |                                                                                                            |                          
|                                                                         |                                                                                                            | December 31,             
|                                                                         |                                                                                                            |                          
|                                                                         |                                                                                                            | 2003                      |        | 2002    
|                                                                         |                                                                                                            |                           |        |         
|                                                                         |                                                                                                            |                          
|                                                                         |                                                                                                            | (In thousands)           
|ASSETS                                                                  
|Current assets:                                                          |                                                                                                            |                           |        |          |        |   |        |         
|                                                                         | Cash and cash equivalents                                                                                  |                           | $      | 9,213    |        |   | $      | 32,648   |       
|                                                                         | Short-term investments                                                                                     |                           |        | 13,107   |        |   |        | 4,648    |       
|                                                                         | Accounts receivable, net                                                                                   |                           |        | 5,268    |        |   |        | 4,606    |       
|                                                                         | Inventories                                                                                                |                           |        | 3,123    |        |   |        | 4,939    |       
|                                                                         | Prepaid expenses and other current assets                                                                  |                           |        | 409      |        |   |        | 539      |       
|                                                                         |                                                                                                            |                           |        |          |        |   |        |         
|                                                                         |                                                                                                            | Total current assets      |        |          | 31,120 |   |        |          | 47,380 | 
|Long-term investments                                                    |                                                                                                            |                           |       |          |        |   | 1,085  |         
|Property, plant and equipment, at cost less
    accumulated depreciation |                                                                                                            |                           | 2,603  |          |        |   | 3,041  |         
|Goodwill                                                                 |                                                                                                            |                           | 20,278 |          |        |   | 10,762 |         
|Purchased intangible assets, net                                         |                                                                                                            |                           | 4,487  |          |        |   | 2,062  |         
|Other assets                                                             |                                                                                                            |                           | 172    |          |        |   | 2,766  |         
|                                                                         |                                                                                                            |                           |        |          |        |   |        |         
|Total assets                                                             |                                                                                                            | $                         | 58,660 |          |        | $ | 67,096 |         
|                                                                         |                                                                                                            |                           |        |          |        |   |        |         
|LIABILITIES AND SHAREHOLDERS
    EQUITY                                
|Current liabilities:                                                     |                                                                                                            |                           |        |          |        |   |        |         
|                                                                         | Accounts payable                                                                                           |                           | $      | 4,786    |        |   | $      | 6,215    |       
|                                                                         | Accrued expenses                                                                                           |                           |        | 5,406    |        |   |        | 6,136    |       
|                                                                         | Deferred income on shipments to distributors                                                               |                           |        | 3,175    |        |   |        | 5,762    |       
|                                                                         | Current portion of long-term obligations                                                                   |                           |        | 246      |        |   |        | 432      |       
|                                                                         |                                                                                                            |                           |        |          |        |   |        |         
|                                                                         |                                                                                                            | Total current liabilities |        |          | 13,613 |   |        |          | 18,545 | 
|Convertible subordinated notes                                           |                                                                                                            |                           |       |          |        |   | 32,506 |         
|Long-term obligations                                                    |                                                                                                            |                           | 274    |          |        |   | 470    |         
|                                                                         |                                                                                                            |                           |        |          |        |   |        |         
|Total liabilities                                                        |                                                                                                            |                           | 13,887 |          |        |   | 51,521 |         
|                                                                         |                                                                                                            |                           |        |          |        |   |        |         
|Commitments and contingencies (Notes 4, 5 and 11)                        |                                                                                                            |                           |        |          |        |   |        |         
|Shareholders equity:                                                    |                                                                                                            |                           |        |          |        |   |        |         
|                                                                         | Preferred stock, no par value; 5,000 shares
    authorized; none issued or outstanding                     |                           |        |         |        |   |        |         |       
|                                                                         | Common stock, no par value; 200,000 shares
    authorized; 28,809 and 23,737 shares issued and outstanding |                           |        | 175,985  |        |   |        | 149,216  |       
|                                                                         | Accumulated deficit                                                                                        |                           |        | (131,212 | )      |   |        | (133,641 | )     
|                                                                         |                                                                                                            |                           |        |          |        |   |        |         
|Total shareholders equity                                               |                                                                                                            |                           | 44,773 |          |        |   | 15,575 |         
|                                                                         |                                                                                                            |                           |        |          |        |   |        |         
|Total liabilities and shareholders equity                               |                                                                                                            | $                         | 58,660 |          |        | $ | 67,096 |         
|                                                                         |                                                                                                            |                           |        |          |        |   |        |         

See accompanying notes to consolidated financial
statements.

28



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##### Table of Contents



XICOR, INC.

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                      |                                             |                           |        |        |  |      |         |        |   |   |         |        |  
|------------------------------------- | ------------------------------------------- | ------------------------- | ------ | ------ |  | ---- | ------- | ------ | - | - | ------- | ------ | -
|                                      |                                             |                          
|                                      |                                             | Year Ended December 31,  
|                                      |                                             |                          
|                                      |                                             | 2003                      |        | 2002   |  | 2001
|                                      |                                             |                           |        |        |  |     
|                                      |                                             |                          
|                                      |                                             | (In thousands,           
|                                      |                                             | except per share amounts)
|Net sales                             |                                             | $                         | 41,448 |        |  | $    | 38,534  |        |   | $ | 70,073  |       
|Cost of sales                         |                                             |                           | 18,779 |        |  |      | 19,076  |        |   |   | 45,100  |       
|                                      |                                             |                           |        |        |  |      |         |        |   |   |         |       
|                                      | Gross profit                                |                           |        | 22,669 |  |      |         | 19,458 |   |   |         | 24,973 |  
|                                      |                                             |                           |        |        |  |      |         |        |   |   |         |       
|Operating expenses:                   |                                             |                           |        |        |  |      |         |        |   |   |         |       
|                                      | Research and development                    |                           |        | 10,811 |  |      |         | 13,056 |   |   |         | 13,613 |  
|                                      | Selling, general and administrative         |                           |        | 10,419 |  |      |         | 11,033 |   |   |         | 18,235 |  
|                                      | Restructuring and facilities charge         |                           |        |       |  |      |         | 1,936  |   |   |         | 3,205  |  
|                                      | Amortization of purchased intangible assets |                           |        | 1,135  |  |      |         | 739    |   |   |         |       |  
|                                      | In-process research and development         |                           |        |       |  |      |         | 1,800  |   |   |         |       |  
|                                      |                                             |                           |        |        |  |      |         |        |   |   |         |       
|                                      |                                             |                           | 22,365 |        |  |      | 28,564  |        |   |   | 35,053  |       
|                                      |                                             |                           |        |        |  |      |         |        |   |   |         |       
|Income (loss) from operations         |                                             |                           | 304    |        |  |      | (9,106  | )      |   |   | (10,080 | )     
|Interest expense                      |                                             |                           | (959   | )      |  |      | (3,259  | )      |   |   | (524    | )     
|Interest income                       |                                             |                           | 366    |        |  |      | 789     |        |   |   | 1,237   |       
|Other income and (expense), net       |                                             |                           | 2,718  |        |  |      | (1,206  | )      |   |   |        |       
|                                      |                                             |                           |        |        |  |      |         |        |   |   |         |       
|Income (loss) before income taxes     |                                             |                           | 2,429  |        |  |      | (12,782 | )      |   |   | (9,367  | )     
|Provision for income taxes            |                                             |                           |       |        |  |      |        |        |   |   | 102     |       
|                                      |                                             |                           |        |        |  |      |         |        |   |   |         |       
|Net income (loss)                     |                                             | $                         | 2,429  |        |  | $    | (12,782 | )      |   | $ | (9,469  | )     
|                                      |                                             |                           |        |        |  |      |         |        |   |   |         |       
|Net income (loss) per share:          |                                             |                           |        |        |  |      |         |        |   |   |         |       
|                                      | Basic                                       |                           | $      | 0.09   |  |      | $       | (0.55  | ) |   | $       | (0.43  | )
|                                      |                                             |                           |        |        |  |      |         |        |   |   |         |       
|                                      | Diluted                                     |                           | $      | 0.08   |  |      | $       | (0.55  | ) |   | $       | (0.43  | )
|                                      |                                             |                           |        |        |  |      |         |        |   |   |         |       
|Shares used in per share calculation: |                                             |                           |        |        |  |      |         |        |   |   |         |       
|                                      | Basic                                       |                           |        | 26,413 |  |      |         | 23,265 |   |   |         | 21,803 |  
|                                      |                                             |                           |        |        |  |      |         |        |   |   |         |       
|                                      | Diluted                                     |                           |        | 29,101 |  |      |         | 23,265 |   |   |         | 21,803 |  
|                                      |                                             |                           |        |        |  |      |         |        |   |   |         |       

See accompanying notes to consolidated financial
statements.

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XICOR, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY

|                                              |  |                |        |             |  |         |         |       |  |   |          |   |  |   |         |  
|--------------------------------------------- |  | -------------- | ------ | ----------- |  | ------- | ------- | ----- |  | - | -------- | - |  | - | ------- | -
|                                              |  |                |        |             |  |        
|                                              |  | Common Stock   |        |             |  |        
|                                              |  |                |        | Accumulated |  |        
|                                              |  | Shares         |        | Amount      |  | Deficit |         | Total
|                                              |  |                |        |             |  |         |         |      
|                                              |  |               
|                                              |  | (In thousands)
|Balance at December 31, 2000                  |  |                | 21,466 |             |  | $       | 131,605 |       |  | $ | (111,390 | ) |  | $ | 20,215  |  
|Issuance of shares under employee stock plans |  |                | 873    |             |  |         | 2,648   |       |  |   |         |   |  |   | 2,648   |  
|Issuance of warrants                          |  |                |       |             |  |         | 3,522   |       |  |   |         |   |  |   | 3,522   |  
|Net loss                                      |  |                |       |             |  |         |        |       |  |   | (9,469   | ) |  |   | (9,469  | )
|                                              |  |                |        |             |  |         |         |       |  |   |          |   |  |   |         |  
|Balance at December 31, 2001                  |  |                | 22,339 |             |  |         | 137,775 |       |  |   | (120,859 | ) |  |   | 16,916  |  
|Issuance of shares under employee stock plans |  |                | 385    |             |  |         | 1,259   |       |  |   |         |   |  |   | 1,259   |  
|Issuance of shares for acquisition of AIP     |  |                | 1,013  |             |  |         | 10,182  |       |  |   |         |   |  |   | 10,182  |  
|Net loss                                      |  |                |       |             |  |         |        |       |  |   | (12,782  | ) |  |   | (12,782 | )
|                                              |  |                |        |             |  |         |         |       |  |   |          |   |  |   |         |  
|Balance at December 31, 2002                  |  |                | 23,737 |             |  |         | 149,216 |       |  |   | (133,641 | ) |  |   | 15,575  |  
|Issuance of shares under employee stock plans |  |                | 1,236  |             |  |         | 4,237   |       |  |   |         |   |  |   | 4,237   |  
|Issuance of shares for repurchase of notes    |  |                | 2,889  |             |  |         | 13,106  |       |  |   |         |   |  |   | 13,106  |  
|Issuance of shares for acquisition of PRI     |  |                | 947    |             |  |         | 9,426   |       |  |   |         |   |  |   | 9,426   |  
|Net income                                    |  |                |       |             |  |         |        |       |  |   | 2,429    |   |  |   | 2,429   |  
|                                              |  |                |        |             |  |         |         |       |  |   |          |   |  |   |         |  
|Balance at December 31, 2003                  |  |                | 28,809 |             |  | $       | 175,985 |       |  | $ | (131,212 | ) |  | $ | 44,773  |  
|                                              |  |                |        |             |  |         |         |       |  |   |          |   |  |   |         |  

See accompanying notes to consolidated financial
statements.

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XICOR, INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                         |                                                                                          |                                                                         |                                              |         |        |        |         |         |        |        |        |        |        |        |  
|-------------------------------------------------------- | ---------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | -------------------------------------------- | ------- | ------ | ------ | ------- | ------- | ------ | ------ | ------ | ------ | ------ | ------ | -
|                                                         |                                                                                          |                                                                        
|                                                         |                                                                                          | Year Ended December 31,                                                
|                                                         |                                                                                          |                                                                        
|                                                         |                                                                                          | 2003                                                                    |                                              | 2002    |        | 2001  
|                                                         |                                                                                          |                                                                         |                                              |         |        |       
|                                                         |                                                                                          |                                                                        
|                                                         |                                                                                          | (In thousands)                                                         
|Cash flows from operating activities:                    |                                                                                          |                                                                         |                                              |         |        |        |         |         |        |        |        |       
|                                                         | Net income (loss)                                                                        |                                                                         | $                                            | 2,429   |        |        | $       | (12,782 | )      |        | $      | (9,469 | )     
|                                                         | Adjustments to reconcile net income
    (loss) to cash provided by operating activities: |                                                                         |                                              |         |        |        |         |         |        |        |        |        |       
|                                                         |                                                                                          | Depreciation                                                            |                                              |         | 1,421  |        |         |         | 2,645  |        |        |        | 3,925  |       
|                                                         |                                                                                          | Amortization of purchased intangibles                                   |                                              |         | 1,135  |        |         |         | 739    |        |        |        |       |       
|                                                         |                                                                                          | Amortization of debt issuance costs and warrants                        |                                              |         | 353    |        |         |         | 1,216  |        |        |        | 140    |       
|                                                         |                                                                                          | Amortization of fab gain                                                |                                              |         |       |        |         |         | (2,082 | )      |        |        | (2,518 | )     
|                                                         |                                                                                          | Write off of purchased in-process research and
    development          |                                              |         |       |        |         |         | 1,800  |        |        |        |       |       
|                                                         |                                                                                          | Loss on impairment of investment                                        |                                              |         |       |        |         |         | 2,500  |        |        |        |       |       
|                                                         |                                                                                          | Gain on repurchase of convertible notes                                 |                                              |         | (2,718 | )      |         |         |       |        |        |        |       |       
|                                                         |                                                                                          | Non-cash restructuring charge                                           |                                              |         |       |        |         |         | 473    |        |        |        | 1,249  |       
|                                                         |                                                                                          | Changes in assets and liabilities, net of effects
    from acquisition: |                                              |         |        |        |         |         |        |        |        |        |        |       
|                                                         |                                                                                          |                                                                         | Accounts receivable                          |         |        | (620   | )       |         |        | (968   | )      |        |        | 7,311  |  
|                                                         |                                                                                          |                                                                         | Inventories                                  |         |        | 2,174  |         |         |        | 4,465  |        |        |        | 4,976  |  
|                                                         |                                                                                          |                                                                         | Prepaid expenses and other current assets    |         |        | 136    |         |         |        | (347   | )      |        |        | 447    |  
|                                                         |                                                                                          |                                                                         | Other assets                                 |         |        | 123    |         |         |        | (109   | )      |        |        | 19     |  
|                                                         |                                                                                          |                                                                         | Accounts payable and accrued expenses        |         |        | (3,409 | )       |         |        | (5,479 | )      |        |        | (6,256 | )
|                                                         |                                                                                          |                                                                         | Deferred income on shipments to distributors |         |        | (2,587 | )       |         |        | (4,703 | )      |        |        | (3,793 | )
|                                                         |                                                                                          |                                                                         |                                              |         |        |        |         |         |        |        |        |       
|Net cash used in operating activities                    |                                                                                          |                                                                         | (1,563                                       | )       |        |        | (12,632 | )       |        |        | (3,969 | )     
|                                                         |                                                                                          |                                                                         |                                              |         |        |        |         |         |        |        |        |       
|Cash flows from investing activities:                    |                                                                                          |                                                                         |                                              |         |        |        |         |         |        |        |        |       
|                                                         | Purchase of investments                                                                  |                                                                         |                                              | (17,334 | )      |        |         | (6,733  | )      |        |        |       |       
|                                                         | Sales or maturities of investments                                                       |                                                                         |                                              | 9,960   |        |        |         | 1,000   |        |        |        |       |       
|                                                         | Investments in plant and equipment, net                                                  |                                                                         |                                              | (889    | )      |        |         | (936    | )      |        |        | (262   | )     
|                                                         | Investment in Standard MEMS                                                              |                                                                         |                                              |        |        |        |         |        |        |        |        | (2,500 | )     
|                                                         | Acquisition of Analog Integration Partners LLC                                           |                                                                         |                                              |        |        |        |         | (5,000  | )      |        |        |       |       
|                                                         | Acquisition of Poweready, Inc., net of cash
    acquired                                 |                                                                         |                                              | (2,973  | )      |        |         |        |        |        |        |       |       
|                                                         |                                                                                          |                                                                         |                                              |         |        |        |         |         |        |        |        |       
|Net cash used in investing activities                    |                                                                                          |                                                                         | (11,236                                      | )       |        |        | (11,669 | )       |        |        | (2,762 | )     
|                                                         |                                                                                          |                                                                         |                                              |         |        |        |         |         |        |        |        |       
|Cash flows from financing activities:                    |                                                                                          |                                                                         |                                              |         |        |        |         |         |        |        |        |       
|                                                         | Repayments of long-term obligations                                                      |                                                                         |                                              | (449    | )      |        |         | (677    | )      |        |        | (871   | )     
|                                                         | Proceeds from sale of common stock, net of
    issuance costs, to employees and others   |                                                                         |                                              | 4,237   |        |        |         | 1,259   |        |        |        | 2,648  |       
|                                                         | Proceeds from issuance of convertible
    subordinated notes and warrants                |                                                                         |                                              |        |        |        |         |        |        |        |        | 32,200 |       
|                                                         | Repurchase of convertible notes                                                          |                                                                         |                                              | (14,424 | )      |        |         |        |        |        |        |       |       
|                                                         |                                                                                          |                                                                         |                                              |         |        |        |         |         |        |        |        |       
|Net cash provided by (used in) financing
    activities  |                                                                                          |                                                                         | (10,636                                      | )       |        |        | 582     |         |        |        | 33,977 |       
|                                                         |                                                                                          |                                                                         |                                              |         |        |        |         |         |        |        |        |       
|Increase (decrease) in cash and cash
    equivalents     |                                                                                          |                                                                         | (23,435                                      | )       |        |        | (23,719 | )       |        |        | 27,246 |       
|Cash and cash equivalents at beginning of year           |                                                                                          |                                                                         | 32,648                                       |         |        |        | 56,367  |         |        |        | 29,121 |       
|                                                         |                                                                                          |                                                                         |                                              |         |        |        |         |         |        |        |        |       
|Cash and cash equivalents at end of year                 |                                                                                          | $                                                                       | 9,213                                        |         |        | $      | 32,648  |         |        | $      | 56,367 |       
|                                                         |                                                                                          |                                                                         |                                              |         |        |        |         |         |        |        |        |       
|Supplemental information:                                |                                                                                          |                                                                         |                                              |         |        |        |         |         |        |        |        |       
|Cash paid (refunded) during the year for:                |                                                                                          |                                                                         |                                              |         |        |        |         |         |        |        |        |       
|                                                         | Interest expense                                                                         |                                                                         | $                                            | 821     |        |        | $       | 2,050   |        |        | $      | 178    |       
|                                                         | Income taxes                                                                             |                                                                         |                                              | (4      | )      |        |         | 3       |        |        |        | (15    | )     
|Equipment acquired pursuant to long-term
    obligations |                                                                                          |                                                                         |                                             |         |        |        |        |         |        |        | 969    |       
|Common stock issued for acquisition                      |                                                                                          |                                                                         | 9,426                                        |         |        |        | 10,182  |         |        |        |       |       
|Common stock issued for repurchase of notes              |                                                                                          |                                                                         | 13,106                                       |         |        |        |        |         |        |        |       |       

See accompanying notes to consolidated financial
statements.

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XICOR, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

Note 1  The Company and Its
Significant Accounting Policies:

Xicor, Inc. (Xicor) is a fabless semiconductor
company that designs, markets and sells programmable
mixed-signal and nonvolatile memory semiconductor devices.

We operate in one reportable segment based on our
internal organization. Our sales are derived from two product
groups, mixed-signal products and memory products. Mixed-signal
product sales represent our core market. Memory product sales
comprise our legacy businesses of serial EEPROMs, which we
substantially exited in 2002, and parallel EEPROMs, which
business we are retaining. Annual sales by product group were:

|                              |  |               |    |      |  |      |    |  |  |   |    | 
|----------------------------- |  | ------------- | -- | ---- |  | ---- | -- |  |  | - | -- | 
|                              |  |              
|                              |  | Year Ended   
|                              |  | December 31, 
|                              |  |              
|                              |  | 2003          |    | 2002 |  | 2001
|                              |  |               |    |      |  |     
|                              |  |              
|                              |  | (In millions)
|Mixed-signal product sales    |  | $             | 31 |      |  | $    | 25 |  |  | $ | 35 | 
|Parallel EEPROM product sales |  |               | 8  |      |  |      | 10 |  |  |   | 19 | 
|Serial EEPROM product sales   |  |               | 2  |      |  |      | 4  |  |  |   | 16 | 
|                              |  |               |    |      |  |      |    |  |  |   |    | 
|Total sales                   |  | $             | 41 |      |  | $    | 39 |  |  | $ | 70 | 
|                              |  |               |    |      |  |      |    |  |  |   |    | 

Sales by geographic region, based on the location
to which the product was shipped, were as follows:

|              |  |               |    |      |  |      |    |  |  |   |    | 
|------------- |  | ------------- | -- | ---- |  | ---- | -- |  |  | - | -- | 
|              |  |              
|              |  | Year Ended   
|              |  | December 31, 
|              |  |              
|              |  | 2003          |    | 2002 |  | 2001
|              |  |               |    |      |  |     
|              |  |              
|              |  | (In millions)
|North America |  | $             | 14 |      |  | $    | 14 |  |  | $ | 32 | 
|Asia Pacific  |  |               | 18 |      |  |      | 14 |  |  |   | 14 | 
|Europe        |  |               | 9  |      |  |      | 11 |  |  |   | 24 | 
|              |  |               |    |      |  |      |    |  |  |   |    | 
|Total sales   |  | $             | 41 |      |  | $    | 39 |  |  | $ | 70 | 
|              |  |               |    |      |  |      |    |  |  |   |    | 

One distributor accounted for 25% of total net
sales in 2003, 28% in 2002 and 23% in 2001. Another distributor
accounted for 14% of total sales in 2003 and 15% in 2002.
Distributors are not themselves end users of our products, but
rather serve as a channel of sale to many end users of our
products. During 2003, purchases by one contract manufacturer
accounted for 10% of our sales.

We have adopted generally accepted accounting
principles that are customary in the industry in which we
operate. Following are our significant accounting policies:



| |            
| | -----------
| | Fiscal Year

Our fiscal year ends on the Sunday nearest
December 31. For purposes of financial statement
presentation, each fiscal year is deemed to have ended on
December 31. Fiscal years 2003, 2002, and 2001 each
consisted of 52 weeks.



| |                      
| | ---------------------
| | Basis of Presentation

The consolidated financial statements include the
accounts of Xicor and our wholly-owned subsidiaries. Significant
intercompany accounts and transactions have been eliminated.

The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.

32



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##### Table of Contents





| |                 
| | ----------------
| | Cash Equivalents

Highly liquid investments with maturities of
three months or less at the time of purchase are considered cash
equivalents.



| |            
| | -----------
| | Investments

All investments are classified as
available-for-sale. Investments in available-for-sale securities
are reported at fair value with unrealized gains and losses, net
of related tax, as a component of stockholders equity.
Unrealized gains and losses net of related tax were not material
at December 31, 2003 or 2002.



| |                              
| | -----------------------------
| | Concentrations of Credit Risk

Financial instruments that potentially subject us
to concentrations of credit risk consist principally of cash,
cash equivalents, investments and accounts receivable. Our
investment policy requires cash, cash equivalents and
investments to be placed with high-credit quality institutions
and specifies concentration limits according to investment type
and issuer.

Our accounts receivable are derived from sales to
original equipment manufacturers and distributors serving a
variety of industries located primarily in the United States,
Europe and Asia. At December 31, 2003 and 2002 we had an
allowance for doubtful accounts of $0.5 million. We perform
ongoing credit evaluations of our customers and to date have not
experienced any material losses. Bad debt expense in each of the
years ended December 31, 2003, 2002 and 2001 was less than
$0.1 million.



| |                             
| | ----------------------------
| | Concentration of Other Risks

The semiconductor industry is characterized by
rapid technological change, competitive pricing pressures and
cyclical market patterns. Our financial results are affected by
a wide variety of factors, including general economic conditions
worldwide, economic conditions specific to the semiconductor
industry, the timely implementation of new manufacturing process
technologies and the ability to safeguard patents and
intellectual property in a rapidly evolving market. In addition,
the semiconductor market has historically been cyclical and
subject to significant economic downturns at various times. As a
result, we may experience significant period-to-period
fluctuations in future operating results due to the factors
mentioned above or other factors. We believe that our existing
sources of liquidity, including our cash, cash equivalents and
investments, will be adequate to support our operating and
capital investment activities for the next twelve months.



| |                                        
| | ---------------------------------------
| | Fair Value of Financial
    Instruments

We measure our financial assets and liabilities
in accordance with generally accepted accounting principles. For
financial instruments, including cash and cash equivalents,
short-term investments, accounts receivable, accounts payable
and accrued expenses, the carrying amounts approximate fair
value due to their short maturities. The amounts shown for
long-term obligations also approximate fair value.



| |            
| | -----------
| | Inventories

Inventories are stated at the lower of cost or
market. Cost is determined using the first-in, first-out basis
for raw materials and supplies, and a standard cost basis (which
approximates first-in, first-out) for work in process and
finished goods.



| |                       
| | ----------------------
| | Property and Equipment

Depreciation for financial reporting purposes is
computed using the straight-line method and the assets
estimated useful lives, principally five years. Amortization of
leasehold improvements is computed over the shorter of the
remaining terms of the leases or the estimated useful lives of
the improvements.

33



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##### Table of Contents





| |                                   
| | ----------------------------------
| | Goodwill and Other
    Intangibles

Goodwill represents the excess of the purchase
price of net tangible and intangible assets acquired in business
combinations over their estimated fair value. Other intangibles
acquired in business combinations include developed technology,
customer contracts and relations, a non-compete agreement and
order backlog. In accordance with Statement of Financial
Accounting Standards No. 142, Goodwill and Other
Intangible Assets (SFAS 142), we do not amortize
goodwill, but instead evaluate it periodically to determine
whether events or circumstances have occurred indicating that
goodwill might be impaired. Identifiable intangible assets are
amortized using the straight-line method over their useful lives
which range from three months to five years.

In the fourth quarter of 2003, we completed the
annual impairment test of the goodwill recorded as a result of
the purchase of AIP and concluded that there was no impairment
of goodwill. However, there can be no assurance that future
goodwill impairment tests will not result in a charge to
earnings.



| |                  
| | -----------------
| | Long-lived Assets

We review long-lived assets for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. We review
the recoverability of our long-lived assets, such as fixed
assets, intangible assets and investments, when events or
changes in circumstances occur that indicate that the carrying
value of the asset or asset group may not be recoverable. The
assessment of possible impairment is based on our ability to
recover the carrying value of the asset or asset group from the
expected future pre-tax cash flows (undiscounted and without
interest charges) of the related operations. If these cash flows
are less than the carrying value of such asset, an impairment
loss is recognized for the difference between the estimated fair
value and carrying value. The measurement of impairment requires
management to estimate future cash flows and the fair value of
long-lived assets.



| |                    
| | -------------------
| | Revenue Recognition

Our customers include original equipment
manufacturers, distributors and contract manufacturers. We
recognize revenue from sales when the rights and risks of
ownership have passed to the customer, when persuasive evidence
of an arrangement exists, the product has been shipped, the
price is fixed or determinable and collection of the resulting
receivable is reasonably assured. Sales are reduced for
estimated returns and adjustments. Certain of our sales to
distributors are contractually subject to rights of return and
price concessions on unsold inventory. Because of frequent sales
price reductions on standard products, the distributors
return rights and rapid technological obsolescence in the
semiconductor industry, we defer recognition of such sales until
the distributors sell the inventory. From time to time we
terminate distributors, contractually eliminate their rights of
return and price concessions or obsolete parts in the
distribution channel. In such cases, we recognize revenue after
the distributors return rights lapse and the price is
fixed. Amounts billed to the distributors, net of estimated
price concessions, are included as accounts receivable and the
related gross profit is deferred and reflected as a current
liability until the revenue is recognized.



| |                  
| | -----------------
| | Advertising Costs

We expense all advertising costs as they are
incurred.



| |                   
| | ------------------
| | Product Warranties

In accordance with industry practice, we provide
a limited warranty for our devices against defects in materials
and workmanship for periods ranging from 90 days to one
year. We accrue for warranty costs based on historical trends in
product failure rates and the expected costs to provide warranty
replacements. The

34



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following table summarizes the activity related
to the product warranty liability during the year ended
December 31, 2003 (in thousands).


|                             |                                               |        |     |     |  
|---------------------------- | --------------------------------------------- | ------ | --- | --- | -
|                             |                                               | Amount
|                             |                                               |       
|Balance at December 31, 2002 |                                               | $      | 250 |    
|                             | Accrual for Warranties issued during the year |        |     | 54  |  
|                             | Warranty replacements                         |        |     | (56 | )
|                             |                                               |        |     |    
|Balance at December 31, 2003 |                                               | $      | 248 |    
|                             |                                               |        |     |    

As is customary in our industry, we commit to
indemnify our customers and selected business partners in
connection with certain intellectual property infringement
claims with respect to our products. Historically, we have not
incurred significant costs related to such indemnities.



| |                                                                
| | ---------------------------------------------------------------
| | Net Income (Loss) Per Share and
    Comprehensive Income (Loss)

Basic net income (loss) per share is
computed using the weighted average number of common shares
outstanding. Diluted net income (loss) per share is
computed using the weighted average number of common shares and
all dilutive potential common shares outstanding. The following
table sets forth the computation of basic and diluted net income
(loss) per share:

|         |                                                          |                                          |   |        |  |      |   |         |   |  |   |        |  
|-------- | -------------------------------------------------------- | ---------------------------------------- | - | ------ |  | ---- | - | ------- | - |  | - | ------ | -
|         |                                                          |                                         
|         |                                                          | Year Ended December 31,                 
|         |                                                          |                                         
|         |                                                          | 2003                                     |   | 2002   |  | 2001
|         |                                                          |                                          |   |        |  |     
|         |                                                          |                                         
|         |                                                          | (In thousands, except per share amounts)
|Basic:   |                                                          |                                          |   |        |  |      |   |         |   |  |   |       
|         | Net income (loss)                                        |                                          | $ | 2,429  |  |      | $ | (12,782 | ) |  | $ | (9,469 | )
|         |                                                          |                                          |   |        |  |      |   |         |   |  |   |       
|         | Weighted shares outstanding                              |                                          |   | 26,413 |  |      |   | 23,265  |   |  |   | 21,803 |  
|         |                                                          |                                          |   |        |  |      |   |         |   |  |   |       
|         | Basic EPS                                                |                                          | $ | 0.09   |  |      | $ | (0.55   | ) |  | $ | (0.43  | )
|         |                                                          |                                          |   |        |  |      |   |         |   |  |   |       
|Diluted: |                                                          |                                          |   |        |  |      |   |         |   |  |   |       
|         | Net income (loss)                                        |                                          | $ | 2,429  |  |      | $ | (12,782 | ) |  | $ | (9,469 | )
|         |                                                          |                                          |   |        |  |      |   |         |   |  |   |       
|         | Weighted shares outstanding                              |                                          |   | 26,413 |  |      |   | 23,265  |   |  |   | 21,803 |  
|         | Effect of dilutive securities                            |                                          |   | 2,688  |  |      |   |        |   |  |   |       |  
|         |                                                          |                                          |   |        |  |      |   |         |   |  |   |       
|         | Weighted average common and common equivalent
    shares |                                          |   | 29,101 |  |      |   | 23,265  |   |  |   | 21,803 |  
|         |                                                          |                                          |   |        |  |      |   |         |   |  |   |       
|         | Diluted  EPS                                            |                                          | $ | 0.08   |  |      | $ | (0.55   | ) |  | $ | (0.43  | )
|         |                                                          |                                          |   |        |  |      |   |         |   |  |   |       

Potential common shares consisting of
2.7 million stock options were the only reconciling items
between the number of shares used to calculate Basic EPS and
Diluted EPS for the year ended December 31, 2003.
Anti-dilutive weighted average shares of 0.7 million have
been excluded from the effect of diluted securities because the
options exercise prices were greater than the average
price of the common stock for the year ended December 31,
2003. Outstanding warrants to purchase 0.9 million shares
of common stock at $12.24 per share were also excluded from the
EPS computations for the year ended December 31, 2003 as
they were anti-dilutive. For the years ended December 31,
2002 and 2001, the number of shares used in the calculations of
both EPS amounts were the same since stock options aggregating
6,831,000 at a weighted average price of $4.85 per share and
4,984,000 at a weighted average price of $5.06 per share,
respectively, and warrants to purchase 1.0 million shares
of common stock at $12.24 per share were excluded as they were
antidilutive due to the net losses.

The net income (loss) for the periods
reported also represented the comprehensive income
(loss) for such periods.

35



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| |                             
| | ----------------------------
| | Accounting for Stock Options

In accordance with Statement of Financial
Accounting Standards No. 123, Accounting for
Stock-Based Compensation (SFAS 123), we apply
Accounting Principles Board Opinion No. 25 as interpreted
in Financial Accounting Standards Board Interpretation
No. 44 for purposes of accounting for employee stock
options. Because the exercise prices of our employee stock
options equal the market price of the underlying stock on the
date of grant, no compensation expense at time of grant is
recognized in the financial statements. We provide additional
pro forma disclosures as required under SFAS 123 in
Note 7. The following table summarizes the effect on net
income and earnings per share if we applied the fair value
provisions of SFAS 123 to stock-based employee compensation.

|                               |                                                               |                                 |        |        |   |      |         |        |   |   |         |        |  
|------------------------------ | ------------------------------------------------------------- | ------------------------------- | ------ | ------ | - | ---- | ------- | ------ | - | - | ------- | ------ | -
|                               |                                                               |                                
|                               |                                                               | Year Ended December 31,        
|                               |                                                               |                                
|                               |                                                               | 2003                            |        | 2002   |   | 2001
|                               |                                                               |                                 |        |        |   |     
|                               |                                                               |                                
|                               |                                                               | (In thousands, except per share
|                               |                                                               | amounts)                       
|Net income (loss), as reported |                                                               | $                               | 2,429  |        |   | $    | (12,782 | )      |   | $ | (9,469  | )     
|                               | Total pro forma stock-based employee compensation
    expense |                                 |        | (5,052 | ) |      |         | (4,410 | ) |   |         | (3,741 | )
|                               |                                                               |                                 |        |        |   |      |         |        |   |   |         |       
|Pro forma net income (loss)    |                                                               | $                               | (2,623 | )      |   | $    | (17,192 | )      |   | $ | (13,210 | )     
|                               |                                                               |                                 |        |        |   |      |         |        |   |   |         |       
|Net income (loss) per share:   |                                                               |                                 |        |        |   |      |         |        |   |   |         |       
|                               | Basic  as reported                                           |                                 | $      | 0.09   |   |      | $       | (0.55  | ) |   | $       | (0.43  | )
|                               |                                                               |                                 |        |        |   |      |         |        |   |   |         |       
|                               | Basic  pro forma                                             |                                 | $      | (0.10  | ) |      | $       | (0.74  | ) |   | $       | (0.61  | )
|                               |                                                               |                                 |        |        |   |      |         |        |   |   |         |       
|                               | Diluted  as reported                                         |                                 | $      | 0.08   |   |      | $       | (0.55  | ) |   | $       | (0.43  | )
|                               |                                                               |                                 |        |        |   |      |         |        |   |   |         |       
|                               | Diluted  pro forma                                           |                                 | $      | (0.10  | ) |      | $       | (0.74  | ) |   | $       | (0.61  | )
|                               |                                                               |                                 |        |        |   |      |         |        |   |   |         |       



| |                              
| | -----------------------------
| | New Accounting Pronouncements

In January 2003, the FASB issued FASB
Interpretation No. 46, Consolidation of Variable
Interest Entities, an Interpretation of
ARB No. 51 (FIN 46). FIN 46 requires
certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the
entity do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46
is effective immediately for all new variable interest entities
created or acquired after January 31, 2003. In December
2003, the FASB issued FIN 46R which supercedes FIN 46.
FIN 46R will be applicable to all non-SPEs created prior to
February 1, 2003 by Public Entities that are not small
business issuers at the end of the first interim or annual
reporting period ending after March 15, 2004. We believe
that the adoption of this standard will have no material impact
on our financial statements.

In December 2003, the SEC issued Staff Accounting
Bulletin (SAB) No. 104, Revenue Recognition, which
codifies, revises and rescinds certain sections of
SAB No. 101, Revenue Recognition, in order to make
this interpretive guidance consistent with current authoritative
accounting and auditing guidance and SEC rules and regulations.
The changes noted in SAB No. 104 did not have a
material effect on our consolidated results of operations,
consolidated financial position or consolidated cash flows.

Note 2 
Restructuring:

We have been transforming Xicor from a
manufacturer of commodity memory semiconductors into a fabless
semiconductor company focused on the high-performance analog and
mixed-signal segment of the semiconductor market. This effort
demanded comprehensive changes in virtually every element of the
company and, compounded by the weak overall economic and
industry-wide conditions in 2001 and 2002, resulted in
restructuring and other charges as the transformation took place.

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The following table summarizes the restructuring
reserve activity and associated asset write-off charges for the
three years ended December 31, 2003 (in thousands):

|                             |  |           |        |            |  |               |      |           |  |         |        |   |  |   |       |  |  |   |       | 
|---------------------------- |  | --------- | ------ | ---------- |  | ------------- | ---- | --------- |  | ------- | ------ | - |  | - | ----- |  |  | - | ----- | 
|                             |  | Employee  |        |            |  | Total         |      | Asset     |  |        
|                             |  | Severance |        | Facilities |  | Restructuring |      | Write-off |  | Total  
|                             |  | and Other |        | Charge     |  | Liability     |      | Charge    |  | Expense
|                             |  |           |        |            |  |               |      |           |  |        
|Balance at December 31, 2000 |  | $         | 2,537  |            |  | $             |     |           |  | $       | 2,537  |   |  |   |       |  |  |   |       | 
|(Utilized)                   |  |           | (3,802 | )          |  |               |     |           |  |         | (3,802 | ) |  |   |       |  |  |   |       | 
|Expense                      |  |           | 1,956  |            |  |               |     |           |  |         | 1,956  |   |  | $ | 1,249 |  |  | $ | 3,205 | 
|                             |  |           |        |            |  |               |      |           |  |         |        |   |  |   |       |  |  |   |       | 
|Balance at December 31, 2001 |  |           | 691    |            |  |               |     |           |  |         | 691    |   |  |   |       |  |  |   |       | 
|(Utilized)                   |  |           | (1,419 | )          |  |               | (17  | )         |  |         | (1,436 | ) |  |   |       |  |  |   |       | 
|Expense                      |  |           | 1,009  |            |  |               | 454  |           |  |         | 1,463  |   |  |   | 473   |  |  |   | 1,936 | 
|                             |  |           |        |            |  |               |      |           |  |         |        |   |  |   |       |  |  |   |       | 
|Balance at December 31, 2002 |  |           | 281    |            |  |               | 437  |           |  |         | 718    |   |  |   |       |  |  |   |       | 
|(Utilized)                   |  |           | (281   | )          |  |               | (437 | )         |  |         | (718   | ) |  |   |       |  |  |   |       | 
|Expense                      |  |           |       |            |  |               |     |           |  |         |       |   |  |   |       |  |  |   |       | 
|                             |  |           |        |            |  |               |      |           |  |         |        |   |  |   |       |  |  |   |       | 
|Balance at December 31, 2003 |  | $         |       |            |  | $             |     |           |  | $       |       |   |  |   |       |  |  |   |       | 
|                             |  |           |        |            |  |               |      |           |  |         |        |   |  |   |       |  |  |   |       | 

In the first quarter of 2001, we announced our
plan to exit from offering serial EEPROM memory products and
complete the move to fully outsourced test and assembly
operations. Accordingly, our first quarter 2001 results included
a $3.2 million restructuring charge and an
$8.2 million charge to cost of sales to write down
inventories to their net realizable value. The restructuring
charge included a $2.0 million accrual consisting of
$1.5 million of severance-related costs for an additional
reduction in our workforce of approximately 95 employees,
primarily in manufacturing, sales and support groups, and
$0.5 million of other restructuring-related costs. The
$1.2 million balance of the restructuring charge recorded
in the first quarter of 2001 related principally to the
write-off of leasehold improvements in the facility that was
vacated as a result of the restructuring plan.

During 2001, we reduced our workforce by
approximately 140 employees and utilized $3.1 million
of the restructuring reserve for related severance costs and
$0.7 million for other restructuring related costs. At
December 31, 2001, the restructuring accrual of
$0.7 million consisted of $0.4 million of severance
costs (including costs to reduce the workforce by approximately
10 employees primarily in sales and administrative groups)
and $0.3 million of other costs associated with vacated
sales offices.

In 2002, due to the ongoing weak industry
conditions, we implemented two additional reductions in force
that affected employees in all areas of the company. In the
second quarter of 2002 we reduced our workforce by
33 employees, which resulted in a $0.8 million
restructuring charge for severance-related costs. In the fourth
quarter of 2002, we notified 16 employees that their
employment would cease on various dates in the fourth quarter of
2002 and first quarter of 2003, which resulted in a
$0.2 million restructuring charge for severance-related
costs.

In the fourth quarter of 2002 we entered into a
lease agreement for a facility to be used as our corporate
headquarters. We vacated our prior headquarters facility in the
fourth quarter of 2002, and a third party assumed the related
lease in the first quarter of 2003. We also vacated our leased
Bay Area sales office facility and the leased facility that we
assumed as part of the AIP acquisition in the fourth quarter of
2002 and relocated the employees to our corporate headquarters.
The abandonment of these facilities resulted in a fourth quarter
2002 facilities related restructuring charge of
$0.9 million consisting of $0.5 million for the
non-cash abandonment of leasehold improvements, equipment and
furniture and $0.4 million of exit costs consisting
primarily of future rent payable for periods subsequent to
abandonment of the facilities.

During 2002, we reduced our workforce by
approximately 50 employees and utilized $1.1 million
of the restructuring reserve for related severance costs and
$0.3 million for other restructuring related costs. At
December 31, 2002, the restructuring accrual of
$0.7 million consisted of $0.2 million of severance
costs payable to terminated employees and $0.5 million of
costs associated with vacated facilities.

37



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##### Table of Contents



During 2003, we completed the restructuring and
utilized the $0.7 million balance of the restructuring
accrual for $0.4 million of exit costs consisting primarily
of rent for the period after abandonment of the facilities,
$0.2 million for severance costs to terminated employees
and $0.1 million for other restructuring costs.

Note 3  Balance Sheet
Components:

|                                                                           |  |                |        |      |  |   |        | 
|-------------------------------------------------------------------------- |  | -------------- | ------ | ---- |  | - | ------ | 
|                                                                           |  |               
|                                                                           |  | December 31,  
|                                                                           |  |               
|                                                                           |  | 2003           |        | 2002
|                                                                           |  |                |        |     
|                                                                           |  |               
|                                                                           |  | (In thousands)
|Available-For-Sale Securities:                                             |  |                |        |      |  |   |        | 
|U.S. corporate notes and bonds                                             |  | $              | 12,857 |      |  | $ | 5,482  | 
|Short-term floating rate notes                                             |  |                | 5,503  |      |  |   | 6,004  | 
|U.S. government agency securities                                          |  |                | 250    |      |  |   | 251    | 
|                                                                           |  |                |        |      |  |   |        | 
|Total Available-For-Sale Securities                                        |  |                | 18,610 |      |  |   | 11,737 | 
|Less amount included in cash equivalents                                   |  |                | 5,503  |      |  |   | 6,004  | 
|Less amount included in short-term investments
    (due in 1 year or less) |  |                | 13,107 |      |  |   | 4,648  | 
|                                                                           |  |                |        |      |  |   |        | 
|Amount included in long-term investments (all due
    in 1-2 years)        |  | $              |       |      |  | $ | 1,085  | 
|                                                                           |  |                |        |      |  |   |        | 

Unrealized gains and losses net of related tax
for investment securities were not material at December 31,
2003 and December 31, 2002. No investment securities were
sold during the year ended December 31, 2003. Proceeds from
sales of investment securities available-for-sale during the
year ended December 31, 2002 were $1.0 million. No
significant gains or losses were realized on the sales.

|                               |                                     |                |        |         |   |   |        |         |  
|------------------------------ | ----------------------------------- | -------------- | ------ | ------- | - | - | ------ | ------- | -
|                               |                                     |               
|                               |                                     | December 31,  
|                               |                                     |               
|                               |                                     | 2003           |        | 2002   
|                               |                                     |                |        |        
|                               |                                     |               
|                               |                                     | (In thousands)
|Inventories:                   |                                     |                |        |         |   |   |        |        
|                               | Raw materials and supplies          |                | $      | 29      |   |   | $      | 49      |  
|                               | Work in process                     |                |        | 2,003   |   |   |        | 3,370   |  
|                               | Finished goods                      |                |        | 1,091   |   |   |        | 1,520   |  
|                               |                                     |                |        |         |   |   |        |        
|                               |                                     | $              | 3,123  |         |   | $ | 4,939  |        
|                               |                                     |                |        |         |   |   |        |        
|Property, plant and equipment: |                                     |                |        |         |   |   |        |        
|                               | Leasehold improvements              |                | $      | 71      |   |   | $      | 49      |  
|                               | Equipment                           |                |        | 24,209  |   |   |        | 25,319  |  
|                               | Furniture and fixtures              |                |        | 92      |   |   |        | 92      |  
|                               |                                     |                |        |         |   |   |        |        
|                               |                                     |                | 24,372 |         |   |   | 25,460 |        
|                               | Accumulated depreciation            |                |        | (21,769 | ) |   |        | (22,419 | )
|                               |                                     |                |        |         |   |   |        |        
|                               |                                     | $              | 2,603  |         |   | $ | 3,041  |        
|                               |                                     |                |        |         |   |   |        |        
|Accrued expenses:              |                                     |                |        |         |   |   |        |        
|                               | Accrued wages and employee benefits |                | $      | 1,199   |   |   | $      | 1,136   |  
|                               | Accrued restructuring liabilities   |                |        |        |   |   |        | 718     |  
|                               | Other accrued expenses              |                |        | 4,207   |   |   |        | 4,282   |  
|                               |                                     |                |        |         |   |   |        |        
|                               |                                     | $              | 5,406  |         |   | $ | 6,136  |        
|                               |                                     |                |        |         |   |   |        |        

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| |                     
| | --------------------
| | Accounts Receivable:

Accounts receivable at December 31, 2003 and
2002 are presented net of an allowance for doubtful accounts of
$0.5 million.



| |                                         
| | ----------------------------------------
| | Deferred Gain on Sale of Fab
    Assets:

In November 2000, we completed the sale of the
wafer fabrication assets and inventory located in Milpitas,
California to Standard MEMS for a gross purchase price of
$12.8 million. Under a related agreement, Standard MEMS
became an additional foundry for us and committed to supply and
we committed to purchase certain minimum quantities of wafers at
fixed prices. We deferred the $5.0 million net gain related
to the sale of the fab and established the amortization period
of the gain at two years, which was the minimum term of the
foundry agreement. Cost of sales for 2002 and 2001 included a
$1.9 million and $2.5 million credit, respectively,
related to the amortization of the deferred gain on the sale of
the fab assets. The benefit from the amortization of the
deferred gain ended in the third quarter of 2002 due to the
early termination of the foundry agreement, and the remaining
unamortized balance of $0.2 million was included in other
income in the third quarter of 2002.

Note 4  Acquisitions

The following table summarizes our purchased
intangible assets and related accumulated amortization from our
2003 acquisition of Poweready, Inc. and our 2002 acquisition of
Analog Integration Partners, LLC:

|                                    |  |                   |       |                   |  |                |        |              |  |   |       |  |  |   |      |  
|----------------------------------- |  | ----------------- | ----- | ----------------- |  | -------------- | ------ | ------------ |  | - | ----- |  |  | - | ---- | -
|                                    |  |                   |       |                  
|                                    |  | December 31, 2003 |       | December 31, 2002
|                                    |  |                   |       |                  
|                                    |  | Gross Carrying    |       | Accumulated       |  | Gross Carrying |        | Accumulated 
|                                    |  | Amount            |       | Amortization      |  | Amount         |        | Amortization
|                                    |  |                   |       |                   |  |                |        |             
|                                    |  |                  
|                                    |  | (In thousands)   
|Current technology                  |  | $                 | 5,100 |                   |  | $              | (1,621 | )            |  | $ | 2,700 |  |  | $ | (638 | )
|Customer contracts and relationship |  |                   | 700   |                   |  |                | (24    | )            |  |   |      |  |  |   |     |  
|Non-compete agreement               |  |                   | 300   |                   |  |                | (17    | )            |  |   |      |  |  |   |     |  
|Order backlog                       |  |                   | 160   |                   |  |                | (111   | )            |  |   |      |  |  |   |     |  
|                                    |  |                   |       |                   |  |                |        |              |  |   |       |  |  |   |      |  
|Total                               |  | $                 | 6,260 |                   |  | $              | (1,773 | )            |  | $ | 2,700 |  |  | $ | (638 | )
|                                    |  |                   |       |                   |  |                |        |              |  |   |       |  |  |   |      |  

Amortization of purchased intangible assets was
$1.1 million in 2003 and $0.7 million in 2002. There
was no amortization expense in 2001 as our first acquisition was
completed in 2002. Estimated annual amortization of purchased
intangible assets, based on our intangible asset balance at
December 31, 2003, is as follows:

|              |  |                 |       | 
|------------- |  | --------------- | ----- | 
|              |  | Amortization of
|              |  | Intangible     
|Years:        |  | Assets         
|              |  |                
|              |  | (In thousands) 
|2004          |  | $               | 1,700 | 
|2005          |  |                 | 965   | 
|2006          |  |                 | 701   | 
|2007          |  |                 | 620   | 
|2008          |  |                 | 501   | 
|              |  |                 |       | 
|Total expense |  | $               | 4,487 | 
|              |  |                 |       | 



| |                
| | ---------------
| | Poweready, Inc.

On October 28, 2003, we acquired Poweready,
Inc. (PRI), a privately held company that engages in
the design, manufacture and distribution of battery management
systems. Through the use of proprietary software and circuits,
PRI improves the charging and discharging of batteries which
enhances the performance of the battery pack and the run time of
the electronic device being powered by the battery. PRI markets

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to customers nationally and internationally. This
acquisition will enable us to expand our presence in the smart
battery management area.


The acquisition was accounted for using the
purchase method of accounting per Statement of Financial
Accounting Standards (SFAS) No. 141. Accordingly, the
estimated fair value of the assets acquired and liabilities
assumed were included in our consolidated balance sheet as of
October 28, 2003, the effective date of the purchase. The
results of operations are included in our consolidated results
of operations since the effective date of the purchase. We
acquired PRI for total consideration of $12.8 million,
consisting of $9.4 million of stock (947,368 shares of
Xicor common stock valued at $9.95 per share, the average
closing price the 5 days surrounding the signing of the
definitive agreement), $3.0 million in cash, and direct
acquisition costs of $0.4 million for legal, appraisal and
accounting fees. Additional consideration of up to
$3.0 million will be payable in stock if certain
performance milestones are met in 2004 through 2006. The total
purchase price was allocated by management to the estimated fair
value of assets acquired and liabilities assumed as follows
based upon various factors, including an independent appraisal
(in thousands):

|                                     |  |   |        |  
|------------------------------------ |  | - | ------ | -
|Tangible Assets                      |  | $ | 530    |  
|Current technology                   |  |   | 2,400  |  
|Customer contracts and relationships |  |   | 700    |  
|Non-compete agreement                |  |   | 300    |  
|Order backlog                        |  |   | 160    |  
|Goodwill                             |  |   | 9,516  |  
|                                     |  |   |        |  
|Total assets acquired                |  |   | 13,606 |  
|Liabilities                          |  |   | (780   | )
|                                     |  |   |        |  
|Net Assets Acquired                  |  | $ | 12,826 |  
|                                     |  |   |        |  

The intangible assets are being amortized using
the straight-line method over their useful lives. The useful
lives are 5 years for current technology and customer
contracts and relationships, 3 years for the non-compete
agreement and 3 months for the order backlog. The tangible
assets acquired consist primarily of inventory and equipment.
The liabilities assumed consist primarily of accounts payable
and accrued expenses. None of the $9.5 million in goodwill
is expected to be deductible for tax purposes, and in accordance
with SFAS No. 142 will not be amortized but instead
reviewed annually for impairment and evaluated periodically to
determine whether events or circumstances have occurred
indicating that goodwill might be impaired.

If we had acquired PRI at the beginning of the
periods presented our unaudited pro forma net sales, net income
(loss) and net income (loss) per share from continuing
operations would have been as follows:

|                            |         |                        |        |      |  |   |         |       |  
|--------------------------- | ------- | ---------------------- | ------ | ---- |  | - | ------- | ----- | -
|                            |         |                       
|                            |         | Year Ended            
|                            |         | December 31,          
|                            |         |                       
|                            |         | 2003                   |        | 2002
|                            |         |                        |        |     
|                            |         |                       
|                            |         | (In thousands,        
|                            |         | except per share data)
|Net sales                   |         | $                      | 43,103 |      |  | $ | 40,114  |      
|Net income (loss)           |         |                        | 1,103  |      |  |   | (14,579 | )    
|Net income (loss) per share |         |                        |        |      |  |   |         |      
|                            | Basic   |                        | $      | 0.04 |  |   | $       | (0.60 | )
|                            | Diluted |                        | $      | 0.04 |  |   | $       | (0.60 | )



| |                                    
| | -----------------------------------
| | Analog Integration Partners
    LLC

On April 16, 2002, we acquired Analog
Integration Partners, LLC (AIP), a privately held company that
designs and develops high-performance analog signal processing
and data conversion circuits. AIP implements high frequency
analog front-end technology and signal processing solutions in
standard digital logic processes.

40



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The AIP acquisition brings us analog mixed-signal
design talent and core technology on which we plan to build.


The acquisition was accounted for using the
purchase method of accounting per Statement of Financial
Accounting Standards (SFAS) No. 141. Accordingly, the
estimated fair value of the assets acquired and liabilities
assumed were included in our consolidated balance sheet as of
April 16, 2002, the effective date of the purchase. The
results of operations are included in our consolidated results
of operations since the effective date of the purchase. We
acquired AIP for total consideration of $15.5 million,
consisting of $10.2 million of stock (1,012,758 shares
of Xicor common stock valued at $10.05 per share, the average
closing price for the three days ended April 16, 2002),
$5.0 million in cash, and direct acquisition costs of
$0.3 million for legal, appraisal and accounting fees. The
total purchase price was allocated by management to the
estimated fair value of assets acquired and liabilities assumed
as follows based upon various factors, including an independent
appraisal (in thousands):

|                                             |  |   |        | 
|-------------------------------------------- |  | - | ------ | 
|Current technology                           |  | $ | 2,700  | 
|Net tangible assets acquired                 |  |   | 105    | 
|Customer contracts for professional services |  |   | 100    | 
|Goodwill                                     |  |   | 10,762 | 
|                                             |  |   |        | 
|Net assets acquired                          |  |   | 13,667 | 
|In-process research and development          |  |   | 1,800  | 
|                                             |  |   |        | 
|Total consideration                          |  | $ | 15,467 | 
|                                             |  |   |        | 

The amounts allocated to current technology and
customer contracts for professional services are being amortized
using the straight-line method over their useful lives of
3 years and 8 months, respectively. The net tangible
assets acquired consist primarily of accounts receivable,
partially offset by accounts payable. In accordance with SFAS
No. 142, goodwill will not be amortized but instead
reviewed annually for impairment and evaluated periodically to
determine whether events or circumstances have occurred
indicating that goodwill might be impaired. For tax purposes,
the goodwill is being amortized on a straight line basis over
15 years.

The $1.8 million of in-process research and
development expensed in the second quarter of 2002 related to
AIPs engineering effort that was focused on developing the
analog front end for the high-end flat panel display market
using a standard digital 0.18 micron CMOS process.
Management determined the value of the in-process research and
development based upon various factors, including an independent
appraisal. The appraisal used a discounted cash flow method and
factors including projected financial results, relative risk of
successful development, time value of money and level of
completion. Projected financial results were based on a number
of estimates including market growth rates, the companys
competitive position, the product roadmap, the companys
cost structure, development timelines, resource requirements and
the long-term effective tax rate. The risk-adjusted discount
rate used for projected cash flows was 50%. Initial revenues
related to products developed under this project commenced in
the fourth quarter of 2003 and the actual cost of the project
approximated the estimate.

Note 5  Commitments:

We lease our facilities and certain equipment
under non-cancelable lease agreements that expire at various
dates through 2010. These leases require us to pay taxes,
insurance, maintenance and other expenses with respect to the
facilities and equipment.

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Leases that meet certain specific criteria are
considered capital leases and, accordingly, are accounted for as
the acquisition of an asset and the incurrence of a liability.
Assets recorded under capital leases were as follows:

|                               |  |                |      |      |  |   |        |  
|------------------------------ |  | -------------- | ---- | ---- |  | - | ------ | -
|                               |  |               
|                               |  | December 31,  
|                               |  |               
|                               |  | 2003           |      | 2002
|                               |  |                |      |     
|                               |  |               
|                               |  | (In thousands)
|Equipment                      |  | $              | 969  |      |  | $ | 2,356  |  
|Less: accumulated depreciation |  |                | (558 | )    |  |   | (1,742 | )
|                               |  |                |      |      |  |   |        |  
|                               |  | $              | 411  |      |  | $ | 614    |  
|                               |  |                |      |      |  |   |        |  

In the fourth quarter of 2002 we entered into an
eight year lease agreement for a facility to be used as our
corporate headquarters. Our minimum future lease payments under
non-cancelable leases as of December 31, 2003 were:

|                                        |  |                |     |           |  |   |       | 
|--------------------------------------- |  | -------------- | --- | --------- |  | - | ----- | 
|                                        |  | Capital        |     | Operating
|                                        |  | Leases         |     | Leases   
|                                        |  |                |     |          
|                                        |  |               
|                                        |  | (In thousands)
|Years:                                  |  |                |     |           |  |   |       | 
|2004                                    |  | $              | 285 |           |  | $ | 1,063 | 
|2005                                    |  |                | 263 |           |  |   | 1,068 | 
|2006                                    |  |                | 16  |           |  |   | 1,074 | 
|2007                                    |  |                | 8   |           |  |   | 1,088 | 
|2008                                    |  |                |    |           |  |   | 1,127 | 
|2009-2010                               |  |                |    |           |  |   | 2,373 | 
|                                        |  |                |     |           |  |   |       | 
|Total minimum lease payments            |  |                | 572 |           |  | $ | 7,793 | 
|                                        |  |                |     |           |  |   |       | 
|Less amount representing interest       |  |                | 52  |           |  |   |       | 
|                                        |  |                |     |           |  |   |       | 
|Present value of minimum lease payments |  |                | 520 |           |  |   |       | 
|Less current portion                    |  |                | 246 |           |  |   |       | 
|                                        |  |                |     |           |  |   |       | 
|Long-term lease obligation              |  | $              | 274 |           |  |   |       | 
|                                        |  |                |     |           |  |   |       | 

Total rental expense under all operating leases
was as follows (including month-to-month rentals):
2003  $1.2 million, 2002 
$1.1 million, and 2001  $1.8 million.

Purchase commitments for open purchase orders and
contractual commitments at December 31, 2003 for which
goods and services had not been received were approximately
$14.2 million. These commitments include $2.1 million
per year from 2005 through 2009 to one of our foundry
subcontractors.

Note 6  Debt:



| |                                   
| | ----------------------------------
| | Convertible Subordinated
    Notes

In November 2001, we completed a private
placement to qualified institutional investors of
$35.0 million of 5.5% Convertible Subordinated Notes due in
2006 (the Notes) and related warrants to purchase
approximately one million shares of our common stock during the
next five years at an exercise price of $12.24 per share and
filed a registration statement on Form S-3 with the
Securities and Exchange Commission to register the shares
underlying the Notes and warrants.

The cost of issuing the Notes totaled
$3.1 million, which was recorded in other long-term assets
and was amortized to interest expense over the term of the
Notes. We recognized interest expense associated with
amortization of the deferred note issuance costs of $176,000,
$606,000 and $70,000 during the years ended December 31,
2003, December 31, 2002 and December 31, 2001,
respectively. The debt discount associated with the fair value
of the warrants approximated $3.1 million. The note
discount, net of accumulated

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##### Table of Contents



amortization, was reflected as a reduction in the
face value of the Notes. The amortization of the note discount
was reflected as a non-cash charge to interest expense over the
term of the Notes and warrants. We recognized interest expense
associated with amortization of the debt discount of $177,000,
$610,000 and $70,000 during the years ended December 31,
2003, December 31, 2002 and December 31, 2001,
respectively.


In April 2003, we repurchased all
$35.0 million of the outstanding Notes and 0.1 million
of the related warrants for total consideration of $27.5 million
or 79 cents on each dollar of face value. The consideration
consisted of $14.4 million in cash and $13.1 million
of common stock (2.9 million shares of Xicor common stock
valued at the closing price on the respective repurchase dates).
The repurchase resulted in a one-time gain of approximately $2.7
million which is included in other income. Warrants to purchase
922,461 shares of our common stock at an exercise price of
$12.24 per share originally issued in connection with the Notes,
remain outstanding subsequent to the completion of the Note
repurchase. These warrants expire in November 2006.

Note 7  Shareholders
Equity:



| |             
| | ------------
| | Option Plans

We have three stock option plans for our
employees, the 1990 Plan, the 1998 Plan and the 2002 Plan, and a
Director Plan. The 2000 Director Option Plan provides for an
initial grant of 25,000 options to each of our outside
directors and automatic annual grants of 10,000 options
thereafter. Directors may also be granted options under the 1998
Plan. The total number of shares of common stock authorized for
issuance under the 1990 Employee Plan, the 1998 Employee Plan,
the 2002 Employee Plan and the 2000 Director Plan are 5,000,000,
6,250,000, 1,000,000 and 500,000, respectively.

Options granted under the 1990, 1998 and 2002
plans generally vest over four years and expire no later than
ten years from date of grant. Options under the 2000 Director
Plan vest over a three-year period for initial grants and after
one year for subsequent grants and expire no later than ten
years from date of grant. All outstanding options were granted
at 100% of the fair market value of the stock at the date of
grant. The following table summarizes the option activity under
all plans.

|                                 |  |                |        |              |  |   |      | 
|-------------------------------- |  | -------------- | ------ | ------------ |  | - | ---- | 
|                                 |  |                |        | Average     
|                                 |  | Number of      |        | Option Price
|                                 |  | Shares         |        | Per Share   
|                                 |  |                |        |             
|                                 |  | (In thousands) |        |             
|Outstanding at December 31, 2000 |  |                | 4,711  |              |  | $ | 4.93 | 
|Granted                          |  |                | 2,226  |              |  |   | 4.65 | 
|Exercised                        |  |                | (756   | )            |  |   | 2.92 | 
|Canceled                         |  |                | (1,197 | )            |  |   | 5.14 | 
|                                 |  |                |        |              |  |   |      | 
|Outstanding at December 31, 2001 |  |                | 4,984  |              |  |   | 5.06 | 
|Granted                          |  |                | 3,183  |              |  |   | 4.57 | 
|Exercised                        |  |                | (286   | )            |  |   | 3.15 | 
|Canceled                         |  |                | (1,050 | )            |  |   | 5.46 | 
|                                 |  |                |        |              |  |   |      | 
|Outstanding at December 31, 2002 |  |                | 6,831  |              |  |   | 4.85 | 
|Granted                          |  |                | 1,679  |              |  |   | 5.33 | 
|Exercised                        |  |                | (1,121 | )            |  |   | 3.50 | 
|Canceled                         |  |                | (534   | )            |  |   | 6.29 | 
|                                 |  |                |        |              |  |   |      | 
|Outstanding at December 31, 2003 |  |                | 6,855  |              |  | $ | 5.08 | 
|                                 |  |                |        |              |  |   |      | 

The number of stock options available for grant
was 2,186,503 at December 31, 2003, 3,332,085 at
December 31, 2002, and 2,966,258 at December 31, 2001.
The number of stock options exercisable was 2,844,033 at
December 31, 2003, 2,328,702 at December 31, 2002 and
1,287,052 at December 31, 2001. At December 31, 2003,
9,041,808 shares of common stock were reserved for issuance
upon exercise of stock

43



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##### Table of Contents



options. Options outstanding at December 31,
2003 and related weighted average price and life information
follows:


|                         |  |                     |       |                     |  |              |       |                |  |        |      |  |  |  |       |  |  |   |       |  |  | 
|------------------------ |  | ------------------- | ----- | ------------------- |  | ------------ | ----- | -------------- |  | ------ | ---- |  |  |  | ----- |  |  | - | ----- |  |  | 
|                         |  |                     |       |                    
|                         |  | Options Outstanding |       | Options Exercisable
|                         |  |                     |       |                    
|                         |  |                     |       | Remaining           |  |             
|Range of Exercise Prices |  | Shares              |       | Price               |  | Life (Years) |       | Shares         |  | Prices
|                         |  |                     |       |                     |  |              |       |                |  |       
|                         |  | (In thousands)      |       |                     |  |              |       | (In thousands) |  |       
|$ 1.44 - $ 1.56          |  |                     | 44    |                     |  | $            | 1.55  |                |  |        | 5.4  |  |  |  | 44    |  |  | $ | 1.55  | 
|2.25 -   2.98            |  |                     | 1,119 |                     |  |              | 2.62  |                |  |        | 7.76 |  |  |  | 509   |  |  |   | 2.73  | 
|3.54 -   5.06            |  |                     | 3,607 |                     |  |              | 4.24  |                |  |        | 8.28 |  |  |  | 1,363 |  |  |   | 4.30  | 
|5.44 -   7.56            |  |                     | 1,256 |                     |  |              | 6.44  |                |  |        | 8.00 |  |  |  | 547   |  |  |   | 6.77  | 
|8.25 -  11.69            |  |                     | 620   |                     |  |              | 9.14  |                |  |        | 8.76 |  |  |  | 217   |  |  |   | 9.15  | 
|12.50 -  18.38           |  |                     | 209   |                     |  |              | 13.07 |                |  |        | 6.28 |  |  |  | 164   |  |  |   | 13.08 | 
|                         |  |                     |       |                     |  |              |       |                |  |        |      |  |  |  |       |  |  |   |       |  |  | 
|$ 1.44 - $18.38          |  |                     | 6,855 |                     |  | $            | 5.08  |                |  |        | 8.1  |  |  |  | 2,844 |  |  | $ | 5.33  | 
|                         |  |                     |       |                     |  |              |       |                |  |        |      |  |  |  |       |  |  |   |       |  |  | 

The fair value of options at date of grant was
estimated using the Black-Scholes model. The weighted average
grant date fair value of options granted was $2.84, $2.46 and
$2.57 for the three years in the period ended December 31,
2003.

The following weighted average assumptions are
included in the estimated fair value grant date calculation of
our stock options:

|                      |  |      |      |      |  |      |      |   |  |  |      |  
|--------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                      |  | 2003 |      | 2002 |  | 2001
|                      |  |      |      |      |  |     
|Expected life (years) |  |      | 3.5  |      |  |      | 3.5  |   |  |  | 3.5  |  
|Interest rate         |  |      | 2.34 | %    |  |      | 3.30 | % |  |  | 3.97 | %
|Volatility            |  |      | 78   | %    |  |      | 80   | % |  |  | 80   | %
|Dividend yield        |  |      | 0    | %    |  |      | 0    | % |  |  | 0    | %



| |                    
| | -------------------
| | Stock Purchase Plan

Our Employee Stock Purchase Plan
(ESPP), allows eligible employees to purchase shares
of common stock through payroll deductions. The ESPP consists of
consecutive 24-month Offering Periods composed of four 6-month
Purchase Periods. The shares can be purchased at the lower of
85% of the fair market value of the common stock at the date of
commencement of a two-year Offering Period or at the last day of
each 6-month Purchase Period. Purchases are limited to the
lesser of 10% of the employees compensation or $25,000 per
year and may not exceed 1,000 shares during each 6-month
Offering Period. At December 31, 2003, 380,000 shares
had been reserved for issuance under the ESPP. The number of
shares issued under the ESPP amounted to 115,000 shares in
2003, 99,000 shares in 2002, and 117,000 shares in 2001.

The fair value of purchase rights granted under
the ESPP at grant date was estimated using the Black-Scholes
model. The weighted average grant date fair value of purchase
rights granted under the ESPP was $1.58 in 2003, $3.14 in 2002,
and $1.68 in 2001.

The following weighted average assumptions are
included in the estimated fair value grant date calculation of
our ESPP:

|                      |  |      |      |      |  |      |      |   |  |  |      |  
|--------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                      |  | 2003 |      | 2002 |  | 2001
|                      |  |      |      |      |  |     
|Expected life (years) |  |      | 0.5  |      |  |      | 0.7  |   |  |  | 1.1  |  
|Interest rate         |  |      | 1.25 | %    |  |      | 2.45 | % |  |  | 4.76 | %
|Volatility            |  |      | 80   | %    |  |      | 80   | % |  |  | 80   | %
|Dividend yield        |  |      | 0    | %    |  |      | 0    | % |  |  | 0    | %

44



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| |         
| | --------
| | Warrants

At December 31, 2003 warrants to purchase
approximately 0.9 million shares of our common stock at an
exercise price of $12.24 per share were outstanding. (See
Note 6.)



| |                
| | ---------------
| | Preferred Stock

We have 5,000,000 authorized shares of no par
value Preferred Stock. The Board of Directors is authorized to
fix designations, relative rights, preferences and limitations
on the preferred stock at the time of issuance. An aggregate of
75,000 shares of preferred stock have been designated as
Series A Participating Preferred Stock for issuance in
connection with the Companys Stockholder Rights Plan.



| |                             
| | ----------------------------
| | Common Stock Purchase Rights

In October 2001, the Board of Directors adopted a
Stockholder Rights Plan (the Stockholder Rights Plan). Pursuant
to the Stockholder Rights Plan, each share of our Common Stock
(Common Stock) currently has an associated right. Under certain
circumstances, each right would entitle the registered holder to
purchase from us one one-thousandth share of Series A
Participating Preferred Stock at a purchase price of $60 in
cash, subject to adjustment.

The rights are not exercisable and cannot be
transferred separately from the Common Stock until ten business
days (or such later date as may be determined by the Board of
Directors) after (a) the tenth day (or such later date as
may be determined by our Board of Directors) after a person or
group of affiliated or associated persons (Acquiring
Person) has acquired, or obtained the right to acquire,
beneficial ownership of 15% or more of the Common Shares then
outstanding, or (b) the tenth business day (or such later
date as may be determined by our Board of Directors) after a
person or group announces a tender or exchange offer, the
consummation of which would result in ownership by a person or
group of 15% or more of our then outstanding Common Shares.

If and when the rights become exercisable, each
holder of a right shall have the right to receive, upon
exercise, that number of shares of Common Stock (or in certain
circumstances, cash property or other securities of Xicor) that
equals the exercise price of the right divided by 50% of the
current market price (as defined in the Stockholder Rights Plan)
per share of Common Stock at the date of the occurrence of such
event. In the event at any time after any person becomes an
acquiring person, (i) we are consolidated with, or merged
with and into, another entity and we are not the surviving
entity of such consolidation or merger or if we are the
surviving entity, but shares of our outstanding common stock are
changed or exchanged for stock or securities or cash or any
other property, or (ii) 50% or more of our assets or
earning power is sold or transferred, each holder of a right
shall thereafter have the right to receive upon exercise, that
number of shares of common stock of the acquiring company that
equals the exercise price of the right divided by 50% of the
current market price of such common stock at the date of the
occurrence of the event.

The rights have certain anti-takeover effects, in
that they would cause substantial dilution to a person or group
that attempts to acquire a significant interest in Xicor on
terms not approved by the Board of Directors. The rights expire
on October 19, 2011 but may be redeemed by Xicor for $.001
per right at any time prior to the fifth day (or such later date
as may be determined by our Board of Directors) following a
persons acquisition of 15% or more of our Common Stock. As
long as the rights are not separately transferable, each new
share of Common Stock issued will have one right associated with
it.

Note 8  Employee Incentive
Cash Bonus Profit Sharing Program:

We have an Employee Incentive Cash Bonus Profit
Sharing Program (the Program). Under the Program,
twice a year (two profit sharing periods) up to 15% of our
consolidated operating income, excluding certain non-product
sales and restructuring charges and credits, is distributed to
employees. The exact percentage to be distributed is determined
by a Committee of the Board of Directors. No profit sharing
bonuses were paid relating to 2003, 2002 or 2001.

45



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Note 9  Other Income and
Expense:

Other income for the year ended December 31,
2003 consists of a one-time gain of $2,718,000 resulting from
the repurchase of all $35 million of our outstanding
convertible subordinated notes. (See Note 6.) Other expense
for the year ended December 31, 2002 includes a non-cash
impairment charge of $2.5 million to write-off an
investment held in a private company. Other income for the year
ended December 31, 2002 includes $700,000 from a favorable
sales tax audit, a $400,000 benefit associated with the sale of
our wafer fabrication facility in 2000 and $194,000 from the
early termination of a wafer foundry agreement with Standard
MEMS.

Note 10  Income
Taxes:

The income tax provision consists of the
following:

|        |  |                         |   |      |  |      |   |  |  |   |     | 
|------- |  | ----------------------- | - | ---- |  | ---- | - |  |  | - | --- | 
|        |  |                        
|        |  | Year Ended December 31,
|        |  |                        
|        |  | 2003                    |   | 2002 |  | 2001
|        |  |                         |   |      |  |     
|        |  |                        
|        |  | (In thousands)         
|Federal |  | $                       |  |      |  | $    |  |  |  | $ | 56  | 
|State   |  |                         |  |      |  |      |  |  |  |   | 10  | 
|Foreign |  |                         |  |      |  |      |  |  |  |   | 36  | 
|        |  |                         |   |      |  |      |   |  |  |   |     | 
|        |  | $                       |  |      |  | $    |  |  |  | $ | 102 | 
|        |  |                         |   |      |  |      |   |  |  |   |     | 

The reconciliation between the amount computed by
applying the U.S. Federal statutory rate and the reported
tax expense is as follows:

|                                                                 |  |                         |       |      |  |      |       |    |  |  |       |   
|---------------------------------------------------------------- |  | ----------------------- | ----- | ---- |  | ---- | ----- | -- |  |  | ----- | --
|                                                                 |  |                        
|                                                                 |  | Year Ended December 31,
|                                                                 |  |                        
|                                                                 |  | 2003                    |       | 2002 |  | 2001
|                                                                 |  |                         |       |      |  |     
|Federal statutory rate                                           |  |                         | 35.0  | %    |  |      | (35.0 | )% |  |  | (35.0 | )%
|Operating losses with no current benefit                         |  |                         |      |      |  |      | 35.0  |    |  |  | 35.0  |   
|Net benefit of deferred tax assets not previously
    recognized |  |                         | (35.0 | )    |  |      |      |    |  |  |      |   
|Foreign, alternative minimum and other taxes                     |  |                         |      |      |  |      |      |    |  |  | 1.1   |   
|                                                                 |  |                         |       |      |  |      |       |    |  |  |       |   
|                                                                 |  |                         | 0.0   | %    |  |      | 0.0   | %  |  |  | 1.1   | % 
|                                                                 |  |                         |       |      |  |      |       |    |  |  |       |   

Deferred tax assets (liabilities) are
comprised of the following:

|                                        |                                                 |                |         |        |  |   |         |        | 
|--------------------------------------- | ----------------------------------------------- | -------------- | ------- | ------ |  | - | ------- | ------ | 
|                                        |                                                 |               
|                                        |                                                 | December 31,  
|                                        |                                                 |               
|                                        |                                                 | 2003           |         | 2002  
|                                        |                                                 |                |         |       
|                                        |                                                 |               
|                                        |                                                 | (In thousands)
|Deferred tax assets:                    |                                                 |                |         |        |  |   |         |       
|                                        | Federal and state loss and credit carryforwards |                | $       | 42,859 |  |   | $       | 37,906 | 
|                                        | Capitalized research and development            |                |         | 11,291 |  |   |         | 7,327  | 
|                                        | Inventory valuation                             |                |         | 12,033 |  |   |         | 12,791 | 
|                                        | Deferred income on shipments to distributors    |                |         | 1,304  |  |   |         | 402    | 
|                                        | Restructuring                                   |                |         |       |  |   |         | 295    | 
|                                        | Other                                           |                |         | 1,806  |  |   |         | 2,795  | 
|                                        |                                                 |                |         |        |  |   |         |       
|                                        |                                                 |                | 69,293  |        |  |   | 61,516  |       
|Deferred tax liabilities                |                                                 |                | (1,935  | )      |  |   | (3,093  | )     
|Deferred tax assets valuation allowance |                                                 |                | (67,358 | )      |  |   | (58,423 | )     
|                                        |                                                 |                |         |        |  |   |         |       
|Net deferred taxes                      |                                                 | $              |        |        |  | $ |        |       
|                                        |                                                 |                |         |        |  |   |         |       

46



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##### Table of Contents



The deferred tax assets valuation allowance is
attributed to U.S. Federal and state deferred tax assets.
Management believes sufficient uncertainty exists regarding the
realizability of the net deferred tax assets such that a full
valuation allowance is required.

At December 31, 2003, we had Federal tax net
operating loss carryforwards and general business credit
carryforwards of approximately $95.0 million and
$2.0 million, respectively. These carryforwards expire in
varying amounts through 2023. The net operating loss
carryforward includes approximately $23.5 million resulting
from employee exercises of non-qualified stock options, the tax
benefit of which, when realized, will be accounted for as a
credit to shareholders equity rather than as a reduction
of the provision for income taxes. At December 31, 2003, we
also had California state tax net operating loss and credit
carryforwards of approximately $14.0 million and
$5.0 million, respectively. These carryforwards expire in
varying amounts through 2013. Availability of the net operating
loss and credit carryforwards may potentially be reduced in the
event of certain substantial changes in equity ownership.

Note
11  Contingencies:

In the normal course of business, we receive and
make inquiries with regard to possible patent infringement.
Where deemed advisable, we may seek to enter into or extend
licenses or negotiate settlements. Outcomes of such negotiations
may not be determinable at any one point in time; however,
management currently does not believe that such licenses or
settlements will materially affect our financial position or
results of operations.

In June 2002, we settled a patent infringement
case we filed against Catalyst Semiconductor in 2001 in Delaware
Federal District Court. As part of the overall settlement,
Catalyst acknowledged the validity of our patent and agreed to
certain royalty payments in exchange for a license to
manufacture the disputed products.

47



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##### Table of Contents



REPORT OF INDEPENDENT AUDITORS

To the Shareholders and Board of Directors of
Xicor, Inc.

In our opinion, the accompanying consolidated
balance sheets and the related consolidated statements of
operations, shareholders equity and cash flows present
fairly, in all material respects, the financial position of
Xicor, Inc. and its subsidiaries at December 31, 2003 and
2002, and the results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2003 in conformity with accounting principles
generally accepted in the United States of America. These
financial statements are the responsibility of the
Companys management; our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.

/s/ PRICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers LLP

San Jose, California


February 20, 2004


48



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##### Table of Contents



FINANCIAL INFORMATION BY QUARTER
(Unaudited)

The following table sets forth unaudited
financial information for each quarterly reporting period in the
fiscal years ended December 31, 2003 and 2002:

|                                       |         |                                          |        |        |   |       |        |        |  |   |        |        |  |   |        |        | 
|-------------------------------------- | ------- | ---------------------------------------- | ------ | ------ | - | ----- | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                                       |         |                                         
|                                       |         | 2003                                    
|                                       |         |                                         
|                                       |         | First                                    |        | Second |   | Third |        | Fourth
|                                       |         |                                          |        |        |   |       |        |       
|                                       |         |                                         
|                                       |         | (In thousands, except per share amounts)
|Net sales                              |         | $                                        | 9,604  |        |   | $     | 10,069 |        |  | $ | 10,458 |        |  | $ | 11,317 |       
|Cost of sales                          |         |                                          | 4,698  |        |   |       | 4,729  |        |  |   | 4,617  |        |  |   | 4,735  |       
|Research and development               |         |                                          | 2,927  |        |   |       | 2,623  |        |  |   | 2,578  |        |  |   | 2,683  |       
|Selling, general and administrative    |         |                                          | 2,499  |        |   |       | 2,567  |        |  |   | 2,717  |        |  |   | 2,636  |       
|Net income (loss)                      |         |                                          | (1,408 | )      |   |       | 2,599  |        |  |   | 376    |        |  |   | 862    |       
|Net income (loss) per share:           |         |                                          |        |        |   |       |        |        |  |   |        |        |  |   |        |       
|                                       | Basic   |                                          | $      | (0.06  | ) |       | $      | 0.10   |  |   | $      | 0.01   |  |   | $      | 0.03   | 
|                                       | Diluted |                                          | $      | (0.06  | ) |       | $      | 0.09   |  |   | $      | 0.01   |  |   | $      | 0.03   | 
|Shares used in per share calculations: |         |                                          |        |        |   |       |        |        |  |   |        |        |  |   |        |       
|                                       | Basic   |                                          |        | 23,791 |   |       |        | 26,433 |  |   |        | 27,197 |  |   |        | 28,231 | 
|                                       | Diluted |                                          |        | 23,791 |   |       |        | 28,306 |  |   |        | 30,506 |  |   |        | 32,041 | 

|                                       |         |                                          |        |        |   |       |        |        |   |   |       |        |   |   |        |        |  
|-------------------------------------- | ------- | ---------------------------------------- | ------ | ------ | - | ----- | ------ | ------ | - | - | ----- | ------ | - | - | ------ | ------ | -
|                                       |         |                                         
|                                       |         | 2002                                    
|                                       |         |                                         
|                                       |         | First                                    |        | Second |   | Third |        | Fourth
|                                       |         |                                          |        |        |   |       |        |       
|                                       |         |                                         
|                                       |         | (In thousands, except per share amounts)
|Net sales                              |         | $                                        | 10,047 |        |   | $     | 9,534  |        |   | $ | 9,651 |        |   | $ | 9,302  |       
|Cost of sales                          |         |                                          | 5,012  |        |   |       | 4,815  |        |   |   | 4,392 |        |   |   | 4,857  |       
|Research and development               |         |                                          | 3,006  |        |   |       | 3,191  |        |   |   | 3,440 |        |   |   | 3,419  |       
|Selling, general and administrative    |         |                                          | 2,996  |        |   |       | 2,876  |        |   |   | 2,750 |        |   |   | 2,411  |       
|Restructuring and facilities charge    |         |                                          |       |        |   |       | 758    |        |   |   |      |        |   |   | 1,178  |       
|Net income (loss)                      |         |                                          | (1,148 | )      |   |       | (7,244 | )      |   |   | (927  | )      |   |   | (3,463 | )     
|Net income (loss) per share:           |         |                                          |        |        |   |       |        |        |   |   |       |        |   |   |        |       
|                                       | Basic   |                                          |        | (0.05  | ) |       |        | (0.31  | ) |   |       | (0.04  | ) |   |        | (0.15  | )
|                                       | Diluted |                                          |        | (0.05  | ) |       |        | (0.31  | ) |   |       | (0.04  | ) |   |        | (0.15  | )
|Shares used in per share calculations: |         |                                          |        |        |   |       |        |        |   |   |       |        |   |   |        |       
|                                       | Basic   |                                          |        | 22,377 |   |       |        | 23,375 |   |   |       | 23,625 |   |   |        | 23,685 |  
|                                       | Diluted |                                          |        | 22,377 |   |       |        | 23,375 |   |   |       | 23,625 |   |   |        | 23,685 |  






|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes In and Disagreements with
    Accountants On Accounting and Financial Disclosure

None






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

We have performed an evaluation under the
supervision and with the participation of our management,
including our Chief Executive Officer (CEO) and Chief Financial
Officer (CFO), of the effectiveness of our disclosure controls
and procedures, as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934 (the Exchange Act) as of
December 31, 2003. Based on that evaluation, our management
including our CEO and CFO, concluded that our disclosure
controls and procedures were effective as of December 31,
2003 to ensure that information required to be disclosed by us
in the reports filed or submitted by us under the Exchange Act
is recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms. There have
been no significant changes in our internal controls or other
factors that could significantly affect our internal controls
subsequent to December 31, 2003.

49



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##### Table of Contents






PART III

Certain information required by Part III is
omitted from this Report in that the Registrant will file a
definitive proxy statement pursuant to Regulation 14A (the
Proxy Statement) not later than 120 days after
the end of the fiscal year covered by this Report, and certain
information included therein is incorporated herein by reference.




Item 10.Directors
and Executive Officers of the Registrant

Certain information concerning our Audit
Committee, Audit Committee Financial Expert(s) and Code of
Ethics is incorporated herein by reference to our Proxy
Statement.

Certain information concerning our directors and
executive officers required by this Item is incorporated by
reference to the information contained in the sections captioned
Election of Directors and Section 16(a)
Beneficial Ownership Reporting Compliance in our Proxy
Statement.

The information concerning our executive officers
required by this Item is included in Part I hereof under
the caption Officers of the Registrant.




Item 11.Executive
Compensation

The information required by this Item is
incorporated by reference to the information contained in the
section captioned Executive Compensation in our
Proxy Statement.




Item 12.Security
Ownership of Certain Beneficial Owners and
Management

The information required by this Item is
incorporated by reference to the information contained in the
section captioned Security Ownership of Certain Beneficial
Owners and Management in our Proxy Statement. Equity
Compensation Plan Information is included in Part II,
Item 5 of this Annual Report.




Item 13.Certain
Relationships and Related Transactions

The information required by this Item is
incorporated by reference to the information contained in the
section captioned Election of Directors in our Proxy
Statement.




Item 14.Principal
Accountant Fees and Services

The information related to Audit fees and
services appearing in the Proxy Statement, is incorporated
herein by reference.

50



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##### Table of Contents






PART IV




Item 15.Exhibits,
Financial Statement Schedules and Reports on
Form 8-K

(a) The following documents are filed as
a part of this report:

(1) Financial
Statements.

|                                                                                                                          |  |      |    | 
|------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                                          |  | Page
|                                                                                                                          |  |     
|Consolidated Balance Sheets as of
    December 31, 2003 and 2002                                                          |  |      | 28 | 
|Consolidated Statements of Operations for each of
    the three years in the period ended December 31, 2003               |  |      | 29 | 
|Consolidated Statements of Shareholders
    Equity for each of the three years in the period ended
    December 31, 2003 |  |      | 30 | 
|Consolidated Statements of Cash Flows for each of
    the three years in the period ended December 31, 2003               |  |      | 31 | 
|Notes to Consolidated Financial Statements                                                                                |  |      | 32 | 
|Report of Independent Auditors                                                                                            |  |      | 48 | 

(2) Financial Statement
Schedules.



| |                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | All schedules have been omitted since the
    required information is not applicable, not significant or
    because the information required is included in the consolidated
    financial statements or notes thereto.
|
| | (3) Exhibits.The exhibits listed in the
    accompanying Index to Exhibits are filed or incorporated by
    reference as part of this Annual Report.                                                                    

(b) Reports on Form 8-K.

|              |  |                |         |                                                                                     |  |                                                                                                                     
|------------- |  | -------------- | ------- | ----------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------
|Date Filed    |  |                |         |                                                                                    
|or Furnished  |  | Item No.       |         | Description                                                                        
|              |  |                |         |                                                                                    
|Oct. 22, 2003 |  |                | Item 9. |                                                                                     |  | We issued a press release reporting earnings
    results for the three and nine months ended September 28,
    2003.
|Nov. 12, 2003 |  | Items 2.and 7. |         | We filed a Report on Form 8-K related to
    Xicors acquisition of Poweready, Inc.

51



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this Annual Report to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of
Milpitas, State of California, on the 23rd day of February 2004.



| |           
| | ----------
| | XICOR, INC
| | Registrant



| |    |                  
| | -- | -----------------
| | By | /s/ LOUIS DINARDO

| |                                          
| | -----------------------------------------
| |                                          
| | Louis DiNardo                            
| | Co-Chairman of the Board,                
| | President and Chief Executive
    Officer
| | (Principal Executive Officer)            

POWER OF ATTORNEY

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

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the
capacities and on the dates indicated:

|                                           |  |                                                                                                                                               |  |                   |  | 
|------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- |  | 
|                                           |  |                                                                                                                                               |  |                  
|Signature                                  |  | Title                                                                                                                                         |  | Date             
|                                           |  |                                                                                                                                               |  |                  
|/s/ J. DANIEL MCCRANIE(J. Daniel McCranie) |  | Co-Chairman of the Board                                                                                                                      |  | February 23, 2004
|                                          
|/s/ LOUIS DINARDO(Louis DiNardo)           |  | Co Chairman of the Board, President and Chief
    Executive Officer (Principal Executive Officer)                                             |  | February 23, 2004
|                                          
|/s/ JULIUS BLANK(Julius Blank)             |  | Director                                                                                                                                      |  | February 23, 2004
|                                          
|/s/ ANDREW W. ELDER(Andrew W. Elder)       |  | Director                                                                                                                                      |  | February 23, 2004
|                                          
|/s/ JOHN R. HARRINGTON(John R. Harrington) |  | Director                                                                                                                                      |  | February 23, 2004
|                                          
|/s/ EMMANUEL HERNANDEZ(Emmanuel Hernandez) |  | Director                                                                                                                                      |  | February 23, 2004
|                                          
|/s/ GERALDINE N. HENCH(Geraldine N. Hench) |  | Vice President, Finance and Administration and
    Chief Financial Officer (Principal Financial Officer and
    Principal Accounting Officer) |  | February 23, 2004

52



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##### Table of Contents



XICOR, INC.






INDEX TO EXHIBITS


Item 14(a)3.


|        |      |             |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|------- | ---- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 2.1  |             |  | Agreement and Plan of Merger, dated as of
    April 16, 2002, by and among Xicor, Inc., Valley
    Acquisition Corp., Analog Integration Partners LLC, Issie
    Rabinovitch as the member representative and all of the holders
    of membership interests of Analog Integration Partners LLC,
    filed as Exhibit 2.1 with Form 8-K on April 30, 2002,
    is hereby incorporated by reference.
|        | 2.2  |             |  | Agreement and Plan of Merger, dated as of
    September 10, 2003, by and among Xicor, Inc., Electric
    Acquisition Corp.; the Principal, the Stockholders and the
    Stockholder Representative, filed as Exhibit 2.1 with
    Form 8-K on November 12, 2003, is hereby incorporated
    by reference.                                                                                          
|        | 3.1  |             |  | Amended and Restated Articles of Incorporation
    dated June 13, 2002 filed as Exhibit 3.1 with
    Form 10-Q for the quarter ended June 30, 2002, is
    hereby incorporated by reference.                                                                                                                                                                                                       
|        | 3.2  |             |  | By-laws, as amended to date, filed as
    Exhibit 3.2 with Form 10-K for the year ended
    December 31, 1987, is hereby incorporated by reference.                                                                                                                                                                                                                                                
|        | 3.2A |             |  | Certificate of Amendment of By-Laws effective as
    of January 28, 1998 filed as Exhibit 3.2A with
    Form 10-K for the year ended December 31, 1998, is
    hereby incorporated by reference.                                                                                                                                                                                                   
|        | 3.2B |             |  | Certificate of Amendment of By-Laws effective as
    of June 4, 1999 filed as Exhibit 3.2B with
    Form 10-K for the year ended December 31, 1999, is
    hereby incorporated by reference.                                                                                                                                                                                                       
|        | 3.2C |             |  | Certificate of Amendment of By-Laws effective as
    of May 30, 2000 filed as Exhibit 3.2C with
    Form 10-K for the year ended December 31, 2000, is
    hereby incorporated by reference.                                                                                                                                                                                                       
|        | 3.3  |             |  | Certificate of Determination of Rights,
    Preferences and Privileges of Series A Participating
    Preferred Stock of Xicor, Inc. filed as Exhibit 3.3 with
    Form 8-A on October 19, 2001, is hereby incorporated
    by reference.                                                                                                                                                           
|        | 4.1  |             |  | Registration Rights Agreement, dated as of
    April 16, 2002, by and among Xicor, Inc. and Issie
    Rabinovitch as the member representative, filed as
    Exhibit 2.2 with Form 8-K on April 30, 2002, is
    hereby incorporated by reference.                                                                                                                                                 
|        | 4.2  |             |  | Form of Warrants to Purchase Common Stock dated
    November 19, 2001 filed as Exhibit 4.2 with
    Form 8-K on November 20, 2001, is hereby incorporated
    by reference.                                                                                                                                                                                                                        
|        | 4.3  |             |  | Registration Rights Agreement dated
    November 16, 2001, filed as Exhibit 4.3 with Form 8-K
    on November 20, 2001, is hereby incorporated by reference.                                                                                                                                                                                                                                       
|        | 4.4  |             |  | Preferred Stock Rights Agreement, dated as of
    October 9, 2001, between Xicor, Inc. and the American Stock
    Transfer & Trust Company filed as Exhibit 4.5 with
    Form 8-A on October 19, 2001, is hereby incorporated
    by reference.                                                                                                                                                    
|        | 10.1 |             |  | Xicor, Inc. 1990 Incentive and Non-incentive
    Stock Option Plan (As Amended and Restated March 16, 2001)
    filed as Exhibit 4.2 with Form S-8 Registration
    Statement Number 333-81370 on January 25, 2002, is hereby
    incorporated by reference.                                                                                                                                       
|        | 10.2 |             |  | Building lease between WB Murphy Ranch LLC and
    Xicor, Inc. dated October 8, 2002 filed as
    Exhibit 10.2 with Form 10-Q for the quarterly period
    ended September 29, 2002 is hereby incorporated by
    reference.                                                                                                                                                                       
|        | 10.3 |             |  | Form of Indemnification Agreement entered into
    between Xicor, Inc. and each of its Officers and Directors filed
    as Exhibit 10.6A with Form 10-Q for the quarterly
    period ended June 30, 1996, is hereby incorporated by
    reference.                                                                                                                                                 
|        | 10.4 |             |  | Lingsen-Xicor Dedicated Production Agreement
    dated September 21, 1988 as amended on March 11, 1989,
    April 14, 1989 and September 8, 1989 filed as
    Exhibit 10.8 with Form 10-K for the year ended
    December 31, 1989, is hereby incorporated by reference.                                                                                                                           
|        | 10.5 |             |  | Xicor, Inc. 2002 Stock Option Plan, with form of
    Stock Option Agreement, filed as Exhibit 4.2 with form S-8
    Registration Statement Number 333-102673 on January 23,
    2003, is hereby incorporated by reference.                                                                                                                                                                         
|        | 10.6 |             |  | Xicor, Inc. 2000 Director Option Plan (as Amended
    and Restated March 16, 2001) with form of Stock Option
    Agreement filed as Exhibit 4.3 with Form S-8
    Registration Statement Number 333-81370 on January 25,
    2002, is hereby incorporated by reference.                                                                                                                            



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##### Table of Contents



|        |       |             |  |                                                                                                                                                                                                                                                                                   
|------- | ----- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|Number  |       | Description
|        |       |            
|        | 10.7  |             |  | Xicor, Inc. 1998 Employee Stock Purchase Plan
    filed as Exhibit 10.11 with Form 10-K for the year
    ended December 31, 1998, is hereby incorporated by
    reference.                                                                                                        
|        | 10.8  |             |  | Xicor, Inc. 1998 Nonstatutory Stock Option Plan
    (as Amended and Restated March 28, 2002) with form of Stock
    Option Agreement filed as Exhibit 4.1 with Form S-8
    Registration Statement Number 333-102673 on January 23,
    2003, is hereby incorporated by reference.
|        | 10.9* |             |  | Foundry Agreement by and between Xicor, Inc. and
    Zentrum Mikroelektronic Dresden GmbH dated April 8, 1999
    filed as Exhibit 10.13 with Form 10-K for the year
    ended December 31, 1999, is hereby incorporated by
    reference.                                        
|        | 10.10 |             |  | Security Purchase Agreement dated
    November 16, 2001 filed as Exhibit 10.1 with Form 8-K
    on November 20, 2001, is hereby incorporated by reference.                                                                                                                        
|        | 21.   |             |  | List of Subsidiaries.                                                                                                                                                                                                                                                             
|        | 23.   |             |  | Consent of PricewaterhouseCoopers LLP.                                                                                                                                                                                                                                            
|        | 24.   |             |  | Powers of Attorney (included on the signature
    pages hereof).                                                                                                                                                                                                                  
|        | 31.1  |             |  | Certification of Chief Executive Officer pursuant
    to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                           
|        | 31.2  |             |  | Certification of Chief Financial Officer pursuant
    to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                           
|        | 32.1  |             |  | Certification of Chief Executive Officer and
    Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
    adopted pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002.                                                                                           



---



|  |                                                                                    
|- | -----------------------------------------------------------------------------------
|* | Confidential treatment has been granted as to
    certain portions of this Exhibit.