<PAGE>   1
--------------------------------------------------------------------------------
         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                              RESULTS OF OPERATIONS
--------------------------------------------------------------------------------


The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto appearing on pages 8 to 15.

RESULTS OF OPERATIONS

Xicor's sales were $106.1 million in 1998 compared to $122.5 million in 1997 and
$123.5 million in 1996. Fiscal year 1998 presented Xicor with a major challenge
as sales declined sharply from 1997, primarily due to the global slowdown in
demand that resulted from the Asian economic crisis. The substantial excess
global capacity in the industry caused a severe erosion of memory chip prices,
which also contributed to the decline in Xicor's sales. Sales in 1997 were
essentially flat compared to 1996 as order levels did not increase sufficiently
to offset lower average selling prices.

   Gross profit as a percentage of sales was 15% in 1998, 31% in 1997 and 40% in
1996. The decline in the 1998 gross profit percentage compared to 1997 was
primarily due to lower average selling prices as a result of competitive price
pressures, Xicor's increased manufacturing cost level associated with increased
production capacity and upgrading of the wafer fabrication operations during
1996 and 1997 and decreased factory utilization. During 1998 Xicor substantially
reduced the production volume in its factory in response to ongoing weak
business conditions. Unfavorable overhead variances that resulted from the fixed
nature of certain manufacturing costs and the smaller number of units in
production were expensed. Additionally, in the second quarter of 1998, Xicor
wrote down inventories by $2.2 million to cover declining sales prices and
inventories of certain devices that were discontinued as Xicor streamlines its
product portfolio.

   In 1997 as a result of the economic crisis in Asia and declining global sales
prices due to intense competition, Xicor established reserves of $6.2 million
for inventories built for certain Asian customers and to write down inventory
values due to lower expected selling prices. Excluding the inventory write down,
1997 gross profit as a percentage of sales was 36% compared to 40% in 1996. This
decline in the gross profit percentage in 1997 was primarily due to lower
average selling prices as a result of competitive price pressures and Xicor's
increased manufacturing cost level associated with increased production capacity
and upgrading of the wafer fabrication operations, partially offset by increased
manufacturing volumes and efficiencies.

   Research and development expenses were 16% of sales in 1998, 15% in 1997 and
12% in 1996. Research and development expenses were relatively consistent as a
percentage of sales in 1998 compared to 1997. Research and development spending
in 1997 increased 23% over 1996 primarily due to an increase in the number of
new products under development and increases in advanced submicron manufacturing
process technology development efforts.

   Selling, general and administrative expenses represented 21% of sales in
1998, 18% in 1997 and 16% in 1996. Selling, general and administrative expenses
increased in 1998 compared to 1997 due to intensified sales and marketing
activities. Expenses increased in 1997 compared to 1996 primarily due to
increased sales promotion activities and costs related to the realignment of
Xicor's sales organization.

   During 1998 Xicor announced and began to implement a restructuring plan to
revise its manufacturing and procurement strategies to significantly increase
outsourcing of wafer fabrication and product testing to overseas subcontractors
and to streamline operations. Accordingly, Xicor recorded $5 million in
restructuring charges in 1998, consisting of $2.4 million of equipment
write-offs due to the shifting of activity to an outside wafer foundry and $2.6
million for severance costs relating to a reduction in workforce. Xicor expects
annual savings of approximately $0.8 million as a result of the equipment
write-offs. Payroll savings are estimated at $13 million annually upon
completion of the restructuring activities in 2000. However, such savings are
expected to be partially offset by additional spending associated with
outsourcing and increased selling and marketing efforts.

   To control total wafer fabrication costs, Xicor plans to limit 1999 wafer
output at its in-house plant by operating at about a third of its full capacity.
The burden on the income statement by the underutilized wafer fabrication plant
will thus continue in 1999 but is expected to be to a lesser extent than in 1998
due to the cost reduction measures already taken and those planned for 1999, and
increasing the supply of lower cost wafers from the outside foundry. However,
the expected benefit of a higher percentage of lower cost products made by the
foundry will be realized only after the first half of this year as shipment
volume ramps up.

   At the beginning of 1999 Xicor raised prices on most of its memory products.
While 1999 started with stronger product demand, there is a revenue risk
associated with any price increase. Therefore, it is too early to project the
impact of the price increase on 1999 sales. However, if 1999 sales stay level
with 1998, the bottom line is expected to improve.

   Interest expense was relatively level in 1998 compared to 1997 due to normal
monthly pay downs of debt, offset by additional interest expense associated with
1998 equipment financing of $1.5 million and 1997 equipment financing of $12.3
million. Interest expense increased in 1997 compared to 1996 due to the
financing of the 1997 capital equipment acquisitions.


4
<PAGE>   2
--------------------------------------------------------------------------------
         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                              RESULTS OF OPERATIONS
--------------------------------------------------------------------------------


   Interest income decreased in both 1998 and 1997 compared to the prior year
due to a decrease in the average balance invested and in 1998, to a lesser
extent, lower interest rates. Interest income is expected to decrease in 1999
principally due to the utilization of funds for operating activities, normal
debt repayments and equipment purchases.

   No taxes were provided in 1998 due to the net loss. The provision for income
taxes for 1997 and 1996 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 $44.7 million at the end of 1998
remain fully reserved because of the uncertainty regarding the ultimate
realization of these assets.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1998, Xicor had $17.9 million in cash, cash equivalents and
short-term investments. Corresponding balances at the end of 1997 and 1996 were
$32.5 million and $41.6 million, respectively. In 1998 Xicor used $7.1 million
of cash for operating activities primarily due to the operating loss, $4.9
million for capital asset purchases and $6.6 million to repay long-term
obligations. During 1998 Xicor generated $4 million from the sale of
unregistered common stock to ATMI, Inc. in conjunction with a strategic alliance
focused on the selling of Xicor's secure memory ICs by ATMI into smart card
applications. During 1997, Xicor generated $8.1 million of cash from operating
activities and $0.7 million from the exercise of employee stock options while
using $11.8 million for capital asset purchases and $6.1 million to repay
long-term debt, resulting in a $9.1 million net decrease in Xicor's cash and
short-term investment position.

   During 1999 Xicor expects to use cash to fund operating activities, repay
long-term obligations and purchase equipment. Capital expenditures for 1999 are
currently planned at approximately $2 million. At December 31, 1998, Xicor had
entered into commitments for equipment purchases aggregating less than $.5
million.

   Xicor has a line of credit agreement with a financial institution that
expires March 31, 2000, provides for borrowings of up to $7.5 million against
eligible accounts receivable and is secured by all of Xicor's assets. Interest
on borrowings is charged at the prime lending rate plus 2% and is payable
monthly. At December 31, 1998, the entire $7.5 million was available to Xicor
based on the eligible accounts receivable balances and the borrowing formulas.
To date, no amounts have been borrowed under this line of credit. Management
believes that currently available cash and the existing line of credit facility
will be adequate to support Xicor's operations for the next twelve months.

"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 statements regarding reduction of product costs
and expected annual savings resulting from restructuring of manufacturing
operations, including the outsourcing of wafer fabrication to an external wafer
foundry and product testing to overseas subcontractors, the plan to run a
substantial portion of lower cost wafer starts at the outside foundry, the
continuation of wafer fab underutilization in 1999 although at a lesser extent
than in 1998 due to cost reduction measures taken in late 1998 and planned for
1999 and the realization in the second half of 1999 of the benefits of lower
cost products manufactured at Yamaha, the current assumption of level 1999 sales
compared to 1998 but with an improved bottom line, the revenue risk associated
with product price increases and the expectation that sufficient cash will be
available to fund operating activities, repay long term debt and purchase
equipment. Except for historical information, the matters discussed in this
Annual Report are forward-looking statements that are subject to certain risks
and uncertainties that could cause the actual results to differ materially from
those projected. Factors that could cause Xicor's actual results to differ
materially include the following: general economic conditions and conditions
specific to the semiconductor industry, fluctuations in customer demand,
competitive factors such as pricing pressures on existing products and the
timing and market acceptance of new product introductions, Xicor's ability to
have available an appropriate amount of low cost foundry production capacity in
a timely manner, manufacturing efficiencies, the ability to continue effective
cost reductions, the timely development of new products and submicron processes,
the ability of Xicor, its customers, vendors and subcontractors to make their
systems Year 2000 compliant, and the risk factors listed from time to time in
Xicor's SEC reports, including but not limited to the "Factors Affecting Future
Results" section following and Part I, Item 1. of the Form 10-K. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. Xicor undertakes no obligation to publicly
release or otherwise disclose the result of any revision to these
forward-looking statements which may be made as a result of events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.


                                                                               5
<PAGE>   3
--------------------------------------------------------------------------------
         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                              RESULTS OF OPERATIONS
--------------------------------------------------------------------------------


FACTORS AFFECTING FUTURE RESULTS

The semiconductor industry is highly competitive and characterized by rapidly
changing technology and steadily declining product prices. The current business
climate has and will continue to result in significant underutilization of
Xicor's wafer fabrication factory, which will adversely affect Xicor's business
and results of operations. Xicor's results of operations are affected by a wide
variety of factors, including general economic conditions and conditions
specific to the semiconductor industry, decreases in average selling price over
the life of any particular product, the timing of new product introductions
(both by Xicor and competitors), availability of new manufacturing technologies,
the ability to secure intellectual property rights in a rapidly evolving market
and the ability to have an appropriate amount of production capacity in a timely
manner. The sales level in any specific quarter is also a function of orders
received during that quarter, as customers continue to shorten lead times for
purchase commitments. Consistent with industry practice, customer orders are
generally subject to cancellation by the customer without penalty. Xicor may be
at a disadvantage in competing with major domestic and foreign concerns that
have significant financial resources, established and diverse product lines,
worldwide vertically integrated production facilities and extensive research and
development capabilities.

   The semiconductor industry is also characterized by substantial capital and
research and development investment for products and processes. The rapid rate
of technological change within the industry requires Xicor to continually
develop new and improved products and processes to maintain its competitive
position. Xicor expects to continue to invest in the research and development of
new products and manufacturing processes during 1999, although there can be no
assurances that such research and development efforts or new products will be
successful.

   Xicor uses a significant number of computer software programs and operating
systems and intelligent hardware devices in its internal operations, including
information technology (IT) systems and non-IT systems used in the design,
manufacture and marketing of company products. These items are considered to be
Year 2000 "objects" and to the extent that these objects are unable to correctly
recognize and process date dependent information beyond the year 1999, some
level of modification or replacement is necessary.

   Xicor's Year 2000 Compliance Program addresses Xicor IT and non-IT systems,
Xicor products, key suppliers and key customers. The compliance program consists
of five phases: Planning, Assessment, Renovation, Validation and Implementation.
At the end of 1998, Xicor had largely completed the Assessment phase with
respect to its internal operations and is in the Renovation phase. Company
actions have and continue to include replacing certain systems, while modifying
others. Xicor plans to have all critical objects that would prevent Xicor from
meeting its customer commitments completed by mid-1999. Xicor believes its
products are Year 2000 compliant. Xicor is also actively working with key
suppliers of products and services to determine that the suppliers' operations
and the products and services they provide are Year 2000 compliant. Xicor also
intends to develop a contingency plan. Based on currently available information,
the incremental costs associated with these efforts are expected to be less than
$1.0 million, a portion of which relates to the purchase of software and
hardware and will be capitalized. Most of these costs are expected to be
incurred in 1999.

   Year 2000 compliance issues could have a significant impact on Xicor's
operations and its financial results if modifications cannot be completed in a
timely manner; unforeseen needs or problems arise; or, if the systems operated
by Xicor's customers, vendors or subcontractors are not Year 2000 compliant.

   Xicor has an investment portfolio of fixed income securities that are
classified as "held to maturity securities." These securities, like all fixed
income instruments, are subject to interest rate risk and will fall in value if
market interest rates increase. Xicor attempts to limit this exposure by
investing primarily in short-term securities. In view of the nature and mix of
Xicor's total portfolio a movement of 10% by market interest rates would not
have a material impact on the total value of the portfolio at December 31, 1998.

   From time-to-time Xicor makes certain capital equipment or other purchases
denominated in foreign currencies. As a result, Xicor's cash flows and earnings
are exposed to fluctuations in interest rates and foreign currency exchange
rates. Xicor attempts to limit these exposures through operational strategies
and generally has not hedged currency exposures.

   Due to the foregoing and other factors, past results are a much less reliable
predictor of the future than is the case in many older, more stable and less
dynamic industries. In addition, the securities of many high technology
companies, including Xicor, have historically been subject to extensive price
and volume fluctuations that may adversely affect the market price of their
common stock.


6
<PAGE>   4
--------------------------------------------------------------------------------
                         FINANCIAL OPERATING INFORMATION
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                              -------------------------------------------------------------------------
                                                                      Year Ended December 31,
-----------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)           1998            1997            1996            1995            1994
-----------------------------------------------------------------------------------------------------------------------
<S>                                           <C>             <C>             <C>             <C>             <C>      

OPERATIONS DATA:
Net sales                                     $ 106,147       $ 122,453       $ 123,514       $ 113,550       $ 103,386
Cost of sales                                    89,844          84,603          74,303          69,214          68,056
-----------------------------------------------------------------------------------------------------------------------
     Gross profit                                16,303          37,850          49,211          44,336          35,330
-----------------------------------------------------------------------------------------------------------------------
Operating expenses:
     Research and development                    17,429          18,475          15,074          15,270          14,085
     Selling, general and administrative         22,634          21,753          20,306          19,474          18,779
     Restructuring charge                         4,985            --              --              --              --
-----------------------------------------------------------------------------------------------------------------------
                                                 45,048          40,228          35,380          34,744          32,864
-----------------------------------------------------------------------------------------------------------------------
Income (loss) from operations                   (28,745)         (2,378)         13,831           9,592           2,466
Interest expense                                 (1,872)         (1,834)         (1,421)           (605)           (618)
Interest income                                   1,086           1,901           2,001           1,584             580
-----------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes               (29,531)         (2,311)         14,411          10,571           2,428
Provision for income taxes                         --               220             576             535             129
-----------------------------------------------------------------------------------------------------------------------
Net income (loss)                             $ (29,531)      $  (2,531)      $  13,835       $  10,036       $   2,299
=======================================================================================================================
Net income (loss) per share:
     Basic                                    $   (1.53)      $   (0.13)      $    0.74       $    0.55       $    0.13
=======================================================================================================================
     Diluted                                  $   (1.53)      $   (0.13)      $    0.70       $    0.53       $    0.13
=======================================================================================================================
Shares used in per share calculations:
     Basic                                       19,262          18,967          18,693          18,216          18,004
=======================================================================================================================
     Diluted                                     19,262          18,967          19,820          19,031          18,364
=======================================================================================================================
</TABLE>


<TABLE>
<CAPTION>
                                                             December 31,
--------------------------------------------------------------------------------------------------------
                                    1998            1997            1996            1995            1994
--------------------------------------------------------------------------------------------------------
<S>                            <C>             <C>             <C>             <C>             <C>      

BALANCE SHEET DATA:
     Working capital           $   5,382       $  28,248       $  37,134       $  30,525       $  19,831
     Total assets                 78,862         115,261         108,214          79,439          63,283
     Long-term debt               13,137          18,974          13,469           5,229           4,186
     Accumulated deficit         (97,627)        (68,096)        (65,565)        (79,400)        (89,436)
     Shareholders' equity         30,605          56,108          57,957          43,031          31,384
========================================================================================================
</TABLE>


                                                                               7
<PAGE>   5
--------------------------------------------------------------------------------
                           CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                                             December 31,
----------------------------------------------------------------------------------------------------------------
(In thousands)                                                                              1998            1997
----------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>             <C>      

ASSETS
Current assets:
     Cash and cash equivalents                                                         $  17,881       $  21,106
     Short-term investments                                                                 --            11,372
     Accounts receivable                                                                   8,835          11,003
     Inventories                                                                          12,770          23,933
     Prepaid expenses and other current assets                                             1,016           1,013
----------------------------------------------------------------------------------------------------------------
         Total current assets                                                             40,502          68,427
Property, plant and equipment, at cost less accumulated depreciation                      38,074          46,628
Other assets                                                                                 286             206
----------------------------------------------------------------------------------------------------------------
                                                                                       $  78,862       $ 115,261
----------------------------------------------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
     Accounts payable                                                                  $   9,279       $  11,596
     Accrued expenses                                                                      9,504           8,133
     Deferred income on shipments to distributors                                          9,121          13,913
     Current portion of long-term obligations                                              7,216           6,537
----------------------------------------------------------------------------------------------------------------
         Total current liabilities                                                        35,120          40,179
----------------------------------------------------------------------------------------------------------------
Long-term obligations                                                                     13,137          18,974
----------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Shareholders' equity:
     Preferred stock; 5,000 shares authorized                                               --              --
     Common stock; 75,000 shares authorized; 20,134 and 19,092 shares outstanding        128,232         124,204
     Accumulated deficit                                                                 (97,627)        (68,096)
----------------------------------------------------------------------------------------------------------------
                                                                                          30,605          56,108
----------------------------------------------------------------------------------------------------------------
                                                                                       $  78,862       $ 115,261
================================================================================================================
</TABLE>


See accompanying notes to consolidated financial statements.


8
<PAGE>   6
--------------------------------------------------------------------------------
                      CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                              -----------------------------------------
                                                       Year Ended December 31,
---------------------------------------------------------------------------------------
(In thousands, except per share amounts)           1998            1997            1996
---------------------------------------------------------------------------------------
<S>                                           <C>             <C>             <C>      

Net sales                                     $ 106,147       $ 122,453       $ 123,514
Cost of sales                                    89,844          84,603          74,303
---------------------------------------------------------------------------------------
     Gross profit                                16,303          37,850          49,211
---------------------------------------------------------------------------------------
Operating expenses:
     Research and development                    17,429          18,475          15,074
     Selling, general and administrative         22,634          21,753          20,306
     Restructuring charge                         4,985            --              --
---------------------------------------------------------------------------------------
                                                 45,048          40,228          35,380
---------------------------------------------------------------------------------------
Income (loss) from operations                   (28,745)         (2,378)         13,831
Interest expense                                 (1,872)         (1,834)         (1,421)
Interest income                                   1,086           1,901           2,001
---------------------------------------------------------------------------------------
Income (loss) before income taxes               (29,531)         (2,311)         14,411
Provision for income taxes                         --               220             576
---------------------------------------------------------------------------------------
Net income (loss)                             $ (29,531)      $  (2,531)      $  13,835
=======================================================================================
Net income (loss) per share:
     Basic                                    $   (1.53)      $   (0.13)      $    0.74
=======================================================================================
     Diluted                                  $   (1.53)      $   (0.13)      $    0.70
=======================================================================================
Shares used in per share calculation:
     Basic                                       19,262          18,967          18,693
=======================================================================================
     Diluted                                     19,262          18,967          19,820
=======================================================================================
</TABLE>


--------------------------------------------------------------------------------
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                          Common Stock       
                                      --------------------    Accumulated
(In thousands)                        Shares        Amount        Deficit         Total
---------------------------------------------------------------------------------------
<S>                                   <C>         <C>         <C>              <C>     
Balance at December 31, 1995          18,524      $122,431      $(79,400)      $ 43,031
Exercise of stock options                349         1,091          --            1,091
Net income                              --            --          13,835         13,835
---------------------------------------------------------------------------------------
Balance at December 31, 1996          18,873       123,522       (65,565)        57,957
Exercise of stock options                219           682          --              682
Net loss                                --            --          (2,531)        (2,531)
---------------------------------------------------------------------------------------
Balance at December 31, 1997          19,092       124,204       (68,096)        56,108
Issuance of shares:
     Private investor                  1,000         3,973          --            3,973
     Exercise of stock options            42            55          --               55
Net loss                                --            --         (29,531)       (29,531)
---------------------------------------------------------------------------------------
Balance at December 31, 1998          20,134      $128,232      $(97,627)      $ 30,605
=======================================================================================
</TABLE>


See accompanying notes to consolidated financial statements.


                                                                               9
<PAGE>   7
--------------------------------------------------------------------------------
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                                  Year Ended December 31,
                                                                         --------------------------------------
(In thousands)                                                               1998           1997           1996
---------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>            <C>            <C>     
Cash flows from operating activities:
     Net income (loss)                                                   $(29,531)      $ (2,531)      $ 13,835
     Adjustments to reconcile net income (loss) to cash
     provided by operating activities:
         Depreciation and amortization                                     12,521         11,380          8,220
         Non-cash restructuring charge                                      2,358           --             --
         Changes in assets and liabilities:
              Accounts receivable                                           2,168            608          1,819
              Inventories                                                  11,163         (4,579)        (7,377)
              Prepaid expenses and other current assets                        (3)           371           (482)
              Other assets                                                    (80)            94             66
              Accounts payable and accrued expenses                          (946)         2,534          2,893
              Deferred income on shipments to distributors                 (4,792)           188            331
---------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) operating activities                       (7,142)         8,065         19,305
---------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
     Investments in plant and equipment, net                               (4,872)       (11,761)        (8,977)
     Purchases of short-term investments                                   (4,356)       (28,395)       (46,856)
     Maturities of short-term investments                                  15,728         38,182         43,833
---------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities                        6,500         (1,974)       (12,000)
---------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
     Repayments of long-term obligations                                   (6,611)        (6,081)        (5,241)
     Proceeds from sale of common stock, net of issuance costs:
         To private investor                                                3,973           --             --
         To employees                                                          55            682          1,091
---------------------------------------------------------------------------------------------------------------
Net cash used for financing activities                                     (2,583)        (5,399)        (4,150)

Increase (decrease) in cash and cash equivalents                           (3,225)           692          3,155
Cash and cash equivalents at beginning of year                             21,106         20,414         17,259
---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                 $ 17,881       $ 21,106       $ 20,414
===============================================================================================================
Supplemental information:
Cash paid (refunded) during the year for:
     Interest expense                                                    $  1,939       $  1,713       $  1,421
     Income taxes                                                            (113)           415            682
Equipment acquired pursuant to long-term obligations                        1,453         12,255         15,866
===============================================================================================================
</TABLE>


See accompanying notes to consolidated financial statements.


10
<PAGE>   8
--------------------------------------------------------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 1. THE COMPANY AND ITS SIGNIFICANT
ACCOUNTING POLICIES:

Xicor, Inc. (Xicor) develops, manufactures and sells semiconductor memory
devices. Xicor operates in one reportable segment based on the company's
internal organization. One customer accounted for 15% of sales in 1998, 16% in
1997 and 14% in 1996. Sales are attributed to geographic areas based on the
location to which the product is shipped. Sales by country are as follows:


<TABLE>
<CAPTION>
                               Year Ended December 31,
                             ---------------------------
(In millions)                   1998      1997      1996
--------------------------------------------------------
<S>                          <C>       <C>       <C>    
United States                $    57   $    68   $    68
Japan                             11        18        27
Other foreign countries           38        36        29
--------------------------------------------------------
                             $   106   $   122   $   124
========================================================
</TABLE>

   Xicor has adopted accounting practices which are generally accepted in the
industry in which it operates. Following are Xicor's significant accounting
policies:

FISCAL YEAR. Xicor's 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 year 1998 consisted of 53 weeks. Fiscal years 1997
and 1996 each consisted of 52 weeks. 

BASIS OF PRESENTATION. The consolidated financial statements include the
accounts of Xicor and its 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. 

CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS. Cash equivalents and short-term
investments consist principally of United States Government Treasury Bills and
certificates of deposit. Highly liquid investments with a maturity of three
months or less at the time of purchase are considered cash equivalents. All
investments are classified as "held-to-maturity securities" and are valued at
amortized cost, which approximates fair market value. 

CONCENTRATIONS OF CREDIT RISK. Financial instruments which potentially subject
Xicor to concentrations of credit risk consist principally of cash equivalents
and short-term investments and accounts receivable. Xicor invests primarily in
United States Government Treasury Bills and certificates of deposit and places
its investments with high-credit-quality financial institutions. Xicor's
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 the Far East. Xicor performs ongoing credit evaluations of
its customers and to date has not experienced any material losses.

FAIR VALUE OF FINANCIAL INSTRUMENTS. Xicor measures its 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. Construction in progress consists of leasehold improvements
not completed and equipment received but not yet placed in service.

REVENUE RECOGNITION. Certain of Xicor's sales are made to distributors under
agreements allowing rights of return and price protection on unsold merchandise.
Because of frequent sales price reductions and rapid technological obsolescence
in the industry, Xicor defers recognition of such sales until the merchandise is
sold by the distributors. Amounts billed to the distributors are included as
accounts receivable and the related gross profit is deferred and reflected as a
current liability until the merchandise is sold by the distributors. Revenue
from all other product sales is recognized upon shipment.

NET INCOME (LOSS) PER SHARE. 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. 

ACCOUNTING FOR STOCK OPTIONS. In accordance with Statement of Financial
Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation," Xicor applies Accounting Principles Board Opinion No. 25 for
purposes of accounting for employee stock options. Because the exercise prices
of Xicor's employee stock options equal the market price of the underlying stock
on the date of grant, no compensation expense is recognized in the financial
statements. Xicor provides additional pro forma disclosures as required under
SFAS 123 in Note 5. 

NEW ACCOUNTING PRONOUNCEMENT. In June, 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standard No. 133 (SFAS 133),
"Accounting for Derivative Instruments and Hedging Activities", which
establishes standards for accounting and reporting on derivative instruments for
periods beginning after June 15, 1999. SFAS 133 requires that all derivative
instruments be recognized in the


                                                                              11
<PAGE>   9
--------------------------------------------------------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


balance sheet as either assets or liabilities and measured at fair value.
It also requires current recognition in earnings of changes in the fair value of
derivative instruments depending on the intended use of the derivative and the
resulting designation. Xicor is evaluating the effects of the new standard.

NOTE 2. FINANCIAL STATEMENT COMPONENTS:

Balance Sheet 

<TABLE>
<CAPTION>
                                                       December 31,
                                                ---------------------------
(In thousands)                                       1998              1997
---------------------------------------------------------------------------
<S>                                             <C>               <C>      
Inventories:
   Raw materials and supplies                   $   1,450         $   4,229
   Work in process                                  7,036            13,012
   Finished goods                                   4,284             6,692
---------------------------------------------------------------------------
                                                $  12,770         $  23,933
===========================================================================
Property, plant and equipment:
   Leasehold improvements                       $  17,674         $  17,518
   Equipment                                      124,371           116,349
   Furniture and fixtures                           1,881             1,817
   Construction in progress                         1,501             8,104
---------------------------------------------------------------------------
                                                  145,427           143,788
   Accumulated depreciation                      (107,353)          (97,160)
---------------------------------------------------------------------------
                                                $  38,074         $  46,628
===========================================================================
Accrued expenses:
   Accrued wages and employee benefits          $   4,038         $   3,984
   Other accrued expenses                           5,466             4,149
---------------------------------------------------------------------------
                                                $   9,504         $   8,133
===========================================================================
</TABLE>

ACCOUNTS RECEIVABLE.  Accounts receivable at December 31, 1998 and 1997 are
presented net of an allowance for doubtful accounts of $0.5 million. 

STATEMENT OF OPERATIONS.  During 1998 Xicor announced and began to implement a
restructuring plan to revise its manufacturing and procurement strategies to
significantly increase outsourcing of wafer fabrication and product testing to
overseas subcontractors and to streamline operations. Accordingly, Xicor
recorded $5 million in restructuring charges in 1998, consisting of $2.4 million
of equipment write-offs associated with equipment not in service due to the
shifting of activity to an outside wafer foundry and $2.6 million for severance
costs relating to a 38% reduction in workforce. Equipment with a net book value
of $2.8 million was written down to its estimated net realizable value of $0.4
million. Given the current oversupply conditions in the used semiconductor
equipment market, Xicor is unable to predict the time needed to dispose of the
equipment held for sale and accordingly has included such equipment in property,
plant and equipment. The workforce reductions are primarily in manufacturing and
related support groups and to a lesser extent in the selling, administrative and
engineering functions. At December 31, 1998, $1.2 million of the severance costs
had been paid, with the $1.4 million balance expected to be paid by 2000.

NOTE 3. LEASE COMMITMENTS:

Xicor leases its facilities and certain equipment under non-cancelable lease
agreements. Xicor's major facilities leases expire at various dates through 2001
and provide for renewal options to extend the leases for up to 15 years. These
leases provide for increased rental rates, generally based on the Consumer Price
Index with specified limitations during the renewal periods. Equipment leases
are for terms of four to six years and require Xicor to pay property taxes,
insurance and maintenance and repair costs.

   Leases which 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. Upon expiration of the related lease, the then fully
depreciated asset (and the related accumulated depreciation) are removed from
the accounts. Assets recorded under capital leases were as follows:

<TABLE>
<CAPTION>
                                        December 31,
                                -------------------------
(In thousands)                      1998             1997
---------------------------------------------------------
<S>                             <C>              <C>     
Equipment                       $ 33,045         $ 33,645
Accumulated depreciation         (13,933)          (8,278)
---------------------------------------------------------
                                $ 19,112         $ 25,367
=========================================================
</TABLE>

   Minimum future lease payments under non-cancelable leases as of December 31,
1998 were as follows:

<TABLE>
<CAPTION>
                                                Capital        Operating
(In thousands)                                   Leases           Leases
------------------------------------------------------------------------
<S>                                            <C>             <C>     
Years:
   1999                                        $  8,750         $  4,069
   2000                                           5,106            1,881
   2001                                           4,308            1,085
   2002                                           3,717              119
   2003                                           1,438                7
------------------------------------------------------------------------
Total minimum lease payments                     23,319         $  7,161
                                                                ========
Less amount representing interest                (2,966)
-------------------------------------------------------
Present value of minimum lease payments          20,353
Less current portion                             (7,216)
-------------------------------------------------------
Long-term lease obligation                     $ 13,137
=======================================================
</TABLE>

   Total rental expense under non-capitalized leases was as follows (including
month-to-month rentals): 1998--$4.7 million, 1997--$4.5 million, 1996--$3.7
million.

NOTE 4. LINE OF CREDIT AGREEMENT:

Xicor has a line of credit agreement with a financial institution which expires
on March 31, 2000 and provides for borrowings of up to 80% of eligible accounts
receivable, not to exceed $7.5 million. Interest is charged at the prime lending
rate plus 2%, with a minimum rate of 8%, and is payable monthly. This credit
facil-


12
<PAGE>   10
--------------------------------------------------------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


ity is secured by all the assets of Xicor. The agreement contains restrictions
which, among other things, preclude the payment of dividends, stock repurchases
and the sale of assets other than in the normal course of business. At December
31, 1998, there were no borrowings outstanding under this line of credit.

NOTE 5. COMMON STOCK:

OPTION PLANS. Xicor has two stock option plans for its employees, the 1990 Plan
and the 1998 Plan which excludes officers of the company. The 1995 Director
Option Plan provides for an initial grant of 20,000 options to each of the
Company's directors and automatic annual grants of 5,000 options thereafter. The
total number of shares of common stock authorized for issuance under the 1990
Employee Plan, the 1998 Employee Plan and the 1995 Director Plan are 3,200,000,
250,000 and 200,000, respectively.

   Options under all plans generally are exercisable in 25% annual increments
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.


<TABLE>
<CAPTION>
                                          Number        Average
                                       of Shares   Option Price
                                   (In thousands)     Per Share
---------------------------------------------------------------
<S>                                <C>             <C> 
Outstanding at December 31, 1995           1,683           3.29
Granted                                      734           7.02
Exercised                                   (349)          3.12
Canceled                                    (115)          5.15
------------------------------------------------
Outstanding at December 31, 1996           1,953           4.61
Granted                                      463           6.80
Exercised                                   (219)          3.12
Canceled                                    (198)          5.82
------------------------------------------------
Outstanding at December 31, 1997           1,999           5.16
Granted                                    2,203           2.31
Exercised                                    (42)          1.28
Canceled                                  (1,584)          5.86
------------------------------------------------
Outstanding at December 31, 1998           2,576           2.36
================================================
</TABLE>

   In February 1998, substantially all outstanding options held by employees
with a share price in excess of $2.75 per share were repriced to $2.75 per
share, the fair market value as of the date of the repricing. A total of
1,217,950 options were repriced and are included in the grant and cancellation
activity for 1998.

   The number of stock options available for grant as of December 31, 1998, 1997
and 1996 were 426,400, 827,000, and 1,124,950, respectively. At December 31,
1998, 3,001,950 shares of common stock were reserved for issuance upon exercise
of stock options. Options outstanding at December 31, 1998 and related weighted
average price and life information follows:


<TABLE>
<CAPTION>
                        Options Outstanding                     Options Exercisable
                      -------------------------------------    ---------------------
Range of                                        Remaining
Exercise Prices         Shares          Price   Life (years)     Shares        Price
------------------------------------------------------------------------------------
<S>                   <C>              <C>      <C>          <C>              <C>   
$ 0.69-$ 0.78           186,500        $ 0.78       9.5          6,500        $ 0.69
$ 1.09-$ 1.62           664,900        $ 1.37       6.5        270,400        $ 1.36
$ 1.87-$ 2.75         1,582,900        $ 2.65       7.3        719,476        $ 2.63
$ 3.44-$ 4.00            61,250        $ 3.45       6.2         41,250        $ 3.46
$ 5.44-$ 7.25            60,000        $ 6.23       7.8         20,000        $ 6.17
$11.50-$11.50            20,000        $11.50       7.3         10,000        $11.50
------------------------------------------------------------------------------------
$ 0.69-$11.50         2,575,550        $ 2.36       7.3      1,067,626        $ 2.47
====================================================================================
</TABLE>

   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 $0.79, $3.59 and $3.68 for the three years ended December 31, 1998.
The estimated stock-based compensation cost calculated using the assumptions
indicated totaled $2,103,000, $1,364,000 and $1,487,000 for the three years in
the period ended December 31, 1998. The pro forma net income (loss) resulting
from the increased compensation cost was ($31,634,000) or ($1.64), ($3,895,000)
or ($0.21) per share, and $12,348,000 or $0.63 per share per share for the three
years ended December 31, 1998. The effect of stock-based compensation on net
income (loss) for the three years ended December 31, 1998 may not be
representative of the effect on pro forma net income (loss) in future years
because compensation expense related to grants made prior to 1995 is not
considered.

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

<TABLE>
<CAPTION>
                             1998       1997       1996
-------------------------------------------------------
<S>                          <C>        <C>        <C>
Expected life (years)           5          5          5
Interest rate                5.31%      5.99%      5.55%
Volatility                     70%        70%        70%
Dividend yield                  0%         0%         0%
</TABLE>

STOCK PURCHASE PLAN. In May 1998, the shareholders of Xicor approved an employee
stock purchase plan. The plan permits eligible employees to purchase shares of
common stock through payroll deductions, not to exceed 10% of the employee's
compensation, at 85% of the lesser of the fair market value of such shares at
the beginning of a 24-month offering period or the end of each six-month segment
within such offering period. Common stock purchases under this plan are limited
to 250 shares per employee in each six-month segment. At December 31, 1998, 3.8
million shares of common stock were reserved for issuance under this plan. The
first six-month segment commenced November 2, 1998 and purchases of common stock
under this plan will begin in 1999.


                                                                              13
<PAGE>   11
--------------------------------------------------------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 6. EMPLOYEE INCENTIVE CASH BONUS
PROFIT SHARING PROGRAM:

Xicor has an Employee Incentive Cash Bonus Profit Sharing Program (the
"Program"). Under the Program, twice a year (two profit sharing periods) 5% to
15% of Xicor's consolidated operating income, excluding certain non-product
revenues, is distributed to employees. The exact percentage to be distributed is
determined by a Committee of the Board of Directors; however, in no event may
the distribution result in a net loss after taxes to Xicor for any profit
sharing period. Profit sharing bonuses relating to 1997 and 1996 totaled $0.3
million and $1.2 million, respectively. No profit sharing bonuses were paid
relating to 1998.

NOTE 7. INCOME TAXES:

The income tax provision consists of the following:

<TABLE>
<CAPTION>
                          Year Ended December 31,
                      -------------------------------
(In thousands)          1998         1997        1996
-----------------------------------------------------
<S>                   <C>          <C>         <C>   
Federal               $ --         $   45      $  322
State                   --             25         192
Foreign                 --            150          62
-----------------------------------------------------
                      $ --         $  220      $  576
=====================================================
</TABLE>

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


<TABLE>
<CAPTION>
                                                 Year Ended December 31,
                                           -------------------------------------
(In thousands)                              1998            1997            1996
--------------------------------------------------------------------------------
<S>                                        <C>             <C>              <C>  
Federal statutory rate                     (35.0%)         (35.0%)          35.0%
Operating losses with
no current benefit                          35.0            35.0              --
Utilization of previously reserved
net operating losses                          --              --           (24.4)
Foreign, alternative minimum
and other taxes                               --             9.5            (6.6)
--------------------------------------------------------------------------------
                                             0.0%            9.5%            4.0%
================================================================================
</TABLE>


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


<TABLE>
<CAPTION>
                                                 Year Ended December 31,
                                               -------------------------
(In thousands)                                     1998             1997
------------------------------------------------------------------------
<S>                                            <C>              <C>     
Deferred tax assets:
   Federal and state loss and credit
   carryforwards                               $ 26,894         $ 16,700
   Capitalized research and development           4,778            3,966
   Inventory reserves and basis
   differences                                    6,577            8,060
   Deferred income on shipments
   to distributors                                  873              995
   Restructuring                                  1,460               --
   Depreciation                                   3,293            3,003
   Other                                          3,076            2,860
------------------------------------------------------------------------
                                                 46,951           35,584
Deferred tax liabilities                         (2,266)          (1,732)
Deferred tax assets valuation
allowance                                       (44,685)         (33,852)
------------------------------------------------------------------------
Net deferred taxes                             $     --         $     --
========================================================================
</TABLE>

   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, 1998, Xicor had Federal tax net operating loss carryforwards
and general business credit carryforwards of approximately $58 million and $2.8
million, respectively. These carryforwards expire in varying amounts from 1999
through 2013. The net operating loss carryforward includes approximately $7
million resulting from employee exercises of non-incentive stock options, the
tax benefit of which, when realized, will be accounted for as an addition to
common stock rather than as a reduction of the provision for income taxes. At
December 31, 1998, Xicor also had California state tax net operating loss and
credit carryforwards of approximately $8 million and $3.3 million, respectively.
These carryforwards expire in varying amounts from 2002 to 2006. Availability of
the net operating loss and credit carryforwards may potentially be reduced in
the event of certain substantial changes in equity ownership.

NOTE 8. RELATED PARTY:

In November 1998 Xicor and Advanced Technology Materials, Inc. (ATMI) entered
into a strategic alliance focused on integrated circuit (IC) sales into smart
card applications. ATMI, through its Emosyn division, has the right to become
Xicor's exclusive sales channel for Xicor secure memory IC products in chip or
module form to customers for use in smart card applications. Xicor will continue
to sell these products worldwide to all customer applications other than smart
cards. Additionally, Xicor and Emosyn will jointly define future IC products
suitable for the smart card industry, to be manufactured by Xicor and sold by
Emosyn. As part of this agreement. ATMI purchased from Xicor 1,000,000
unregistered shares of Xicor common stock at $4.00 per share, for which it has
certain registration rights. Also, after achieving agreed upon goals, but not
before the end of Year 2001, ATMI may purchase the rights to Xicor's Security IC
product line for use only in smart card applications. The purchase price will be
determined by an agreed upon formula. Following the purchase, Xicor will
continue to supply such chips to Emosyn, and will also continue to sell its
security products using its distribution channels to all applications other than
smart cards.


14
<PAGE>   12
--------------------------------------------------------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 9. EARNINGS PER SHARE:

The same net income (loss) amounts were used for Basic Earnings Per Share (EPS)
and Diluted EPS for the three years ended December 31, 1998. For the years ended
December 31, 1998 and 1997, the number of shares used in the calculations of
both EPS amounts were the same since stock options aggregating 2,576,000 and
1,999,000, respectively, were excluded as they were antidilutive. Common stock
equivalents of 1,127,000 were the only reconciling items between the number of
shares used to calculated Basic EPS and Diluted EPS for the year ended December
31, 1996.

NOTE 10. CONTINGENCIES:

In the normal course of business, Xicor receives and makes inquiries with regard
to possible patent infringement. Where deemed advisable, Xicor 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
Xicor's financial position or results of operations.

REPORT OF INDEPENDENT ACCOUNTANTS

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, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Xicor, Inc.
and its subsidiaries at December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
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
generally accepted auditing standards 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 the opinion expressed
above.


/s/ PricewaterhouseCoopers LLP
--------------------------------
San Jose, California
January 27, 1999


                                                                              15
<PAGE>   13
--------------------------------------------------------------------------------
                  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, 1998 and 1997:

<TABLE>
<CAPTION>
                                                                        1998
---------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)         First           Second            Third         Fourth(1)
---------------------------------------------------------------------------------------------------------
<S>                                           <C>              <C>              <C>              <C>     
Net sales                                     $ 27,746         $ 26,787         $ 24,695         $ 26,919
Cost of sales                                   19,892           25,521           21,479           22,952
Research and development                         4,566            4,628            4,304            3,931
Selling, general and administrative              5,498            5,620            5,448            6,068
Restructuring charge                                --               --            1,267            3,718
Net income (loss)(2)                            (2,354)          (9,184)          (8,038)          (9,955)
Net income (loss) per share:
     Basic                                       (0.12)           (0.48)           (0.42)           (0.51)
     Diluted                                     (0.12)           (0.48)           (0.42)           (0.51)
Shares used in per share calculations:
     Basic                                      19,095           19,108           19,123           19,689
     Diluted                                    19,095           19,108           19,123           19,689
Common Stock Market price range(3):
     High                                        3 5/8            3 1/8          1 13/16            2 7/8
     Low                                       2 17/32          1 11/16          1                  25/32
=========================================================================================================
</TABLE>


<TABLE>
<CAPTION>
                                                                        1997
---------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)         First           Second            Third         Fourth(1)
---------------------------------------------------------------------------------------------------------
<S>                                           <C>              <C>              <C>              <C>     
Net sales                                     $ 29,513         $ 31,970         $ 29,566         $ 31,404
Cost of sales                                   17,718           19,827           18,935           28,123
Research and development                         4,613            4,598            4,425            4,839
Selling, general and administrative              5,158            5,401            5,252            5,942
Net income (loss)(2)                             2,010            2,067              919           (7,527)
Net income per share:
     Basic                                        0.11             0.11             0.05            (0.39)
     Diluted                                      0.10             0.11             0.05            (0.39)
Shares used in per share calculations:
     Basic                                      18,888           18,910           18,985           19,084
     Diluted                                    19,683           19,510           19,731           19,084
Common Stock Market price range(3):
     High                                       10 1/2            7 1/8            9 3/8            7 1/2
     Low                                         6 5/8            5 1/8          5 11/16          2 11/16
=========================================================================================================
</TABLE>

(1) All quarters consist of 13 weeks except for the fourth quarter of 1998 which
    consists of 14 weeks.

(2) See Management's Discussion and Analysis of Financial Condition and Results
    of Operations for factors contributing to the losses.

(3) Xicor's Common Stock trades on the Nasdaq National Market tier of the Nasdaq
    Stock Market(SM) under the symbol XICO. The above table sets forth the high
    and low sales prices for the Common Stock as reported by Nasdaq for each
    calendar quarter. There were approximately 1,400 shareholders of record on
    December 31, 1998. Xicor has never paid dividends and does not anticipate
    paying any dividends in the foreseeable future.


16