##### Table of Contents









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,
	2001
|                                            
|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                                                                        |  | 94-2526781                           
|(State or other jurisdiction of
	incorporation or organization)                   |  | (I.R.S. Employer
	Identification No.)
|                                                                                 
|1511 Buckeye Drive
	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


(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

The aggregate market value of the voting stock
(Common Stock, without par value) held by non-affiliates of the
Registrant was approximately $206,537,000 on March 25, 2002.

The aggregate number of outstanding shares of
Common Stock, without par value, of the Registrant was
22,413,711 on March 25, 2002.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the
Registrants 2002 Annual Meeting of Shareholders is
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 the 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 
|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                                      
|PART IV          
|                  | Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K                     
|SIGNATURES       
|INDEX TO EXHIBITS
|EXHIBIT 21       
|EXHIBIT 23       



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##### Table of Contents



XICOR, INC.

FORM 10-K

For the Year Ended December 31, 2001


TABLE OF CONTENTS

|                  |  |                                                                                        |    |      |    | 
|----------------- |  | -------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                  |  |                                                                                        |    | Page
|                  |  |                                                                                        |    |     
|PART I           
|ITEM 1.           |  | BUSINESS                                                                               |    |      | 2  | 
|ITEM 2.           |  | PROPERTIES                                                                             |    |      | 8  | 
|ITEM 3.           |  | LEGAL PROCEEDINGS                                                                      |    |      | 8  | 
|ITEM 4.           |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY
	HOLDERS                                   |    |      | 8  | 
|PART II          
|ITEM 5.           |  | MARKET FOR THE REGISTRANTS COMMON STOCK AND
	RELATED STOCKHOLDER MATTERS              |    |      | 8  | 
|ITEM 6.           |  | SELECTED FINANCIAL DATA                                                                |    |      | 9  | 
|ITEM 7.           |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF
	FINANCIAL CONDITION AND RESULTS OF OPERATIONS |    |      | 10 | 
|ITEM 7A.          |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
	MARKET RISK                            |    |      | 22 | 
|ITEM 8.           |  | CONSOLIDATED FINANCIAL STATEMENTS AND
	SUPPLEMENTARY DATA                              |    |      | 23 | 
|ITEM 9.           |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
	ACCOUNTING AND FINANCIAL DISCLOSURE  |    |      | 42 | 
|PART III         
|ITEM 10.          |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                     |    |      | 42 | 
|ITEM 11.          |  | EXECUTIVE COMPENSATION                                                                 |    |      | 42 | 
|ITEM 12.          |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
	AND MANAGEMENT                        |    |      | 42 | 
|ITEM 13.          |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                         |    |      | 42 | 
|PART IV          
|ITEM 14.          |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
	REPORTS ON FORM 8-K                       |    |      | 42 | 
|SIGNATURES        |  |                                                                                        | 44 |     
|INDEX TO EXHIBITS |  |                                                                                        | 45 |     

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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. You should not
place undue reliance on these forward-looking statements, which
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 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 is a fabless semiconductor company that
designs, develops and markets programmable mixed-signal
integrated circuits and nonvolatile memory products used in
communications, computing, networking and industrial
applications. The increased complexity of system designs and
higher levels of analog content have created a need for
components that regulate, control and manage various voltages,
biases and modulation currents automatically without the need
for manual adjustment. We are focused on providing innovative,
differentiated mixed-signal products that are reprogrammable
in-system and that leverage our existing expertise in
nonvolatile technology. The nonvolatility of these products
refers to the ability to retain information content when power
is lost or turned off. We sell our products to original
equipment manufacturers (OEMs) either directly or
indirectly through distributors or contract manufacturers.

Our products are grouped into two categories:
Mixed-Signal Products and Memory Products. During the past
several years we have transitioned our focus from being a
manufacturer of commodity memory devices to a fabless supplier
of programmable mixed-signal integrated circuits. Our
Mixed-Signal Products include digitally-controlled
potentiometers, fiber optic biasing integrated circuits, and
system management and timekeeping integrated circuits that are
used in the communications, computing, networking and industrial
end-markets. Our products are characterized by low power
consumption, operation at low voltages and small form factors.
Using the reprogrammability and nonvolatility features in our
products, our customers can design systems that are
self-calibrating or that can be altered from a remote location
or on-site through a keyboard. These features allow customers to
design products that are more precise, have higher uptime and
lower field service costs. In addition, by incorporating our
devices either the manufacturer or the end user can customize
microcontroller- and microprocessor-based products. This
simplifies production control, reduces the lead-time required
for such customization and permits lower inventory levels for
our customers.

Our Memory Products are electrically erasable
programmable read-only memories, or EEPROMs. EEPROM products are
divided into two broad categories: serial EEPROMs and parallel
EEPROMs. Generally, EEPROMs are nonvolatile memory products that
can be altered (reprogrammed) electrically while the device is
still installed in a system. In addition, EEPROMs, unlike Flash
memories, can be modified as little as one byte at a time
without erasing or overwriting other portions of the memory.
Serial EEPROMs transmit data to a microprocessor or other
semiconductor component through a single input/output port one
byte or several bytes at a time while parallel EEPROMs transmit
data through multiple ports simultaneously. Because of this
characteristic, serial EEPROMs operate at slower speeds, are
less expensive and are typically incorporated in more
consumer-oriented products. Because of their performance
characteristics, parallel EEPROMs tend to be used in
non-consumer devices, such as communications infrastructure
equipment, instrumentation and other industrial applications as
well as telemetry, avionics and military electronic equipment.
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 currently expect to
complete our exit from the serial EEPROM business in 2002.

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Industry Background

Integrated circuits may be divided into three
broad categories: analog, digital and mixed-signal. Analog
semiconductors 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
voltages or condition and regulate signals after the data has
been processed. 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 processes.

A growing opportunity in the mixed-signal market
is for innovation in systems sensing technologies that are
capable of automatically calibrating and modulating current 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. Mixed-signal components with embedded memory and a
microcontroller are able to make the same adjustments through
programming, eliminating the costly, time-consuming, and
often-inaccurate results associated with manual tuning. For the
systems manufacturer, programmable mixed-signal technology can:
(i) mitigate the costly physical malfunction of expensive
equipment by detecting and preventing failure before it occurs;
(ii) reduce system downtime preventing large potential
revenue loss; (iii) capture sensor-based data which may be
analyzed; and (iv) enable smart system
functionality, where overall system utility is enhanced given
performance and hardware parameters. An increasingly important
application for system sensing technology is within the power
management control requirements of electronic systems and bias
and modulation current control within the signal path of
communications systems.

Xicors Mixed-Signal Solution, Products
and Applications

Our products leverage nonvolatile technology to
provide differentiated mixed-signal products that allow
customers to design systems with certain features that are
self-calibrating or that can be altered easily. Using the
reprogrammability and nonvolatility features in our products,
customers can design products that are more precise, have higher
uptime and relatively lower field service costs. In addition,
our products are characterized by low power consumption,
operation in low voltages and small form factors. By
incorporating our devices either the manufacturer or the
end-user can customize microcontroller- and microprocessor-based
products to address specific system sensing applications.

Mixed-signal product sales were approximately 50%
of total net sales in 2001, 35% in 2000, and 26% in 1999. Our
Mixed-Signal Products include system tuning products and system
management products.

System Tuning
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
the designer more flexibility and the system more accuracy.
Applications for these devices include controlling the Liquid
Crystal Display (LCD) brightness in 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. Our XDCP line also includes products targeted at the
fiber optic market that integrate several major control and
monitoring functions for laser diode modules in fiber Local Area
Network (LAN) and gigabit ethernet applications. These functions
include bias current control, modulation control and voltage
level sensing.

System Management
Products.Complementing our XDCP
family is our line of System Management products that include
supervisory chips for microcontroller-based systems. System
Management products are targeted for embedded systems that
require controlled power-up and orderly, predictable power-down,
reliable

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recovery in the event of system failure as well
as the capability of knowing the time and date of an event.
Products include nonvolatile random access memories, or NOVRAMs,
central processing unit (CPU) supervisors and timekeeping
products. Typical applications for these products include
devices such as routers and LAN switches. Some of these products
include EEPROM on the integrated circuit itself, enabling the
device to be reprogrammed (from within the system) to
accommodate changing system design parameters.


Nonvolatile Memory Products and
Applications

Memory Product sales were approximately 50% of
total net sales in 2001, 65% of sales in 2000, and 74% of sales
in 1999. Our Memory Products consist of parallel and serial
EEPROMs.

Nonvolatile Memory Products and
Applications.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.



| |   |                                                                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Parallel EEPROMs.We
	supply a broad line of parallel interface EEPROMs with densities
	ranging from 64KB to 1MB. Parallel interface EEPROMs are
	generally used to contain frequently updated data in
	communications infrastructure equipment, instrumentation,
	transportation and other industrial applications.
|
| |  | Serial EEPROMs.In
	March 2001, we announced our plan to exit the standalone
	low-density serial EEPROM market. The products we currently
	offer in this market include password-secured serial EEPROMs,
	standard serial EEPROMs and proprietary serial EEPROMs.                                                   

Marketing and Sales

Our products are sold worldwide for a broad range
of applications, including communications, computing, networking
and industrial applications. We sell our products to OEM
customers either directly or indirectly through distributors or
contract manufacturers. Major OEM customers for the year ended
December 31, 2001 included Alcatel, International Business
Machines, Lucent, Motorola, Samsung and Schlumberger.

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.

We market our products directly from our
headquarters in Milpitas, California and from regional domestic
and foreign sales offices. Products are also 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 allowing
rights of return and price protection on unsold merchandise. Our
policy is to defer recognition of sales and related costs on
such shipments until the distributors sell the products.

International sales constituted approximately 59%
of total net sales in 2001, 53% in 2000, and 56% in 1999. Our
international sales are generally denominated in U.S. dollars.
Due to the magnitude of international sales, we are subject to
risks common to all international economic activities, including
currency fluctuations, governmental regulation and the risk of
imposition of tariffs or other trade barriers. Further, the
Bureau of Export Administration of the US Department of Commerce
must license export sales to certain countries.

One distributor accounted for 23% of total net
sales in 2001, 19% in 2000, and 14% in 1999. Distributors are
not themselves end users of our products, but rather serve as a
channel of sale to many end users of our products. One OEM
customer represented 11% of sales in 1999.

Customer design-ins may not result in
volume purchase orders. Further, volume purchase orders received
do not necessarily result in sales, as they are in most cases,
consistent with industry practice,

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terminable by the customer without penalty.
Consequently, backlog figures are not necessarily indicative of
future sales.


Manufacturing

Historically, we manufactured in-house 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. Yamaha Corporation of Japan, was qualified as our
initial outside foundry in the third quarter of 1998. In the
second quarter of 1999 we entered into foundry agreements with
Sanyo Electric Co., Ltd. of Japan and ZMD GmbH of Germany.
In November 2000, we completed the sale of our wafer fabrication
assets and inventory to Standard MEMS, Inc. (Standard
MEMS). At the time of the sale, we also entered into a
related foundry agreement with Standard MEMS. Effective November
2000, we became a fabless semiconductor company that relies on
the aforementioned semiconductor foundries to produce our
wafers. Presently, Yamaha Corporation and ZMD GmbH provide the
majority of our wafers.

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 Xicors 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
packaged products are encapsulated by subcontractors based in
Israel and the United States and tested in Milpitas. 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.

Reliance on overseas wafer fabrication, sort,
assembly and test contractors and our maintenance of inventories
at contractors facilities entails certain political and
economic risks, including political instability and
expropriation, currency controls and exchange fluctuations, and
changes in tariff and freight rates. Furthermore, in the event
overseas wafer fabrication, sort, assembly or test operations,
or air transportation to or from foreign foundries or
contractors, were disrupted for any reason, our operations could
be severely harmed.

The principal raw materials utilized in the
production process are polished silicon wafers, ultra-pure
metals, chemicals and gases. 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. Shortages could
occur in various essential materials due to interruption of
supply or due to increased demand in the industry. Shortages
have occurred in our history and order lead times have been
extended in the industry on occasion without significantly
harming us. However, future shortages, if any, could severely
harm our operations.

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 non-volatile technology to allow programmability in the end
system. This strategy requires process and design expertise as
well as applications engineering support. Continuing development
of more advanced processes and products is essential to
maintaining and enhancing our competitive position. Such
development activities are difficult and lengthy.

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They may not be successfully completed and future
products may not be available on a timely basis or achieve
market acceptance.


Research and development activities require a
high degree of complexity of design and manufacturing process,
and consequently a significant percentage of sales is
continuously invested in research and development and in the
pre-production engineering activity related to new products and
technologies. Research and development expenditures were
$13.6 million in 2001, $15.9 million in 2000, and
$14.6 million in 1999.

Patents and Licenses

We hold a number of United States patents and
foreign patents covering various circuit designs and device
structures. Further, additional patent applications for products
are pending in the United States and abroad. However, patents
granted or pending may not provide meaningful protection.
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.

As is the case with many companies in the
semiconductor industry, it may become necessary or desirable for
us to obtain licenses relating to our products from others. We
have received notices claiming infringement of patents 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, licenses may not be obtainable on
acceptable terms and any dispute may not be resolved without
costly litigation.

Competition

The semiconductor industry is highly competitive
and characterized by steadily declining prices, particularly
with respect to memory products, during periods of industry
oversupply. In addition to price, important elements determining
success in competition include product performance, quality and
reliability, delivery capability, 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, Catalyst Semiconductor and Maxim, most of whom have
substantially greater financial, technical, marketing,
distribution, and other resources than we do and have their own
facilities for the production of semiconductor components. In
addition, our foundry partners have the right to develop and
fabricate products based on our process technology. Further, the
semiconductor industry is characterized by rapid technological
change and we will be required to continually develop or have
access to new and improved manufacturing processes and products
to remain competitive.

Insurance

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

Employees

At December 31, 2001 we had 155 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 our
success will depend in significant part on our ability to
attract and retain such employees in the highly competitive
semiconductor industry and in Silicon Valley.

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Executive Officers of the Registrant

The following table sets forth each executive
officer of Xicor, their ages (as of December 31, 2001) and
position with Xicor:

|                   |  |     |    |        |  |                                                                        
|------------------ |  | --- | -- | ------ |  | -----------------------------------------------------------------------
|Name               |  | Age |    | Office
|                   |  |     |    |       
|Louis DiNardo      |  |     | 42 |        |  | President and Chief Executive Officer                                  
|Geraldine N. Hench |  |     | 44 |        |  | Vice President, Finance and Administration and
	Chief Financial Officer
|R. Todd Smathers   |  |     | 53 |        |  | Senior Vice President, Operations                                      
|Michael P. Levis   |  |     | 44 |        |  | Vice President, Marketing                                              
|Robert C. Mahoney  |  |     | 53 |        |  | Vice President, Worldwide Sales                                        
|James McCreary     |  |     | 55 |        |  | Vice President, Engineering                                            

Louis DiNardo, 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 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).

Michael P. Levis, Vice President, Marketing.Mr. Levis joined Xicor in January
1998 as Vice President, Marketing. Mr. Levis has
18 years of experience in marketing and business
development. From 1996 through 1997, Mr. Levis served as
General Partner at ASCII of America, a venture capital firm.
From 1993 through 1996, Mr. Levis was the Vice President of
Marketing at Crosspoint Solutions, Inc., a semiconductor
company. Prior to 1993 Mr. Levis held various marketing and
business development positions at Crosspoint Solutions, Inc.,
Samsung Semiconductors and Zilog, Inc. Mr. Levis is a
director of Tundra Semiconductor. Mr. Levis received the
degree of Bachelor of Science in Electrical Engineering from
Purdue and the degree of Master of Science in Electrical
Engineering from Stanford University.

Robert C. Mahoney, Vice President, Worldwide
Sales.Mr. Mahoney joined Xicor
in October 2001 as Vice President, Worldwide Sales.
Mr. Mahoney has 20 years experience in the
semiconductor industry and comes to Xicor from Altera
Corporation, where he was Vice President of Strategic Accounts.
Prior to his affiliation with Altera, Mr. Mahoney served as
Area Director (Western Division) at Analog Devices.
Mr. Mahoney also served at National Semiconductor, where he
assumed increasing levels of responsibility culminating in his
appointment as Area Director (Western Division).

James McCreary, Vice President, Engineering.Mr. McCreary joined Xicor in
October 1998 as Vice President, Engineering. From 1996 through
1998 Mr. McCreary was involved in private business
ventures. In

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1983 Mr. McCreary co-founded Micro Linear
Corp. 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 the inventor of
several patents.





Item 2.Properties

Xicors executive offices are located in an
approximately 74,000 square-foot building at 1511 Buckeye
Drive, Milpitas, California. This facility, which houses
Xicors 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 $1,224,384 increasing 3.25% annually, and
requires Xicor to pay all real estate taxes, utilities and
insurance and to maintain the building and premises. Xicor has
one five-year renewal option upon the same terms and conditions
at the higher of 95% of the then fair market value or $1,148,508
annually. Commencing in February 2002, Xicor is subleasing
approximately 21,000 square feet of this building at the base
rental rate paid by Xicor. Either party may cancel this sublease
any time after August 31, 2003.




Item 3.Legal
Proceedings

Information regarding legal proceedings is set
forth in Note 10 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

None




PART II




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

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

|                                    |                |      |   |        |  |  |   |        | 
|----------------------------------- | -------------- | ---- | - | ------ |  |  | - | ------ | 
|                                    |                | High |   | Low   
|                                    |                |      |   |       
|Fiscal year ended December 31, 2001 |                |      |   |        |  |  |   |       
|                                    | First Quarter  |      | $ | 6.625  |  |  | $ | 3.281  | 
|                                    | Second Quarter |      |   | 11.150 |  |  |   | 2.620  | 
|                                    | Third Quarter  |      |   | 13.060 |  |  |   | 5.450  | 
|                                    | Fourth Quarter |      |   | 14.340 |  |  |   | 6.770  | 
|Fiscal year ended December 31, 2000 |                |      |   |        |  |  |   |       
|                                    | First Quarter  |      | $ | 26.250 |  |  | $ | 12.000 | 
|                                    | Second Quarter |      |   | 19.000 |  |  |   | 4.500  | 
|                                    | Third Quarter  |      |   | 12.688 |  |  |   | 6.188  | 
|                                    | Fourth Quarter |      |   | 8.563  |  |  |   | 2.813  | 

There were approximately 935 shareholders of
record on December 31, 2001. Xicor has never paid cash
dividends and does not anticipate paying any cash dividends in
the foreseeable future.

8



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##### Table of Contents






Item 6.Selected
Financial Data

Financial Operating Information

|                                       |                                     |                                          |         |        |   |      |         |        |   |      |         |        |   |   |         |        |   |   |         |        |  
|-------------------------------------- | ----------------------------------- | ---------------------------------------- | ------- | ------ | - | ---- | ------- | ------ | - | ---- | ------- | ------ | - | - | ------- | ------ | - | - | ------- | ------ | -
|                                       |                                     |                                         
|                                       |                                     | Year Ended December 31,                 
|                                       |                                     |                                         
|                                       |                                     | 2001                                     |         | 2000   |   | 1999 |         | 1998   |   | 1997
|                                       |                                     |                                          |         |        |   |      |         |        |   |     
|                                       |                                     |                                         
|                                       |                                     | (In thousands, except per share amounts)
|Operations Data:                       |                                     |                                          |         |        |   |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|Net sales                              |                                     | $                                        | 70,073  |        |   | $    | 122,849 |        |   | $    | 114,887 |        |   | $ | 106,147 |        |   | $ | 122,453 |       
|Cost of sales                          |                                     |                                          | 45,100  |        |   |      | 71,672  |        |   |      | 80,474  |        |   |   | 89,844  |        |   |   | 84,603  |       
|                                       |                                     |                                          |         |        |   |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|                                       | Gross profit                        |                                          |         | 24,973 |   |      |         | 51,177 |   |      |         | 34,413 |   |   |         | 16,303 |   |   |         | 37,850 |  
|                                       |                                     |                                          |         |        |   |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|Operating expenses:                    |                                     |                                          |         |        |   |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|                                       | Research and development            |                                          |         | 13,613 |   |      |         | 15,880 |   |      |         | 14,560 |   |   |         | 17,429 |   |   |         | 18,475 |  
|                                       | Selling, general and administrative |                                          |         | 18,235 |   |      |         | 26,122 |   |      |         | 22,360 |   |   |         | 22,634 |   |   |         | 21,753 |  
|                                       | Restructuring charge (credit)       |                                          |         | 3,205  |   |      |         | (3,841 | ) |      |         | 23,719 |   |   |         | 4,985  |   |   |         |       |  
|                                       |                                     |                                          |         |        |   |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|                                       |                                     |                                          | 35,053  |        |   |      | 38,161  |        |   |      | 60,639  |        |   |   | 45,048  |        |   |   | 40,228  |       
|                                       |                                     |                                          |         |        |   |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|Income (loss) from operations          |                                     |                                          | (10,080 | )      |   |      | 13,016  |        |   |      | (26,226 | )      |   |   | (28,745 | )      |   |   | (2,378  | )     
|Interest expense                       |                                     |                                          | (524    | )      |   |      | (817    | )      |   |      | (1,407  | )      |   |   | (1,872  | )      |   |   | (1,834  | )     
|Interest income                        |                                     |                                          | 1,237   |        |   |      | 1,458   |        |   |      | 704     |        |   |   | 1,086   |        |   |   | 1,901   |       
|                                       |                                     |                                          |         |        |   |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|Income (loss) before income taxes      |                                     |                                          | (9,367  | )      |   |      | 13,657  |        |   |      | (26,929 | )      |   |   | (29,531 | )      |   |   | (2,311  | )     
|Provision for income taxes             |                                     |                                          | 102     |        |   |      | 491     |        |   |      |        |        |   |   |        |        |   |   | 220     |       
|                                       |                                     |                                          |         |        |   |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|Net income (loss)                      |                                     | $                                        | (9,469  | )      |   | $    | 13,166  |        |   | $    | (26,929 | )      |   | $ | (29,531 | )      |   | $ | (2,531  | )     
|                                       |                                     |                                          |         |        |   |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|Net income (loss) per share:           |                                     |                                          |         |        |   |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|                                       | Basic                               |                                          | $       | (0.43  | ) |      | $       | 0.62   |   |      | $       | (1.32  | ) |   | $       | (1.53  | ) |   | $       | (0.13  | )
|                                       |                                     |                                          |         |        |   |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|                                       | Diluted                             |                                          | $       | (0.43  | ) |      | $       | 0.57   |   |      | $       | (1.32  | ) |   | $       | (1.53  | ) |   | $       | (0.13  | )
|                                       |                                     |                                          |         |        |   |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|Shares used in per share calculations: |                                     |                                          |         |        |   |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|                                       | Basic                               |                                          |         | 21,803 |   |      |         | 21,189 |   |      |         | 20,324 |   |   |         | 19,262 |   |   |         | 18,967 |  
|                                       |                                     |                                          |         |        |   |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|                                       | Diluted                             |                                          |         | 21,803 |   |      |         | 23,286 |   |      |         | 20,324 |   |   |         | 19,262 |   |   |         | 18,967 |  
|                                       |                                     |                                          |         |        |   |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       

|                    |                                             |              |   |          |   |      |   |          |   |      |   |          |   |  |   |         |   |  |   |         |  
|------------------- | ------------------------------------------- | ------------ | - | -------- | - | ---- | - | -------- | - | ---- | - | -------- | - |  | - | ------- | - |  | - | ------- | -
|                    |                                             |             
|                    |                                             | December 31,
|                    |                                             |             
|                    |                                             | 2001         |   | 2000     |   | 1999 |   | 1998     |   | 1997
|                    |                                             |              |   |          |   |      |   |          |   |     
|Balance Sheet Data: |                                             |              |   |          |   |      |   |          |   |      |   |          |   |  |   |         |   |  |   |        
|                    | Working capital                             |              | $ | 38,563   |   |      | $ | 11,559   |   |      | $ | 3,573    |   |  | $ | 5,382   |   |  | $ | 28,248  |  
|                    | Total assets                                |              |   | 80,451   |   |      |   | 64,323   |   |      |   | 54,794   |   |  |   | 78,862  |   |  |   | 115,261 |  
|                    | Long-term obligations, less current portion |              |   | 32,634   |   |      |   | 715      |   |      |   | 9,794    |   |  |   | 13,137  |   |  |   | 18,974  |  
|                    | Accumulated deficit                         |              |   | (120,859 | ) |      |   | (111,390 | ) |      |   | (124,556 | ) |  |   | (97,627 | ) |  |   | (68,096 | )
|                    | Shareholders equity                        |              |   | 16,916   |   |      |   | 20,215   |   |      |   | 4,449    |   |  |   | 30,605  |   |  |   | 56,108  |  

9



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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 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 23 to 39.

Results of Operations

Sales

Xicors 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 Xicors legacy businesses of serial EEPROMs, which
we are in the process of exiting, and parallel EEPROMs, which
business we are retaining. Annual sales by product group were:

|                           |  |                         |        |      |  |      |         |  |  |   |         | 
|-------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------- |  |  | - | ------- | 
|                           |  |                        
|                           |  | Year Ended December 31,
|                           |  |                        
|                           |  | 2001                    |        | 2000 |  | 1999
|                           |  |                         |        |      |  |     
|                           |  |                        
|                           |  | (In thousands)         
|Mixed-signal product sales |  | $                       | 34,942 |      |  | $    | 43,321  |  |  | $ | 30,146  | 
|Memory product sales       |  |                         | 35,131 |      |  |      | 79,528  |  |  |   | 84,741  | 
|                           |  |                         |        |      |  |      |         |  |  |   |         | 
|Total Sales                |  | $                       | 70,073 |      |  | $    | 122,849 |  |  | $ | 114,887 | 
|                           |  |                         |        |      |  |      |         |  |  |   |         | 

Xicor continued to progress with its transition
to a differentiated product strategy in 2001, with mixed-signal
products representing 50% of total net sales. Overall economic
and industry-wide conditions were weak throughout 2001, and
while mixed-signal sales were level sequentially in the first
two quarters of 2001, mixed-signal sales declined in the second
half of 2001 on lower unit sales. During 2000 Xicor completed
the year with mixed-signal product sales over $43 million,
or 35% of total net sales and mixed-signal sales growth of 44%
over 1999.

Memory product sales decreased 56% year over year
in 2001 compared to 2000 principally due to the serial EEPROM
business that Xicor is in the process of exiting and, to a
lesser extent, lower unit shipments of parallel EEPROMs. Memory
product sales decreased 6% in 2000 compared to 1999 primarily
due to product mix and lower average selling prices.

Xicor believes that 2002 will be a challenging
year for the mixed-signal business as the difficult industry
conditions experienced in 2001 extend into 2002. Serial EEPROM
sales were approximately $16 million in 2001 and
$51 million in both 2000 and 1999. We expect serial EEPROM
sales to decline significantly in 2002 compared to 2001 as we
plan to complete our exit from that business in 2002. As a
result, we expect total sales for 2002 to be significantly below
2001 levels and anticipate Xicor will incur losses in 2002.

Cost of Sales
and Gross Profit

Gross profit as a percentage of sales was 36% in
2001, 42% in 2000 and 30% in 1999. As discussed below, cost of
sales for the first quarter of 2001 included an
$8.2 million charge to write down inventories. Excluding
the inventory write-down, 2001 gross profit as a percentage of
sales was 47%. Compared to 2000, the 2001 gross profit
percentage excluding the inventory write down 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
$2.5 million of the deferred gain on the sale of the fab
assets and lower costs associated with our shift to fully
outsourced manufacturing. The gross profit percentage improved
in 2000 compared to 1999 primarily due to reduced depreciation
expense due to the planned closure of the Milpitas in-house
wafer fabrication plant. In addition, the increased portion of
sales generated from products manufactured at third party
foundries during 2000 and the increased percentage of sales of
higher

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##### Table of Contents



margin mixed-signal products during 2000 had a
favorable impact on the gross profit percentage when compared to
prior years. Cost of sales in 2000 included a $0.4 million
credit related to the amortization of the deferred gain on the
fab sale. The gross profit percentage is expected to fluctuate
from quarter to quarter as a result of changes in product mix,
product costs and average selling prices.


Research and
Development

Research and development expenses amounted to
$13.6 million or 19% of sales in 2001; $15.9 million
or 13% of sales in 2000; and $14.6 million or 13% of sales
in 1999. While research and development expenses increased as a
percentage of sales in 2001 compared to 2000 due to the lower
sales level, the dollar amount of research and development
expenses decreased in 2001 compared to 2000 primarily due to
lower personnel costs and spending controls. Research and
development expenses were consistent as a percentage of sales in
2000 compared to 1999.

Selling,
General and Administrative

Selling, general and administrative expenses
amounted to $18.2 million or 26% of sales in 2001;
$26.1 million or 21% of sales in 2000; and
$22.4 million or 19% of sales in 1999. The year-over-year
decrease in the dollar amount of selling, general and
administrative expenses in 2001 compared to 2000 is due
primarily to headcount reductions and lower commission expenses
related to the decreased sales in 2001, partially offset by
increased legal costs associated with protecting Xicors
intellectual property rights. The year-over-year increase in the
dollar amount of selling, general and administrative expenses in
2000 compared to 1999 resulted from increased commissions
associated with the higher sales level, the hiring of additional
sales and marketing personnel and intensified sales and
marketing activities with the goal of increasing design wins of
proprietary products.

Restructuring
and Other Non-Recurring Costs

|                     |  |                         |        |      |  |      |        |   |  |   |        | 
|-------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | 
|                     |  |                        
|                     |  | Year Ended December 31,
|                     |  |                        
|                     |  | 2001                    |        | 2000 |  | 1999
|                     |  |                         |        |      |  |     
|Restructuring        |  | $                       | 3,205  |      |  | $    | (3,841 | ) |  | $ | 23,719 | 
|Inventory write-down |  |                         | 8,200  |      |  |      |       |   |  |   |       | 
|                     |  |                         |        |      |  |      |        |   |  |   |        | 
|Total                |  | $                       | 11,405 |      |  | $    | (3,841 | ) |  | $ | 23,719 | 
|                     |  |                         |        |      |  |      |        |   |  |   |        | 

During 1998 Xicor began to revise its
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. Based on the progress
made on the outsourcing program during 1999, in December 1999
Xicors Board of Directors decided to close its Milpitas
in-house wafer fabrication facility during 2000 and use third
party foundries for all of Xicors wafer fabrication
production. In connection with the planned closure of this
facility, Xicor recorded a $23.7 million restructuring
charge, consisting of a $16.3 million non-cash write-down
of the wafer fabrication plant assets, $1.5 million for
severance costs relating to a reduction in workforce, fab
closure costs of $3.6 million, idle facilities charges of
$0.8 million and equipment lease costs of
$1.5 million. Xicor began pursuing the sale of the Milpitas
manufacturing operations but believed at that time the most
likely outcome would be a piecemeal sale of the equipment.

In November 2000, Xicor completed the sale of the
wafer fabrication assets and inventory to Standard MEMS, Inc.
(Standard MEMS) for a gross purchase price of
$12.8 million. During 2000 Xicor utilized $1.9 million
of restructuring reserves. Related reductions in workforce of
approximately 200 employees, primarily in manufacturing and
related support groups, occurred primarily in the fourth quarter
of 2000. As a result of the sale of the fab, Xicor incurred
restructuring charges at levels significantly below amounts
previously estimated and accrued. The net restructuring credit
of $3.8 million recorded in 2000 consists of a reversal of
$6.1 million of costs originally included in the
restructuring accrual not utilized due primarily to the sale of
the fab to Standard MEMS, partially offset by $2.3 million
principally related to additional workforce

11



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##### Table of Contents



reductions that Xicor identified and committed to
in the fourth quarter of 2000 to streamline operations and
further implement the companys outsourced manufacturing
strategy.


At the time of the sale of the wafer fabrication
assets and inventory, Xicor and Standard MEMS also entered into
a related foundry agreement for Standard MEMS to become a Xicor
foundry. The sale of the wafer fabrication assets and inventory
resulted in a net gain of $5.0 million, which was recorded
as a deferred gain on sale of fab assets. Xicor is amortizing
the gain over two years, which is the minimum term of the
foundry agreement. Cost of sales for 2001 and 2000 included a
$2.5 million and $0.4 million credit, respectively,
related to the amortization of the deferred gain on the sale of
the fab assets.

In the first quarter of 2001, Xicor announced its
plan to exit from offering stand alone low-density serial EEPROM
memory products and complete the move to fully outsourced test
and assembly operations. Accordingly, Xicors 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 Xicors 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. Estimated annual cost reductions of
$6.0 million associated with the completion of the
restructuring plan are expected to mitigate the effect of lower
memory product sales.

During 2001, Xicor reduced its 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. The
remaining reductions in workforce are planned to occur in the
first half of 2002. 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.

Interest

Interest expense decreased in 2001 compared to
2000 due to the sale of the Milpitas wafer fabrication assets
and payoff of related equipment lease debt in November 2000,
partially offset by increased interest expense and amortization
due to Xicors November 2001 issuance of $35 million
of 5.5% convertible subordinated notes and warrants. Interest
expense decreased in 2000 compared to 1999 principally due to
normal principal payments of outstanding lease debt. Interest
expense will increase in 2002 compared to 2001 as the
convertible subordinated notes and warrants will be outstanding
for the full year.

Interest income decreased in 2001 compared to
2000 primarily as a result of lower interest rates. Interest
income increased in 2000 compared to 1999 due to an increase in
the average balance invested caused primarily by funds generated
from operating activities and the issuance of stock under
employee stock plans and, to a lesser extent, higher interest
rates. Interest income is expected to decrease in 2002 compared
to 2001 due to lower interest rates, partially offset by the
higher average balance invested caused primarily by funds
generated from the November 2001 issuance of convertible
subordinated notes and warrants discussed below.

Taxes

The provision for income taxes for 2001 and 2000
consisted primarily of federal and state minimum taxes, which
resulted from limitations on the use of net operating loss
carryforwards, and foreign taxes. No taxes were provided in 1999
due to the net loss. Net deferred tax assets of
$55.8 million at the end of 2001 remain fully reserved
because of the uncertainty regarding the ultimate realization of
these assets.

Liquidity and Capital Resources

At December 31, 2001, Xicor had
$56.4 million in cash and cash equivalents. Corresponding
balances at the end of 2000 and 1999 were $29.1 million and
$22.2 million, respectively. The increased cash balance at
December 31, 2001 compared to the prior year end was
principally due to the November 2001 issuance of
$35.0 million of 5.5% convertible notes and warrants due
2006, with semiannual interest payments on May 19

12



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and November 19 of each year, commencing
May 19, 2002. The Notes are convertible, at the option of
the holder, into our common stock at any time unless previously
redeemed or repurchased, at a conversion price of $11.22 per
share, subject to adjustment in certain events. The net proceeds
of the offering were $32.2 million after payment of the
underwriting discount and expenses of the offering of
$2.8 million.


In 2001 Xicor used $4.0 million of cash in
operating activities (including $3.8 million associated
with restructuring activities), $2.5 million to invest in
Standard MEMS, $0.9 million to repay long-term
obligations and $0.3 million for net equipment purchases
($1.3 million of equipment purchases, net of
$1.0 million of equipment financing). Xicor generated
$2.6 million from the issuance of stock under employee
stock plans.

In 2000 Xicor generated $11.4 million of
cash from operating activities, $12.8 million of proceeds
from the sale of the wafer fabrication assets and inventory to
Standard MEMS and $2.3 million from the issuance of
stock under employee stock plans. Xicor used $13.7 million
to repay long-term obligations and $6.0 million for
equipment purchases.

In 1999 Xicor generated $12.7 million of
cash from operating activities and $0.8 million from the
issuance of stock under employee stock plans and used
$7.5 million to repay long-term obligations and
$1.6 million for capital asset purchases.

During 2002, Xicor expects to use cash in
operating activities (including interest payments on the
convertible note and costs associated with restructuring
activities), to repay long-term obligations and purchase
equipment. Capital expenditures for 2002 are currently planned
at approximately $1.2 million and are primarily related to
product design and equipment for product test development. At
December 31, 2001, Xicor had entered into commitments for
equipment purchases aggregating less than $0.2 million.
Minimum future lease payments under non-cancelable leases as of
December 31, 2001 were as follows: 2002 
$2.3 million, 2003  $1.6 million,
2004  $1.6 million, 2005 
$1.6 million, 2006  $1.4 million and
$4.5 million thereafter.

Xicor has a line of credit agreement with a
financial institution that expires March 31, 2002, 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, 2001,
approximately $3.5 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
will be adequate to support Xicors operations for the next
twelve months, and accordingly, management does not plan to
renew the line of credit in 2002.

Critical Accounting Policies

The preparation of financial statements requires
management 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



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Xicors customers include original equipment
	manufacturers, distributors and contract manufacturers. Xicor
	recognizes 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 to
	earnings.
|
| | Certain of Xicors sales to distributors are
	contractually subject to rights of return and price concessions
	on unsold merchandise. Because of frequent sales price
	reductions on standard products, the                                                                                                                                                                                                                                                                                                                                                                                                                            

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##### Table of Contents



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | distributors return rights and rapid
	technological obsolescence in the industry, Xicor defers
	recognition of such sales until the distributors sell the
	merchandise. From time to time Xicor terminates distributors,
	contractually eliminates their rights of return and price
	concessions or obsoletes parts in the distribution channel. In
	such cases, Xicor recognizes 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 Xicor 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 merchandise.

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, 2001 and 2000 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 Xicor or its
	competitors, changes in the purchasing patterns of Xicors
	customers and distribution partners, or adverse global economic
	conditions may materially affect estimates of Xicors
	inventory reserve requirements resulting in additional inventory
	write downs. During 2001, Xicor recorded an $8.2 million
	charge to cost of sales to write down inventories to their net
	realizable value in connection with its plan to exit from
	offering stand alone low-density serial EEPROM memory products.

Non-marketable
securities



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In 2001 we invested $2.5 million in a
	company whose stock is not publicly traded. The cost method of
	accounting was used to account for this investment as we hold a
	non-material ownership percentage. We assess the value of this
	investment principally by using information acquired from the
	investee, including historical and projected financial
	performance and recent funding events. We record an investment
	impairment charge when we believe an investment has experienced
	a decline in values that is other than temporary. Market
	conditions, the availability of private equity or poor operating
	results of the investee could result in our inability to recover
	the carrying value of the investment that may not be reflected
	in the investments current carrying value of
	$2.5 million at December 31, 2001, thereby possibly
	requiring an impairment charge in the future.

Restructuring



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In connection with restructuring plans,
	management is 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 1999, Xicor recorded a
	restructuring charge of $23.7 million related to the
	decision to close the Milpitas wafer fabrication facility. In
	2000, Xicor recorded a net restructuring credit of
	$3.8 million consisting of $6.1 million of costs
	originally included in the restructuring accrual not utilized
	primarily due to the unanticipated sale of the fabrication
	facility, partially offset by $2.3 million related
	principally to

14



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| |                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | additional workforce reductions to streamline
	operations and further implement Xicors outsourced
	manufacturing strategy. In 2001, Xicor recorded a
	$3.2 million restructuring charge associated with the move
	to fully outsourced test and assembly operations and the exit
	from offering stand alone low-density serial EEPROM memory
	products.

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. Xicor has net deferred tax assets of
	$55.8 million at December 31, 2001 that remain fully
	reserved because of the uncertainty regarding the ultimate
	realization of these assets. In the event Xicor determines that
	it will be able to realize its deferred tax assets in the
	future, an adjustment to the deferred tax asset will be recorded
	as a credit to income in the period the determination is made.

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 July 2001, the Financial Accounting Standards
Board (FASB) issued FASB Statements Nos. 141 and 142
(FAS 141 and FAS 142), Business
Combinations and Goodwill and Other Intangible
Assets. FAS 141 replaces APB 16 and eliminates
pooling-of-interests accounting prospectively. It also provides
guidance on purchase accounting related to the recognition of
intangible assets and accounting for negative goodwill.
FAS 142 changes the accounting for goodwill from an
amortization method to an impairment-only approach. Under
FAS 142, goodwill will be evaluated annually and to
determine whether events or circumstances have occurred
indicating that goodwill might be impaired. FAS 141 and
FAS 142 are effective for all business combinations
completed after June 30, 2001. The Company believes that
adoption of FAS 141 and FAS 142 in the first quarter of
2002 will not have a material impact on its financial position
and results of operations.

In August 2001, FASB Statement No. 143
(FAS 143), Accounting for Asset Retirement
Obligations was issued. This Statement addresses financial
accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated
asset retirement costs. FAS 143 applies to legal
obligations associated with the retirement of long-lived assets
that result from the acquisition, construction, development and
(or) the normal operation of a long-lived asset, except for
certain obligations of lessees. FAS 143 is effective for
financial statements issued for fiscal years beginning after
June 25, 2002. The Company expects that the initial
application of FAS 143 will not have an impact on its
financial statements.

In October 2001, FASB Statement No. 144
(FAS 144), Accounting for the Impairment or Disposal
of Long-lived Assets was issued. The objectives of
FAS 144 are to address significant issues relating to the
implementation of FAS No. 121 (FAS 121), Accounting
for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed Of, and to develop a single
accounting model, based on the framework established by
FAS 121, for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired. FAS
No. 144 is effective for financial statements issued for
fiscal years beginning after December 15, 2001, and interim
periods within those fiscal years. The Company expects that the
initial application of FAS 144 will not have a material
impact on its financial statements.

15



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##### Table of Contents



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 the belief
that 2002 will be a challenging year for the mixed-signal
business as the difficult industry conditions experienced in
2001 extend into 2002; the expectation for serial EEPROM sales
to decline significantly in 2002 compared to 2001; the plan to
complete our exit from the serial EEPROM business in 2002; the
expectation that total sales for 2002 will be significantly
below 2001 levels; the anticipation that Xicor will incur losses
in 2002; the expectation that the gross profit percentage will
fluctuate from quarter to quarter as a result of changes in
product mix, product costs and average selling prices; the
expected workforce and cost reductions from Xicors
restructuring plans; the expectation that interest income will
decrease in 2002 compared to 2001 due to lower interest rates;
the expectation to use cash in 2002; and the expectation that
currently available cash will be adequate to support operations
for the next twelve months. Except for historical information,
the matters discussed in this Annual Report on Form 10-K
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 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 Xicor and its competitors); Xicors
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 Xicor using Xicors proprietary technology;
any disruptions of our foundry relationships; manufacturing
efficiencies; the ability to continue effective cost reductions;
currency fluctuations; the timely development and introduction
of new products and submicron processes, 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
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. Xicor undertakes 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.

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 three of the last four 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, including the current severe
business down cycle; 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.

16



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| |                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------
| | The exit from a portion of our memory
	business has changed our business model and is causing a
	reduction in our revenues.

In the first quarter of 2001, Xicor announced its
plan to exit from offering stand-alone low-density serial EEPROM
memory products. To date, Xicor has been unable to secure a
buyer for the business, particularly in light of the current
weak economic conditions, and plans to complete its exit from
that business in 2002.

The transition out of the serial EEPROM memory
business has reduced Xicors revenues and is requiring the
Company to devote significant time and expense to transition
activities at the same time it is increasing its focus on its
mixed-signal products. If Xicors penetration of the
mixed-signal market does not increase, Xicors operating
results could be seriously harmed and its stock price could
decline. Further, as a result of the transition, Xicor has
become a smaller company with limited resources and a reduced
workforce. Xicor may not be able to effectively use its limited
resources to increase new product development and build its
mixed-signal product business. This could cause a further
decline in Xicors revenues.



| |                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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. We are presently
experiencing an economic downturn that is harming our business.
Our success depends on a better 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.



| |                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------
| | 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, 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. During 2001, approximately 47% of
sales were through distribution, with one distributor accounting
for 23% of our sales. 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 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 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.

Xicor out sources all manufacturing operations.
Our reliance on third-party foundries and subcontractors to
manufacture our products and ship our products to customers
involves the following significant risks:



| |   |                                                                                   
| | - | ----------------------------------------------------------------------------------
| |  | reduced control over delivery schedules and
	quality;                             
|
| |  | the potential lack of adequate capacity 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 Xicor shifts 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.



| |                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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, harm 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 and may continue to result in excess
inventory levels or inventory write-downs if expected orders
fail to materialize or prices decrease substantially.

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| |                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In 2001 we invested in a company whose
	stock is not publicly traded. They recently completed a round of
	funding and are pursuing additional funding. If they cannot
	obtain additional funding at a valuation that is at least
	equivalent to our investment valuation, this could result in an
	inability to recover the carrying value of our investment,
	thereby possibly requiring an impairment charge in the
	future.



| |                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We have entered into certain minimum wafer
	purchase commitments with Foundry Partners in exchange for
	capacity commitments and plan our production based on internal
	forecasts of customer demand. Should demand for our products
	decrease, 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 our ability to increase
	sales of our products.

We compete with major semiconductor companies
such as Analog Devices, Atmel Corporation, Catalyst
Semiconductor and Maxim, most of whom have substantially greater
financial, technical, marketing, distribution, and other
resources than we do and have their own facilities for the
production of semiconductor components. In addition, our foundry
partners have the right to develop and fabricate products based
on our process technology.



| |                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 operating results.



| |                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------
| | 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.

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| |                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 operating results 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. We recently filed suit against a
competitor to protect our intellectual property. 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 Xicor 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 several semiconductor manufacturers 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.

Our international sales accounted for
approximately 59% of total sales in 2001 and 53% of total sales
in fiscal year 2000. 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 payment cycles; potentially adverse
tax consequences; and burdens of complying with a wide variety
of foreign laws.



| |                                                 
| | ------------------------------------------------
| | 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. Our facility in the
State of California may be subject to electrical blackouts due
to a shortage of available electrical power. If these blackouts
were to occur, they could disrupt Xicors operations.
Business interruption insurance may not provide protection due
to the deductible periods or be enough to compensate us for
losses that may occur. Additionally, Xicor has been unable to
obtain earthquake insurance of reasonable costs and limits.



| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may face interruption of production and
	services due to increased security measures in response to
	recent and potential future terrorist activities.

Our business depends on the free flow of products
and services through the channels of commerce. Recently, in
response to terrorists activities and threats aimed at the
United States, transportation, mail, financial and other
services have been slowed or stopped altogether. Further delays
or stoppages in

20



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transportation, mail, financial or other
services, particularly any such delays or stoppages which harm
our ability to obtain an adequate supply of wafers and products
from our foreign foundries or contractors, could harm our
business, results of operations and financial condition.
Furthermore, we may experience an increase in operating costs,
such as costs for transportation, insurance and security as a
result of the activities and potential activities. We may also
experience delays in receiving payments from customers that have
been affected by the terrorist activities and potential
activities. The United States economy in general is being
adversely affected by terrorist activities and potential
terrorist activities. Any economic downturn could adversely
impact our results of operations, impair our ability to raise
capital or otherwise adversely affect our ability to grow our
business. Moreover, we cannot determine whether other attacks
may occur in the future and the effects of such attacks on our
business could be severe.




| |                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our November 2001 Debt Financing
	substantially increased our indebtedness which may make it more
	difficult to obtain financing in the future and cause our
	business to suffer.

As a result of our November 2001 sale of notes
and warrants, we incurred $35 million of additional
indebtedness. The level of our indebtedness, among other things,
could make it difficult for us to obtain any necessary financing
in the future for working capital, capital expenditures, debt
service requirements or other purposes; limit our flexibility in
planning for, or reacting to changes in, our business; and make
us more vulnerable in the event of a downturn in our business.
If any of these risks materialize we may be unable to
successfully execute our business plan.



| |                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------
| | Our business could be harmed if the net
	proceeds from the November 2001 Debt Financing is used
	ineffectively.

We have flexibility in applying the net proceeds
of the debt financing. We intend to use the proceeds of this
offering for working capital and general corporate purposes. We
may also use the proceeds for acquisitions, including
acquisitions of intellectual property and design teams, if
appropriate candidates can be identified and mutually acceptable
terms can be agreed upon. These purposes could also include
funding research, development, sales and marketing and capital
expenditures. The failure to apply these net proceeds
effectively could harm our business, results of operations and
financial condition.



| |                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The conversion of our outstanding
	convertible debt and exercise of warrants issued in connection
	with our convertible debt may result in dilution to holders of
	our common stock and a reduction in the price of our common
	stock.

In November 2001 we issued $35 million in
convertible notes and related warrants. The convertible notes
enable the holders to convert principal amounts owed under the
notes into an aggregate of approximately 3.1 million shares
of common stock at a conversion price of $11.22 per share. In
connection with the issuance of the convertible notes we also
issued warrants for the purchase of approximately one million
shares of common stock that are exercisable at a price of $12.24
per share. If the price of our common stock exceeds the
conversion price of the notes and exercise price of the
warrants, holders of the notes and warrants may convert the debt
and exercise the warrants. Xicor may force the conversion of all
or a portion of the notes and warrants in certain circumstances.
Our issuance of common stock at prices of $11.22 per share upon
conversion of the debt and $12.24 per share upon exercise of the
warrants may result in dilution to other holders of common stock
and may cause the price of our common stock to fall. In
addition, if note and warrant holders elect to sell the common
stock issued upon the conversion of the debt and exercise of the
warrants, the price of our common stock may fall.



| |                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 also sell additional shares
of our stock or seek additional borrowings or outside capital
infusions. We cannot assure

21



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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 with respect to their investment.





Item 7A.     Quantitative
and Qualitative Disclosures About Market Risk

Xicor does not use derivative financial
instruments in its investment portfolio. 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. Due to the short duration and
conservative nature of Xicors investment portfolio a
movement of 10% by market interest rates would not have a
material impact on Xicors operating results and the total
value of the portfolio over the next fiscal year.

Xicor is exposed to risks associated with foreign
exchange rate fluctuations due to our international
manufacturing and sales activities. Xicor generally has 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.

22



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##### Table of Contents






Item 8.     Consolidated
Financial Statements and Supplementary Data

XICOR, INC.

CONSOLIDATED BALANCE SHEETS

|                                                                      |                                                                                                        |                           |        |          |        |   |        |          |        | 
|--------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------ | ------------------------- | ------ | -------- | ------ | - | ------ | -------- | ------ | 
|                                                                      |                                                                                                        |                          
|                                                                      |                                                                                                        | December 31,             
|                                                                      |                                                                                                        |                          
|                                                                      |                                                                                                        | 2001                      |        | 2000    
|                                                                      |                                                                                                        |                           |        |         
|                                                                      |                                                                                                        |                          
|                                                                      |                                                                                                        | (In thousands)           
|ASSETS                                                               
|Current assets:                                                       |                                                                                                        |                           |        |          |        |   |        |         
|                                                                      | Cash and cash equivalents                                                                              |                           | $      | 56,367   |        |   | $      | 29,121   |       
|                                                                      | Accounts receivable                                                                                    |                           |        | 3,501    |        |   |        | 10,812   |       
|                                                                      | Inventories                                                                                            |                           |        | 9,404    |        |   |        | 14,380   |       
|                                                                      | Prepaid expenses and other current assets                                                              |                           |        | 192      |        |   |        | 639      |       
|                                                                      |                                                                                                        |                           |        |          |        |   |        |         
|                                                                      |                                                                                                        | Total current assets      |        |          | 69,464 |   |        |          | 54,952 | 
|Property, plant and equipment, at cost less
	accumulated depreciation |                                                                                                        |                           | 5,223  |          |        |   | 9,166  |         
|Other assets                                                          |                                                                                                        |                           | 5,764  |          |        |   | 205    |         
|                                                                      |                                                                                                        |                           |        |          |        |   |        |         
|Total assets                                                          |                                                                                                        | $                         | 80,451 |          |        | $ | 64,323 |         
|                                                                      |                                                                                                        |                           |        |          |        |   |        |         
|LIABILITIES AND SHAREHOLDERS
	EQUITY                                
|Current liabilities:                                                  |                                                                                                        |                           |        |          |        |   |        |         
|                                                                      | Accounts payable                                                                                       |                           | $      | 9,646    |        |   | $      | 11,132   |       
|                                                                      | Accrued expenses                                                                                       |                           |        | 7,867    |        |   |        | 12,637   |       
|                                                                      | Deferred income on shipments to distributors                                                           |                           |        | 10,465   |        |   |        | 14,258   |       
|                                                                      | Deferred gain on sale of fab assets                                                                    |                           |        | 2,082    |        |   |        | 4,600    |       
|                                                                      | Current portion of long-term obligations                                                               |                           |        | 841      |        |   |        | 766      |       
|                                                                      |                                                                                                        |                           |        |          |        |   |        |         
|                                                                      |                                                                                                        | Total current liabilities |        |          | 30,901 |   |        |          | 43,393 | 
|Convertible subordinated notes                                        |                                                                                                        |                           | 31,896 |          |        |   |       |         
|Long-term obligations                                                 |                                                                                                        |                           | 738    |          |        |   | 715    |         
|                                                                      |                                                                                                        |                           |        |          |        |   |        |         
|Total liabilities                                                     |                                                                                                        |                           | 63,535 |          |        |   | 44,108 |         
|                                                                      |                                                                                                        |                           |        |          |        |   |        |         
|Commitments and contingencies (Notes 5 and 10)                        |                                                                                                        |                           |        |          |        |   |        |         
|Shareholders equity:                                                 |                                                                                                        |                           |        |          |        |   |        |         
|                                                                      | Preferred stock, no par value; 5,000 shares
	authorized; none issued or outstanding                    |                           |        |         |        |   |        |         |       
|                                                                      | Common stock, no par value; 75,000 shares
	authorized; 22,339 and 21,466 shares issued and outstanding |                           |        | 137,775  |        |   |        | 131,605  |       
|                                                                      | Accumulated deficit                                                                                    |                           |        | (120,859 | )      |   |        | (111,390 | )     
|                                                                      |                                                                                                        |                           |        |          |        |   |        |         
|Total shareholders equity                                            |                                                                                                        |                           | 16,916 |          |        |   | 20,215 |         
|                                                                      |                                                                                                        |                           |        |          |        |   |        |         
|Total liabilities and shareholders equity                            |                                                                                                        | $                         | 80,451 |          |        | $ | 64,323 |         
|                                                                      |                                                                                                        |                           |        |          |        |   |        |         

See accompanying notes to consolidated financial
statements.

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XICOR, INC.

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                      |                                     |                           |         |        |   |      |         |        |   |   |         |        |  
|------------------------------------- | ----------------------------------- | ------------------------- | ------- | ------ | - | ---- | ------- | ------ | - | - | ------- | ------ | -
|                                      |                                     |                          
|                                      |                                     | Year Ended December 31,  
|                                      |                                     |                          
|                                      |                                     | 2001                      |         | 2000   |   | 1999
|                                      |                                     |                           |         |        |   |     
|                                      |                                     |                          
|                                      |                                     | (In thousands,           
|                                      |                                     | except per share amounts)
|Net sales                             |                                     | $                         | 70,073  |        |   | $    | 122,849 |        |   | $ | 114,887 |       
|Cost of sales                         |                                     |                           | 45,100  |        |   |      | 71,672  |        |   |   | 80,474  |       
|                                      |                                     |                           |         |        |   |      |         |        |   |   |         |       
|                                      | Gross profit                        |                           |         | 24,973 |   |      |         | 51,177 |   |   |         | 34,413 |  
|                                      |                                     |                           |         |        |   |      |         |        |   |   |         |       
|Operating expenses:                   |                                     |                           |         |        |   |      |         |        |   |   |         |       
|                                      | Research and development            |                           |         | 13,613 |   |      |         | 15,880 |   |   |         | 14,560 |  
|                                      | Selling, general and administrative |                           |         | 18,235 |   |      |         | 26,122 |   |   |         | 22,360 |  
|                                      | Restructuring charge (credit)       |                           |         | 3,205  |   |      |         | (3,841 | ) |   |         | 23,719 |  
|                                      |                                     |                           |         |        |   |      |         |        |   |   |         |       
|                                      |                                     |                           | 35,053  |        |   |      | 38,161  |        |   |   | 60,639  |       
|                                      |                                     |                           |         |        |   |      |         |        |   |   |         |       
|Income (loss) from operations         |                                     |                           | (10,080 | )      |   |      | 13,016  |        |   |   | (26,226 | )     
|Interest expense                      |                                     |                           | (524    | )      |   |      | (817    | )      |   |   | (1,407  | )     
|Interest income                       |                                     |                           | 1,237   |        |   |      | 1,458   |        |   |   | 704     |       
|                                      |                                     |                           |         |        |   |      |         |        |   |   |         |       
|Income (loss) before income taxes     |                                     |                           | (9,367  | )      |   |      | 13,657  |        |   |   | (26,929 | )     
|Provision for income taxes            |                                     |                           | 102     |        |   |      | 491     |        |   |   |        |       
|                                      |                                     |                           |         |        |   |      |         |        |   |   |         |       
|Net income (loss)                     |                                     | $                         | (9,469  | )      |   | $    | 13,166  |        |   | $ | (26,929 | )     
|                                      |                                     |                           |         |        |   |      |         |        |   |   |         |       
|Net income (loss) per share:          |                                     |                           |         |        |   |      |         |        |   |   |         |       
|                                      | Basic                               |                           | $       | (0.43  | ) |      | $       | 0.62   |   |   | $       | (1.32  | )
|                                      |                                     |                           |         |        |   |      |         |        |   |   |         |       
|                                      | Diluted                             |                           | $       | (0.43  | ) |      | $       | 0.57   |   |   | $       | (1.32  | )
|                                      |                                     |                           |         |        |   |      |         |        |   |   |         |       
|Shares used in per share calculation: |                                     |                           |         |        |   |      |         |        |   |   |         |       
|                                      | Basic                               |                           |         | 21,803 |   |      |         | 21,189 |   |   |         | 20,324 |  
|                                      |                                     |                           |         |        |   |      |         |        |   |   |         |       
|                                      | Diluted                             |                           |         | 21,803 |   |      |         | 23,286 |   |   |         | 20,324 |  
|                                      |                                     |                           |         |        |   |      |         |        |   |   |         |       

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, 1998                             |  |                | 20,134 |             |  | $       | 128,232 |       |  | $ | (97,627  | ) |  | $ | 30,605  |  
|Issuance of shares under employee stock plans and
	other |  |                | 461    |             |  |         | 773     |       |  |   |         |   |  |   | 773     |  
|Net loss                                                 |  |                |       |             |  |         |        |       |  |   | (26,929  | ) |  |   | (26,929 | )
|                                                         |  |                |        |             |  |         |         |       |  |   |          |   |  |   |         |  
|Balance at December 31, 1999                             |  |                | 20,595 |             |  |         | 129,005 |       |  |   | (124,556 | ) |  |   | 4,449   |  
|Issuance of shares under employee stock plans and
	other |  |                | 871    |             |  |         | 2,600   |       |  |   |         |   |  |   | 2,600   |  
|Net income                                               |  |                |       |             |  |         |        |       |  |   | 13,166   |   |  |   | 13,166  |  
|                                                         |  |                |        |             |  |         |         |       |  |   |          |   |  |   |         |  
|Balance at December 31, 2000                             |  |                | 21,466 |             |  |         | 131,605 |       |  |   | (111,390 | ) |  |   | 20,215  |  
|                                                         |  |                |        |             |  |         |         |       |  |   |          |   |  |   |         |  
|Issuance of shares under employee stock plans and
	other |  |                | 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  |  
|                                                         |  |                |        |             |  |         |         |       |  |   |          |   |  |   |         |  

See accompanying notes to consolidated financial
statements.

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XICOR, INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                      |                                                                                       |                                                  |                                              |        |        |        |         |         |       |        |        |         |        |       |  
|----------------------------------------------------- | ------------------------------------------------------------------------------------- | ------------------------------------------------ | -------------------------------------------- | ------ | ------ | ------ | ------- | ------- | ----- | ------ | ------ | ------- | ------ | ----- | -
|                                                      |                                                                                       |                                                 
|                                                      |                                                                                       | Year Ended December 31,                         
|                                                      |                                                                                       |                                                 
|                                                      |                                                                                       | 2001                                             |                                              | 2000   |        | 1999  
|                                                      |                                                                                       |                                                  |                                              |        |        |       
|                                                      |                                                                                       |                                                 
|                                                      |                                                                                       | (In thousands)                                  
|Cash flows from operating activities:                 |                                                                                       |                                                  |                                              |        |        |        |         |         |       |        |        |        
|                                                      | Net income (loss)                                                                     |                                                  | $                                            | (9,469 | )      |        | $       | 13,166  |       |        | $      | (26,929 | )     
|                                                      | Adjustments to reconcile net income (loss) to
	cash provided by operating activities: |                                                  |                                              |        |        |        |         |         |       |        |        |         |       
|                                                      |                                                                                       | Depreciation                                     |                                              |        | 3,925  |        |         |         | 4,031 |        |        |         | 13,235 |      
|                                                      |                                                                                       | Amortization of fab gain                         |                                              |        | (2,518 | )      |         |         | (436  | )      |        |         |       |      
|                                                      |                                                                                       | Amortization of debt issuance costs and warrants |                                              |        | 140    |        |         |         |      |        |        |         |       |      
|                                                      |                                                                                       | Non-cash restructuring charge                    |                                              |        | 1,249  |        |         |         |      |        |        |         | 16,338 |      
|                                                      |                                                                                       | Changes in assets and liabilities:               |                                              |        |        |        |         |         |       |        |        |         |        |      
|                                                      |                                                                                       |                                                  | Accounts receivable                          |        |        | 7,311  |         |         |       | (2,304 | )      |         |        | 327   |  
|                                                      |                                                                                       |                                                  | Inventories                                  |        |        | 4,976  |         |         |       | (3,709 | )      |         |        | (233  | )
|                                                      |                                                                                       |                                                  | Prepaid expenses and other current assets    |        |        | 447    |         |         |       | (259   | )      |         |        | 636   |  
|                                                      |                                                                                       |                                                  | Other assets                                 |        |        | 19     |         |         |       | 76     |        |         |        | 5     |  
|                                                      |                                                                                       |                                                  | Accounts payable and accrued expenses        |        |        | (6,256 | )       |         |       | (558   | )      |         |        | 3,578 |  
|                                                      |                                                                                       |                                                  | Deferred income on shipments to distributors |        |        | (3,793 | )       |         |       | 1,430  |        |         |        | 3,707 |  
|                                                      |                                                                                       |                                                  | Long-term obligations                        |        |        |       |         |         |       |       |        |         |        | 1,993 |  
|                                                      |                                                                                       |                                                  |                                              |        |        |        |         |         |       |        |        |        
|Net cash provided by (used in) operating
	activities  |                                                                                       |                                                  | (3,969                                       | )      |        |        | 11,437  |         |       |        | 12,657 |        
|                                                      |                                                                                       |                                                  |                                              |        |        |        |         |         |       |        |        |        
|Cash flows from investing activities:                 |                                                                                       |                                                  |                                              |        |        |        |         |         |       |        |        |        
|                                                      | Investments in plant and equipment, net                                               |                                                  |                                              | (262   | )      |        |         | (6,020  | )     |        |        | (1,555  | )     
|                                                      | Investment in Standard MEMS                                                           |                                                  |                                              | (2,500 | )      |        |         |        |       |        |        |        |       
|                                                      | Proceeds from the sale of the fab                                                     |                                                  |                                              |       |        |        |         | 12,825  |       |        |        |        |       
|                                                      |                                                                                       |                                                  |                                              |        |        |        |         |         |       |        |        |        
|Net cash provided by (used in) investing
	activities  |                                                                                       |                                                  | (2,762                                       | )      |        |        | 6,805   |         |       |        | (1,555 | )      
|                                                      |                                                                                       |                                                  |                                              |        |        |        |         |         |       |        |        |        
|Cash flows from financing activities:                 |                                                                                       |                                                  |                                              |        |        |        |         |         |       |        |        |        
|                                                      | Repayments of long-term obligations                                                   |                                                  |                                              | (871   | )      |        |         | (13,675 | )     |        |        | (7,523  | )     
|                                                      | Proceeds from sale of common stock, net of
	issuance costs, to employees and others   |                                                  |                                              | 2,648  |        |        |         | 2,321   |       |        |        | 773     |       
|                                                      | Proceeds from issuance of convertible
	subordinated notes and warrants                |                                                  |                                              | 32,200 |        |        |         |        |       |        |        |        |       
|                                                      |                                                                                       |                                                  |                                              |        |        |        |         |         |       |        |        |        
|Net cash provided by (used in) financing
	activities  |                                                                                       |                                                  | 33,977                                       |        |        |        | (11,354 | )       |       |        | (6,750 | )      
|                                                      |                                                                                       |                                                  |                                              |        |        |        |         |         |       |        |        |        
|Increase (decrease) in cash and cash equivalents      |                                                                                       |                                                  | 27,246                                       |        |        |        | 6,888   |         |       |        | 4,352  |        
|Cash and cash equivalents at beginning of year        |                                                                                       |                                                  | 29,121                                       |        |        |        | 22,233  |         |       |        | 17,881 |        
|                                                      |                                                                                       |                                                  |                                              |        |        |        |         |         |       |        |        |        
|Cash and cash equivalents at end of year              |                                                                                       | $                                                | 56,367                                       |        |        | $      | 29,121  |         |       | $      | 22,233 |        
|                                                      |                                                                                       |                                                  |                                              |        |        |        |         |         |       |        |        |        
|Supplemental information:                             |                                                                                       |                                                  |                                              |        |        |        |         |         |       |        |        |        
|Cash paid (refunded) during the year for:             |                                                                                       |                                                  |                                              |        |        |        |         |         |       |        |        |        
|                                                      | Interest expense                                                                      |                                                  | $                                            | 178    |        |        | $       | 810     |       |        | $      | 1,472   |       
|                                                      | Income taxes                                                                          |                                                  |                                              | (15    | )      |        |         | 305     |       |        |        | 100     |       
|Equipment acquired pursuant to long-term
	obligations |                                                                                       |                                                  | 969                                          |        |        |        |        |         |       |        | 333    |        

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. Xicor
operates in one reportable segment based on the companys
internal organization. Xicors 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 Xicors legacy businesses of serial
EEPROMs, which we are in the process of exiting, and parallel
EEPROMs, which business we are retaining. Annual sales by
product group were:

|                           |  |                         |    |      |  |      |     |  |  |   |     | 
|-------------------------- |  | ----------------------- | -- | ---- |  | ---- | --- |  |  | - | --- | 
|                           |  |                        
|                           |  | Year Ended December 31,
|                           |  |                        
|                           |  | 2001                    |    | 2000 |  | 1999
|                           |  |                         |    |      |  |     
|                           |  |                        
|                           |  | (In millions)          
|Mixed-signal product sales |  | $                       | 35 |      |  | $    | 43  |  |  | $ | 30  | 
|Memory product sales       |  |                         | 35 |      |  |      | 80  |  |  |   | 85  | 
|                           |  |                         |    |      |  |      |     |  |  |   |     | 
|Total Sales                |  | $                       | 70 |      |  | $    | 123 |  |  | $ | 115 | 
|                           |  |                         |    |      |  |      |     |  |  |   |     | 

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

|              |  |                         |    |      |  |      |     |  |  |   |     | 
|------------- |  | ----------------------- | -- | ---- |  | ---- | --- |  |  | - | --- | 
|              |  |                        
|              |  | Year Ended December 31,
|              |  |                        
|              |  | 2001                    |    | 2000 |  | 1999
|              |  |                         |    |      |  |     
|              |  |                        
|              |  | (In millions)          
|United States |  | $                       | 29 |      |  | $    | 58  |  |  | $ | 51  | 
|Asia Pacific  |  |                         | 14 |      |  |      | 31  |  |  |   | 37  | 
|Europe        |  |                         | 24 |      |  |      | 28  |  |  |   | 22  | 
|Other         |  |                         | 3  |      |  |      | 6   |  |  |   | 5   | 
|              |  |                         |    |      |  |      |     |  |  |   |     | 
|              |  | $                       | 70 |      |  | $    | 123 |  |  | $ | 115 | 
|              |  |                         |    |      |  |      |     |  |  |   |     | 

Avnet, one of Xicors global distributors,
accounted for 23% of sales in 2001, 19% in 2000, and 14% in
1999. One OEM customer represented 11% of sales in 1999.

Xicor has adopted generally accepted accounting
principles that are customary 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 years 2001, 2000 and 1999 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.

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XICOR, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Cash
Equivalents

Cash equivalents consist principally of United
States Government Agency Notes and Treasury Bills, money market
funds and certificates of deposit. Highly liquid investments
with maturities of three months or less at the time of purchase
are considered cash equivalents.

Concentrations
of Credit Risk

Financial instruments that potentially subject
Xicor to concentrations of credit risk consist principally of
cash equivalents and accounts receivable. Xicor invests
primarily in United States Government Agency Notes and Treasury
Bills, money market funds 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 Asia. 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.

Long-term
Investments

During the third quarter of 2001, Xicor invested
$2.5 million in Standard MEMS, Inc., representing a 5%
ownership. Headquartered in Burlington, Massachusetts, Standard
MEMS is a manufacturer of micro electro-mechanical systems for
transducer, photonic and fluid applications and one of
Xicors third party foundries. The Company is accounting
for the investment using the cost method. The investment is
included in other assets on the balance sheet.

Long-lived
Assets

Xicor reviews long-lived assets for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.

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XICOR, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Revenue
Recognition

Xicors customers include original equipment
manufacturers, distributors and contract manufacturers. Xicor
recognizes 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 Xicors sales to distributors are
contractually subject to rights of return and price concessions
on unsold merchandise. Because of frequent sales price
reductions on standard products, the distributors return
rights and rapid technological obsolescence in the semiconductor
industry, Xicor defers recognition of such sales until the
distributors sell the merchandise. From time to time Xicor
terminates distributors, contractually eliminates their rights
of return and price concessions or obsoletes parts in the
distribution channel. In such cases, Xicor recognizes 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.

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. The same net
income (loss) amounts were used for Basic Earnings Per
Share (EPS) and Diluted EPS for the three years in the
period ended December 31, 2001. The net income
(loss) for the periods reported also represented the
comprehensive net income (loss) for such periods.

Potential common shares consisting of 2,097,000
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, 2000. For the years ended
December 31, 2001 and 1999, the number of shares used in
the calculations of both EPS amounts were the same since stock
options aggregating 4,984,000 at a weighted average price of
$5.06 per share and 3,259,000 at a weighted average price of
$3.02 per share, respectively, were excluded as they were
antidilutive.

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 as
interpreted in Financial Accounting Standards Board
Interpretation No. 44 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 at time of grant is recognized in the financial
statements. Xicor provides additional pro forma disclosures as
required under SFAS 123 in Note 7.

New
Accounting Pronouncements

In July 2001, the Financial Accounting Standards
Board (FASB) issued FASB Statements Nos. 141 and 142
(FAS 141 and FAS 142), Business
Combinations and Goodwill and Other Intangible
Assets. FAS 141 replaces APB 16 and eliminates
pooling-of-interests accounting prospectively. It also provides
guidance on purchase accounting related to the recognition of
intangible assets and accounting for negative goodwill.
FAS 142 changes the accounting for goodwill from an
amortization method to an impairment-only approach. Under
FAS 142, goodwill will be evaluated annually and to
determine whether events or circumstances have occurred
indicating that goodwill might be impaired. FAS 141 and
FAS 142 are effective

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XICOR, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

for all business combinations completed after
June 30, 2001. The Company believes that adoption of
FAS 141 and FAS 142 in the first quarter of 2002 will
not have a material impact on its financial position and results
of operations.

In August 2001, FASB Statement No. 143
(FAS 143), Accounting for Asset Retirement
Obligations was issued. This Statement addresses financial
accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated
asset retirement costs. FAS 143 applies to legal
obligations associated with the retirement of long-lived assets
that result from the acquisition, construction, development and
(or) the normal operation of a long-lived asset, except for
certain obligations of lessees. FAS 143 is effective for
financial statements issued for fiscal years beginning after
June 25, 2002. The Company expects that the initial
application of FAS 143 will not have an impact on its
financial statements.

In October 2001, FASB Statement No. 144
(FAS 144), Accounting for the Impairment or Disposal
of Long-lived Assets was issued. The objectives of
FAS 144 are to address significant issues relating to the
implementation of FAS No. 121 (FAS 121),
Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed Of, and to develop a
single accounting model, based on the framework established by
FAS 121, for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired. FAS
No. 144 is effective for financial statements issued for
fiscal years beginning after December 15, 2001, and interim
periods within those fiscal years. The Company expects that the
initial application of FAS 144 will not have a material
impact on its financial statements.

Note 2  Restructuring:

During 1998 Xicor began to revise its
manufacturing and procurement strategies to significantly
increase outsourcing of wafer fabrication and product testing to
overseas subcontractors and to streamline operations. Throughout
1999, products manufactured by an outside foundry comprised an
increasing proportion of Xicors production and during the
fourth quarter of 1999 two other foundries successfully produced
initial wafers based on specifications provided by Xicor. Since
Xicor now had multiple third-party locations able to produce its
products, at significantly lower unit costs than the Milpitas
in-house facility, Xicor decided to close its Milpitas in-house
wafer fabrication facility and use third party foundries for all
of Xicors wafer fabrication production. In December 1999
Xicors Board of Directors approved the plan to close the
Milpitas fabrication facility. The decision to close the
Milpitas facility and streamline operations resulted in the
recording of a restructuring charge of $23.7 million in the
fourth quarter of 1999. Xicor began pursuing the sale of the
Milpitas manufacturing operations but believed at that time the
most likely outcome would be a piecemeal sale of the equipment.
The $16.3 million restructuring charge related to the write
down of the carrying value of Xicors fabrication equipment
to its estimated fair value less costs to sell was based on
third party estimates. The net fair value of the fabrication
equipment of $1.6 million was included in other
assets at December 31, 1999. Severance costs of
$1.5 million and fab closure costs totaling
$3.6 million were recorded in 1999. Fab closure costs
included decommissioning and clean up costs, environmental
closure costs and equipment decontamination and removal costs.
The restructuring charge also included a charge for idle
facilities of $0.8 million and equipment lease costs of
$1.5 million. Severance costs of $2.4 million were
accrued at December 31, 1999 for planned reductions in
workforce of approximately 200 employees, primarily in
manufacturing and related support groups.

In November 2000, Xicor completed the sale of the
wafer fabrication assets and inventory to Standard MEMS, Inc.
(Standard MEMS) for a gross purchase price of
$12.8 million. During 2000 Xicor utilized $1.9 million
of restructuring reserves. Related reductions in workforce of
approximately 200 employees, primarily in manufacturing and
related support groups, occurred primarily in the fourth quarter
of 2000. As a result of the sale of the fab, Xicor incurred
restructuring charges at levels significantly below the amount
previously estimated and accrued. The net restructuring credit
of $3.8 million recorded in 2000 consists of a reversal of
$6.1 million of costs originally included in the
restructuring accrual not utilized due primarily to the

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XICOR, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

sale of the fab to Standard MEMS, partially
offset by $2.3 million principally related to additional
workforce reduction that Xicor committed to in the fourth
quarter of 2000 to streamline operations and further implement
the companys outsourced manufacturing strategy. At
December 31, 2000, the restructuring accrual consisted of
$2.0 million of severance costs to further reduce the
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, Xicor announced its
plan to exit from offering stand alone low-density serial EEPROM
memory products and complete the move to fully outsourced test
and assembly operations. Accordingly, Xicors 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 Xicors 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, Xicor reduced its 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. The
remaining reductions in workforce are planned to occur in the
first half of 2002. 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.

The following table sets forth Xicors
activity for the restructuring accrual during the three years
ended December 31, 2001:

|                             |                   |                |       |           |   |         |       |            |   |       |       |        |   |   |     |      |   |   |       |        |  
|---------------------------- | ----------------- | -------------- | ----- | --------- | - | ------- | ----- | ---------- | - | ----- | ----- | ------ | - | - | --- | ---- | - | - | ----- | ------ | -
|                             |                   | Employee       |       |           |   |         |       |            |   |      
|                             |                   | Severance      |       | Equipment |   | Fab     |       | Idle       |   |      
|                             |                   | and            |       | Lease     |   | Closure |       | Facilities |   |      
|                             |                   | Other          |       | Costs     |   | Costs   |       | Charge     |   | Total
|                             |                   |                |       |           |   |         |       |            |   |      
|                             |                   |               
|                             |                   | (In thousands)
|Balance at December 31, 1998 |                   | $              | 1,350 |           |   | $       |      |            |   | $     |      |        |   | $ |    |      |   | $ | 1,350 |       
|                             | (Utilized)        |                |       | (449      | ) |         |       |           |   |       |       |       |   |   |     |     |   |   |       | (449   | )
|                             | (Credit)/ Expense |                |       | 1,464     |   |         |       | 1,484      |   |       |       | 3,555  |   |   |     | 878  |   |   |       | 7,381  |  
|                             |                   |                |       |           |   |         |       |            |   |       |       |        |   |   |     |      |   |   |       |       
|Balance at December 31, 1999 |                   |                | 2,365 |           |   |         | 1,484 |            |   |       | 3,555 |        |   |   | 878 |      |   |   | 8,282 |       
|                             | (Utilized)        |                |       | (727      | ) |         |       | (1,107     | ) |       |       | (24    | ) |   |     | (46  | ) |   |       | (1,904 | )
|                             | (Credit)/ Expense |                |       | 899       |   |         |       | (377       | ) |       |       | (3,531 | ) |   |     | (832 | ) |   |       | (3,841 | )
|                             |                   |                |       |           |   |         |       |            |   |       |       |        |   |   |     |      |   |   |       |       
|Balance at December 31, 2000 |                   |                | 2,537 |           |   |         |      |            |   |       |      |        |   |   |    |      |   |   | 2,537 |       
|                             | (Utilized)        |                |       | (3,802    | ) |         |       |           |   |       |       |       |   |   |     |     |   |   |       | (3,802 | )
|                             | (Credit)/ Expense |                |       | 1,956     |   |         |       |           |   |       |       |       |   |   |     |     |   |   |       | 1,956  |  
|                             |                   |                |       |           |   |         |       |            |   |       |       |        |   |   |     |      |   |   |       |       
|Balance at December 31, 2001 |                   | $              | 691   |           |   | $       |      |            |   | $     |      |        |   | $ |    |      |   | $ | 691   |       
|                             |                   |                |       |           |   |         |       |            |   |       |       |        |   |   |     |      |   |   |       |       

Note 3  Deferred Gain on Sale of
Fab Assets:

In November 2000, Xicor 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 Xicor and committed to supply
and Xicor committed to purchase certain minimum quantities of
wafers at fixed prices. Xicor deferred the $5.0 million net
gain related to the sale of the fab and is amortizing the gain
over two years, which is the minimum term of

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XICOR, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the foundry agreement. Cost of sales for 2001 and
2000 included a $2.5 million and $0.4 million credit,
respectively, related to the amortization of the deferred gain
on the sale of the fab assets.

Note 4  Balance Sheet
Components:

|                               |                                     |                |        |         |   |   |        |         |  
|------------------------------ | ----------------------------------- | -------------- | ------ | ------- | - | - | ------ | ------- | -
|                               |                                     |               
|                               |                                     | December 31,  
|                               |                                     |               
|                               |                                     | 2001           |        | 2000   
|                               |                                     |                |        |        
|                               |                                     |               
|                               |                                     | (In thousands)
|Inventories:                   |                                     |                |        |         |   |   |        |        
|                               | Raw materials and supplies          |                | $      | 212     |   |   | $      | 616     |  
|                               | Work in process                     |                |        | 7,252   |   |   |        | 9,681   |  
|                               | Finished goods                      |                |        | 1,940   |   |   |        | 4,083   |  
|                               |                                     |                |        |         |   |   |        |        
|                               |                                     | $              | 9,404  |         |   | $ | 14,380 |        
|                               |                                     |                |        |         |   |   |        |        
|Property, plant and equipment: |                                     |                |        |         |   |   |        |        
|                               | Leasehold improvements              |                | $      | 2,725   |   |   | $      | 3,846   |  
|                               | Equipment                           |                |        | 37,118  |   |   |        | 41,318  |  
|                               | Furniture and fixtures              |                |        | 345     |   |   |        | 1,228   |  
|                               | Construction in progress            |                |        | 39      |   |   |        | 615     |  
|                               |                                     |                |        |         |   |   |        |        
|                               |                                     |                | 40,227 |         |   |   | 47,007 |        
|                               | Accumulated depreciation            |                |        | (35,004 | ) |   |        | (37,841 | )
|                               |                                     |                |        |         |   |   |        |        
|                               |                                     | $              | 5,223  |         |   | $ | 9,166  |        
|                               |                                     |                |        |         |   |   |        |        
|Accrued expenses:              |                                     |                |        |         |   |   |        |        
|                               | Accrued wages and employee benefits |                | $      | 1,412   |   |   | $      | 2,842   |  
|                               | Accrued restructuring liabilities   |                |        | 691     |   |   |        | 2,537   |  
|                               | Other accrued expenses              |                |        | 5,764   |   |   |        | 7,258   |  
|                               |                                     |                |        |         |   |   |        |        
|                               |                                     | $              | 7,867  |         |   | $ | 12,637 |        
|                               |                                     |                |        |         |   |   |        |        

Accounts Receivable

Accounts receivable at December 31, 2001 and
2000 are presented net of an allowance for doubtful accounts of
$0.5 million.

Note 5  Lease
Commitments:

Xicor leases its facilities and certain equipment
under non-cancelable lease agreements. Xicors major
facility lease expires in 2010 and provides for a five-year
renewal option. The base rental increases 3.25% annually.
Equipment leases are for terms of four to six years and require
Xicor to pay property taxes, insurance and maintenance and
repair costs.

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XICOR, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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,  
|                               |  |               
|                               |  | 2001           |        | 2000
|                               |  |                |        |     
|                               |  |               
|                               |  | (In thousands)
|Equipment                      |  | $              | 2,821  |      |  | $ | 4,435  |  
|Less: accumulated depreciation |  |                | (1,670 | )    |  |   | (3,351 | )
|                               |  |                |        |      |  |   |        |  
|                               |  | $              | 1,151  |      |  | $ | 1,084  |  
|                               |  |                |        |      |  |   |        |  

Minimum future lease payments under
non-cancelable leases as of December 31, 2001 were as
follows:

|                                        |  |                |       |           |  |   |        | 
|--------------------------------------- |  | -------------- | ----- | --------- |  | - | ------ | 
|                                        |  | Capital        |       | Operating
|                                        |  | Leases         |       | Leases   
|                                        |  |                |       |          
|                                        |  |               
|                                        |  | (In thousands)
|Years:                                  |  |                |       |           |  |   |        | 
|2002                                    |  | $              | 948   |           |  | $ | 1,369  | 
|2003                                    |  |                | 322   |           |  |   | 1,286  | 
|2004                                    |  |                | 269   |           |  |   | 1,305  | 
|2005                                    |  |                | 242   |           |  |   | 1,348  | 
|2006                                    |  |                |      |           |  |   | 1,391  | 
|2007-2010                               |  |                |      |           |  |   | 4,452  | 
|                                        |  |                |       |           |  |   |        | 
|Total minimum lease payments            |  |                | 1,781 |           |  | $ | 11,151 | 
|                                        |  |                |       |           |  |   |        | 
|Less amount representing interest       |  |                | (202  | )         |  |   |        | 
|                                        |  |                |       |           |  |   |        | 
|Present value of minimum lease payments |  |                | 1,579 |           |  |   |        | 
|Less current portion                    |  |                | (841  | )         |  |   |        | 
|                                        |  |                |       |           |  |   |        | 
|Long-term lease obligation              |  | $              | 738   |           |  |   |        | 
|                                        |  |                |       |           |  |   |        | 

Total rental expense under all operating leases
was as follows (including month-to-month rentals):
2001  $1.8 million, 2000 
$3.9 million, and 1999  $4.6 million.

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.

Interest on the Notes is payable semi-annually on
May 19 and November 19 of each year, commencing
May 19, 2002. The Notes are convertible at the option of
the holders at any time into approximately 3.1 million
shares of our common stock at $11.22 per share, which represents
a 10% premium to the closing price of our stock on
November 15, 2001. We may redeem some or all of the Notes,
at any time before maturity, at a redemption price, in cash, of
$1,000 principal amount of the notes, plus accrued and unpaid
interest, if any, to, but excluding, the redemption date, if the
closing price of our common stock exceeds $19.64 for any
15 out of 20 consecutive trading days. At any time on
or after November 19, 2004, we may

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XICOR, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

redeem some or all of the notes at declining
redemption prices expressed as a percentage of the principal
(representing approximately 100% plus one-fifth of the annual
interest expense times the number of years from maturity) plus
accrued and unpaid interest. The Note holders may require us to
repurchase the Notes, in cash, upon a repurchase event at 105%
of the principal amount of the Notes, plus accrued unpaid
interest. Such repurchase events include certain changes of
control.

Using the Black-Scholes pricing model, Xicor
determined that the debt discount associated with the fair value
of the warrants approximated $3.1 million. The amortization of
the note discount is being reflected as a non-cash charge to
interest expense over the term of the warrants. Xicor recognized
interest expense associated with amortization of the debt
discount of approximately $70,000 during the year ended
December 31, 2001. The note discount, net of accumulated
amortization, is reflected as a reduction in the face value of
the Notes. The cost of issuing the Notes totaled
$3.1 million, which was recorded in other long-term assets
and are being amortized to interest expense over the term of the
Notes. Xicor recognized interest expense associated with
amortization of the deferred note issuance costs of
approximately $70,000 during the year ended December 31,
2001.

Line of
Credit

Xicor has a line of credit agreement with a
financial institution that expires on March 31, 2002 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 facility is secured by all
the assets of Xicor. The agreement contains restrictions that,
among other things, preclude the payment of dividends, stock
repurchases and the sale of assets other than in the normal
course of business. Appropriate approvals were obtained prior to
selling the wafer fabrication assets and inventory in 2000. At
December 31, 2001, there were no borrowings outstanding
under this line of credit.

Note 7  Shareholders
Equity:



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

Xicor has two stock option plans for its
employees, the 1990 Plan and the 1998 Plan and a Director Plan.
The 2000 Director Option Plan provides for an initial grant of
25,000 options to each of the Companys 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 and the
2000 Director Plan are 5,000,000, 4,750,000 and 500,000,
respectively.

Options granted under the 1990 and 1998 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

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XICOR, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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         |        | Option Price
|                                 |  | of Shares      |        | Per Share   
|                                 |  |                |        |             
|                                 |  | (In thousands) |        |             
|Outstanding at December 31, 1998 |  |                | 2,576  |              |  | $ | 2.36 | 
|Granted                          |  |                | 1,488  |              |  |   | 3.85 | 
|Exercised                        |  |                | (310   | )            |  |   | 1.90 | 
|Canceled                         |  |                | (495   | )            |  |   | 2.79 | 
|                                 |  |                |        |              |  |   |      | 
|Outstanding at December 31, 1999 |  |                | 3,259  |              |  |   | 3.02 | 
|Granted                          |  |                | 2,951  |              |  |   | 6.76 | 
|Exercised                        |  |                | (742   | )            |  |   | 2.48 | 
|Canceled                         |  |                | (757   | )            |  |   | 6.23 | 
|                                 |  |                |        |              |  |   |      | 
|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 | 
|                                 |  |                |        |              |  |   |      | 

In 2000, Xicor recorded stock based compensation
of $279,000 for the accelerated vesting and extended terms of
certain previously granted options.

The number of stock options available for grant
was 2,966,258 at December 31, 2001, 1,537,550 at
December 31, 2000, and 681,500 at December 31, 1999.
At December 31, 2001, 7,949,899 shares of common stock were
reserved for issuance upon exercise of stock options. Options
outstanding at December 31, 2001 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) |  |       
|$ 0.78 - $ 0.78          |  |                     | 116   |                     |  | $            | 0.78  |                |  |        | 6.8 |  |  |  | 80    |  |  | $ | 0.78  | 
|$ 1.25 - $ 1.62          |  |                     | 252   |                     |  | $            | 1.54  |                |  |        | 7.3 |  |  |  | 115   |  |  | $ | 1.54  | 
|$ 2.13 - $ 2.98          |  |                     | 1,373 |                     |  | $            | 2.91  |                |  |        | 8.2 |  |  |  | 331   |  |  | $ | 2.73  | 
|$ 3.75 - $ 5.57          |  |                     | 1,388 |                     |  | $            | 4.13  |                |  |        | 8.5 |  |  |  | 393   |  |  | $ | 4.05  | 
|$ 5.75 - $ 7.56          |  |                     | 1,435 |                     |  | $            | 6.77  |                |  |        | 9.2 |  |  |  | 234   |  |  | $ | 6.62  | 
|$ 9.00 - $12.63          |  |                     | 386   |                     |  | $            | 12.13 |                |  |        | 8.2 |  |  |  | 125   |  |  | $ | 11.93 | 
|$17.44 - $18.38          |  |                     | 34    |                     |  | $            | 17.77 |                |  |        | 8.2 |  |  |  | 9     |  |  | $ | 17.75 | 
|                         |  |                     |       |                     |  |              |       |                |  |        |     |  |  |  |       |  |  |   |       | 
|$ 0.78 - $18.38          |  |                     | 4,984 |                     |  | $            | 5.06  |                |  |        | 8.5 |  |  |  | 1,287 |  |  | $ | 4.61  | 
|                         |  |                     |       |                     |  |              |       |                |  |        |     |  |  |  |       |  |  |   |       | 

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 $2.57, $3.86 and
$2.16 for the three years in the period ended December 31,
2001. The estimated pro forma stock-based compensation cost
calculated using the assumptions indicated below totaled
$3,546,000 in 2001; $3,408,000 in 2000; and $954,000 in 1999.

35



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##### Table of Contents



XICOR, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                      |  |      |      |      |  |      |      |   |  |  |      |  
|--------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                      |  | 2001 |      | 2000 |  | 1999
|                      |  |      |      |      |  |     
|Expected life (years) |  |      | 3.5  |      |  |      | 3.5  |   |  |  | 3.5  |  
|Interest rate         |  |      | 3.97 | %    |  |      | 5.89 | % |  |  | 5.71 | %
|Volatility            |  |      | 80   | %    |  |      | 80   | % |  |  | 78   | %
|Dividend yield        |  |      | 0    | %    |  |      | 0    | % |  |  | 0    | %

Stock Purchase
Plan

In 1998, Xicor implemented an Employee Stock
Purchase Plan (ESPP), which 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, 2001, 380,000 shares had been reserved for
issuance under the ESPP. The number of shares issued under the
ESPP amounted to 117,000 shares in 2001, 116,000 in 2000, and
106,000 in 1999.

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 $1.68 in 2001, $1.10 in 2000
and $0.52 in 1999.

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

|                      |  |      |      |      |  |      |      |   |  |  |      |  
|--------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                      |  | 2001 |      | 2000 |  | 1999
|                      |  |      |      |      |  |     
|Expected life (years) |  |      | 1.1  |      |  |      | 1.2  |   |  |  | 0.5  |  
|Interest rate         |  |      | 4.76 | %    |  |      | 4.93 | % |  |  | 4.54 | %
|Volatility            |  |      | 80   | %    |  |      | 80   | % |  |  | 78   | %
|Dividend yield        |  |      | 0    | %    |  |      | 0    | % |  |  | 0    | %

Pro Forma Net
Income (Loss) and Net Income (Loss) per Share

The pro forma net income (loss) resulting from
the increased compensation costs for awards granted under the
stock option and employee stock purchase plans was $(13,210,000)
or $(0.61) per share in 2001; $9,638,000 or $0.45 per basic
share and $0.41 per diluted share in 2000; and ($27,935,000) or
($1.37) per share in 1999.

Warrants

At December 31, 2001 warrants to purchase
approximately one million shares of our common stock at an
exercise price of $12.24 per share were outstanding. (See
Note 6.)

Preferred
Stock

Xicor has 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.

36



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##### Table of Contents



XICOR, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 Xicors
Common Stock (Common Stock) currently has an associated right.
Under certain circumstances, each right would entitle the
registered holder to purchase from the Company 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 the Companys 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 the
Companys 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
the Companys 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 the Company)
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) Xicor is consolidated with, or merged
with and into, another entity and Xicor is not the surviving
entity of such consolidation or merger or if Xicor is the
surviving entity, but shares of its outstanding common stock are
changed or exchanged for stock or securities or cash or any
other property, or (ii) 50% or more of Xicors 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 the Companys Board of Directors)
following a persons acquisition of 15% or more of the
Companys 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:

Xicor has an Employee Incentive Cash Bonus Profit
Sharing Program (the Program). Under the Program,
twice a year (two profit sharing periods) up to 15% of
Xicors 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 2001. Profit
sharing bonuses relating to 2000 and 1999 totaled
$0.5 million and $0.2 million, respectively.

37



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##### Table of Contents



XICOR, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 9  Income Taxes:

The income tax provision consists of the
following:

|        |  |                         |     |      |  |      |     |  |  |   |   | 
|------- |  | ----------------------- | --- | ---- |  | ---- | --- |  |  | - | - | 
|        |  |                        
|        |  | Year Ended December 31,
|        |  |                        
|        |  | 2001                    |     | 2000 |  | 1999
|        |  |                         |     |      |  |     
|        |  |                        
|        |  | (In thousands)         
|Federal |  | $                       | 56  |      |  | $    | 173 |  |  | $ |  | 
|State   |  |                         | 10  |      |  |      | 197 |  |  |   |  | 
|Foreign |  |                         | 36  |      |  |      | 121 |  |  |   |  | 
|        |  |                         |     |      |  |      |     |  |  |   |   | 
|        |  | $                       | 102 |      |  | $    | 491 |  |  | $ |  | 
|        |  |                         |     |      |  |      |     |  |  |   |   | 

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,
|                                                              |  |                        
|                                                              |  | 2001                    |       | 2000 |  | 1999
|                                                              |  |                         |       |      |  |     
|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 |  |                         |      |      |  |      | (32.2 | )% |  |  |      |   
|Foreign, alternative minimum and other taxes                  |  |                         | 1.1   |      |  |      | 0.8   | %  |  |  |      |   
|                                                              |  |                         |       |      |  |      |       |    |  |  |       |   
|                                                              |  |                         | 1.1   | %    |  |      | 3.6   | %  |  |  | 0.0   | % 
|                                                              |  |                         |       |      |  |      |       |    |  |  |       |   

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

|                                        |                                                 |                |         |        |  |   |         |        | 
|--------------------------------------- | ----------------------------------------------- | -------------- | ------- | ------ |  | - | ------- | ------ | 
|                                        |                                                 |               
|                                        |                                                 | December 31,  
|                                        |                                                 |               
|                                        |                                                 | 2001           |         | 2000  
|                                        |                                                 |                |         |       
|                                        |                                                 |               
|                                        |                                                 | (In thousands)
|Deferred tax assets:                    |                                                 |                |         |        |  |   |         |       
|                                        | Federal and state loss and credit carryforwards |                | $       | 32,323 |  |   | $       | 30,051 | 
|                                        | Capitalized research and development            |                |         | 8,323  |  |   |         | 6,735  | 
|                                        | Inventory valuation                             |                |         | 12,040 |  |   |         | 7,420  | 
|                                        | Deferred income on shipments to distributors    |                |         | 1,636  |  |   |         | 3,809  | 
|                                        | Restructuring                                   |                |         | 1,430  |  |   |         | 1,699  | 
|                                        | Depreciation                                    |                |         | 1,034  |  |   |         | 979    | 
|                                        | Other                                           |                |         | 2,252  |  |   |         | 1,972  | 
|                                        |                                                 |                |         |        |  |   |         |       
|                                        |                                                 |                | 59,038  |        |  |   | 52,665  |       
|Deferred tax liabilities                |                                                 |                | (3,284  | )      |  |   | (2,735  | )     
|Deferred tax assets valuation allowance |                                                 |                | (55,754 | )      |  |   | (49,930 | )     
|                                        |                                                 |                |         |        |  |   |         |       
|Net deferred taxes                      |                                                 | $              |        |        |  | $ |        |       
|                                        |                                                 |                |         |        |  |   |         |       

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, 2001, Xicor had Federal tax
net operating loss carryforwards and general business credit
carryforwards of approximately $75.0 million and
$2.0 million, respectively. These carryforwards expire in
varying amounts from 2002 through 2016. The net operating loss
carryforward includes approximately

38



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##### Table of Contents



XICOR, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

$17.0 million resulting from employee
exercises of non-qualified 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, 2001, Xicor also had
California state tax net operating loss and credit carryforwards
of approximately $4.5 million and $3.8 million,
respectively. These carryforwards expire in varying amounts from
2002 to 2011. Availability of the net operating loss and credit
carryforwards may potentially be reduced in the event of certain
substantial changes in equity ownership.

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.

On April 17, 2001 Xicor filed suit against
Catalyst Semiconductor in Delaware Federal District Court
alleging violations of a Xicor Digital Potentiometer patent.
Xicor has asked the court to issue a permanent injunction
barring Catalyst from using Xicors patented technology in
their recently announced mixed-signal digitally programmable
potentiometer.

39



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##### Table of Contents



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, 2001
and 2000, and the results of their operations and their cash
flows for each of the three years in the period ended
December 31, 2001 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 the opinion expressed above.



| |                               
| | ------------------------------
| | /s/ PRICEWATERHOUSECOOPERS LLP
| |                               

San Jose, California

January 23, 2002


40



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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, 2001 and 2000:

|                                       |         |                                          |         |        |   |       |        |        |  |   |        |        |  |   |        |        |  
|-------------------------------------- | ------- | ---------------------------------------- | ------- | ------ | - | ----- | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ | -
|                                       |         |                                         
|                                       |         | 2001                                    
|                                       |         |                                         
|                                       |         | First                                    |         | Second |   | Third |        | Fourth
|                                       |         |                                          |         |        |   |       |        |       
|                                       |         |                                         
|                                       |         | (In thousands, except per share amounts)
|Net sales                              |         | $                                        | 24,035  |        |   | $     | 19,119 |        |  | $ | 15,167 |        |  | $ | 11,752 |       
|Cost of sales                          |         |                                          | 21,519  |        |   |       | 10,089 |        |  |   | 7,642  |        |  |   | 5,850  |       
|Research and development               |         |                                          | 3,894   |        |   |       | 3,767  |        |  |   | 3,184  |        |  |   | 2,768  |       
|Selling, general and administrative    |         |                                          | 5,967   |        |   |       | 4,899  |        |  |   | 4,087  |        |  |   | 3,282  |       
|Restructuring charge                   |         |                                          | 3,205   |        |   |       |       |        |  |   |       |        |  |   |       |       
|Net income (loss)                      |         |                                          | (10,233 | )      |   |       | 631    |        |  |   | 432    |        |  |   | (299   | )     
|Net income (loss) per share:           |         |                                          |         |        |   |       |        |        |  |   |        |        |  |   |        |       
|                                       | Basic   |                                          |         | (0.48  | ) |       |        | 0.03   |  |   |        | 0.02   |  |   |        | (0.01  | )
|                                       | Diluted |                                          |         | (0.48  | ) |       |        | 0.03   |  |   |        | 0.02   |  |   |        | (0.01  | )
|Shares used in per share calculations: |         |                                          |         |        |   |       |        |        |  |   |        |        |  |   |        |       
|                                       | Basic   |                                          |         | 21,487 |   |       |        | 21,645 |  |   |        | 21,905 |  |   |        | 22,173 |  
|                                       | Diluted |                                          |         | 21,487 |   |       |        | 23,673 |  |   |        | 24,542 |  |   |        | 22,173 |  

|                                       |         |                                          |        |        |  |       |        |        |  |   |        |        |  |   |        |        | 
|-------------------------------------- | ------- | ---------------------------------------- | ------ | ------ |  | ----- | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                                       |         |                                         
|                                       |         | 2000                                    
|                                       |         |                                         
|                                       |         | First                                    |        | Second |  | Third |        | Fourth
|                                       |         |                                          |        |        |  |       |        |       
|                                       |         |                                         
|                                       |         | (In thousands, except per share amounts)
|Net sales                              |         | $                                        | 32,145 |        |  | $     | 30,121 |        |  | $ | 31,060 |        |  | $ | 29,523 |       
|Cost of sales                          |         |                                          | 18,546 |        |  |       | 17,413 |        |  |   | 18,606 |        |  |   | 17,107 |       
|Research and development               |         |                                          | 4,074  |        |  |       | 3,953  |        |  |   | 3,966  |        |  |   | 3,887  |       
|Selling, general and administrative    |         |                                          | 6,395  |        |  |       | 6,556  |        |  |   | 6,774  |        |  |   | 6,397  |       
|Restructuring credit                   |         |                                          |       |        |  |       | (189   | )      |  |   | (256   | )      |  |   | (3,396 | )     
|Net income                             |         |                                          | 3,023  |        |  |       | 2,402  |        |  |   | 2,045  |        |  |   | 5,696  |       
|Net income per share:                  |         |                                          |        |        |  |       |        |        |  |   |        |        |  |   |        |       
|                                       | Basic   |                                          |        | 0.14   |  |       |        | 0.11   |  |   |        | 0.10   |  |   |        | 0.27   | 
|                                       | Diluted |                                          |        | 0.13   |  |       |        | 0.10   |  |   |        | 0.09   |  |   |        | 0.25   | 
|Shares used in per share calculations: |         |                                          |        |        |  |       |        |        |  |   |        |        |  |   |        |       
|                                       | Basic   |                                          |        | 20,894 |  |       |        | 21,172 |  |   |        | 21,280 |  |   |        | 21,411 | 
|                                       | Diluted |                                          |        | 23,306 |  |       |        | 23,048 |  |   |        | 23,153 |  |   |        | 22,635 | 

41



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##### Table of Contents








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

None




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 Xicors
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 Xicors Proxy Statement.

The information concerning Xicors executive
officers required by this Item is included in Part I hereof
under the caption Executive 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
Xicors 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 Xicors Proxy Statement.






|         |                                                
|-------- | -----------------------------------------------
|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
Xicors Proxy Statement.




PART IV






|         |                                                                 
|-------- | ----------------------------------------------------------------
|Item 14. | 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, 2001 and 2000                                                       |  |      | 23 | 
|Consolidated Statements of Operations for each of
	the three years in the period ended December 31, 2001            |  |      | 24 | 
|Consolidated Statements of Shareholders
	Equity for each of the three years in the period ended
	December 31, 2001 |  |      | 25 | 
|Consolidated Statements of Cash Flows for each of
	the three years in the period ended December 31, 2001            |  |      | 26 | 
|Notes to Consolidated Financial Statements                                                                          |  |      | 27 | 
|Report of Independent Accountants                                                                                   |  |      | 40 | 

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| |     |                               
| | --- | ------------------------------
| | (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.

Report on Form 8-K filed with the Securities
and Exchange Commission on November 20, 2001.

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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 28th day of March
2002.



| |            
| | -----------
| | XICOR, INC.
| | Registrant 
|
| | By         



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

| |                                       
| | --------------------------------------
| |                                       
| | Louis DiNardo                         
| | 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) |  | Chairman of the Board                                                                                                                   |  | March 28, 2002
|                                          
|/s/ LOUIS DINARDO(Louis DiNardo)           |  | President and Chief Executive Officer (Principal
	Executive Officer)                                                                    |  | March 28, 2002
|                                          
|/s/ JULIUS BLANK(Julius Blank)             |  | Director                                                                                                                                |  | March 28, 2002
|                                          
|/s/ ANDREW W. ELDER(Andrew W. Elder)       |  | Director                                                                                                                                |  | March 28, 2002
|                                          
|/s/ EMMANUEL HERNANDEZ(Emmanuel Hernandez) |  | Director                                                                                                                                |  | March 28, 2002
|                                          
|/s/ GEOFFREY WINKLER(Geoffrey Winkler)     |  | Director                                                                                                                                |  | March 28, 2002
|                                          
|/s/ GERALDINE N. HENCH(Geraldine N. Hench) |  | Vice President, Finance and Administration and
	Chief Financial Officer (Principal Financial Officer and
	Principal Accounting Officer) |  | March 28, 2002

44



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##### Table of Contents



XICOR, INC.






INDEX TO EXHIBITS


Item 14(a)3.


|        |       |             |  |                                                                                                                                                                                                                                                             
|------- | ----- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|Number  |       | Description
|        |       |            
|        | 3.1   |             |  | Amended and Restated Articles of Incorporation
	dated December 9, 1987 filed as Exhibit 3.1 with
	Form 10-K for the year ended December 31, 1987, 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   |             |  | Form of 5.5% Convertible Subordinated Note dated
	November 19, 2001 filed as Exhibit 4.1 with
	Form 8-K on November 20, 2001, 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.                                                                                                     
|        | 4.5   |             |  | 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.            
|        | 10.3  |             |  | Lease dated November 23, 1983,
	Exhibit 1 of the Exhibits filed with Form 10-K for the
	year ended December 31, 1983, is hereby incorporated by
	reference.                                                                                                 
|        | 10.3A |             |  | Amendment to lease dated November 23, 1983
	filed as Exhibit 10.3A with Form 10-K for the year
	ended December 31, 1990, is hereby incorporated by
	reference.                                                                                              
|        | 10.3B |             |  | Amendment to lease dated November 23, 1983
	filed as Exhibit 10.3B with Form 10-K for the year
	ended December 31, 1999, is hereby incorporated by
	reference.                                                                                              
|        | 10.6  |             |  | 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.                      
|        | 10.7  |             |  | 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.
|        | 10.8  |             |  | Loan and Security Agreement dated March 10,
	1993 with CoastFed Business Credit Corporation filed as
	Exhibit 10.8 with Form 10-K for the year ended
	December 31, 1992, is hereby incorporated by reference.                                               
|        | 10.8A |             |  | Fourth Amendment to Loan Documents and Letter of
	Credit Collateral Agreement filed as Exhibit 10.8A with
	Form 10-Q for the quarterly period ended July 4, 1999,
	is hereby incorporated by reference.                                                     
|        | 10.9  |             |  | Xicor, Inc. 2000 Director Option Plan (as Amended
	and Restated March 16, 2001) 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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|        |       |             |  |                                                                                                                                                                                                                                    
|------- | ----- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|Number  |       | Description
|        |       |            
|        | 10.10 | *           |  | Xicor-Yamaha Semiconductor Manufacturing Foundry
	Agreement dated February 6, 1997 filed as
	Exhibit 10.10 with Form 10-K for the year ended
	December 31, 1998, is hereby incorporated by reference.                              
|        | 10.11 |             |  | 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.                                                                  
|        | 10.12 |             |  | Xicor, Inc. 1998 Nonstatutory Stock Option Plan
	(as Amended and Restated October 16, 2001) filed as
	Exhibit 4.1 with Form S-8 Registration Statement
	Number 333-81370 on January 25, 2002, is hereby
	incorporated by reference.
|        | 10.13 | *           |  | 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.     
|        | 10.14 | *           |  | Xicor-Sanyo Semiconductor Manufacturing Foundry
	Agreement dated May 1, 1999 filed as Exhibit 10.14
	with Form 10-K for the year ended December 31, 1999,
	is hereby incorporated by reference.                                    
|        | 10.15 |             |  | Asset Purchase Agreement between Standard MEMS,
	Inc. and Xicor, Inc. dated October 24, 2000 filed as
	Exhibit 2.1 with Form 8-K on November 17, 2000,
	is hereby incorporated by reference.                                       
|        | 10.16 | *           |  | Xicor-Standard MEMS Semiconductor Manufacturing
	Foundry Agreement dated October 24, 2000, filed as
	Exhibit 10.16 with Form 10-K for the year ended
	December 31, 2000, is hereby incorporated by reference.                      
|        | 10.17 |             |  | 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).                                                                                                                                                                      



---



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

46