<PAGE>

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                      SECURITIES AND EXCHANGE COMMISSION

                            Washington, D.C. 20549
                            ----------------------

                                   FORM 10-K

      (Mark One)

      [X] Annual Report pursuant to Section 13 or 15(d) of the Securities
          Exchange Act of 1934

      For the fiscal year ended:  December 31, 2000
                                       OR

      [_] Transition Report pursuant to Section 13 or 15(d) of the Securities
          Exchange Act of 1934

      For the transition period from ____________ to ____________

                        Commission File Number 0-26473
                       ---------------------------------
                                MICROTUNE, INC.

            (Exact name of registrant as specified in its charter)



                 Delaware                                75-2883117
-------------------------------------            --------------------------
      (State or other jurisdiction of                 (I.R.S. Employer
      incorporation or organization)               Identification Number)

             2201 Tenth Street
               Plano, Texas                                 75074
-------------------------------------            --------------------------
        (address of principal                             (zip code)
          executive offices)

      Registrant's telephone number, including area code: (972) 673-1600
                                                          --------------

       Securities registered pursuant to Section 12(b) of the Act: None
          Securities registered pursuant to Section 12(g) of the Act:
                        Common Stock, $0.001 par value
                        ------------------------------
                               (Title of Class)

     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. [X]

     Indicate by check mark whether the Registrant (1) has filed all reports
 required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
 1934 during the preceding 12 months (or for such shorter period that the
 Registrant was required to file such reports), and (2) has been subject to such
 filing requirements for the past 90 days.

     Yes  X     No
         ---       ---

     The aggregate market value of voting stock held by non-affiliates of the
 Registrant as of March 12, 2001, was approximately $142.9 million based upon
 the last sales price reported for such date on The Nasdaq National Market. For
 purposes of this disclosure, shares of common stock held by persons who hold
 more than 5% of the outstanding shares of common stock and shares held by
 officers and directors of the Registrant, have been excluded in that such
 persons may be deemed to be affiliates. This determination is not necessarily
 conclusive.

     At March 12, 2001, the Registrant had outstanding 39.1 million shares of
 common stock.

                      DOCUMENTS INCORPORATED BY REFERENCE

 Portions of the Registrant's Proxy Statement relating to the Registrant's 2001
 Annual Meeting of Stockholders to be held on April 26, 2001, are incorporated
 by reference into Part III of this Form 10-K where indicated.

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                               TABLE OF CONTENTS

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<S>                                                                                                                   <C>
PART I                                                                                                                   2

         ITEM 1.      BUSINESS.......................................................................................    2
         ITEM 2.      PROPERTIES.....................................................................................   19
         ITEM 3.      LEGAL PROCEEDINGS..............................................................................   19
         ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................   19
PART II                                                                                                                 20

         ITEM 5.      MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED StoCKHOLDER MATTERS......................   20
         ITEM 6.      SELECTED FINANCIAL DATA........................................................................   21
         ITEM 7.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                      OPERATIONS.....................................................................................   23
         ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.....................................   28
         ITEM 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................................................   39
         ITEM 9.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                      DISCLOSURE.....................................................................................   39
PART III                                                                                                                40

         ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............................................   40
         ITEM 11.     EXECUTIVE COMPENSATION.........................................................................   40
         ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................   40
         ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................................   40
PART IV                                                                                                                 41

         ITEM 14(a).  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K................................   41
         ITEM 14(b).  REPORTS ON FORM 8-K............................................................................   42
         ITEM 14(c).  EXHIBITS.......................................................................................   42
         ITEM 14(d).  FINANCIAL STATEMENT SCHEDULES..................................................................   42
SIGNATURES                                                                                                              43

POWER OF ATTORNEY                                                                                                       44

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                                                                              F-1
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               INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains certain forward-looking statements
(within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended) that involve
risks and uncertainties. Actual results and the timing of certain events could
differ materially from those projected in the forward-looking statements as a
result of a number of factors. For a discussion of important factors that could
affect our results, please refer to the Business Section and to the Financial
Statement line item discussions and Factors Affecting Future Operating Results
and Stock Price set forth in Management's Discussion and Analysis of Financial
Condition and Results of Operations discussed elsewhere in this Annual Report on
Form 10-K.

                                    PART I

ITEM 1.   BUSINESS


OVERVIEW

We are a radio frequency silicon and systems company, providing high-performance
radio frequency tuners, upstream amplifiers and transceivers to the broadband
communications markets. Using proprietary technologies and advanced design
methodologies, we have designed and developed radio frequency integrated
circuits and radio frequency systems, called modules, for a variety of broadband
communications access devices, including cable modems, PC/TVs (which are
multimedia personal computers with broadband reception capabilities), set-top
boxes, digital TVs, and other consumer electronic devices.

Our radio frequency products are the gateway devices for reception of video,
audio, data and/or voice over existing broadband communications infrastructures,
such as cable and terrestrial. Our tuners receive and tune radio frequency
signals, transferring a selected signal (or channel) to the rest of the system's
electronics for further operation. Our upstream amplifiers transmit radio
frequency data from the user through the broadband system, amplifying the signal
to levels required by the network. Our transceivers, consisting of both tuners
and upstream amplifiers, enable interactivity by permitting two-way, or bi-
directional, communications.

Our latest radio frequency integrated circuit products offer a high level of
integration, resulting in significant cost, performance, size, reliability and
manufacturability benefits. Our radio frequency module products provide a
complete, manufacturing-ready radio frequency system, eliminating a customer's
need for radio frequency design and manufacturing expertise.

INDUSTRY BACKGROUND

In recent years, new classes of broadband digital entertainment, information and
communications services have emerged, such as high-speed Internet access, web-
enabled television, digital and high-definition TV and cable telephony. These
new services, which are increasingly interactive, involve the delivery of video,
audio, data and/or voice to a growing range of access devices, including cable
modems, PC/TVs, set-top boxes and digital TVs. In the future, we believe
broadband services will increasingly be delivered to mobile wireless devices
such as cell phones, personal digital assistants and in-car information and
entertainment systems.

                                      -2-
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Several significant trends are now influencing the market for broadband
entertainment, information and communications services, including:

     .  the transition from analog to digital content, transmission systems and
        access devices;

     .  the transition from proprietary to standards-based systems such as Data
        Over Cable Service Interface Specification (DOCSIS)-based cable modems,
        OpenCable(TM) set-top boxes and PacketCable(TM) telephony devices; and

     .  the convergence of Internet, personal computer and consumer electronics
        functions.

Many of the new broadband entertainment, information and communications services
are transmitted over cable, terrestrial or satellite systems that use the radio
frequency spectrum. The radio frequency spectrum is finite and its use is
regulated by governmental agencies, such as the Federal Communications
Commission in the U.S. These regulations involve allocation of frequencies for
specific usage, rules regarding content of information transmitted in those
frequencies, and technical specifications for transmission and reception
equipment utilizing the radio frequencies. Consumer products that receive and/or
transmit radio frequency transmissions are regulated by governmental agencies
and must be designed and manufactured within performance and standards
guidelines that allow this equipment to pass government regulations.

Due to the increased demand for services using the radio frequency spectrum,
communications providers must use the limited amount of spectrum more
efficiently, by using every available channel and by packing data densely within
the channels. As a result, broadband communications providers are making the
transition to digital techniques because digital allows more efficient use of
the limited amount of spectrum than is possible with analog techniques. For
example, using digital techniques over cable, it is possible to broadcast two
high-definition signals or as many as twenty standard-definition signals in the
same amount of spectrum as a single standard definition signal using analog
techniques.

Radio frequency products serve as the gateway devices between broadband
communications systems and the related access devices.

  [GRAPHIC OF THE FLOW OF INFORMATION THROUGH A COMMUNICATIONS ACCESS DEVICE]

                                      -3-
<PAGE>

Video, audio, data and/or voice are received and transmitted through these
communications systems at radio frequencies. The radio frequency tuner plays a
critical role by extracting content from the desired radio frequency and
converting the content into a form that is useable by the access device. The
upstream amplifier is a radio frequency signal booster for return
communications. It plays a critical role in transaction processing, such as e-
mails, electronic commerce or video-on-demand, by amplifying and transmitting
radio frequency data through the broadband system. In interactive applications
where bi-directional communication is necessary, the radio frequency tuner,
together with a radio frequency upstream amplifier, acts as a transceiver, both
receiving and transmitting radio frequency broadband data. Every automotive
radio, cable modem, set-top box, PC/TV, VCR and TV requires at least one radio
frequency tuner. Increasingly, some of these access devices include multiple
tuners for enhanced or additional services. Based on market reports from
Cahner's Instat Group and Kinetic Strategies, the worldwide demand for radio
frequency tuners in these markets could reach 300 million units annually.

Radio frequency technology is complex and significantly influences overall
system performance. Unlike digital circuits, which address stable and
predictable inputs and outputs, analog circuits, including radio frequency, must
accommodate variable and unpredictable signals. Radio frequency tuners are
significantly more challenging than other analog products because they must
receive weak signals at very high frequencies in noisy environments. A poorly
performing tuner will result in interference that manifests itself in spurious
patterns, static and snow in an analog environment, and total loss of signal in
a digital environment.

The transition from analog to digital content and the convergence of Internet,
PC and consumer electronics functions pose significant challenges that require
even more complex, high performance radio frequency products.

These challenges include:

     .  more efficiently using the radio frequency spectrum;

     .  reliably receiving both analog and digital signals and transmitting
        return signals with minimal chance of corrupting the receiving function;

     .  handling the increasing bandwidth on broadband cable systems;

     .  serving many interconnected access devices; and

     .  complying with evolving standards in the broadband markets.

In addition to these performance challenges, radio frequency products must
maintain a small form factor, have a high level of integration and provide
customers rapid time-to-market.

Typical low-cost radio frequency tuners currently used in analog devices, such
as TVs and VCRs, fail to meet one or more of these challenges. Typical high-
performance tuners have generally been prohibitively expensive for radio
frequency broadband applications. As a result, there is a demand for a class of
cost-effective radio frequency tuners capable of high performance. In addition,
we believe the increasing pressures of even higher performance and lower cost,
combined with the desirable traits of increased reliability, manufacturability
and reduced size, will drive the market toward radio frequency tuner products
with increasing levels of silicon content.

                                      -4-
<PAGE>

THE MICROTUNE SOLUTION

We are a radio frequency silicon and systems company focused on delivering radio
frequency gateway products, including radio frequency tuners, upstream
amplifiers and transceivers, to a range of existing and emerging broadband
communications markets. With our combination of silicon and systems expertise,
we provide complete and cost-effective radio frequency products for high-
performance radio frequency broadband applications. Key features of our products
include:

High-Performance Tuning. Our tuner products deliver the high performance
required to meet the needs of advanced video, audio, data and/or voice
applications transmitted via sophisticated broadband communications systems. We
believe our tuner products provide the following benefits at prices consistent
with the needs of the consumer electronics marketplace:

     .  high channel selectivity by rejecting image and adjacent channel
        interference, thereby permitting more efficient use of the radio
        frequency spectrum;

     .  low phase noise that allows reliable reception of digital content;

     .  low distortion consistent with requirements of a cable system with
        bandwidth that is fully utilized by concurrent analog and digital
        broadcasts;

     .  operation at a high frequency to fully utilize the available bandwidth
        of broadband cable systems;

     .  low incidence of spurious emissions to enable the interconnection of
        multiple access devices; and

     .  compatibility with evolving standards, including the stringent
        performance and functionality requirements of the DOCSIS standard.

High-Performance Amplification. Our upstream amplifiers provide the high-
performance power amplification required for transmitting broadband data from
customer premises to the head end, in a manner consistent with international
standards. Our MicroStreamer family of amplifiers complements our tuner
technology, allowing for efficient implementations of the transceiver function.
Because of the high performance of these amplifiers, they may be selected for
use on their own or with the tuning technology of other manufacturers. In order
to support the requirements of international standards, these amplifiers have
been designed to support the higher frequencies of operation and more demanding
distortion requirements of EuroDOCSIS, the European equivalent of the DOCSIS
standard. We believe that our MicroStreamer family of upstream amplifiers
provides the following benefits:

     .  low distortion, primarily harmonic distortion, thereby assisting in
        enhancing the robustness of broadband cable communications;

     .  extended frequency response to support the 65 MHz requirement of
        EuroDOCSIS;

     .  reduced power dissipation as compared to competitive solutions;

     .  less rolloff of amplification at higher frequencies; and

     .  meeting the requirements of DOCSIS as well as the more stringent
        EuroDOCSIS.

                                      -5-
<PAGE>

Integrated Circuit RF Leadership. In January 1999, we introduced our MicroTuner,
the world's first single-chip radio frequency tuner. The MicroTuner's high level
of integration results in significant cost, performance, size, reliability and
manufacturability benefits. We believe that the MicroTuner is the only single-
chip tuner to incorporate all of the active elements of a radio frequency tuner,
including a low-noise amplifier, which is critical for system performance.
Furthermore, our single-chip tuner incorporates varactors, thereby eliminating
the need for a high-voltage power supply. In addition, the MicroTuner has a
flexible architecture designed to support multiple broadband communications
systems, including analog and digital, cable and terrestrial systems, and future
broadband wireless mobile networks. The MicroTuner architecture and the multiple
integrated circuits derived from the architecture are protected by 12 issued
patents and 12 pending U.S. patent applications.

Combination of Radio Frequency Silicon and Systems Expertise. We believe that we
differentiate ourselves from our competitors by possessing both radio frequency
silicon and systems expertise. Our silicon expertise allows us to integrate
increasing levels of functionality into fewer integrated circuits, resulting in
higher performance, and smaller tuners and transceivers. Our radio frequency
systems expertise allows us to offer tuner and transceiver products that can be
rapidly and cost-effectively incorporated into our customers' products and that
contribute to optimizing the performance of those products in a radio frequency
environment. Therefore, complete radio frequency systems can be provided to
customers that do not have the expertise, time or desire to develop their own
radio frequency tuners or transceivers. Given the complexity of radio frequency
tuner design, this combination of silicon and systems expertise allows us to
achieve significant technology integration and to provide a complete tuner or
transceiver solution to meet our customers' demanding and varied needs.

Broad Suite of Radio Frequency Products. We provide a full range of radio
frequency products, including tuners, upstream amplifiers and transceivers to
the broadband communications market that support both analog and digital
systems. Our portfolio of products includes integrated circuits as well as the
related reference designs. We believe that we are the only company to supply
both the upstream and downstream radio frequency functions in silicon for bi-
directional broadband applications. Our portfolio also includes manufacturing-
ready radio frequency modules, including MicroModules(TM), which contain
MicroTuner and/or MicroStreamer integrated circuits. We believe our products
allow our customers to integrate radio frequency capabilities into their
products quickly and easily. Our products are customized for multiple markets,
including the cable modem, PC/TV, set-top box, cable telephony, digital TV and
automotive markets. We believe the breadth of our product portfolio allows us to
be a sole-source provider for our customers and allows them to migrate easily,
at their own pace, to Microtune silicon-based implementations.

Worldwide Sales, Support and Engineering Infrastructure. We offer our products
worldwide and provide our customers with global support. Our corporate
headquarters, including a major design center and sales, applications support
and administrative functions, are located in Plano, Texas. Our European
headquarters, including a major design center and sales, technical and
applications support functions, are located in Ingolstadt, Germany. Sales
centers are located in San Diego and San Jose, California; Huntsville, Alabama;
Hong Kong; Taipei, Taiwan; and Seoul, Korea with applications support in San
Diego, Huntsville, Hong Kong, Taipei and Seoul.

Captive Module Manufacturing. We currently operate our own manufacturing
facilities for assembly, calibration and test of our module products. We have
two manufacturing facilities located in Manila, Philippines, one of which is
qualified for both QS-9000 and ISO 9002. We are in the process of applying for
ISO 9002 certification for our second facility, which is expected to be
qualified in April 2001. Our QS-9000 qualified facility allows us to supply
radio frequency tuner modules that meet the exacting standards required for
automobile-based

                                      -6-
<PAGE>

products, such as the ability to operate over a wide range of temperatures. We
are able to leverage our quality manufacturing to benefit all of our customers
as well as to win new customers.

OUR STRATEGY

Our goal is to be the leading provider of radio frequency silicon and systems
gateway products to the broadband communications markets for the delivery of
video, audio, data and/or voice to home, office and mobile environments. Key
elements of our strategy include the following:

Strengthen And Broaden Broadband Radio Frequency Technology Experience. We
intend to build on our technology capabilities and strengthen our technology
position in the broadband radio frequency market. By providing complete and
innovative tuner and transceiver solutions to our targeted radio frequency
broadband markets, we believe we can drive the development of next-generation
technologies for these markets. We are devoting significant research and
development resources to increasing the performance of our products, while
simultaneously reducing their power requirements and size, and increasing their
integration. We have assembled a world-class team of engineers with silicon and
systems design expertise in radio frequency and analog technologies, and we
intend to expand this team. In addition, we have protected our technology
developments with 13 U.S. patents issued, the first of which expires in 2015,
and with 12 U.S. patent applications pending, as well as 8 foreign patents
issued and 1 foreign patent application pending. We intend to vigorously protect
our future innovations through additional patent protection.

Target High-Growth Broadband Radio Frequency Markets. We currently provide radio
frequency gateway products to the high-growth DOCSIS cable modem and PC/TV
markets. We intend to leverage this market experience and our flexible
MicroTuner and MicroStreamer architectures to penetrate emerging, high-growth
broadband communications markets such as the digital set-top box, digital TV and
cable telephony markets.

Due to their flexible architectures, our radio frequency gateway products can
extract both digital and analog content and operate in both cable and
terrestrial communications systems. As a result, we believe we are well
positioned to expand our market penetration to broadband communications
opportunities as they emerge. Furthermore, most of our target markets are
transitioning to standards-based systems. Consequently, to be an early provider
of standards-compliant radio frequency products, we are focusing significant
resources on developing products that conform to emerging standards. Cable
Television Laboratories, Inc., also known as CableLabs(TM), a consortium of
companies operating cable networks, has created specifications that attempt to
standardize the digital technologies needed for offering digital services over
cable. The first of these, DOCSIS, has standardized the digital technologies for
cable modems and has been embraced by the industry. A second standard,
OpenCable, attempts to standardize the technology required for new digital set-
top boxes that enable services such as receiving digital television signals,
Internet access, pay-per-view broadcast and video-on-demand. A third standard,
PacketCable, attempts to standardize technologies required for Internet-based
voice and video products over cable systems, including cable telephony. Based on
the widespread adoption of the DOCSIS standard, we believe that there is a
strong likelihood that OpenCable and PacketCable will also be adopted throughout
the industry. We believe that our expertise in the DOCSIS standard will allow us
to rapidly deploy products that comply with the emerging standards of OpenCable
and PacketCable due to the similarities in the radio frequency requirements of
these three standards.

Develop and Expand Relationships with Industry-Leading Customers. We have
established customer relationships with international market and technology
leaders across the broadband communications markets. These relationships include
not only normal supply agreements based on purchase orders, but also include
cooperation in evaluating our future-generation products for incorporation into
our customers' products.

                                      -7-
<PAGE>

Leading equipment suppliers that currently ship products that incorporate our
radio frequency products include:


     .  DOCSIS Cable modem: Ambit, Askey, Cisco Systems, Com21, Dassault,
        Ericsson, Motorola/General Instrument, Samsung, 3Com, Zoom Telephonics

     .  PC/TV: ATI, Creative Labs, Hauppauge, Nvidia, Pinnacle

     .  Set-top Box: EchoStar, Hughes, DIC Technologies

     .  Cable telephony: Cisco Systems

     .  Automotive: DaimlerChrysler, Becker (supplier to Mercedes Benz), Fuba
        (supplier to Audi and Volkswagen), Panasonic (supplier to Audi and
        Volkswagen)

We believe our relationships with market leaders enhance the acceptance of our
radio frequency products and allow us to anticipate market trends to expand our
market leadership. Finally, while we design products that can be used by
multiple customers, we believe our ability to design custom features based on
customers' needs enables our customers to improve their time-to-market,
differentiate their products and address new market opportunities. We believe
our ability to customize radio frequency products allows us to strengthen our
relationships with our existing and new customers.

Migrate Existing Customer Base to More Highly Integrated Products. We currently
have a significant base of existing customers in the high-growth broadband
communications markets incorporating our tuner modules. For example, we shipped
products to more than 105 customers in the year ended December 31, 2000. We
believe that once a customer designs our tuners, upstream amplifiers or
transceivers into its products, that customer is more likely to continue to
choose our radio frequency components for their products. As the market requires
more integrated products to improve cost, size, reliability and
manufacturability, we believe that we can leverage our incumbent position with
our customers to migrate these customers across our product line. Over time, we
intend to transition our customers from module tuners with discrete components
to either module tuners incorporating our integrated circuits or to integrated
circuit-only tuners. By providing identical functionality, as we replace
discrete components with our integrated circuits, such as the MicroTuner or
MicroStreamer, in our tuner/transceiver modules, we believe the customer can
more easily make this transition with minimal engineering effort. At the same
time, more highly integrated tuners reduce our costs and improve our margins.

MARKETS

While the infrastructure of the broadband communications markets is varied, we
leverage our core silicon technologies and systems capabilities in various
product implementations across multiple complementary segments, including
automotive entertainment, cable modem, PC/TV, set-top box, VCR and TV. Based on
market reports from Cahner's Instat Group and Kinetic Strategies, the demand for
radio frequency tuners in these markets could reach 300 million units annually
by year-end 2001. Many industry analysts predict continued high-growth rates for
these markets, even though individual segments are at different phases in their
evolution. Specifically, we target existing high-growth segments, such as cable
modems and emerging segments, such as PC/TV, multimedia, digital TV, set-top
boxes and cable telephony. In addition, we target existing high-volume markets
such as the automotive market. We believe that these markets demand, or will

                                      -8-
<PAGE>

demand in the future, affordable radio frequency tuner products with higher
performance levels than previous implementations. These market requirements have
created a significant opportunity for our products.

Cable Television Markets. According to Cahner's Instat Group, the worldwide
cable industry has enjoyed years of steady growth and by the end of 2000,
Cahner's estimated that more than 260 million households worldwide received
their television signal via cable, with the majority of subscribers across the
U.S., Europe and China. The worldwide market is expected to grow to 335 million
households worldwide by the end of 2003. According to Cahner's Instat Group,
cable operators are making the switch to digital technologies much faster than
anticipated by either the industry or manufacturers. The transition is fueled by
a number of factors: the need to compete aggressively with the other programming
services, such as direct broadcast satellite (DBS); strong demand from consumers
for new levels of entertainment and information services; and the increased
revenues obtained from these new ancillary classes of services. Cable World
Magazine, in its November 2000 issue, reported that, according to some industry
analysts, by the end of 2001, incremental revenue per subscriber generated by
these new (digital) services is expected to contribute two-thirds of an Multiple
Service Operators (MSO's) total projected revenue increase.

As a result, cable operators continue to invest in the 'digitization' of their
systems, or the upgrade of their existing analog cable plant infrastructure to
support digital content and transmission. Once a cable system is upgraded,
subscribers have access to an increased number of video channels including
digital and high-definition TV (HDTV) programming, high-speed Internet, cable
telephony, and a range of interactive services, such as electronic commerce,
video-on-demand, and virtual VCR functions (also known as time shifting). In the
U.S., the National Cable Television Association reports that an estimated 68% of
all cable homes are passed by activated two-way cable plant, allowing for the
deployment of these advanced digital services to a broad base of consumers.

Cable modems, digital set-top boxes and cable telephony boxes, which are key
components of the digital upgrade, benefit from the evolution to digital cable
transmission. Each of these devices requires at least one broadband tuner and
upstream amplifier to support the reception and transmission of data to and from
the consumer to the head end.

Cable Modem. As worldwide Internet usage increases, demand for high-speed
Internet access will also be on the rise. According to Cahner's Instat Group,
the most popular residential high-speed Internet access platform is the two-way
cable system, which requires a cable modem, and the demand for cable modems,
particularly DOCSIS certified cable modems, has increased significantly during
the past twelve months. At the end of 2000, Cahner's states that more than 7.7
million cable modems shipped worldwide in 2000 and that cable modem shipments
are expected to surpass 8.9 million in 2001. Furthermore, Cahner's projects that
by the end of 2001, that there will be more than 10 million broadband
subscribers; and by 2004, the number is forecast to reach 25 million.


DOCSIS, developed by CableLabs, is a standard interface for cable modems.
DOCSIS, and its European counterpart, EuroDOCSIS, are sets of specifications
that assure that cable modems will communicate (interoperate) with qualified
cable system headends. The standard promotes over-the-counter sales of cable
modems in retail electronics stores.

The DOCSIS standard remains an important driver for the development of the cable
modem market and the growth of worldwide broadband cable data services. In the
U.S. and Europe, DOCSIS certification is becoming increasingly important to
cable modem equipment manufacturers. According to Kinetic Strategies, standards-
based DOCSIS cable modems increased to 2 million units in the third quarter of
2000, a 67%

                                      -9-
<PAGE>

increase over second quarter 2000 shipments, and the drive to standards-based
equipment is expected to continue.

Every cable modem must include at least one radio frequency tuner to receive the
radio frequency signal from the cable networks, as well as an upstream
amplifier. We have provided the radio frequency tuner in one or more models for
28 of the 40 companies that have been awarded DOCSIS certification, as well as
for 3 companies that have been awarded EuroDOCSIS certification.

Cable Set-top Box. According to Cahner's Instat Group, growth in cable TV set-
top boxes continues to be strong. At the end of 2000, worldwide unit shipments
topped 16 million, up 15% from 1999. By the end of 2004, Cahner's forecasts that
the worldwide cable set-top box market will reach 21.8 million. Given that a
digital set-top box is required for consumers to access many of the new digital
services, the most substantial unit increase is projected for the digital set-
top box segment. Cahner's projects that units will increase from 9.8 million at
the end of 2000 to 18 million in 2004 or 82% of the set-top box market.

Over the past year, the most important trend to shape the set-top box market in
the U.S. has been the effect of the OpenCable initiative, which is slowly
changing the structure of the set-top box landscape. Spearheaded by CableLabs,
OpenCable aims to create a set of open standards, allowing the set-top box to be
independent of the cable head end and infrastructure equipment. More
importantly, the standard will enable consumers to purchase their set-top boxes
from retail stores, just like VCRs or other consumer electronics appliances.

Although much of the OpenCable standard has been finalized, portions of the
standard are still in development. These are expected to be finalized in 2001.
As a result, some of OpenCable's original goals, such as the July 2000 target
date for offering set-top boxes at retail stores, have been missed. However, it
is expected that the completion of the specification will stimulate growth of
and demand for standards-compliant set-top boxes, as well as foster significant
change in the marketplace. Due to standardization, there is expected to be an
increase in the number of viable set-top box manufacturers, including offshore
manufacturers expected to target the U.S. market, fostering an atmosphere of
increased competition.

Every cable set-top box must include at least one radio frequency tuner to
receive the radio frequency signals from the cable networks, while many of the
newer set-top boxes contain multiple tuners. A digital interactive cable set-top
box also requires an upstream amplifier. We are currently working with customers
who are developing OpenCable set-top boxes to supply radio frequency products
that meet their performance requirements. We are also working with cable set-top
box manufacturers in Asia to supply products targeted for the Asian Pacific
markets.

Cable Telephony. In addition to traditional video and data services, the two-way
digital cable infrastructure can support voice services, referred to as cable
telephony. Cable operators are gradually introducing local residential phone
service to select cable TV subscribers around the world. According to the
National Cable Television Association, at least 9 of the largest cable operators
in the U.S. provide some class of residential and/or commercial phone service in
more than 45 markets overall.

PacketCable, another specification spearheaded by CableLabs, is the proposed
standard that will provide the framework for identifying, qualifying and
supporting Internet protocol-based voice and video products via the cable
network. It is designed to ensure a level of service consistent with that
provided by telephone companies. Due to delays and conflicts in the development
of the PacketCable standard, the deployment of services has been slow and
current cable telephony solutions are proprietary. As the standard solidifies,
Voice-over-Internet Protocol (VoIP) services are expected to be marketed in
volume beginning in 2002.

                                      -10-
<PAGE>

Cahner's Instat Group estimates that worldwide cable telephony subscribers will
increase from less than 1 million in 1999 to more than 20 million in the year
2004. Every cable telephony subscriber will require one radio frequency tuner
and an upstream amplifier as part of the system solution.

To conform with the PacketCable standard, suppliers must meet two technical
challenges: compliance with rigorous industrial-class environmental operating
standards and the delivery of a low-power solution. With our QS-9000 certified
products that were developed for the automotive industry and our success in
developing low-power products, we believe that we are well positioned to meet
the stringent PacketCable standard's environmental and power requirements for
radio frequency tuners. We are currently working with customers who are
developing cable telephony systems to supply radio frequency tuners and upstream
amplifiers that meet their performance requirements.

Digital Television. The worldwide infrastructure of traditional television is
undergoing substantial change due to the transition from analog to digital
environments. Digital techniques will enable new kinds of consumer services,
such as high-definition TV, or HDTV, and digital standard definition TV, or
SDTV, programming, data broadcasting, on-demand programming and interactive TV.

New products will be required by consumers to receive these new digital
services, and manufacturers are offering consumers a wide range of options:
digital TVs, HDTV projection displays and sets, SDTV sets, flat panel sets,
digital set-top boxes (that decode the digital signal for an analog TV), digital
personal video recorders and other TV peripherals. One or more tuners are
required in each of these various products, and an interactive appliance will
also require an upstream amplifier.

Countries in each major geographic region have announced plans to convert to
digital terrestrial transmission. Many European governments have set 2010 as the
year for the end of analog transmissions. In the U.S., current FCC regulations,
subject to specific exceptions, mandate that all terrestrial broadcast stations
in the U.S. convert solely to digital transmission by 2006. During the past
year, as numerous factions including industry organizations, broadcasting
groups, standards bodies, and production studios, among others, have lobbied the
FCC, the digital television market has developed more slowly than expected. Even
with market confusion about standards, the Consumer Electronics Association
announced that sales of digital televisions and displays in 2000 surpassed
earlier projections, reaching an estimated 625,000 units and $1.4 billion in
revenue. The Consumer Electronics Association projects that number to increase
to 1.13 million units in 2001.

Cahner's Instat Group predicts that the number of digital TV tuners will reach
51 million units worldwide by 2004, climbing to 137 million units by 2010.
Cahner's also projects that installations of worldwide, stand-alone digital
land-based broadcast set-top boxes will grow from 695,000 in 2000 to 9.4 million
in 2004.

In addition, we sell our radio frequency tuner modules in the analog TV market.
We believe that our tuners are well positioned to meet both digital and analog
TV manufacturers' requirements because of the high performance of our tuners,
and their ability to reliably receive both digital and analog signals.

PC/TV. Microsoft(TM) and Intel(TM), through their PC guidelines and other
industry initiatives, have outlined rigorous specifications for high-resolution
video and audio services on the PC. These specifications reflect an initiative,
endorsed by computer original equipment manufacturers, to transform the PC into
a platform for entertainment, information and communications in both the home
and office. The power and interactivity of the PC, in combination with new
broadcast delivery mechanisms, including digital TV transmission, digital audio
broadcast and two-way cable, is expected to drive the demand for new
applications and services, and in turn, increase computer sales. With its high-
resolution monitor, the PC is already equipped to support the display
requirements of digital TV and it provides a low-cost alternative to high-priced
digital TV sets and receivers. Cahner's Instat Group predicts that sales of
digital TV tuners for PCs will reach 9 million units worldwide by

                                      -11-
<PAGE>

2004, climbing to more than 15 million units by 2010. We currently supply our
radio frequency tuner products to PC/TV manufacturers and will seek to migrate
our customers to digital television tuner technology.

Automotive. Today's consumers are interested in smarter and safer automobiles,
and the automotive industry is responding with system upgrades and innovative
entertainment and information features, including next-generation digital radio,
TV-based entertainment systems, wireless networking and telematics systems that
automatically summon help in an emergency. Digital audio, video and
communications products allow consumers to travel with all the lifestyle and
workstyle conveniences that they enjoy at home.

We believe that these advanced services will lead to increasing demand for
high-performance tuner systems based on a new breed of radio frequency tuner
technology and architectures. At the same time, the demand for silicon content
is increasing as automakers strive to provide more electronic systems to meet
automotive space constraints and QS-9000 quality standards, while supporting
industrial-class environmental operating conditions. Given our experience in
supplying FM and TV tuners to the automotive industry, we believe that we can
leverage our position in the tuner market for automobiles into additional
opportunities to incorporate our products into other automotive uses of radio
frequency technology.

PRODUCTS

Our radio frequency products include integrated circuits that perform
calibration and amplification functions, as well as tuner and transceiver
modules. Our modules, which include a variety of electronic components supplied
by others, can be packaged with or without our integrated circuits. We currently
manufacture and market only radio frequency tuner, upstream amplifier and
transceiver products.

Single-Chip Silicon Broadband Tuners. Our MicroTuner is a semiconductor-based
tuner that uses dual conversion, or two steps, to convert the desired radio
frequency channel to the required output. Our MicroTuner incorporates all the
active components associated with receiving a cable or land-based broadcast in
the radio frequency spectrum and converting it to a standard intermediate
frequency. Because of its small size, the MicroTuner is suitable particularly
for products that require high performance, have constrained space or require
multiple tuner implementations.

The MicroTuners are characterized by a number of features:

     .    compatibility with performance requirements of cable and terrestrial
          environments, meeting the stringent requirements of new broadband
          applications;

     .    support for analog and digital modes;

     .    support for worldwide standards;

     .    configurable implementation to meet a wide range of applications and
          customer-customization requirements; and

     .    all-silicon implementation for reliable, stable, predictable operation
          with lower manufacturing cost.

We introduced our third-generation MicroTuners, the MicroTuner 2030 series, in
March 2000. Based on the patented technology of their predecessor, the
MicroTuner 2000, the integrated circuits offer increased

                                      -12-
<PAGE>

performance, expanded functionality and power reductions optimized for specific
markets, including interoperable cable set-top boxes, cable modems, PC/TVs, and
digital TVs.

Silicon Upstream Amplifiers. Our MicroStreamer family of upstream amplifiers
complements our tuner technology, providing the necessary means to boost signals
that are transmitted upstream to the cable plant. Upstream amplifiers are
required in any broadband application needing two-way communication, such as in
Internet access or interactive TV, and are commonly found in cable modems,
set-top boxes and cable telephony equipment. The features of the MicroStreamer
family include:

     .    one product suitable for both DOCSIS and EuroDOCSIS;

     .    low power dissipation, reducing power and heat dissipation in
          customers' products;

     .    low distortion, allowing for more robust operation of broadband
          networks; and

     .    extended frequency response, allowing operation at higher EuroDOCSIS
          frequencies.

Modules: Complete Production-Ready Radio Frequency Tuners. Our module
technology, an implementation medium for tuners, upstream amplifiers,
transceivers or other radio frequency products, consists of circuit boards
containing integrated circuits and other electronic components that are enclosed
by metal shielding. Our radio frequency tuner modules are complete
production-ready radio frequency products that are available for specific
markets, including the cable modem, PC/TV, set-top box, cable telephony, digital
TV and automotive markets.

We offer modules based on conventional discrete components that provide high-
performance radio frequency capabilities and can include additional functions,
such as transmission capability enabling bi-directional communications, packaged
in a production-ready product. These modules are based on a tuner architecture
that uses a single conversion, or one step, to convert the desired radio
frequency channel to the required output and offer customization flexibility. We
believe that these products, supported by our design and applications
engineering centers, have established a track record of reliability, quality and
performance.

In March 2000, a new class of modules, called MicroModules, was introduced. The
MicroModules, containing our integrated circuits, package the complete radio
frequency functionality into a small, module form-factor designed for easy
integration and implementation into customers' existing or new systems. These
high performance, smaller form-factor modules provide increased ease of
manufacturability and increased reliability. Over time, we intend to increase
the number of our own proprietary silicon integrated circuits in our
MicroModules and to sell various implementations across all of our target
markets.

Our modules are characterized by a number of features:

     .    complete, fully tested radio frequency tuners, providing for easy
          integration into a customer product;

     .    high-performance tuning capabilities, designed to meet performance
          requirements of specific applications;

     .    high quality, with products manufactured to both ISO 9002 and QS-9000
          standards;

     .    compliance with established worldwide industry standards; and

                                      -13-
<PAGE>

     .    customization capability, allowing our customers to differentiate
          their products with added functions or unique features.

As part of our radio frequency integrated circuit and module product portfolio,
we develop and sell reference platforms that represent application examples for
incorporation into customers' equipment. By providing these reference platforms,
we can assist customers in achieving easier and faster transitions from initial
prototype designs to final production releases. These reference platforms
enhance the customer's confidence that our products will meet their market
requirements and product introduction schedules.

TECHNOLOGY

We believe that one of our competitive advantages is our broad base of core
technologies across the range of engineering expertise for radio frequency
tuners and transceivers, from silicon to systems. We strive to continuously
improve our technology and to develop new technologies in the area of radio
frequency communication. To date, we have developed radio frequency technologies
in the area of cable modem transceivers, television tuning systems employed in
personal computers, set-top boxes and digital video recorders, automotive
radios, and general television tuning technology for terrestrial and cable
applications. As of March 12, 2001, we have 13 patents granted and an additional
12 patent applications pending in the U.S. and 8 patents granted and an
additional 1 patent application pending in other countries (which combined
include over 1,000 individual claims).

MicroTuner Integrated Circuit. The centerpiece of our technology is our single-
chip silicon tuner, the MicroTuner. The MicroTuner is a highly integrated,
solid-state device that incorporates all the active components associated with
receiving a cable or terrestrial signal in the radio frequency spectrum and
converting it to a standard intermediate frequency.

True Single-Chip Implementation. Our technology expertise has allowed us to
implement what we believe is the only single-chip tuner, incorporating all of
the active elements of a radio frequency tuner. Our MicroTuner addresses the
especially difficult challenge of integrating the low noise amplifier circuit
which is critical for system performance due to its role in defining a
receiver's sensitivity. Furthermore, our MicroTuner is the first tuner to
incorporate varactors, thereby eliminating the need for a high-voltage power
supply.

Dual-Conversion Architecture. The MicroTuner uses a patented dual-conversion
architecture that has been optimized for an integrated circuit implementation.
The dual-conversion architecture is considered highly desirable because of its
performance with respect to image rejection and the accuracy of its output.
Traditionally, dual-conversion tuners were more expensive than single-conversion
tuners due to the additional conversion step and were only used in demanding and
less cost-sensitive applications such as cable set-top boxes. But in the new
digital era, higher performance is a common requirement and the characteristics
of the dual-conversion architecture are ideal.

Programmability. The MicroTuner also provides for substantial flexibility
through its programmability. A key part of the reference designs that we develop
and provide to customers is a software module. This software provides for common
functionality such as channel changing, but also allows flexibility in creating
on-chip reference frequencies used for tuning. By providing this flexibility, it
is possible to optimize performance on a channel-by-channel basis. We believe
the software also provides a convenient user interface for designers and aids in
system diagnostics.

All-Silicon Tuner. Traditionally, radio frequency integrated circuits have been
based on a non-silicon material called gallium arsenide. However, gallium
arsenide suffers from two weaknesses: low integration and high cost. Low
integration means that few components can be implemented on a single chip.
Although silicon

                                      -14-
<PAGE>

germanium has attracted publicity in recent years due to its high performance,
to date it has been available only at a high cost. In contrast, we use an all-
silicon chip to combine a high level of integration in our radio frequency
integrated circuits, several tens of thousands of components on one chip, and
low cost. This allows us to provide our customers with cost-effective products
of small physical size.

Upstream Amplifiers. The MicroStreamer family of upstream amplifiers complements
our MicroTuner technology by adding the means to transmit data back to the cable
head end. We believe that our amplifiers offer high performance in terms of
distortion and frequency response, and offer the industry's lowest power
dissipation. The MicroStreamer family is compatible with the requirements of
both DOCSIS and EuroDOCSIS.

High Performance Single-Conversion Technology. Traditionally, high-performance
applications, such as cable TV tuners, have required performance that was only
realizable with a high-cost, dual-conversion tuner module composed of hundreds
of discrete components. We have developed and patented a proprietary design for
our single-conversion tuner that extends its capabilities into the cable and
digital realms. While not offering all of the advanced capabilities of the
MicroTuner, the technology gives customers a choice of implementation methods
and cost alternatives. This has enabled us to sell reasonably priced radio
frequency modules to additional target markets.

SALES, MARKETING AND TECHNICAL SUPPORT

We have a worldwide sales, marketing and technical support organization
consisting of 24 employees as of December 31, 2000, with sales and technical
support offices located in Plano, Texas; San Diego and San Jose, California;
Huntsville, Alabama; Ingolstadt, Germany; Hong Kong; Korea; and Taiwan. To
complement our direct sales and support expertise, as of December 31, 2000 we
had 15 sales representatives and distributors in Hong Kong, Denmark, France,
Spain, Portugal, India, Israel, Japan, Korea, Singapore, South Africa, Taiwan,
Turkey and the United Kingdom. Products shipped to North America accounted for
approximately 50% of our total revenues for the year ended December 31, 2000. In
2000, one customer, DaimlerChrysler Corporation, accounted for greater than 10%
of our revenues, with approximately 19% of our net revenues.

In addition, our design and applications engineering staff is actively involved
with customers during all phases of design and production, and provides customer
support through our worldwide sales and technical support offices and major
design centers in Plano, Texas; Ingolstadt, Germany; and San Diego, California.
We continue to seek close technical collaboration with our customers during the
design phase of their new products to position us as the primary radio frequency
supplier for our customers' new products. We also provide technical support to
our customers through our field application engineers, technical marketing and
factory systems engineers.

We market our products through our web site, industry trade shows and
exhibitions, presentations of technical papers at industry meetings and
technical articles placed in industry magazines.

MANUFACTURING

Our manufacturing objective is to produce reliable, high-quality radio frequency
integrated circuits and modules while maintaining a high level of on-time
delivery to our customers. By utilizing third parties for our wafer fabrication
and integrated circuit packaging, we are able to focus on module manufacturing
and calibration and radio frequency testing of both the integrated circuits and
modules.

                                      -15-
<PAGE>

Integrated Circuit Manufacturing. We currently contract with two third-party
silicon foundries, IBM and X-FAB, for our wafer fabrication. Our integrated
circuits are currently produced using standard silicon technology, and we are
investigating using more advanced technologies for fabrication of future
products that increase the performance of our integrated circuits while reducing
die size. Once produced by the third-party foundry, the die are then assembled
into packages by a third-party assembler. Currently, Amkor is our sole-source
integrated circuit assembly subcontractor; however, we have recently identified,
but not yet qualified, a second assembly subcontractor with a qualified package,
and are continuing to investigate other assembly subcontractors for future use.
Once assembled, the packaged units are tested at either our test facility in
Plano, Texas or a third-party test facility located overseas.

Module Manufacturing. We currently operate our own manufacturing facilities for
assembling, calibrating and testing our module products. We have two
manufacturing facilities located in Manila, Philippines, totaling 61,200 square
feet of space. One of our locations is qualified for both QS-9000 and ISO 9002.
We began manufacturing activities in the other facility in January 2000 and are
in the process of applying for ISO 9002 certification for this newer facility.

Module assembly is accomplished using the latest surface-mount assembly
equipment utilizing 80% surface-mount device components. Surface-mount assembly
is completed with standard pick and place equipment, which is generally readily
available from several sources. The process takes surface-mountable components
and places them on a printed circuit board. The printed circuit board is then
run through a furnace to harden (re-flow) the solder between the components and
printed circuit board. The use of surface-mount equipment usually increases the
number of units per hour that can be assembled by a factory line. The modules
are then calibrated and tested using our proprietary test software and
equipment. The calibration process is a manual process completed on an assembly
line. Our modules are calibrated after the components are placed on a printed
circuit board and prior to full assembly. The equipment used for calibration is
a personal computer-based system that utilizes off-the-shelf radio frequency
test equipment, which is generally readily available.

Quality Assurance. Our quality control process is started during the design
phase of each product. Each of our products is designed for testability. During
the design phase for each product, we engage in specific layout rules for the
product and subject each product to extensive simulation at process, temperature
and voltage extremes prior to the product being prototyped. To insure that the
highest quality is maintained, our integrated circuits and module prototypes are
subjected to extensive reliability testing prior to being released to
high-volume production. Once a product is qualified and released to
manufacturing, a product-monitoring plan is used to ensure the highest quality
level is maintained. We continue our quality testing process by submitting a
statistically valid random sample of finished products to extensive testing on a
rotational basis.

ENGINEERING, RESEARCH AND DEVELOPMENT

We have an integrated circuit engineering team located in Plano, Texas, and our
systems design engineering teams are located in Plano, Texas; Ingolstadt,
Germany; and San Diego, California. Our engineering team has substantial
expertise in communications systems, radio frequency integrated circuit
technology, analog and mixed signal technology, television systems engineering
and PC systems and computer networks. Our engineers are involved in advancing
our technology core competencies and our product development activities.
Currently, our research and development efforts are focused on increasing the
functions of our radio frequency integrated circuits and modules, while
maintaining a low level of power consumption.

                                      -16-
<PAGE>

In 1998, 1999 and 2000, excluding the effect of stock option compensation, we
spent approximately $3.2 million, $5.9 million and $13.5 million respectively,
on research and development. On a pro forma combined basis in 1999, we spent
approximately $21.8 million, which includes $12.7 million of acquired in-process
research and development. We believe that we must continually enhance the
performance and flexibility of our products, and successfully introduce new
products to maintain our leadership position. Accordingly, we expect to continue
to expend significant amounts of funds for research and development activities
in the future.

PATENTS AND PROPRIETARY INFORMATION

Our future success and competitive position depend upon our ability to obtain
and maintain protection for the proprietary technology used in our products. As
of March 12, 2001, we held 13 issued U.S. patents and had 12 additional U.S.
patent applications pending, and 8 patents granted and 1 patent application
pending in other countries (which combined include over 1,000 individual
claims). Our issued U.S. patents expire between 2015 and 2019.

Our issued patents protect various aspects of our technology at the broad
architectural level as well as at the circuit and building block level,
including:

     .    cable modem tuner structure;

     .    integrated dual-conversion tuners;

     .    multiple phase-locked loops on a single chip; and

     .    integrated variable-gain low-noise amplifier.

We also have one registered trademark in the U.S.

Because it is critical to our success that we are able to prevent competitors
from copying our innovations, we intend to continue to seek patent protection
for our products. We also rely on trade secret protection for our technology, in
part through confidentiality agreements with our employees, consultants and
third parties.

COMPETITION

The broadband communications markets and semiconductor industries are intensely
competitive and are characterized by rapid technological change, evolving
standards and price erosion. We expect competition to intensify as current
competitors expand their product offerings and new competitors enter the market.

We believe that we compete primarily on the basis of:

     .    conformity to industry standards;

     .    performance relative to price;

     .    product availability;

     .    completeness of solution;

     .    time-to-market;

                                      -17-
<PAGE>

     .    quality and reliability;

     .    adaptability and flexibility to customers' and target markets'
          requirements;

     .    customer service and responsiveness;

     .    level of integration;

     .    design and engineering capabilities; and

     .    new product innovation.

We believe that we compete favorably against our competitors with respect to
these factors.

We compete primarily with tuner manufacturers such as Alps, Panasonic, Philips
Electronics, Samsung and Thomson and with semiconductor companies such as
Anadigics, Analog Devices, Broadcom and Maxim, and potentially with companies
such as Conexant and Silicon Wave. We believe that many of our customers also
use radio frequency technology provided by our competitors. These relationships
may influence our customers' decisions regarding the volume of products
purchased from us or our competitors, which could decrease our sales to our
customers. In addition, because of these relationships, some of our competitors
may acquire information related to our customers' new products before we do,
which could harm our future sales to those customers. We expect to continue to
face competition from these companies and emerging companies developing new
technologies that may meet the needs of our customers.

We also compete with other technologies in our target markets. In particular,
the cable modem and cable telephony markets could also be served by products
using digital subscriber line technologies, which have some advantages over
cable technologies. For example, digital subscriber line technologies provide
transmission through an ordinary phone line, while cable technologies provide
transmission through a cable television network. To date, the number of
installed telephone lines has exceeded the number of cable lines installed.
Because of the prevalence of telephone access, it is possible that the use of
digital subscriber line technologies could surpass the use of cable
technologies. Typically, a consumer would select one method for high speed
access. Both allow for two-way, high-speed access between the Internet and a
consumer. Digital subscriber line technologies are dependent on the quality of
the telephone lines, and many of the installed telephone lines are old, which
may impact the availability and/or quality of the information flow as compared
to newer installed cable lines. As bandwidth becomes a shared resource, the
bandwidth available to each cable modem user decreases.

ENVIRONMENTAL MATTERS

International, federal, state and local requirements relating to the discharge
of substances into the environment, the disposal of hazardous wastes and other
activities affecting the environment may have an impact on our manufacturing
operations. We believe that we are in material compliance with applicable
environmental laws and regulations. To date, compliance with environmental
requirements and resolution of environmental claims have been accomplished
without material effect on our liquidity or capital resources.

EMPLOYEES

As of December 31, 2000, we had 158 employees worldwide (excluding our
manufacturing personnel in the Philippines), with 93 people in research and
development, 24 people in sales and marketing, 10 people in operations and 31
people in administration. In addition, as of December 31, 2000, we employed
1,815 people

                                      -18-
<PAGE>

in our manufacturing facilities in Manila, Philippines, 777 of whom are
represented by a union. We believe that our future success will depend in part
upon our continued ability to attract and retain qualified personnel. We
consider our relations with our employees to be good. Our contract with our
unionized employees expires on December 31, 2002.

ITEM 2.   PROPERTIES

Our principal administrative, sales, marketing, research and development and
final testing facility is located in a building of approximately 44,000 square
feet in Plano, Texas, which is leased through August 31, 2005. We also maintain
an administrative, sales, marketing, research and development office of
approximately 25,000 square feet in Ingolstadt, Germany, which is leased through
December 2021. In addition, we lease sales and technical support offices in San
Diego and San Jose, California, and Huntsville, Alabama. Our manufacturing
facilities are located in two buildings covering approximately 25,200 and 36,000
square feet, respectively, located in Manila, Philippines. Our leases for these
properties expire in December 2002 and November 2004, respectively.

ITEM 3.   LEGAL PROCEEDINGS

From time to time, we may be involved in litigation relating to claims arising
out of our ordinary course of business. We are not currently a party to any
material litigation, except as described below.

On January 24, 2001, we filed a lawsuit alleging patent infringement in the
United States Court for the Eastern District of Texas, Sherman Division, against
Broadcom Corporation. The lawsuit alleges that Broadcom Corporation's BCM 3415
microchip infringes our U.S. patent no. 5,737,035. In our complaint, we are
seeking monetary damages resulting from the alleged infringement as well as
injunctive relief precluding Broadcom Corporation from taking any further action
which infringes our 5,737,035 patent.

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

Not applicable.

                                      -19-
<PAGE>

                                    PART II

ITEM 5.   MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
          MATTERS

Our common stock began trading on the Nasdaq National Market System under the
symbol TUNE effective August 4, 2000. Prior to that date, there was no public
market for our common stock. The following table sets forth for the periods
indicated the high and low closing prices for the common stock, as reported by
Nasdaq:

<TABLE>
<CAPTION>
                   Fiscal Year Ending December 31, 2001                               High               Low
---------------------------------------------------------------------------      -----------        ------------
<S>                                                                              <C>                <C>
  First Quarter (January 1, 2001 through March 12, 2001)                            $17.625            $7.4375

                   Fiscal Year Ending December 31, 2000                               High               Low
---------------------------------------------------------------------------      -----------        ------------
  Third Quarter (August 4 through September 30, 2000)                               $59.25             $30.125

  Fourth Quarter (October 1 through December 31, 2000)                              $53.00             $  9.00

</TABLE>

As of March 12, 2001, there were 240 stockholders of record.

We believe factors such as quarterly fluctuations in results of operations,
announcements by us or our competitors, technological innovations, new product
introductions, governmental regulations, litigation or changes in earnings
estimates by analysts may cause the market price of the common stock to
fluctuate, perhaps substantially. In addition, stock prices for many technology
companies fluctuate widely for reasons that may be unrelated to their operating
results. These broad market and industry fluctuations may adversely affect the
market price of our common stock.

To date, we have not paid any cash dividends on our common stock. We currently
anticipate that we will retain any available funds to finance the growth and
operation of our business, and we do not anticipate paying any cash dividends in
the foreseeable future.

During the year ended December 31, 2000, we have issued and sold the following
unregistered securities to a limited number of persons as described below (as
adjusted to reflect a 2-for-1 stock split of the common stock effective as of
January 18, 2000). None of these transactions involved any underwriters,
underwriting discounts or commissions, or any public offering, and we believe
that each transaction was exempt from the registration requirements of the
Securities Act of 1933 by virtue of Section 4(2) thereof, Regulation D
promulgated thereunder or Rule 701 pursuant to compensatory benefit plans and
contracts relating to compensation as provided under Rule 701. The recipients of
securities in each transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof, and appropriate legends were affixed to the share
certificates and instruments issued in those transactions. All recipients had
adequate access, through their relationships with us, to information about us.

                                      -20-
<PAGE>

     (a)  In January 2000, we issued an aggregate of 3,318,513 shares of Series
          E preferred stock and warrants to purchase 2,212,342 shares of common
          stock at a nominal exercise price to HMTF Temic/Microtune Cayman, L.P.
          and TIN Vermogensverwaltungsgesellschaft in exchange for all the
          outstanding shares of HMTF Acquisition (Bermuda), Ltd., which
          securities were valued at, in the aggregate, approximately $63.1
          million.

     (b)  In January 2000, we granted three employees options to purchase
          330,000 shares of Series E preferred stock at an exercise price of
          $16.00 per share, and in April 2000 an option to purchase 110,000
          shares of Series E preferred stock was cancelled.

     (c)  In June 2000, we issued an aggregate of 800,000 shares of Series F
          preferred stock at $12.00 per share for an aggregate purchase price of
          $9,600,000 to four of our customers.

     (d)  We granted options to purchase an aggregate of 5,771,150 shares of
          common stock to our employees at per share exercise prices ranging
          from $0.875 to $38.00.

     (e)  We issued an aggregate of 680,215 shares of our common stock to our
          employees or other service providers at a range of $0.025 to $4.95 per
          share upon the exercise of stock options issued under our 1996 Stock
          Option Plan, for an aggregate purchase price of $235,790.

We registered the initial public offering of our common stock, par value $0.001
per share, on a Registration Statement on Form S-1 (File No. 333-36340) which
was declared effective on August 4, 2000. The offering closed on August 9, 2000.
The managing underwriters of the offering were Goldman Sachs, Chase H&Q, SG
Cowen and Bear, Stearns & Co., Inc. A total of 4,600,000 shares of common stock
were sold by us in the offering at a price of $16.00 per share, resulting in
gross proceeds of $73.6 million. The underwriting discount was $5.2 million and
the other expenses related to the offering totaled approximately $1.6 million.

From the time of receipt through December 31, 2000, we have applied the net
proceeds from the offerings toward funding capital expenditures. Net cash used
from the offerings for capital expenditures totaled $5.5 million through
December 31, 2000. We are currently investing the remainder of the proceeds in
interest-bearing, investment-grade securities for future use.

ITEM 6.   SELECTED FINANCIAL DATA

You should read the data presented below in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical and pro forma financial statements and the notes to those
financial statements included elsewhere herein. The historical statement of
operations data for each of the three years ended December 31, 2000, 1999 and
1998 and the balance sheet data as of December 31, 2000 and 1999 have been
derived from our financial statements, which has been audited by Ernst & Young
LLP, independent auditors, and are included elsewhere herein. The historical
statement of operations data for the year ended December 31, 1997 and for the
period May 28, 1996 (inception) through December 31, 1996, and balance sheet
data as of December 31, 1998, 1997 and 1996 has been derived from our audited
financial statements that are not included herein. The historical results are
not necessarily indicative of results to be expected for any future period.

                                      -21-
<PAGE>

<TABLE>
<CAPTION>
                                                                         Year Ended December 31,
                                                            ---------------------------------------------------     May 28, 1996
                                                                                                                      through
                                                            2000 (1)        1999           1998          1997      Dec. 31, 1996
                                                            --------    -----------    ------------   ---------    -------------
                                                                       (in thousands, except per share data)
        Consolidated Statements
          of Operations Data:
 <S>                                                        <C>          <C>             <C>             <C>            <C>
 Net revenues........................................        $ 70,829      $     --       $     --       $     --        $     --
 Cost of revenues....................................          46,369            --             --             --              --
                                                            ---------------------------------------------------------------------
 Gross margin........................................          24,460            --             --             --              --
 Operating expenses:
 Research and development:
     Stock option compensation.......................           1,360           220             --             --              --
     Other...........................................          13,472         5,913          3,174          2,091             484
                                                            ---------------------------------------------------------------------
                                                               14,832         6,133          3,174          2,091             484
 Acquired in-process research and
     development.....................................          12,692            --             --             --              --
 Selling, general and administrative:
     Stock option compensation.......................           2,838           630             --             --              --
     Other...........................................          16,443         2,327            885            723             262
                                                            ---------------------------------------------------------------------
                                                               19,281         2,957            885            723             262
 Amortization of intangible assets
    and goodwill.....................................           8,414            --             --             --              --
                                                            ---------------------------------------------------------------------
 Total operating expenses............................          55,219         9,090          4,059          2,814             746
                                                            ---------------------------------------------------------------------
 Loss from operations................................         (30,759)       (9,090)        (4,059)        (2,814)           (746)
 Other income (expense)..............................             999           582            572            408             123
                                                            ---------------------------------------------------------------------
 Loss before provision for income taxes..............         (29,760)       (8,508)        (3,487)        (2,406)           (623)
 Provision for income taxes..........................           2,034            --             --             --              --
                                                            ---------------------------------------------------------------------
 Net loss............................................         (31,794)       (8,508)        (3,487)        (2,406)           (623)
 Preferred stock dividends...........................              --            --           (811)        (4,183)             --
                                                            ---------      --------       --------       --------        --------
 Net loss applicable to common stockholders..........       $ (31,794)     $ (8,508)      $ (4,298)      $ (6,589)       $   (623)
                                                            =========      ========       ========       ========        ========
 Basic and diluted loss per
    common share (2).................................       $   (1.57)     $  (1.34)      $  (1.04)      $  (2.98)       $  (0.44)
                                                            ---------      --------       --------       --------        --------
Weighted average shares used in computing
 basic and diluted loss per
    common share (2).................................          20,229         6,354          4,116          2,210           1,409
                                                            ---------      --------       --------       --------        --------
</TABLE>

                                      -22-
<PAGE>

<TABLE>
<CAPTION>
                                                                         December 31,
                                            -----------------------------------------------------------------------
                                                 2000           1999          1998          1997          1996
                                            --------------  -----------  -------------  -----------  --------------
                                                                         (in thousands)
    <S>                                      <C>             <C>            <C>           <C>           <C>
        Consolidated Balance Sheet Data:
   Cash, cash equivalents                      $ 77,650      $ 20,129       $ 7,868       $ 6,552       $ 4,828
   Working capital                               90,901        19,643         7,186         4,023         4,727
   Total assets                                 153,031        22,277        10,190         7,744         5,448
   Total stockholders' equity                   132,107        21,605         9,508         5,215         5,347

</TABLE>

     (1)  See Note 1 of our Notes to Consolidated Financial Statements for
          information concerning the combination with Microtune KG.


     (2)  See Note 2 of our Notes to Consolidated Financial Statements for
          information concerning the computation of the number of shares used to
          calculate net loss per common share.



ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

Certain statements contained in this Annual Report on Form 10-K, including,
without limitation, statements containing the words "believes," "anticipates,"
"estimates," "expects," and words of similar import, may constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Readers are referred to the disclosures under the
caption "Factors Affecting Future Operating Results and Stock Price" in this
report, which describes factors that could cause actual events to differ from
those contained in the forward looking statements.

                                      -23-
<PAGE>

                                    OVERVIEW

HISTORY

We were incorporated in Texas in May 1996 and began operations in August 1996.
In June 2000, we reincorporated in Delaware. From inception until December 31,
1999, our primary activities consisted of raising capital, recruiting radio
frequency and analog engineers, developing our silicon integrated circuit tuner
for broadband radio frequencies and initiating relationships with potential
customers and suppliers.

In January 2000, we combined with Temic Telefunken Hochfrequenztechnik GmbH and
its affiliated companies. Temic was founded in the early 1900s in Germany. In
the late 1940s, Temic began developing mechanical radio frequency tuners, and in
the late 1960s, it was the first company to develop an electronic radio
frequency tuner. The two companies have been operating as one company since the
combination in January 2000. In addition, Temic converted to a KG and changed
its name to Microtune GmbH & Co. KG, referred to as Microtune KG, in August
2000.

FINANCIAL INFORMATION

We are a radio frequency silicon and systems company, specializing in
high-performance radio frequency tuners, upstream amplifiers, and transceivers
to the broadband communications markets. We design and develop highly integrated
broadband gateway radio frequency integrated circuits and modules for use in
cable modems, PC/TVs, set-top boxes, cable telephony, digital TV and other
consumer electronics devices.

Since inception we have incurred significant losses, and as of December 31,
2000, we had an accumulated deficit of approximately $46.8 million. As a result
of our combination with Microtune KG, our primary activities have expanded to
include the design, manufacture and sale of radio frequency modules. In March
2000, we began shipment of our single-chip silicon tuner and in December 2000,
we began shipment of our silicon upstream amplifier. To date, substantially all
of our revenues have been derived from sales of our tuner modules rather than
from our modules containing our silicon chips, known as MicroModules, or our
single-chip silicon products. These tuner modules were primarily developed,
manufactured and marketed by Microtune KG prior to the combination. Our limited
combined operating history makes the prediction of future results of operations
difficult, and accordingly, we may not achieve or sustain revenue growth or
profitability.

The time lag between product availability and volume shipment can be significant
due to a sales process that includes customer qualification of our products and
can take as long as two years, during which we continue to evolve our
technology. As a result of our combination with Microtune KG, we have broadened
our product suite to include radio frequency modules.

We recognize revenues from our products upon shipment to a customer or upon
notification of customer receipt, depending on the contract terms. We provide at
least a one-year warranty on all products and record a related provision for
estimated warranty costs at the date of sale.

We have invested heavily in research and development of our radio frequency
integrated circuits and systems technology. We expect to increase our investment
in these areas in absolute dollars to further develop our radio frequency
products. This investment will include the continued recruitment of radio
frequency and analog integrated circuit designers and systems engineers,
acquisition of test, development and production equipment and expansion of
facilities for research and manufacturing. As a result, we may continue to incur
substantial losses from operations for the foreseeable future.

                                      -24-
<PAGE>

We use IBM and x-FAB to manufacture our wafers and Amkor to assemble our radio
frequency integrated circuits. We perform final testing, packing and shipping of
our radio frequency integrated circuits at our facility in Plano, Texas, and
overseas at Amkor. With respect to our tuner modules, we perform all of our
assembly, calibration and test functions in our factories in Manila,
Philippines. As a result of our combination, we have recently experienced a
period of rapid growth and expansion. To manage this growth and any future
growth effectively, we intend to enhance our existing operational and financial
systems and hire additional qualified administrative, finance and information
technology personnel. We also moved our U.S. corporate headquarters to a new
facility in Plano, Texas, during September 2000.

RESULTS OF OPERATIONS

The following table sets forth, for the year ended December 31, 2000, certain
data from our consolidated statements of operations expressed as a percentage of
net revenues:

       Net Revenues..............................................   100%
       Cost of revenues..........................................    65
                                                                    ---
       Gross margin..............................................    35
       Operating expenses:
       Research and development:
          Stock option compensation..............................     2
          Other..................................................    19
                                                                    ---
                                                                     21
       Acquired in-process research and development..............    18
       Selling, general and administration:
          Stock option compensation..............................     4
          Other..................................................    23
                                                                    ---
                                                                     27
       Amortization of intangible assets and goodwill............    12
                                                                    ---
       Total operating expenses..................................    78
                                                                    ---
       Loss from operations......................................   (43)
       Other income..............................................     1
                                                                    ---
       Loss before provision for income taxes....................   (42)
       Provision for income taxes................................     3
                                                                    ---
       Net loss..................................................   (45)%
                                                                    ===


COMPARISON OF YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

Net Revenues

Revenues are recorded net of a provision for returns. Our net revenues from the
sale of our products were $70.8 million in the year ended December 31, 2000.
Supplier capacity constraints affected our ability to meet customer demand for
our products in 2000. We expect these supplier capacity constraints to ease
during 2001, but certain supply shortages may adversely affect revenue growth
during that time. Our first silicon products were available for evaluation by
our customers in 1999. We did not generate net revenues in 1998 or 1999.

                                      -25-
<PAGE>

Cost of Revenues

Cost of revenues includes the cost of purchases for subcontracted materials,
integrated circuit assembly, factory labor and overhead and warranty costs. In
addition, we perform final testing of our products and incur cost for the
depreciation of our test and handling equipment, labor, quality assurance and
logistics. We have only recently begun manufacturing our silicon products and as
a result expect our costs to decrease on a per-unit basis as our suppliers and
our test personnel develop experience in producing our products. Our
subcontracted materials experience cyclical trends in pricing due to
fluctuations in demand. In many cases, we do not have written commitments from
our suppliers for guaranteed supply. Our cost of revenues in the year ended
December 31, 2000 was $46.4 million, or 65% of net revenues. We do not expect
gross margins to increase in the near future due to the planned addition of new
products. New products typically have lower margins due to low volumes at
introduction. We did not generate revenues from the sale of products in 1998 or
1999 and, therefore, did not incur cost of revenues.

Research and Development

Research and development expenses consist of personnel-related expenses, lab
supplies, training and prototype subcontract materials. We expense all of our
research and development costs in the period incurred. Research and development
expenses increased 93% from $3.2 million in 1998 to $6.1 million in 1999, and
142% to $14.8 million in 2000. The increase in research and development expense
from 1998 to 1999 primarily reflects our increase of engineering personnel,
stock option compensation and purchases of additional prototype materials
associated with the design process. The increase in research and development
expenses from 1999 to 2000 primarily reflects the addition of $3.6 million of
expenses associated with Microtune KG operations, as well as recruiting of
engineers, purchases of additional prototype materials associated with the
design process and an increase in the stock compensation charge related to
options granted to employees. We expect that research and development expenses
will increase in absolute dollars in future periods, and may increase or
fluctuate significantly as a percentage of total revenues from period to period.
Stock option compensation does not affect our total stockholders' equity or cash
flows.

Acquired In-Process Research and Development

As a result of our combination with Microtune KG, we recorded acquired
in-process research and development costs of $12.7 million for the year ended
December 31, 2000. Amounts allocated to acquired in-process research and
development were expensed at the date of combination, because the purchased
research and development had not reached technological feasibility based on the
status of design and development activities that required further refinement and
testing. Acquired in-process research and development did not affect our cash
flows.

Selling, General and Administrative

Selling, general and administrative expenses include our personnel-related
expenses for administrative, financial, human resources, marketing and sales,
and information technology departments, and include expenditures related to
legal, public relations and financial advisors. In addition, these expenses
include promotional and marketing costs, sales commissions, shipping costs to
customers and reserves for bad debts. Selling, general and administrative
expenses increased 234% from $0.9 million in 1998 to $3.0 million in 1999, and
552% to $19.3 million in 2000. The increase from 1998 to 1999 was primarily
related to our personnel-related expenses in sales and marketing, stock option
compensation, promotions and travel as we prepared for our first half 1999
product announcements and began to develop our direct sales channels and an
independent sales representative network. The increase from 1999 to 2000
primarily reflects the addition of $8.9 million of expenses associated with
Microtune KG operations as well as recruiting of sales and

                                      -26-
<PAGE>

administrative personnel, and an increase in the stock option compensation
charge related to options granted to employees. Stock option compensation does
not affect our total stockholders' equity or cash flow.

Amortization of Intangible Assets and Goodwill

The amortization of intangible assets and goodwill of $8.4 million for the year
ended December 31, 2000 results principally from our combination with Microtune
KG. The combination has been accounted for using the purchase method of
accounting. The purchase price allocated to intangible assets of $8.0 million is
being amortized over the estimated useful lives of the related assets of one to
five years. Goodwill resulting from the transaction totaled $28.3 million and is
being amortized over five years. We had immaterial amortization charges in 1998
and 1999.

Other Income (Expense)

Other income (expense) consists of interest income from investment of cash and
cash equivalents, foreign currency gains and losses and other non-operating
income and expenses.

Other income (expense) includes interest income which was $0.6 million in 1998
and 1999 and increased 369% to $2.7 million in 2000. Interest income is earned
from high-quality, short-term investments from cash generated by our five
private placement equity rounds of funding and our initial public offering on
August 4, 2000.

The foreign currency translation and transaction loss of $2.5 million for the
year ended December 31, 2000 relates to the operations of Microtune KG and its
subsidiaries. The foreign currency losses were primarily a result of the
devaluation of the Philippine Peso against the U.S. Dollar in the fourth quarter
of 2000. We used the German Mark as the functional currency for Microtune KG's
and its subsidiaries' financial statements through June 30, 2000. Foreign
currency exchange gains and losses resulting from the remeasurement of financial
statements not denominated in German Marks of Microtune KG and its subsidiaries
outside of Germany into German Marks were recognized in the statements of
operations as a component of foreign currency gains and losses through June 30,
2000. Foreign currency exchange gains and losses resulting from the translation
of financial statements denominated in German Marks of Microtune KG and its
subsidiaries into U.S. Dollars were included as a component of stockholders'
equity through June 30, 2000.

Starting July 1, 2000, we use the U.S. Dollar as the functional currency for
Microtune KG's and its subsidiaries' financial statements. The functional
currency was changed to the U.S. Dollar from German Marks for these entities as
a result of the manner these entities are now managed and operated. Foreign
currency exchange gains and losses resulting from the remeasurement of financial
statements not denominated in U.S. Dollars of Microtune KG and its subsidiaries
into U.S. Dollars are recognized currently in the statement of operations as a
component of foreign currency gains and losses.

Income Taxes

Prior to our combination with Microtune KG, we had not recognized any provision
for income taxes. We have a net operating loss carry forward for U.S. federal
income tax purposes of approximately $26.0 million as of December 31, 2000. In
addition, we have unutilized research and development tax credits of $1.0
million. Due to the uncertainty of our ability to utilize these deferred tax
assets they have been fully reserved.

The provision for income taxes of $2.0 million in 2000 consists of foreign
income taxes on the income of Microtune KG and its subsidiaries and U.S. state
franchise taxes.

                                      -27-
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

Since inception, we have funded our operations primarily through the issuance of
convertible preferred stock, which generated net cash proceeds of approximately
$44.2 million. On August 4, 2000, we issued 4.6 million common stock shares in
our initial public offering that raised net proceeds of approximately $66.8
million. As of December 31, 2000, we had net working capital of $90.9 million,
including $77.7 million of cash and cash equivalents.

At December 31, 2000, Microtune KG had a credit agreement with a bank that
provides for borrowings of up to $2.4 million. The agreement is cancelable upon
notification by the bank. Borrowings under this agreement bear interest at a
rate determined from time to time by the bank (the rate was 7.25% at December
31, 2000). At December 31, 2000, no borrowings were outstanding under this
credit agreement.

Investments in property and equipment were $1.5 million in 1998, $0.9 million in
1999 and $13.7 million in 2000. We expect capital expenditures to increase over
the next 12 months as we expand our manufacturing and test capacity to support
our anticipated increase in production. Other uses of cash include the funding
of operating activities, which were $2.7 million in 1998, $6.5 million in 1999
and $6.0 million in 2000.

We believe that our current cash balance will provide adequate liquidity to fund
our operations and meet our other cash requirements for at least the next 24
months. However, we may find it necessary or we may choose to seek additional
financing if our investment plans change or if industry or market conditions are
favorable for that type of a financing. We cannot be sure that a financing will
be available on reasonable terms, or at all, when and if required. If we raise
additional funds through the issuance of equity or convertible debt securities,
the percentage ownership of our stockholders will be reduced.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Following our combination with Temic, we now transact both sales and purchases
in multiple foreign currencies, including the German Mark and the Philippine
Peso. Due to the volatile nature of the currency markets, there is a potential
risk of foreign currency translation losses, as well as gains. We currently do
not use derivative financial instruments to hedge our balance sheet exposures
against future movements in exchange rates. However, we are currently evaluating
our exchange risk management strategy, including changes in our organizational
structure and other capital structuring techniques to manage our currency risk.
Our net investment in foreign subsidiaries, translated into U.S. Dollars using
exchange rates at December 31, 2000, was $47.5 million. A potential loss in the
value of this net investment resulting from a hypothetical 10% adverse change in
foreign exchange rates would be approximately $4.8 million.

EURO CONVERSION

On January 1, 1999, 11 European Union member states (Germany, France, the
Netherlands, Austria, Italy, Spain, Finland, Ireland, Belgium, Portugal and
Luxembourg) adopted the Euro as their common national currency. Until January 1,
2002, either the Euro or a participating country's national currency will be
accepted as legal tender. Beginning on January 1, 2002, Euro-denominated bills
and coins will be issued, and by July 1, 2002, only the Euro will be accepted as
legal tender. We do not expect future balance sheets, statements of operations
or statements of cash flows to be materially impacted by the Euro conversion.

                                      -28-
<PAGE>

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which we adopted
January 1, 2001. We do not currently use derivatives. However, as derivative
instruments may be used in the future, it is uncertain what, if any, impact the
adoption of Statement 133 will have on our future earnings or financial
position.

FACTORS AFFECTING FUTURE OPERATING RESULTS AND STOCK PRICE

This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including
those set forth below and elsewhere in this report.

If we are unable to migrate our customers over time from our modules using
discrete components to our silicon products or our modules that incorporate our
silicon products, our operating results could be harmed.

Currently, substantially all of our revenues are from the sale of our radio
frequency system modules using primarily discrete, third-party components. Our
future success will depend on our ability to successfully migrate our customers
from our modules that use discrete components to the all-silicon MicroTuner and
MicroStreamer, or MicroModules containing our silicon products, such as the
MicroTuner and the MicroStreamer, by convincing leading equipment manufacturers
to select these products for design into their own products. If we are not able
to convince these manufacturers to incorporate our silicon products our
operating results could be harmed.

As a result of the Microtune KG acquisition, we have recorded $36.3 million of
goodwill and acquired intangibles which will be amortized over one to five
years.

This will increase our net loss or decrease our net income by approximately $7.1
million in each of the years 2001 through 2004. To the extent we do not generate
sufficient cash flow to recover the amount of the investment recorded, the
investment could be considered impaired and could be subject to earlier write-
off. In such event, our net income or net loss in any given period could be
lower or greater, respectively, than anticipated and the market price of our
stock could decline.

We expect our quarterly operating results to fluctuate.

Our quarterly results of operations have fluctuated in the past and may
fluctuate significantly in the future due to a number of factors, many of which
are not in our control. These factors include:

     .    timing, cancellation and rescheduling of significant customer orders
          which result in revenues being shifted from one quarter to another;

     .    ability of our customers to procure the necessary components for their
          end-products that utilize our radio frequency products to conduct
          their operations as planned for any quarter;

     .    pricing concessions on volume sales to particular customers for
          established time frames;

     .    changes in our product and customer mix between quarters;

                                      -29-
<PAGE>

     .    labor disputes at our manufacturing facilities in the Philippines,
          which may cause temporary slowdowns or shutdowns of operations; and

     .    quality problems with our radio frequency products that result in
          significant returns.


We are dependent upon third parties, some of whom compete with us, for the
supply of components for our module manufacturing. Our failure to obtain
components for our module manufacturing would seriously harm our ability to ship
modules to our customers in a timely manner.

Many of the components for our modules are sole-sourced, meaning that we are
dependent upon one supplier for a specific component. At times we have
experienced significant difficulties in obtaining an adequate supply of
components necessary for our manufacturing operations, which have on occasion
prevented us from delivering radio frequency products to our customers in a
timely manner. For example, in 2000, we did not receive our expected allocation
of components from several significant sole-source suppliers which constrained
our ability to meet customer demand. We expect to experience similar spot
shortages of components in the future.

We usually do not have long-term supply agreements with our suppliers and
instead obtain components on a purchase order basis. Our suppliers typically
have no obligation to supply products to us for any specific period, in any
specific quantity or at any specific price, except as set forth in a particular
purchase order. Our requirements often represent a small portion of the total
production capacity of our suppliers, and our suppliers may reallocate capacity
to other customers even during periods of high demand for our radio frequency
products. In addition, some of our suppliers offer or may offer products that
compete with our radio frequency products. As a result, these suppliers may
preferentially allocate their components to in-house or third-party
manufacturers, rather than to us.

If our suppliers were to become unable or unwilling to continue manufacturing or
supplying the components that we utilize in our radio frequency products, our
business would be seriously harmed. As a result, we would have to identify and
qualify substitute suppliers or design around the component. This would be
time-consuming and difficult, and may result in unforeseen manufacturing and
operations problems. This may also require our customers to requalify our parts
for their products, which may be a lengthy process. The loss of a significant
supplier or the inability of a supplier to meet performance and quality
specifications or delivery schedules could impede our ability to meet customer
demand for timeliness, performance and quality, which could harm our reputation
and our business.

If we are unable to develop and introduce new radio frequency products
successfully and in a cost-effective and timely manner or to achieve market
acceptance of our new products, our operating results would be substantially
harmed.

Our future success will depend on our ability to develop new radio frequency
products for existing and new markets, introduce these products in a
cost-effective and timely manner, meet customer specifications and convince
leading equipment manufacturers to select these products for design into their
own new products. Our quarterly results in the past have been, and are expected
in the future to continue to be, dependent on the introduction and market
acceptance of a relatively small number of new products and the timely
completion and delivery of those products to customers. For example, we believe
that market acceptance of our radio frequency integrated circuits for the cable
modem market will be limited until the time that we introduce radio frequency
integrated circuits with the power requirements that conform to the evolving
specifications of some cable modem manufacturers.

                                      -30-
<PAGE>

The development of new radio frequency products is highly complex, and from time
to time, we have experienced delays in completing the development and
introduction of new products. In addition, some of our new product development
efforts are focused on producing silicon products utilizing architectures and
technologies with which we have no experience, and delivering performance
characteristics such as low power consumption at levels that we have not
previously achieved. If we are not able to develop and introduce these new
products successfully and in a cost-effective and timely manner, we will not be
able to successfully penetrate all of our target markets and our operating
results would be substantially harmed.

We face intense competition in the broadband communications and radio frequency
product markets, which could reduce our market share in existing markets and
affect our ability to enter new markets.

The broadband communications and radio frequency markets are intensely
competitive. We expect competition to continue to increase in the future as
industry standards become well known and as other competitors enter our target
markets. We compete with, or may in the future compete with, a number of major
domestic and international suppliers of integrated circuit and system modules in
the cable modem, PC/TV, set-top box, cable telephony, digital TV and automotive
markets. We compete primarily with tuner manufacturers, such as Alps, Panasonic,
Philips Electronics, Samsung and Thomson and with semiconductor companies, such
as Anadigics, Analog Devices, Broadcom and Maxim, and potentially with companies
such as Conexant and Silicon Wave. This competition has resulted and may
continue to result in declining average selling prices for our radio frequency
products.

Many of our current and potential competitors have advantages over us,
including:

     .    longer operating histories and presence in key markets;

     .    greater name recognition;

     .    access to larger customer bases;

     .    significantly greater financial, sales and marketing, manufacturing,
          distribution, technical and other resources; and

     .    relationships with potential customers as a result of the sales of
          other components, which relationships our competitors can leverage
          into sales of products competitive with our radio frequency products.

As a result, our competitors may be able to adapt more quickly than we to new or
emerging technologies and changes in customer requirements or may be able to
devote greater resources to the development, promotion and sale of their
products.

Consolidation by industry participants, including in some cases, acquisitions of
some of our customers or suppliers by our competitors, or vice versa, could
create entities with increased market share, customer base, technology and
marketing expertise in markets in which we compete. In fact, some of our
suppliers offer or may offer products that compete with our radio frequency
products. These developments may significantly and adversely affect our current
markets, the markets we are seeking to serve and our ability to compete
successfully in those markets.

                                      -31-
<PAGE>

If we do not anticipate and adapt to evolving industry standards in the radio
frequency products and broadband communications markets, or if industry
standards develop more slowly than expected, our products could become obsolete
and we could lose market share.

Products for broadband communications applications generally are based on
industry standards that are continuously evolving. In some cases, the
development of these standards takes longer than was originally anticipated. For
example, both the OpenCable standard for set-top boxes and the PacketCable
standard for cable telephony have recently experienced delays in development. We
have directed our development toward producing radio frequency products that
comply with the evolving standards. The slowness of the development of a
standard in our target markets has resulted in slower deployment of new
technologies, which may harm our ability to sell our radio frequency products,
or the continued use of proprietary technologies. The continued delay in the
development of the standards could result in fewer manufacturers purchasing our
radio frequency products in favor of continuing to use the proprietary
technologies designed by our competitors. Either of the aforementioned effects
would result in diminished revenues and consequently harm our business. Further,
if new industry standards emerge, our products or our customers' products could
become unmarketable or obsolete. We may also have to incur substantial
unanticipated costs to comply with these new standards.

Our ability to adapt to changes and to anticipate future standards and the rate
of adoption and acceptance of those standards is a significant factor in
maintaining or improving our competitive position and prospects for growth. Our
inability to anticipate the evolving standards in the broadband communications
market and, in particular, in the radio frequency market, or to develop and
introduce new products successfully into these markets could result in
diminished revenues and consequently harm our business.

The average selling price of our products will likely decrease over time. If the
selling price reductions are greater than we expect, our operating results will
be harmed.

Historically, the average selling price of our products has decreased over the
products' lives. In addition, as the markets for radio frequency integrated
circuit products and transceivers mature, we believe that it is likely that the
average unit prices of our radio frequency products will decrease in response to
competitive pricing pressures, increased sales discounts and new product
introductions. To offset these decreases, we rely primarily on achieving yield
improvements and other cost reductions for existing products and on introducing
new products that can often be sold at higher average selling prices.

In addition, we will seek to increase the sales of our higher-margin products.
However, our sales, product and process development efforts may not be
successful, and our new products or processes may not achieve market acceptance.
To the extent that our cost reductions and emphasis on higher-margin products do
not occur in a timely manner, our results of operations could suffer.

We believe that transitioning our silicon products to higher performance process
technologies will be important to our future competitive position. If we fail to
make this transition efficiently, our competitive position could be seriously
harmed.

We continually evaluate the benefits, on a product-by-product basis, of
migrating to higher performance process technologies in order to produce more
efficient and higher performance integrated circuits. We believe this migration
is required to remain competitive. Other companies in the industry have
experienced difficulty in migrating to new process technologies and,
consequently, have suffered reduced yields, delays in product deliveries and
increased expense levels.

                                      -32-
<PAGE>

Moreover, we are dependent on our relationships with foundries to successfully
migrate to higher performance processes. Our foundry suppliers may not make
higher performance process technologies available to us on a timely or
cost-effective basis, if at all. If our foundry suppliers do not make higher
performance process technologies available to us on a timely or cost-effective
basis or if we experience difficulties in migrating to these advanced processes,
our competitive position and business prospects could be seriously harmed.

Because we depend on a few significant customers for a substantial portion of
our revenues, the loss of a key customer could seriously harm our business.

We have derived a substantial portion of our past revenues from sales to a
relatively small number of customers. As a result, the loss of any major
customer could significantly harm our revenues. DaimlerChrysler accounted for
approximately 20% of our net revenues for the year ended December 31, 2000.
Sales to our 20 largest customers, including sales to their respective
manufacturing subcontractors, accounted for approximately 77% of total sales for
the year ended December 31, 2000. We believe that our future operating results
will continue to depend on the success of our largest customers and on our
ability to sell existing and new products to these customers in significant
quantities. The loss of a key customer or a reduction in our sales to any key
customer could harm our revenues and consequently our financial condition.

If we are unable to continue to sell existing and new products to our key
customers in significant quantities or to attract new significant customers, our
future operating results could be harmed.

We may not be able to maintain or increase sales to our key customers or to
attract new significant customers for a variety of reasons, including the
following:

     .    most of our customers can stop purchasing our radio frequency products
          with limited notice to us without incurring any significant
          contractual penalty;

     .    most of our customers typically buy our radio frequency products
          through a purchase order, which does not require them to purchase a
          minimum amount of our radio frequency products;

     .    many of our customers and potential customers have pre-existing
          relationships with our current or potential competitors, which
          relationships may affect their decision to purchase our radio
          frequency products;

     .    some of our customers or potential customers offer or may offer
          products that compete with our radio frequency products; and

     .    our longstanding relationships with some of our larger customers may
          also deter other potential customers who compete with these customers
          from buying our radio frequency products.

If we do not maintain or increase sales to existing customers or attract
significant new customers, our revenues would diminish and consequently our
business would be harmed.

                                      -33-
<PAGE>

The sales cycle for our radio frequency products is long, and we may incur
substantial non-recoverable expenses and devote significant resources to sales
that may not occur when anticipated or at all.

Our customers typically conduct significant evaluation, testing, implementation
and acceptance procedures before they purchase our radio frequency products. As
a result, we may expend significant financial and other resources to develop
customer relationships before we recognize any revenues from these
relationships, and we may never recognize any revenues from these efforts. Our
customers' evaluation processes are frequently lengthy and may range from three
months to one year or more. In many situations, our customers design their
products to specifically incorporate our radio frequency products, and our radio
frequency products must be designed to meet their stringent specifications. This
process can be complex and may require significant engineering, as well as
sales, marketing and management efforts on our part. This process becomes more
complex as we simultaneously qualify our products with multiple customers.

Uncertainties involving the ordering and shipment of our radio frequency
products could harm our business.

Our sales are typically made pursuant to individual purchase orders, and we
generally do not have long-term supply arrangements with our customers.
Generally, our purchase orders provide that our customers may cancel orders
until 90 days prior to the shipping date and may reschedule shipments up to 30
days prior to the shipping date; however, in the past, we have permitted
customers to cancel orders less than 90 days before the expected date of
shipment, in many cases with little or no penalty. Moreover, we routinely
manufacture or purchase inventory based on estimates of customer demand for our
radio frequency products, which demand is difficult to predict. The cancellation
or deferral of product orders, the return of previously sold products or
overproduction due to the failure of anticipated orders to materialize could
result in our holding excess or obsolete inventory that could substantially harm
our business, financial condition and results of operations. In addition, our
inability to produce and ship radio frequency products to our customers in a
timely manner could harm our reputation and damage our relationships with our
customers.

We customize a substantial portion of our radio frequency products to address
our customers' specific radio frequency needs. If we do not sell our
customer-specific products in large volumes, we may be unable to cover our fixed
costs or may be left with substantial unsaleable inventory.

We manufacture a substantial portion of our radio frequency products to address
the needs of individual customers. Frequent product introductions by systems
manufacturers make our future success dependent on our ability to select
development projects that will result in sufficient volumes to enable us to
achieve manufacturing efficiencies. Because customer-specific radio frequency
products are developed for unique applications, we expect that some of our
current and future customer-specific radio frequency products may never be
produced in volume and may impair our ability to cover our fixed manufacturing
costs. In addition, if our customers fail to purchase these customized radio
frequency products from us, we risk having substantial unsaleable inventory. If
substantial unsaleable inventory occurs, our financial condition would be
harmed.

Other technologies for the broadband communications market will compete with
some of our target markets. If these technologies prove to be more reliable,
faster or less expensive or become more popular, the demand for our radio
frequency products and our revenues may decrease.

Some of our target markets, such as cable modem and cable telephony services,
are competing with a variety of different non-radio frequency based broadband
communications technologies, including digital subscriber line technology. Many
of these technologies will compete effectively with cable modem and cable
telephony services. If any of these competing technologies are more reliable,
faster or less expensive, reach more

                                      -34-
<PAGE>

customers or have other advantages over radio frequency based broadband
technology, the demand for our radio frequency products and our revenues may
decrease.

We depend on the continued growth of the broadband communications market
generally, and the radio frequency product market specifically, for our success.

We derive a substantial portion of our revenues from sales of radio frequency
products for broadband communication applications, in particular the cable modem
market. These markets are characterized by the following:

     .    intense competition;

     .    rapid technological change; and

     .    short product life cycles, especially in the consumer electronics
          markets.

Although the broadband communications market, in general, has grown rapidly in
the last few years, it may not continue to grow or a significant slowdown in
this market may occur. In particular, the set-top box, cable modem and cable
telephony markets may not grow at a rate sufficient for us to achieve
profitability or at all. Because of the uncertainty of the level of competition
and the strength of competitors in the broadband communications market, the
unproven technology of many products addressing this market and the short life
cycles of many consumer products, it is difficult to predict the potential size
and future growth rate of the radio frequency product market. In addition, the
broadband communications market is transitioning from analog to digital, as well
as expanding to new services, including Internet access, cable telephony and
interactive television. The future growth of the radio frequency tuner market is
partially dependent upon the market acceptance of products and technologies
addressing the broadband communications market, and we cannot assure you that
the radio frequency technologies upon which our products are based will be
accepted by the market. If the demand for radio frequency products is not as
great as we expect, we may not be able to generate sufficient revenues to become
successful.

The semiconductor industry is cyclical. If there is a sustained upturn in the
semiconductor market, there could be a resulting increased demand for foundry
services, significantly increasing prices and reducing product availability.

The semiconductor industry periodically experiences increased demand and
production capacity constraints. An increased demand for semiconductors could
substantially increase the cost of producing our radio frequency products, in
particular our integrated circuit products, and consequently reduce our profit
margins. As a result, we may experience substantial period-to-period
fluctuations in future results of operations due to general semiconductor
industry conditions.

We primarily depend on a single third-party wafer foundry to manufacture all of
our integrated circuit products, which reduces our control over the integrated
circuit manufacturing process.

We do not own or operate a semiconductor fabrication facility. We primarily rely
on IBM, an outside foundry, to produce most of our integrated circuit radio
frequency products, although we are in the process of qualifying x-FAB for
manufacturing our newer integrated circuit products. We do not have a long-term
supply agreement with IBM and instead obtain manufacturing services on a
purchase order basis. IBM has no obligation to supply products to us for any
specific period, in any specific quantity or at any specific price, except as
set forth in a particular purchase order. Our requirements represent a small
portion of the total production capacity of this foundry, and IBM may reallocate
capacity to other customers even during periods of high demand for

                                      -35-
<PAGE>

our integrated circuits. If IBM were to become unable or unwilling to continue
manufacturing our integrated circuits, our business would be seriously harmed.
As a result, we would have to identify and qualify substitute foundries, which
would be time consuming and difficult, resulting in unforeseen manufacturing and
operations problems. In addition, if competition for foundry capacity increases,
our product costs may increase, and we may be required to pay significant
amounts to secure access to manufacturing services. If we do not qualify or
receive supplies from additional foundries, including x-FAB, we may be exposed
to increased risk of capacity shortages due to our dependence on IBM.

We depend on a single third-party subcontractor for integrated circuit packaging
which reduces our control over the integrated circuit packaging process.

Our integrated circuit products are packaged by a sole independent
subcontractor, Amkor, using facilities located in South Korea. We do not have
long-term agreements with Amkor and typically obtain services from them on a
purchase order basis. Our reliance on Amkor involves risks such as reduced
control over delivery schedules, quality assurance and costs. These risks could
result in product shortages or increase our costs of packaging our products. If
Amkor is unable or unwilling to continue to provide packaging services of
acceptable quality, at acceptable costs and in a timely manner, our business
would be seriously harmed. We would also have to identify and qualify substitute
subcontractors, which could be time consuming and difficult and may result in
unforeseen operations problems.

We may be unable to integrate operations that we may acquire in the future.

From time to time, we expect to continue to evaluate acquisitions and may make
additional acquisitions in the future. Our acquisition of Microtune KG was our
first acquisition of a business. Accordingly, we have limited organizational
experience in acquiring and integrating businesses, and we will need to develop
the relevant skills if we are to be successful in realizing the benefits of any
future acquisitions. If in the future we acquire technologies or businesses, we
could have difficulty integrating acquired technology into our product offerings
or integrating our technology with an acquired company's products. We could also
have difficulty coordinating and integrating overall business strategies,
controls, procedures and policies, as well as sales and marketing and research
and development efforts. Assimilating employees into our corporate culture and
coordinating operations across geographically dispersed locations could prove to
be difficult or time consuming. Moreover, we currently do not know and cannot
predict the accounting treatment of any future acquisition, in part because we
cannot be certain what accounting regulations, conventions or interpretations
may prevail in the future. These difficulties could disrupt our ongoing
business, distract our management and employees and increase our expenses.
Furthermore, we may have to incur debt or issue equity securities to pay for any
future acquisitions, and those issuances could be dilutive to our existing
stockholders.

Our inability to generate revenues from international sales could harm our
financial results.

For the year ended December 31, 2000, 50% of our net revenues were from sales
outside of North America. We have increased, and intend to continue to increase,
our international sales activities by hiring additional international sales and
engineering support personnel. Our international sales will be limited if we
cannot do so. Even if we are able to expand our international operations, we may
not succeed in maintaining or increasing international market demand for our
products.

Currency fluctuations related to our international operations could harm our
financial results.

A significant portion of our international revenues and expenses are denominated
in foreign currencies. Accordingly, in the past, we have experienced significant
fluctuations in our financial results due to changing exchange rates rather than
operational changes. We expect currency fluctuations to continue, which may

                                      -36-
<PAGE>

significantly impact our financial results in the future. We may choose to
engage in currency hedging activities to reduce these fluctuations in the
future.

Our international operations, including our operations in Germany and the
Philippines, may be negatively affected by actions taken or events that occur in
countries over which we have no control.

We currently have facilities and suppliers located outside of the U.S.,
including research and development operations in Ingolstadt, Germany, two
manufacturing facilities in Manila, Philippines and sales offices in Hong Kong,
Taiwan and Korea. As a result, our operations are affected by the local
conditions in those countries, as well as actions taken by the governments of
those countries. For example, if the Philippines government enacts restrictive
laws or regulations, or increases taxes paid by manufacturing operations in that
country, the cost of manufacturing our products in Manila could increase
substantially, causing a decrease in our gross margins and profitability. In
addition, if the U.S. imposes significant import restrictions on our products,
our ability to import our products into the U.S. from our international
manufacturing and packaging facilities could be diminished or eliminated. Local
economic and political instability in areas in the Far East, in particular in
the Philippines where there has been political instability in the past, could
result in unpleasant or intolerable conditions for our workers, and ultimately
could result in a shutdown of our facilities in that country.

International operations that we may initiate or acquire in the future may
subject us to additional business risks, including political instability, and
changing or conflicting laws, regulations and tax schemes.

We may acquire or open additional international operations in Europe and the
Pacific Rim region. International expansion or acquisitions, and any subsequent
international operations, could be affected by the local conditions in those
countries, as well as actions taken by the governments of those countries. To
expand our operations internationally, we will have to comply with the laws and
regulations of each country in which we conduct business. For example, if a
foreign government enacts restrictive laws or regulations, or increases taxes
paid by manufacturing operations in that country, the cost of manufacturing our
products in that country could increase substantially, causing a decrease in our
gross margins and profitability. We cannot assure you that we will be successful
in obtaining the necessary regulatory approval, or in complying with applicable
regulations in those countries or, if such approvals are obtained or such
regulations are complied with, that we will be able to continue to comply with
these regulations.

Our success could be jeopardized if key personnel leave.

Our future success depends largely upon the continued service of our executive
officers and other key management and technical personnel. Our success also
depends on our ability to continue to attract, retain and motivate qualified
personnel. Our personnel represent a significant asset as the source of our
technological and product innovations. The competition for qualified personnel
is intense in the radio frequency silicon and radio frequency systems
industries. We cannot assure you that we will be able to continue to attract and
retain qualified management, technical and other personnel necessary for the
design, development, manufacture and sale of our radio frequency products. We
may have difficulty attracting and retaining key personnel particularly during
periods of poor operating performance. The loss of the services of one or more
of our key employees or our inability to attract, retain and motivate qualified
personnel could harm our business.

                                      -37-
<PAGE>

Our manufacturing operations could be jeopardized and our production decreased
if our labor unions cause labor slowdowns or shutdowns at our union facility.

One of our manufacturing facilities is covered by union representation. This
facility currently manufactures the majority of our tuner module products. If we
experience labor slowdowns or shutdowns at this facility due to actions by the
labor union, our manufacturing output, and consequently our revenues, could be
diminished.

We must manage our growth.

If we fail to manage our growth, our reputation and results of operations could
be harmed. Since December 31, 1999, our total number of employees has grown from
51 to 158 as of December 31, 2000, excluding manufacturing personnel in Manila,
Philippines, largely as a result of our acquisition of Microtune KG. In
addition, as of December 31, 2000, we had 1,815 employees, primarily
manufacturing personnel, in the Philippines. The resulting growth has placed,
and is expected to continue to place, significant demands on our personnel,
management and other resources. We must continue to improve our operational,
financial and management information systems to keep pace with the growth of our
business.

Our business may be harmed if we fail to protect our proprietary technology.

We rely on a combination of patents, trademarks, copyrights, trade secret laws,
confidentiality procedures and licensing arrangements to protect our
intellectual property rights. We currently have patents issued and pending in
the U.S. and in foreign countries. We intend to seek further U.S. and
international patents on our technology. We cannot be certain that patents will
be issued from any of our pending applications or that patents will be issued in
all countries where our products can be sold or that any claims will be allowed
from pending applications or will be of sufficient scope or strength to provide
meaningful protection or any commercial advantage. Our competitors may also be
able to design around our patents. The laws of some countries in which our
products are or may be developed, manufactured or sold, including various
countries in Asia, may not protect our products or intellectual property rights
to the same extent as do the laws of the U.S., increasing the possibility of
piracy of our technology and products. Although we intend to vigorously defend
our intellectual property rights, we may not be able to prevent misappropriation
of our technology. Our competitors may also independently develop technologies
that are substantially equivalent or superior to our technology.

Our ability to sell our radio frequency products may suffer if any outstanding
claims of intellectual property infringement against us or one of our customers
is valid or if any other third-party claims that we or our customers infringe on
their intellectual property.

The electronics industry is characterized by vigorous protection and pursuit of
intellectual property rights or positions, which have resulted in significant
and often protracted and expensive litigation. In addition, our customers may be
subject to infringement claims for products incorporating our radio frequency
products. If any claims of infringement are made against any of our customers,
our customers may seek to involve us in the infringement claim and request
indemnification from us. For example, in the past, we have been notified of a
claim against one of our PC/TV tuner customers for which the customer made a
claim for indemnification from us. The underlying claim has not been resolved;
however, we do not believe that our tuner infringes on the intellectual property
that is the subject of the underlying claim. We are not, nor have we ever been,
a party to this lawsuit. However, if the litigation results in an adverse result
for our customer, it may reduce or completely eliminate marketing of its
infringing product, which would decrease sales of our radio frequency tuners to
this customer. Further, if our customer prevailed in its claim for
indemnification against us, or if we were found to infringe on any other
third-party intellectual property, we could be required to:

                                      -38-
<PAGE>

     .    pay substantial damages such as royalties on our historical and future
          product sales;

     .    indemnify our customers for their legal fees and damages paid;

     .    stop manufacturing, using and selling the infringing products;

     .    expend significant resources to develop noninfringing technology;

     .    discontinue the use of some of our processes; or

     .    obtain licenses to the technology.

We may be unsuccessful in developing noninfringing products or negotiating
licenses upon reasonable terms, or at all. These problems might not be resolved
in time to avoid harming our results of operations.

Furthermore, we have initiated, and may initiate in the future, claims or
litigation against third parties for infringement of our proprietary rights or
to establish the validity of our proprietary rights. Litigation by or against us
or one of our customers could result in significant expense and divert the
efforts of our technical personnel and management, whether or not the litigation
results in a favorable determination.

The products of our customers are subject to governmental regulation.

Governmental regulation could place constraints on our customers and
consequently minimize our customers' need or desire for our radio frequency
products. The Federal Communications Commission, or FCC, has broad jurisdiction
over several of our target markets in the U.S. Similar governmental agencies
regulate our target markets in other countries. Although our products are not
directly subject to current regulations of the FCC or any other federal or state
communications regulatory agency, much of the equipment into which our products
are incorporated is subject to direct government regulation. Accordingly, the
effects of regulation on our customers or the industries in which they operate
may, in turn, impede sales of our products. For example, it is possible that
demand for our radio frequency products will decrease if equipment incorporating
our products fails to comply with FCC emissions specifications.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item is incorporated by reference to the
Consolidated Financial Statements set forth on pages F-1 through F-24 hereof.

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

None.

                                      -39-
<PAGE>

                                   PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT


Reference is made to the information regarding the Executive Officers and
Directors of Microtune appearing under the captions "Election of Directors" and
"Executive Officers" in Microtune's Proxy Statement related to the Annual
Meeting of Stockholders to be held on April 26, 2001, which information is
incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

The information appearing under the caption "Executive Compensation and Related
Information" in Microtune's Proxy Statement related to the Annual Meeting of
Stockholders to be held on April 26, 2001, is incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information appearing under the caption "Security Ownership of Certain
Beneficial Owners and Management" in Microtune's Proxy Statement related to the
Annual Meeting of Stockholders to be held on April 26, 2001, is incorporated
herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information appearing under the caption "Executive Compensation and Related
Information" in Microtune's Proxy Statement related to the Annual Meeting of
Stockholders to be held on April 26, 2001, is incorporated herein by reference.

                                      -40-
<PAGE>

                                    PART IV

ITEM 14(A). EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

            (1)  FINANCIAL STATEMENTS

                 See Item 8 above.

            (2)  FINANCIAL STATEMENT SCHEDULES

                 See Item 14(d) below.

            (3)  EXHIBITS

          Exhibit
          Number

           3.1*      Amended and Restated Certificate of Incorporation.
           3.2*      Amended and Restated Bylaws.
           4.1*      Fifth Amended and Restated Registration Rights Agreement
                     dated effective as of June 14, 2000.
           10.1*     Form of Indemnification Agreement between the Registrant
                     and each of its directors and officers.
           10.2*     1996 Stock Option Plan and form of agreements thereunder.
           10.3*     2000 Stock Plan and form of agreements thereunder.
           10.4*     2000 Director Option Plan and form of agreements
                     thereunder.
           10.5*     2000 Employee Stock Purchase Plan and form of agreements
                     thereunder.
           10.6*     Employment Agreement between Douglas J. Bartek and the
                     Registrant dated March 23, 2000.
           10.7*     Employment Agreement between John P. Norsworthy and the
                     Registrant dated August 8, 1996.
           10.8*     Employment Agreement between James A. Fontaine and the
                     Registrant dated August 1, 1998.
           10.9*     Employment Agreement between Martin Englmeier and the
                     Registrant dated July 1, 2000.
           10.10*    Commercial Lease Agreement dated March 24, 2000 between
                     Jupiter Service Center, Ltd. and the Registrant for the
                     premises located at 2201 Tenth Street, Plano, Texas 75074.
           10.11*    Property Leasing Contract, as supplemented as of January 1,
                     2000, between Sanctor Grundstucks-Vermietungsgessellschaft
                     GmbH & Co KG. and Temic Telefunken Hochfrequenztechnik GmbH
                     for facility in Ingolstadt, Germany.
           10.12*    Contract of Lease dated December 10, 1998 between MX
                     Technology Corporation and Temic RF-Technologies (Phils.),
                     Inc. for factory space in the Granville Industrial Complex
                     in Cavite, Philippines.
           10.13*    Sublease Agreement dated December 10, 1998 between Temic
                     RF-Technologies (Phils.), Inc. and NSF RF-Technologies
                     Corporation for factory space in the Granville Industrial
                     Complex in Cavite, Philippines.
           10.14*    Securities Purchase Agreement dated January 10, 2000,
                     effective December 31, 1999, between HMTF Acquisition
                     (Bermuda), Ltd. and the Registrant.
           10.15*    Asset Purchase Agreement between the Registrant, The Tuner
                     Company and Thomas K. Widmer dated January 10, 2000.
           10.16*    Line of Credit dated March 22, 1999 between Deutsche Bank
                     AG and Temic Telefunken Hochfrequenztechnik GmbH.
           10.17     Service Agreement dated November 17, 2000 between Temic
                     Telefunken microelectronics (Philippines), Inc. and
                     Microtune RF-Technologies (Phils.), Inc. for factory space
                     in Manila, Philippines.

                                      -41-
<PAGE>

           21.1      Subsidiaries of Registrant
           23.1      Consent of Ernst & Young LLP, independent auditors.
           24.1      Power of Attorney (see page 44).

Incorporated by reference to the Registrant's Registration Statement on Form S-1
(Registration No. 333-36340) declared effective August 4, 2000.

ITEM 14(B). REPORTS ON FORM 8-K

None.

ITEM 14(C). EXHIBITS

See Item 14(a)(3) above.

ITEM 14(D). FINANCIAL STATEMENT SCHEDULES

All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted because
of the absence of the conditions under which they are required or because the
information required is included in the consolidated financial statements or
notes thereto.

                                      -42-
<PAGE>

                                  SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1933, as amended, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Plano, State of Texas, on the 16th day of March, 2001.

                                   MICROTUNE, INC.


                                   By: /s/ Douglas J. Bartek
                                       ----------------------------------------
                                           Douglas J. Bartek
                                           Chief Executive Officer and Chairman

                                      -43-
<PAGE>

                               POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints each of Douglas J. Bartek, and Everett (Buddy)
Rogers, his or her attorney-in-fact, with the power of substitution, for him or
her in any and all capacities, to sign any amendments to this Annual 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 conforming all that said attorney-in-fact, or his or her
substitute or substitutes, any 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.

<TABLE>
<CAPTION>
                Signature                                          Title                                Date
-----------------------------------------   -------------------------------------------------     --------------
<S>                                         <C>                                                   <C>
/s/ Douglas J. Bartek                       Chief Executive Officer and Chairman of the Board     March 16, 2001
-----------------------------------------   (Principal Executive Officer)
            Douglas J. Bartek

/s/ Everett (Buddy) Rogers                  Chief Financial Officer and Vice President of         March 16, 2001
-----------------------------------------   Finance and Administration (Principal Financial and
         Everett (Buddy) Rogers             Accounting Officer)

/s/ Harvey B. Cash
-----------------------------------------
             Harvey B. Cash                 Director                                              March 16, 2001

/s/ Walter S. Ciciora
-----------------------------------------
            Walter S. Ciciora               Director                                              March 16, 2001

/s/ James H. Clardy
-----------------------------------------
             James H. Clardy                Director                                              March 16, 2001

/s/ Martin Englmeier
-----------------------------------------
            Martin Englmeier                Director                                              March 16, 2001

/s/ John P. Norsworthy
-----------------------------------------
           John P. Norsworthy               Director                                              March 16, 2001

/s/ Philippe Von Stauffenberg
-----------------------------------------
        Philippe Von Stauffenberg           Director                                              March 16, 2001

/s/ Lawrence D. Stuart, Jr.
-----------------------------------------
         Lawrence D. Stuart, Jr.            Director                                              March 16, 2001

/s/ William P. Tai
-----------------------------------------
             William P. Tai                 Director                                              March 16, 2001

</TABLE>

                                      -44-
<PAGE>

                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                          Page
----------------------------------------------------------------------------------      --------
<S>                                                                                     <C>
Report of Ernst and Young LLP, Independent Auditors...............................        F-2

Consolidated Balance Sheets as of December 31, 2000 and 1999......................        F-3

Consolidated Statements of Operations for the Years Ended
     December 31, 2000, 1999 and 1998.............................................        F-4

Consolidated Statements of Stockholders' Equity for the Years Ended
     December 31, 2000, 1999 and 1998.............................................        F-5

Consolidated Statements of Cash Flows for the Years
    Ended December 31, 2000, 1999 and 1998 .......................................        F-6

Notes to Consolidated Financial Statements........................................        F-7
</TABLE>




                                      F-1
<PAGE>

               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors
Microtune, Inc.

         We have audited the accompanying consolidated balance sheets of
Microtune, Inc. (the Company), as of December 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 2000. 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 in accordance with auditing standards generally
accepted in the United States. Those standards 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. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Microtune, Inc., at December 31, 2000 and 1999, and the consolidated results of
its operations and its consolidated cash flows for the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States.

                                                     ERNST & YOUNG LLP

Dallas, Texas
January 24, 2001

                                       F-2
<PAGE>

                                MICROTUNE, INC.

                          CONSOLIDATED BALANCE SHEETS
                     (In thousands, except per share data)

<TABLE>
<CAPTION>
                                             Assets                                                       December 31,
                                                                                                    -------------------------
                                                                                                     2000          1999
                                                                                                    -------------------------
<S>                                                                                                 <C>            <C>
Current assets:
      Cash and cash equivalents....................................................................  $  77,650      $  20,129
      Accounts receivable, net of allowance for doubtful accounts of $456 at December 31, 2000.....     12,301            164
      Inventories..................................................................................     16,389              -
      Deferred income taxes........................................................................        552              -
      Other current assets.........................................................................        770             22
                                                                                                     ---------      ---------
           Total current assets....................................................................    107,662         20,315

Property and equipment, net........................................................................     15,179          1,790
Intangible assets, net of accumulated amortization of $2,481.......................................      6,054              -
Goodwill, net of accumulated amortization of $5,570................................................     22,706              -
Deferred income taxes..............................................................................        484              -
Other assets and deferred charges..................................................................        946            172
                                                                                                     ---------      ---------
           Total assets............................................................................  $ 153,031      $  22,277
                                                                                                     =========      =========
                                Liabilities and Stockholders' Equity
Current liabilities:
      Accounts payable.............................................................................  $   6,763      $     223
      Accrued expenses.............................................................................      8,110             84
      Accrued compensation.........................................................................      1,888            365
                                                                                                     ---------      ---------
           Total current liabilities...............................................................     16,761            672

Deferred income taxes..............................................................................      2,966              -
Other noncurrent liabilities.......................................................................      1,197              -
Commitments and contingencies

Stockholders' equity:
    Preferred stock, $0.001 par value:
      Authorized shares - 25,000 at December 31, 2000 and 18,999 at December 31,
           1999; issued and outstanding series A through D convertible shares -
           7,830 at December 31, 1999..............................................................          -              8
    Common stock, $0.001 par value:
      Authorized shares - 150,000 at December 31, 2000 and 100,000 at December
           31, 1999; issued and outstanding shares - 38,547 at
           December 31, 2000 and 7,943 at December 31, 1999........................................         39              8
    Additional paid-in capital.....................................................................    180,661         36,819
    Loans receivable from stockholders.............................................................       (788)          (207)
    Accumulated other comprehensive loss...........................................................       (988)             -
    Accumulated deficit............................................................................    (46,817)       (15,023)
                                                                                                     ---------      ---------
           Total stockholders' equity..............................................................    132,107         21,605
                                                                                                     ---------      ---------
               Total liabilities and stockholders' equity..........................................  $ 153,031      $  22,277
                                                                                                     =========       ========
</TABLE>

See accompanying notes.

                                       F-3
<PAGE>

                                 MICROTUNE, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                          Year Ended December 31,
                                                                    -----------------------------------
                                                                      2000           1999          1998
                                                                    --------       ------        ------
<S>                                                                <C>            <C>           <C>
Net revenues......................................................  $ 70,829      $     --     $     --
Cost of revenues..................................................    46,369            --           --
                                                                    --------      --------     --------
Gross margin......................................................    24,460            --           --
Operating expenses:
      Research and development:
         Stock option compensation................................     1,360           220           --
         Other....................................................    13,472         5,913        3,174
                                                                    --------      --------     --------
                                                                      14,832         6,133        3,174
      Acquired in-process research and development................    12,692            --           --
      Selling, general and administration:
         Stock option compensation................................     2,838           630           --
         Other....................................................    16,443         2,327          885
                                                                    --------      --------     --------
                                                                      19,281         2,957          885
      Amortization of intangible assets and goodwill..............     8,414            --           --
                                                                    --------      --------     --------
             Total operating expenses.............................    55,219         9,090        4,059
                                                                    --------      --------     --------
Loss from operations..............................................   (30,759)       (9,090)      (4,059)
Other income (expense):
     Interest income..............................................     2,727           582          572
     Foreign currency translation and transaction gains (losses),
        net.......................................................    (2,451)           --           --
     Other........................................................       723            --           --
                                                                    --------      --------     --------
Loss before provision for income taxes............................   (29,760)       (8,508)      (3,487)
Provision for income taxes........................................     2,034            --           --
                                                                    --------      --------     --------
Net loss..........................................................   (31,794)       (8,508)      (3,487)
Preferred stock dividends.........................................        --            --         (811)
                                                                    --------      --------     --------
Net loss applicable to common stockholders........................  $(31,794)     $ (8,508)    $ (4,298)
                                                                    ========      ========     ========
Basic and diluted loss per common share...........................  $  (1.57)     $  (1.34)    $  (1.04)
                                                                    ========      ========     ========
Weighted-average shares used in computing basic and diluted loss
    per common share..............................................    20,229         6,354        4,116
                                                                    ========      ========     ========
</TABLE>

See accompanying notes.

                                      F-4
<PAGE>

                                MICROTUNE, INC.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                (In thousands)

<TABLE>
<CAPTION>
                                                               Series A Through F
                                                             Convertible Preferred
                                                                      Stock                Common Stock
                                                             ----------------------------------------------
                                                               Number         Par      Number of       Par     Additional Paid-
                                                             of Shares       Value      Shares        Value       In Capital
                                                             ------------------------------------------------------------------
<S>                                                          <C>             <C>       <C>            <C>      <C>
Balance at December 31, 1997...............................     5,300         $  5         6,714      $   7         $  11,327
Issuance of common stock upon exercise of stock options
     for cash and notes....................................         -            -           401          -               120
Repurchase of common stock for extinguishment of note
     receivable............................................         -            -          (167)         -                (4)
Contribution of Series A Preferred Stockholder under
     formation agreement...................................         -            -             -          -               109
Repurchase of Series A Preferred Stock for cash............      (300)           -             -          -              (279)
Deemed dividend on preferred stock.........................         -            -             -          -              (811)
Issuance of Series C Preferred Stock for cash net of
     issuance costs of $20.................................     1,463            2             -          -             8,754
Payments on loans receivable from stockholders.............         -            -             -          -                 -
Net loss...................................................         -            -             -          -                 -
                                                              -------         ----       -------       ----         ---------
Balance at December 31, 1998...............................     6,463            7         6,948          7            19,216
Issuance of common stock upon exercise of stock
     options...............................................         -           --           995          1               220
Issuance of Series D Preferred Stock for cash..............     1,367            1             -          -            16,408
Stock option compensation..................................         -            -             -          -               850
Funds released from escrow for Series A Preferred Stock....         -            -             -          -                 -
Other......................................................         -            -             -          -               125
Net loss...................................................         -            -             -          -                 -
                                                              -------         ----       -------       ----         ---------
Balance at December 31, 1999...............................     7,830            8         7,943          8            36,819
Issuance of common stock upon exercise of stock options
     and from shares purchased under Employee Stock
     Purchase Plan.........................................         -            -           694          1               337
Issuance of Series E Preferred Stock and warrants to
     purchase common stock in the combination with HMTF
     Acquisition (Bermuda), Ltd............................     3,319            3             -          -            62,956
Issuance of Series F Preferred Stock for cash..............       800            1             -          -             9,599
Issuance of common stock related to initial public
     offering..............................................   (11,949)         (12)       29,910         30            66,752
Stock option compensation..................................         -            -             -          -             4,198
Payments on loans receivable from stockholders.............         -            -             -          -                 -
Net loss...................................................         -            -             -          -                 -
Unrealized foreign currency loss...........................         -            -             -          -                 -
Total comprehensive loss...................................         -            -             -          -                 -
                                                              -------         ----       -------      -----         ---------
Balance at December 31, 2000...............................         -         $  -        38,547      $  39         $ 180,661
                                                              =======         ====       =======      =====         =========

<CAPTION>
                                                                 Stock         Loans       Accumulated
                                                             Subscription-   Receivable       Other                      Total
                                                               Funds Held       from      Comprehensive  Accumulated   Stockholder
                                                               in Escrow    Stockholders      Loss         Deficit       Equity
                                                             ---------------------------------------------------------------------
<S>                                                          <C>            <C>           <C>            <C>           <C>
Balance at December 31, 1997...............................     $  (3,000)      $    (96)     $      -     $  (3,028)    $   5,215
Issuance of common stock upon exercise of stock options
     for cash and notes....................................             -           (118)            -             -             2
Repurchase of common stock for extinguishment of note
     receivable............................................             -              4             -             -             -
Contribution of Series A Preferred Stockholder under
     formation agreement...................................             -              -             -             -           109
Repurchase of Series A Preferred Stock for cash............             -              -             -             -          (279)
Deemed dividend on preferred stock.........................             -              -             -             -          (811)
Issuance of Series C Preferred Stock for cash net of
     issuance costs of $20.................................             -              -             -             -         8,756
Payments on loans receivable from stockholders.............             -              3             -             -             3
Net loss...................................................             -              -             -        (3,487)       (3,487)
                                                                ---------       --------      --------     ---------     ---------
Balance at December 31, 1998...............................        (3,000)          (207)            -        (6,515)        9,508
Issuance of common stock upon exercise of stock
     options...............................................             -              -             -             -           221
Issuance of Series D Preferred Stock for cash..............             -              -             -             -        16,409
Stock option compensation..................................             -              -             -             -           850
Funds released from escrow for Series A Preferred Stock....         3,000              -             -             -         3,000
Other......................................................             -              -             -             -           125
Net loss...................................................             -              -             -        (8,508)       (8,508)
                                                                ---------       --------      --------     ---------     ---------
Balance at December 31, 1999...............................             -           (207)            -       (15,023)       21,605
Issuance of common stock upon exercise of stock options
     and from shares purchased under Employee Stock
     Purchase Plan.........................................             -            (35)            -             -           303
Issuance of Series E Preferred Stock and warrants to
     purchase common stock in the combination with HMTF
     Acquisition (Bermuda), Ltd............................             -         (1,012)            -             -        61,947





Issuance of Series F Preferred Stock for cash..............             -              -             -             -         9,600
Issuance of common stock related to initial public
     offering..............................................             -              -             -             -        66,770
Stock option compensation..................................             -              -             -             -         4,198
Payments on loans receivable from stockholders.............             -            466             -             -           466
Net loss...................................................             -              -             -       (31,794)      (31,794)
Unrealized foreign currency loss...........................             -              -          (988)            -          (988)
                                                                                                                         ---------
Total comprehensive loss...................................             -              -             -             -       (32,782)
                                                                ---------       --------      --------     ---------     ---------
Balance at December 31, 2000...............................     $      --       $   (788)     $   (988)    $ (46,817)    $ 132,107
                                                                =========       ========      ========     =========     =========
</TABLE>

See accompanying notes.

                                      F-5
<PAGE>

                                 MICROTUNE, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                    Year Ended December 31,
                                                                         ---------------------------------------------
                                                                            2000              1999              1998
                                                                         ---------         ---------         ---------
<S>                                                                      <C>               <C>               <C>
Operating activities:
    Net loss..........................................................   $ (31,794)        $  (8,508)        $  (3,487)
    Adjustments to reconcile net loss to cash used in operating
       activities, net of effects of business combination:
       Depreciation...................................................       5,874             1,007               554
       Amortization of intangible assets and goodwill.................       8,414                 -                 -
       Acquired in-process research and development...................      12,692                 -                 -
       Foreign currency translation and transaction gains
           (losses), net..............................................       2,452                 -                 -
       Stock option compensation......................................       4,198               850                 -
       Deferred income taxes..........................................        (459)                -                 -
       Changes in operating assets and liabilities:
           Accounts receivable........................................      (4,305)             (164)                -
           Inventories................................................      (7,120)                -                 -
           Other assets...............................................       1,095               250              (138)
           Accounts payable...........................................       2,207              (224)              333
           Accrued expenses...........................................       3,791                72                13
           Accrued compensation.......................................      (3,040)              267                46
                                                                         ---------         ---------         ---------
                Net cash used in operating activities.................      (5,995)           (6,450)           (2,679)

Investing activities:
    Net cash acquired in acquisition of HMTF Acquisition..............       3,550                 -                 -
    Purchases of property and equipment...............................     (13,672)             (919)           (1,546)
    Sale of property and equipment....................................         267                 -                 -
    Purchase of intangible assets.....................................        (923)                -                 -
                                                                         ---------         ---------         ---------
                Net cash used in investing activities.................     (10,778)             (919)           (1,546)

Financing activities:
    Proceeds from initial public offering of common stock.............      66,770                 -                 -
    Repurchase of Series A Preferred Stock............................           -                 -              (982)
    Proceeds from issuance of Series C Preferred Stock................           -                 -             8,756
    Proceeds from issuance of Series D Preferred Stock................           -            16,409                 -
    Proceeds from issuance of Series F Preferred Stock................       9,600                 -                 -
    Proceeds from issuance of common stock upon exercise of
       stock options and from shares purchased under Employee
       Stock Purchase Plan............................................         303               221                 2
    Proceeds from the release of funds in escrow......................           -             3,000                 -
    Proceeds from loans receivable from stockholders..................         466                 -                 3
    Payment of payable to stockholder.................................           -                 -            (2,238)
                                                                         ---------         ---------         ---------
                Net cash provided by financing activities.............      77,139            19,630             5,541
Effect of foreign currency exchange rate changes on cash..............      (2,845)                -                 -
                                                                         ---------         ---------         ---------
Net increase in cash and cash equivalents.............................      57,521            12,261             1,316
Cash and cash equivalents at beginning of year........................      20,129             7,868             6,552
                                                                         ---------         ---------         ---------
Cash and cash equivalents at end of year..............................   $  77,650         $  20,129         $   7,868
                                                                         =========         =========         =========
</TABLE>

See accompanying notes.

                                      F-6
<PAGE>

                                MICROTUNE, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business and Basis of Presentation

Description of Business

     Microtune, Inc. (the Company), was incorporated on May 28, 1996, and
commenced operations on August 21, 1996. The Company operates in a single
business segment and is engaged in the design, manufacturing, and marketing of
high performance RF products to the broadband communications markets. Effective
June 9, 2000, the Company changed its state of incorporation from Texas to
Delaware. As part of the incorporation in Delaware, the common stock shares
authorized were increased to 150,000,000.

     The consolidated financial statements include the Company and its wholly
owned subsidiaries. All significant intercompany transactions and balances have
been eliminated.

Completion of Initial Public Offering

     On August 4, 2000, the Company completed its initial public offering. The
Company issued 4.6 million shares of its common stock resulting in net proceeds
of approximately $66.8 million. Upon the completion of the initial public
offering, all then outstanding convertible preferred stock (Note 9) converted
into an aggregate of 23.1 million shares of common stock and all outstanding
warrants (Note 10) were automatically exercised for 2.2 million shares of common
stock.

Acquisition of HMTF Acquisition (Bermuda), Ltd.

     On January 10, 2000, the Company combined with HMTF Acquisition (Bermuda)
Ltd. (HMTF Acquisition), the ultimate parent company of Temic Telefunken
Hochfrequenztechnik GmbH (Temic), in a transaction accounted for as a purchase
business combination. HMTF Acquisition acquired Temic on December 22, 1999.
Temic is now called Microtune GmbH & Co. KG (Microtune KG). Microtune KG
manufactures, markets and sells RF systems solutions. The consideration in the
combination consisted of 3,318,513 shares of Series E Preferred Stock and
warrants to purchase up to 2,212,342 shares of common stock at an exercise price
of $0.001 per share. The results of operations of HMTF Acquisition are included
in the results of the Company from the date of acquisition. The components of
the aggregate cost of the combination were as follows (in thousands, except
share data):

<TABLE>
     <S>                                                                                             <C>
     Fair market value of 3,318,513 shares of Series E Preferred Stock...........................    $ 55,548
     Fair market value of warrants to purchase 2,212,342 shares of the Company's common stock....       7,411
     Transaction costs...........................................................................         185
                                                                                                     --------
     Total combination cost......................................................................    $ 63,144
                                                                                                     ========
</TABLE>

     The fair values of the Series E Preferred Stock and the warrants were
based on the estimated fair value of the Company's common stock at the date of
the combination and the cash purchase price paid by HMTF Acquisition for
Microtune KG on December 22, 1999 of $60.0 million.

                                      F-7
<PAGE>

                                MICROTUNE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     The cost of the acquisition has been allocated to the assets and
liabilities acquired and to acquired in-process research and development, with
the remainder recorded as excess cost over net assets acquired, based on
estimates of fair values as follows (in thousands):

<TABLE>
<S>                                                                                              <C>
     Working capital...........................................................................  $11,206
     Property and equipment....................................................................    6,118
     Intangible assets.........................................................................    8,037
     Goodwill..................................................................................   28,276
     Acquired in-process research and development costs charged to expense.....................   12,692
     Deferred income taxes.....................................................................   (1,914)
     Other assets and liabilities, net.........................................................   (2,283)
     Loans receivable from stockholders........................................................    1,012
                                                                                                 -------
     Total combination cost.................................................................     $63,144
                                                                                                 =======
</TABLE>

     The estimates of the fair values of intangible assets and acquired in-
process research and development were determined based on information furnished
by management of Microtune KG. Amounts allocated to acquired in-process research
and development were expensed at the date of acquisition because the purchased
research and development had no alternative future uses, and had not reached
technological feasibility based on the status of design and development
activities that required further refinement and testing. The acquired in-process
research and development projects were assessed, analyzed and valued using the
exclusion approach articulated by the Securities and Exchange Commission. The
estimates used in valuing the research and development were based upon
assumptions regarding future events and circumstances management believes to be
reasonable, but that are inherently uncertain and unpredictable. The relative
stage of completion and projected operating cash flows of the underlying in-
process projects acquired were the most significant and uncertain assumptions
utilized in the valuation analysis of the acquired in-process research and
development. Such uncertainties could give rise to unforeseen budget overruns
and revenue shortfalls in the event that the Company is unable to successfully
complete and commercialize the projects.

     The acquired in-process technology relates to the development of new tuners
and modules for cable modem, set-top box, multimedia and automotive
applications, focusing on increased functionality, cost effectiveness and size
reduction, while maintaining a low level of power consumption. The estimated
percentage completion of the development projects as of the acquisition date was
approximately 70%, 50%, 70% and 60% for projects in the cable modem, set-top
box, multimedia and automotive product groups, respectively. The estimated cost
of completion of the development projects as of the acquisition date was
approximately $375,000, $50,000, $375,000 and $2,050,000 for projects in the
cable modem, set-top box, multimedia and automotive product groups,
respectively. As of December 31, 2000, the amounts expended towards completing
the development projects subsequent to the acquisition date were approximately
$335,000, $50,000, $340,000 and $1,520,000 for projects in the cable modem, set-
top box, multimedia and automotive product groups, respectively. There have been
no significant changes in estimates of costs required to complete the
development efforts since the acquisition date. The dates of completion of the
development projects were December 2000, November 2000 and November 2000 for
projects in the cable modem, set-top box and multimedia product groups,
respectively. The estimated date of completion of the development projects as of
December 31, 2000 was December 2002 for projects in the automotive product
group.

                                      F-8
<PAGE>

                                MICROTUNE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     The value of the acquired in-process research and development was
determined by discounting the estimated projected net cash flows related to the
applicable products for the next ten years, including costs to complete the
development of the technology and the future revenues to be earned upon release
of the products. The rate utilized to discount the net cash flows to present
value was 22% based on the weighted-average cost of capital adjusted for the
risks associated with the estimated growth, profitability, developmental and
market risks of the acquired development projects. Projected net cash flows from
such products are based on estimates of revenues and operating profit related to
such products. Management expects that the purchased research and development
generally will be successfully developed into commercially viable products.
However, there can be no assurance that commercial viability or timely release
of these products will be achieved.

     In connection with the combination with HMTF Acquisition, the Company
acquired the principal assets of The Tuner Company, an independent distributor
of products for Microtune KG in North America, for $931,000 and the assumption
of certain liabilities.

     During 2000 the Company converted its German subsidiary from a GmbH
(corporation) to a KG (partnership) effective January 1, 2000. As this action
was contemplated in the acquisition of HMTF Acquisition, the impact of this
change in structure was reflected as an adjustment of the purchase price
allocation on the conversion date resulting in reductions of goodwill and the
noncurrent deferred income tax liability of $2.1 million.

     The following unaudited pro forma information presents the results of
operations of the Company as if the combination with HMTF Acquisition and the
acquisition of The Tuner Company had occurred as of January 1, 1999. The pro
forma information has been prepared by combining the results of operations of
the Company, HMTF Acquisition, Microtune KG and The Tuner Company with
adjustments to eliminate the 1999 charge for acquired in-process research and
development costs and to record additional amortization expense and the impact
on the provision for income taxes resulting from the application of purchase
accounting. The pro forma information does not purport to be indicative of what
would have occurred had the acquisition occurred as of that date, or of results
of operations that may occur in the future (in thousands, except per share
data):

                                                    Year Ended
                                                    December 31,
                                                        1999
                                                    -----------
                                                    (unaudited)
     Revenue.....................................   $ 46,759
     Loss from operations........................    (13,865)
     Net loss....................................    (11,160)
     Basic and diluted loss per common share.....   $  (1.76)

     Prior to the combination with HMTF Acquisition, the Company was in the
development stage and had been engaged primarily in raising capital, recruiting
RF and analog engineers, product research and development, and developing
relationships with potential customers and suppliers.

                                      F-9
<PAGE>

                                MICROTUNE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

2. Summary of Significant Accounting Policies

Use of Estimates

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

Cash and Cash Equivalents

     Cash and cash equivalents consist of bank deposits, money market funds and
asset-backed commercial paper. The Company's investments in asset-backed
commercial paper are comprised of high-quality securities in accordance with the
Company's investment policy. The Company considers highly liquid investments
with original maturities of three months or less to be cash equivalents.

Inventories

     Inventories are stated at the lower of standard cost, which approximates
actual cost determined on a first-in, first-out basis, or estimated realizable
value.

Property and Equipment

     Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets, which are
currently three to five years. The Company capitalizes costs associated with
software developed or obtained for internal use when both the preliminary
project stage is completed and management has authorized further funding for the
project which it deems completion to be probable and that the project will be
used to perform the function intended. Capitalization of such costs ceases no
later than the point at which the project is substantially complete and ready
for its intended use.

Intangible Assets and Goodwill

     Intangible assets, which consist primarily of the customer base, patents
and other intangible assets acquired in the acquisition of HMTF Acquisition, are
being amortized on the straight-line basis over one to five years.

     Goodwill resulting from the acquisition of HMTF Acquisition is being
amortized over a period of five years.

     The carrying value of goodwill and other intangible assets will be reviewed
if the facts and circumstances suggest that they may be permanently impaired. If
a comparison of the undiscounted cash flow method to the carrying value of
goodwill and other intangible assets indicates that these assets will not be
recoverable, the assets will be reduced to their estimated recoverable value.
Estimated recoverable value is determined by applying the discounted cash flow
method.

                                      F-10
<PAGE>

                                MICROTUNE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Revenue Recognition

     Revenues are recognized when product has been shipped and title to the
product has transferred to the customer. Title to the product may transfer to
the customer when shipped or when received by the customer based on the specific
customer agreement. Provision is made currently for estimated returns.

Research and Development Costs

     Research and development costs, consisting of the costs of designing,
developing, and testing new or significantly enhanced products, are expensed as
incurred.

Stock-Based Compensation

     The Company has elected to follow Accounting Principles Board Opinion (APB)
No. 25, Accounting for Stock Issued to Employees, and related interpretations in
accounting for its employee stock options. The Company accounts for stock-based
compensation for non-employees under the fair value method prescribed by
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation. Through December 31, 2000, there have been no
significant grants to non-employees.

     Effective July 1, 2000, the Company adopted interpretation No. 44 (FIN 44),
Accounting for Certain Transactions Involving Stock Compensation, an
interpretation of APB 25, which requires changes to previous practice regarding
the accounting for certain stock compensation arrangements. FIN 44 does not
change APB 25's intrinsic value method, but it has narrowed its application.
Adoption of FIN 44 did not have a significant effect on the Company's results of
operations for the year ended December 31, 2000.

Warranty Costs

     The Company provides a minimum of a one-year warranty on all products and
records a related provision for estimated warranty costs at the date of sale.

Shipping and Handling Costs

     Shipping and handling costs that the Company incurs related to product
shipments to customers are included in Selling, General and Administration
expenses. Shipping and handling costs totaled $1.1 million in the year ended
December 31, 2000.

Foreign Currency Translation

     Through June 30, 2000, the Company used the U.S. dollar as its functional
currency, except that the German Mark was used as its functional currency for
Microtune KG and its subsidiaries (collectively, the Subsidiaries). Foreign
currency exchange gains and losses resulting from the translation of financial
statements denominated in German Marks of Microtune KG into U.S. dollars through
June 30, 2000 were included as a component of stockholders' equity. Foreign
currency exchange gains and losses resulting from the remeasurement of financial
statements not denominated in German Marks of Microtune KG outside of Germany
into German Marks were recognized currently in the Company's results of
operations as a component of foreign currency gains and losses.

                                      F-11
<PAGE>

                                MICROTUNE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     Effective July 1, 2000, the Company changed the functional currency of the
Subsidiaries to the U.S. Dollar from the German Mark to appropriately reflect
the manner in which the Subsidiaries are now managed and operated. Subsequent to
June 30, 2000 the financial statements of the Subsidiaries are remeasured into
the U.S. Dollar. The impact from the remeasurement of financial statements not
denominated in U.S. Dollars is recognized currently in the Company's results of
operations as a component of foreign currency gains and losses.

Income Taxes

     The Company's income taxes are computed using the asset and liability
method of accounting. Under the asset and liability method, a deferred tax asset
or liability is recognized for estimated future tax effects attributable to
temporary differences and carryforwards. The measurement of deferred income tax
assets is adjusted by a valuation allowance, if necessary, to recognize future
tax benefit only to the extent, based on available evidence, it is more likely
than not such benefit will be realized.

Earnings Per Share

     Basic earnings (loss) per common share is computed by dividing net income
(loss) by the weighted-average number of common shares outstanding during each
period. Diluted earnings (loss) per common share is computed by dividing net
income (loss) by the weighted-average number of common shares outstanding during
each period and common equivalent shares consisting of preferred stock, stock
options, warrants, restricted stock subject to repurchase rights and employee
stock purchase plan options.

     Preferred stock dividends added to net loss to derive net loss applicable
to common stockholders resulted from certain purchases of outstanding shares of
Series A Preferred Stock, which occurred during 1998 (Note 9). The excess of the
cash consideration to purchase the shares over the carrying amount of the shares
has been treated as dividends paid to the stockholders of the preferred shares
in the earnings per share calculation.

     The following table sets forth anti-dilutive securities that were
outstanding at December 31, 2000, 1999 and 1998 which have been excluded from
diluted earnings per share (in thousands):

<TABLE>
<CAPTION>
                                                                               December 31,
                                                                 --------------------------------------
                                                                  2000            1999             1998
                                                                 --------------------------------------
<S>                                                              <C>             <C>             <C>
         Preferred stock convertible into common stock.........        -         15,660          12,925
         Stock options.........................................    7,982          2,945           1,844
         Warrants..............................................        -             41              41
         Restricted common stock...............................      213            681           1,788
         Employee stock purchase plan..........................        9              -               -
                                                                 -------      ---------       ---------
         Total anti-dilutive securities excluded...............    8,204         19,327          16,598
                                                                 =======      =========       =========
</TABLE>

                                      F-12
<PAGE>

                                MICROTUNE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Comprehensive Income

     Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. It includes all changes in equity during a period,
except those resulting from investments by owners and distributions to owners.

Concentrations of Credit Risk

     Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
Products are sold to customers in the broadband communications industry
internationally, principally in Europe and the United States. The Company
continually evaluates the creditworthiness of its customers' financial condition
and generally does not require collateral. Microtune KG also maintains credit
insurance covering certain receivables. The Company has not experienced
significant losses on uncollectible accounts.

Risk and Uncertainties

     The future results of operations and financial condition of the Company
will be impacted by the following factors, among others: the level of difficulty
experienced in the integration of acquired businesses, dependence on the
broadband communications markets, lengthy sales cycle, dependence on third party
manufacturers and subcontractors, technological change and dependence on new
products, international operations, property rights, and product liability.

Recent Accounting Pronouncement

     Effective January 1, 2001, the Company adopted SFAS No. 133, Accounting for
Derivatives and Hedging Activities. SFAS No. 133 requires that all derivatives
be recognized at fair value on the balance sheet and that related gains and
losses be included in net income or comprehensive income depending on the nature
of the hedging relationship. Currently, the Company has not entered into
contracts that will be classified as derivative financial instruments under SFAS
No. 133. However, the Company may enter into contracts that are classified as
derivative financial instruments in the future. Adoption of SFAS No. 133 did not
have an impact on the results of operations or financial position of the
Company. However, management cannot estimate its impact on future results of
operations and financial position.

3. Inventories

     Inventories consists of the following (in thousands):

                                                       December 31, 2000
                                                       -----------------
         Finished goods..........................            $  4,978
         Work-in-process.........................               2,085
         Raw materials...........................               9,326
                                                             --------
                                                             $ 16,389
                                                             ========

                                     F-13
<PAGE>

                                 MICROTUNE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

4. Property and Equipment

     Property and equipment, at cost, consists of the following (in
thousands):

                                                               December 31,
                                                            -----------------
                                                              2000     1999
                                                            -----------------
     Leasehold improvements............................    $  1,227   $   418
     Manufacturing equipment...........................      13,702         -
     Other equipment...................................       3,039     2,445
     Furniture and fixtures............................       1,127        82
     Computer software.................................       1,834       724
                                                           --------   -------
     Total property and equipment......................      20,929     3,669
     Less accumulated depreciation.....................       5,750     1,879
                                                           --------   -------
                                                           $ 15,179   $ 1,790
                                                           ========   =======


5. Accrued Expenses

     Accrued expenses consists of the following (in thousands):

                                                           December 31,
                                                       --------------------
                                                         2000         1999
                                                       --------------------
     Accrued warranty obligation.....................  $    711     $     -
     Accrued income taxes (Note 8)...................     2,145           -
     Deferred income taxes (Note 8)..................       373           -
     Other...........................................     4,881          84
                                                       --------     -------
                                                       $  8,110     $    84
                                                       ========     =======


6. Note Payable

     At December 31, 2000, Microtune KG has a credit agreement with a bank that
provides for borrowings of up to $2.4 million. The agreement is cancelable upon
notification by the bank. Borrowings under this agreement bear interest at a
rate determined from time to time by the bank (7.25% at December 31, 2000). At
December 31, 2000, no borrowings were outstanding under this credit agreement.

                                      F-14
<PAGE>

                                 MICROTUNE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

7. Commitments and Contingencies

         In March 2000, the Company entered into a new five-year operating lease
for office space in Plano, TX to be used as its headquarters and for
administrative, sales and marketing and research and development. Microtune KG
leases its administrative, sales and marketing and research and development
facility in Germany under an operating lease with a twenty two year term, which
began in December 1999. The Company also leases certain other facilities,
equipment and computer software under operating leases. Future minimum lease
payments required under operating leases that have an initial or remaining
noncancelable lease term in excess of one year as of December 31, 2000 are as
follows (in thousands):

         2001.............................   $  2,257
         2002.............................      1,903
         2003.............................      1,323
         2004.............................      1,105
         2005.............................        655
         Thereafter.......................      4,951
                                             --------
                                             $ 12,194
                                             ========

         As of December 31, 2000, future minimum payments required under the
operating lease for the facility in Germany include $3.1 million guaranteed by
Microtune KG relating to obligations issued to finance the land and building.

         Rent expense for the years ended December 31, 2000, 1999 and 1998, was
$1,926,000, $128,000 and $70,000, respectively.

         From time to time, the Company may be involved in litigation relating
to claims arising out of the ordinary course of business. The Company is not
currently a party to any material litigation, except as described below.

         On January 24, 2001, the Company filed a lawsuit alleging patent
infringement in the United States Court for the Eastern District of Texas,
Sherman Division, against Broadcom Corporation. The lawsuit alleges that
Broadcom Corporation's BCM 3415 microchip infringes on the Company's U.S. patent
no. 5,737,035. The Company's complaint, is seeking monetary damages resulting
from the alleged infringement as well as injunctive relief precluding Broadcom
Corporation from taking any further action which infringes the Company's
5,737,035 patent.

                                      F-15
<PAGE>

                                 MICROTUNE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

8. Income Taxes

       The provision (benefit) for income taxes is reconciled with the U.S.
federal statutory rate as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                    Year Ended December 31,
                                                                            --------------------------------------
                                                                                2000         1999           1998
                                                                            --------------------------------------
<S>                                                                         <C>            <C>           <C>
       Expense (benefit) computed at the U.S. federal
           statutory rate..........................................         $ (10,118)     $ (2,893)      $ (1,198)
       Benefit of losses not recognized............................             4,660         2,598          1,196
       Non-deductible stock option compensation....................             1,427           289              -
       Acquired in-process research and development
           costs for which no tax benefit was
           recognized..............................................             4,315             -              -
       Non-deductible goodwill amortization........................             1,604             -              -
       Other, net..................................................               146             6              2
                                                                            ---------      --------       --------
       Income tax provision........................................         $   2,034      $      -       $      -
                                                                            =========      ========       ========
</TABLE>

       The income tax provision for the year ended December 31, 2000 consists of
the following (in thousands):

       Foreign income taxes:
           Current provision...................................... $ 2,380
           Deferred provision.....................................    (459)
       State income taxes.........................................     113
                                                                   -------
                                                                   $ 2,034
                                                                   =======

       The income of foreign operations before income taxes for the year ended
December 31, 2000 was $7.1 million. Undistributed earnings (approximately $7.1
million at December 31, 2000) of non-U.S. subsidiaries have been indefinitely
reinvested and, accordingly, no provision has been made for taxes due upon
remittance of these earnings.

       Income taxes paid in the year ended December 31, 2000 were $0.6
million. No income taxes were paid in 1999 or 1998.

                                      F-16
<PAGE>

                                MICROTUNE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     The significant components of the Company's deferred tax liabilities and
assets are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                               December 31,
                                                                      ----------------------
                                                                        2000          1999
                                                                      ----------------------
      <S>                                                             <C>           <C>
      Deferred tax liabilities:
          Accrued expenses....................................        $    783      $     -
          Identifiable intangible assets......................           1,223            -
          Other...............................................             208            -
                                                                      --------      -------
             Total deferred tax liabilities                              2,214            -
      Deferred tax assets:
          Property and equipment..............................             241            -
          Accrued expenses....................................               -          115
          Net operating losses................................           9,727        4,603
          Research and development credits....................           1,049          383
          Other, net..........................................               4          129
                                                                      --------      -------
              Total deferred tax assets.......................          11,021        5,230
      Valuation allowance.....................................         (11,110)      (5,230)
                                                                      --------      -------
                   Total deferred tax liabilities, net........        $  2,303      $     -
                                                                      ========      =======
</TABLE>

     The Company has established a valuation allowance to fully reserve its U.S.
deferred tax assets at December 31, 2000, and 1999 due to the uncertainty of the
timing and amount of future taxable income. For U.S. federal income tax
purposes, at December 31, 2000, the Company had a net operating loss
carryforward of approximately $26.0 million and an unused research and
development credit carryforward of approximately $1.0 million, which begin to
expire in the year 2011. The occurrence of a change in ownership, as defined in
the Internal Revenue Code, may limit utilization of the U.S. federal net
operating loss and research and development credit carryforwards.

     The income tax returns of the Company, HMTF Acquisition, Microtune KG and
their subsidiaries are subject to review and examination in the various
jurisdictions in which they operate. Management believes that all income tax
issues which have been or may be raised as a result of such reviews and
examinations will be resolved with no material impact on the financial position
or future results of operations of the Company.

9. Convertible Preferred Stock

     At December 31, 2000, the Company has authorized 25,000,000 shares of
preferred stock, which none was outstanding. On August 4, 2000, upon the
completion of the initial public offering, all then outstanding convertible
preferred stock converted into an aggregate of 23.1 million shares of common
stock.

     In addition to conversion rights, the preferred stock had voting rights
equal to common stock, and certain liquidation preferences and dividend rights
equivalent to the common shareholders. Activity related to preferred stock,
including shares issued, proceeds from the sale of shares and the effect of the
conversion into common stock is presented in the accompanying Consolidated
Statements of Stockholders' Equity.

                                     F-17
<PAGE>

                                MICROTUNE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     During 1998, the Company repurchased 299,999 shares of Series A Preferred
Stock from Cirrus Logic International, Ltd. for $1,090,000 which resulted in a
deemed preferred stock dividend of $811,000.

     In August 1996, the Company issued 1,937,493 shares of Series A Preferred
Stock to investors for cash proceeds of $5,000,000. Additionally, the investors
contributed cash of $3,000,000 in exchange for 1,162,508 shares of Series A
Preferred Stock, which were subject to an escrow agreement. The investors could
vote the shares while held in escrow. The escrow agent was required to invest
the funds held in escrow in AAA-rated short-term investments, and was required
to pay interest earned on the investments to the Company on a monthly basis. In
1999, the funds held in escrow were released by the escrow agent to the Company
upon the successful demonstration by the Company of a working prototype of an
integrated circuit.

10. Common Stock

     In January 2000, the Board of Directors declared a stock dividend of one
share of common stock for each outstanding share of common stock of the Company.
The effect of the stock dividend is reflected retroactively in the accompanying
financial statements.

     At December 31, 2000, 213,313 shares of common stock were issued and
outstanding under stock purchase and restriction agreements that restrict the
transfer of ownership of such stock. Pursuant to the stock purchase and
restriction agreements, ownership vests based on employment over periods which
range from four to five years from the date of grant. Upon termination of
employment of a holder of restricted shares, the Company has the right but not
the obligation to purchase any unvested shares, at the stockholder's original
cost. At December 31, 2000, the aggregate original cost of shares which were
subject to the repurchase right was $90,815.

     At December 31, 2000, the Company has loans receivable from employees of
Microtune KG totaling $665,000, which were acquired in the merger with HMTF
Acquisition (Note 1). The loans receivable are secured by shares of common stock
owned by the employees, are guaranteed by the employees, bear interest at 3% per
annum and are due December 2001.

     At December 31, 2000 and 1999, the Company also has loans receivable from
U.S. employees of the Company totaling $123,000 and $207,000, respectively,
which were issued in 1996 and 1998 related to the exercise of stock options. The
loans receivable are secured by shares of common stock owned by the employees,
are guaranteed by the employees, bear interest at up to 6.8% per annum and are
due by April 2004.

11. Stock Plans

     The Company's 1996 Stock Option Plan (the 1996 Plan) was approved by the
Board of Directors and the stockholders in August 1996, and provides for
incentive stock options and nonqualified stock options to be granted to key
employees, certain directors, and consultants of the Company. The terms of each
option granted under the 1996 Plan are established by the Board of Directors. At
December 31, 2000, the Company had reserved 7,577,501 shares of common stock for
issuance upon exercise of options granted pursuant to the 1996 Plan.

                                      F-18
<PAGE>

                                MICROTUNE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     On August 4, 2000, the Company adopted a new stock option plan (the 2000
Plan). The 2000 Plan provides for incentive stock options and nonqualified stock
options to be granted to key employees, certain directors, and consultants of
the Company. The terms of each option granted under the 2000 Plan are
established by the Board of Directors. At December 31, 2000, the Company had
reserved 7,760,101 shares of common stock for issuance upon exercise of options
granted pursuant to the 2000 Plan.

     On August 4, 2000, the Company adopted a Directors' Stock Option Plan (the
Directors' Plan). The Directors' Plan provides for nonqulaified stock options to
be granted to non-employee members of the Company's Board of Directors. The
Directors' Plan has reserved 150,000 shares of common stock for issuance upon
exercise of options granted pursuant to the Directors' Plan. At December 31,
2000, no options had been granted under the Directors' Plan.

     A summary of the Company's stock option activity and related information
for the years ended December 31, 2000, 1999 and 1998 follows:


<TABLE>
<CAPTION>
                                                               Weighted-
                                                Number of       Average
                                                 Options      Exercise Price
                                             -------------------------------
           <S>                                  <C>           <C>
           Balance at December 31, 1997....      1,069,000      $  0.11
              Granted......................      1,175,900         0.27
              Exercised....................       (401,200)        0.31
                                                 ----------
           Balance at December 31, 1998....      1,843,700         0.17
              Granted......................      2,160,150         0.55
              Exercised....................       (994,784)        0.22
              Canceled.....................        (64,000)        0.36
                                                 ----------
           Balance at December 31, 1999....      2,945,066         0.42
              Granted......................      5,771,150         2.84
              Exercised....................       (680,215)        0.35
              Canceled.....................        (54,200)        1.27
                                                 ---------
           Balance at December 31, 2000....      7,981,801      $  2.17
                                                 =========
</TABLE>

     The following presents certain information about outstanding stock options
at December 31, 2000:

<TABLE>
<CAPTION>
                                       Options Outstanding                    Options Exercisable
                             --------------------------------------------------------------------------
                                            Weighted-       Weighted-                     Weighted-
                                             Average         Average                       Average
                             Number of      Exercise     Contractual Life  Number of    Exercise Price
  Range of Exercise Price     Options         Price                         Options
-------------------------------------------------------------------------------------------------------
 <S>                         <C>            <C>          <C>               <C>          <C>
    $0.03-0.38                1,149,500      $ 0.27          7.4            350,928         $ 0.23
    $0.63-0.88                5,168,651        0.82          8.9            110,593           0.74
    $1.25-8.50                1,259,350        4.94          9.2             88,978           1.28
    $12.81-38.00                404,300       16.13          9.9                  -              -
                             ----------                                  -----------
                              7,981,801                                     550,499
                             ==========                                  ===========
</TABLE>

                                      F-19
<PAGE>

                                MICROTUNE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

         At December 31, 1999 and 1998, the number of exercisable options was
419,314 and 616,768, respectively, and the weighted-average exercise price of
those options was $0.21 and $0.12, respectively.

         The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS No. 123, Accounting
for Stock based Compensation, requires the use of option valuation models that
were not developed for use in valuing employee stock options. Under APB 25, no
compensation expense is recorded when the exercise price of the Company's
employee stock options equals the fair value of the underlying stock on the date
of grant. Compensation equal to the intrinsic value of employee stock options is
recorded when the exercise price of the stock options is less than the fair
value of the underlying stock on the date of grant. Any resulting compensation
is amortized to expense over the vesting periods of the options on a
straight-line basis.

         In 2000 and 1999, the Company recorded approximately $16.5 million and
$3.2 million, respectively, of deferred stock option compensation as a result of
granting stock options with deemed exercise prices below the estimated fair
value per share of the Company's common stock at the date of grant. Deferred
stock option compensation is being amortized and charged to operations over the
vesting period of the applicable options. As of December 31, 2000 and 1999,
unamortized deferred stock compensation was $14.6 million and $2.3 million,
respectively.

         Information regarding pro forma net income is required by SFAS 123, and
has been determined as if the Company had accounted for its employee stock
options under the fair value method of SFAS 123. The fair value of these options
was estimated at the date of grant using a Black-Scholes option pricing model
using the following assumptions:


<TABLE>
<CAPTION>
                                                              2000    1999       1998
                                                          ------------------------------
         <S>                                                 <C>     <C>        <C>
         Volatility:
              After initial public offering..........          75%      -          -
              Before initial public offering.........           0%      0%         0%
         Weighted-average expected lives.............         4.8     4.5        5.0
         Expected dividend yields....................           -       -          -
         Weighted-average risk-free interest
              rates..................................         6.6%    5.5%       4.7%
         Fair value of options:
              Granted at market price................      $ 6.19       -     $ 0.06
              Granted at prices less than
                market...............................      $ 3.73  $ 1.39          -
</TABLE>

         The Black Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Prior to the Company's initial public offering the Company's
employee stock options had characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its employee stock options.

                                      F-20
<PAGE>

                                MICROTUNE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

        For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows:

<TABLE>
<CAPTION>
                                                                 2000            1999            1998
                                                              ------------------------------------------
                                                                (in thousands, except per share data)
        <S>                                                   <C>             <C>               <C>
        Pro forma net loss applicable to common
            stockholders................................      $ (31,946)      $ (8,652)         $ (4,318)
                                                              =========       ========          ========
        Basic and diluted pro forma loss per share......      $   (1.58)      $  (1.36)         $  (1.05)
                                                              =========       ========          ========
</TABLE>


        On August 4, 2000, the Company also adopted an Employee Stock Purchase
Plan (the Purchase Plan). A total of 400,000 shares of common stock was reserved
for issuance under the plan. The Purchase Plan, which is intended to qualify
under Section 423 of the Internal Revenue Code of 1986, as amended, contains
successive six month offering periods. The offering periods generally start on
the first trading day on or after November 1 and May 1 of each year, except for
the first such offering period which commenced on the first trading day after
the effective date of the Company's initial public offering and ended on the
last trading day on or before October 31, 2000. Generally, employees are
eligible to participate if they are employed by the Company or any of its
participating subsidiaries for at least 20 hours per week and more than five
months in any calendar year. Participants may purchase common stock through
deductions of up to 15% of the participant's compensation. The maximum number of
shares a participant may purchase during a single offering period is 1,000
shares. Amounts deducted and accumulated by the participant will be used to
purchase shares of common stock at the end of each purchase period. The price of
stock purchased under the Purchase Plan is 85% of the lower of the fair market
value of the common stock at the beginning of the purchase period or at the end
of each purchase period. For the year ended December 31, 2000, 13,970 shares
were issued under the Purchase Plan.

12. Employee Benefit Plans

        In January 1997, the Board of Directors and Stockholders approved a plan
that provides retirement benefits under the provisions of Section 401(k) of the
Internal Revenue Code. The Plan covers substantially all employees who meet a
minimum service requirement. Under the Plan, the Company can elect to make
voluntary contributions. No contributions were made by the Company in 2000, 1999
or 1998.

        Microtune KG and its subsidiaries sponsor defined benefit retirement
plans for its employees. Retirement benefit expense for the year ended December
31, 2000 was not significant.

                                      F-21
<PAGE>

                                MICROTUNE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

13. Geographic Information and Significant Customers

         The Company's headquarters and main design center are located in Plano,
Texas. The Company also has other sales offices and design centers in the United
States. The Company also has a significant design center in Germany and two
manufacturing facilities in the Philippines. Net income from foreign operations
totaled $5.4 million for the year ended December 31, 2000. Revenues by
geographical area are summarized below for the year ended December 31, 2000 (in
thousands):

         North America.....................  $ 35,567
         Europe............................    12,032
         Asia Pacific......................    21,507
         Other.............................     1,723
                                             --------
                                             $ 70,829
                                             ========

         The locations of property and equipment at December 31, 2000 are
summarized below (in thousands):

         United States.....................  $  2,461
         Germany...........................     8,104
         Philippines.......................     4,614
                                             --------
                                             $ 15,179
                                             ========

         Sales to DaimlerChrysler accounted for approximately 19% of
consolidated net revenues for the year ended December 31, 2000. The loss of
Daimler Chrysler as a customer could have a material adverse impact on the
future results of operation.

                                      F-22
<PAGE>

                                MICROTUNE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

14.  Quarterly Consolidated Statements of Operations (unaudited)

<TABLE>
<CAPTION>
                                                                                     Three Months Ended
                                                                 --------------------------------------------------------------
                                                                 December 31,     September 30,      June 30,         March 31,
                                                                     2000            2000              2000             2000
                                                                 ------------     -------------     ----------       ----------
<S>                                                              <C>              <C>               <C>              <C>
Net revenues.................................................      $ 21,933         $ 19,935         $ 15,065        $  13,896
Cost of revenues.............................................        13,784           12,654            9,860           10,071
                                                                   --------         --------         --------        ---------
Gross margin.................................................         8,149            7,281            5,205            3,825
Operating expenses:
      Research and development:
         Stock option compensation...........................           369              365              359              267
         Other...............................................         3,702            4,093            3,093            2,584
                                                                   --------         --------         --------        ---------
                                                                      4,071            4,458            3,452            2,851
      Acquired in-process research and development...........             -                -                -           12,692
      Selling, general and administration:
         Stock option compensation...........................           745              715              856              522
         Other...............................................         4,273            4,073            4,795            3,302
                                                                   --------         --------         --------        ---------
                                                                      5,018            4,788            5,651            3,824
      Amortization of intangible assets and goodwill.........         2,192            1,829            2,215            2,178
                                                                   --------         --------         --------        ---------
              Total operating expenses.......................        11,281           11,075           11,318           21,545
                                                                   --------         --------         --------        ---------
Loss from operations.........................................        (3,132)          (3,794)          (6,113)         (17,720)
Other income (expense):
      Interest income........................................         1,367              864              220              276
      Foreign currency translation and transaction
         gains (losses), net.................................        (1,975)            (547)            (806)             877
      Other..................................................           243               20              289              171
                                                                   --------         --------         --------        ---------
Loss before provision for income taxes.......................        (3,497)          (3,457)          (6,410)         (16,396)
Provision for income taxes...................................           348              936              386              364
                                                                   --------         --------         --------        ---------
Net loss.....................................................      $ (3,845)        $ (4,393)        $ (6,796)       $ (16,760)
                                                                   ========         ========         ========        =========

Basic and diluted loss per common share......................      $  (0.10)        $  (0.16)        $  (0.86)       $   (2.21)
                                                                   ========         ========         ========        =========

Weighted-average  shares  used in  computing  basic  and
      diluted loss per common share..........................        38,214           27,023            7,881            7,571
                                                                   ========         ========         ========        =========
</TABLE>

                                      F-23
<PAGE>

                                 MICROTUNE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


<TABLE>
<CAPTION>
                                                                                        Three Months Ended
                                                              ---------------------------------------------------------------------
                                                                 December 31,      September 30,        June 30,       March 31,
                                                                    1999               1999              1999            1999
                                                              ---------------     ---------------      ---------      ------------
<S>                                                           <C>                 <C>                  <C>            <C>
Net revenues..................................................    $      --           $       --       $     --          $      --
Cost of revenues..............................................           --                   --             --                 --
                                                                  ---------           ----------       --------          ---------
Gross margin..................................................           --                   --             --                 --
Operating expenses:
      Research and development:
         Stock option compensation............................           43                   43             44                 90
         Other................................................        1,741                1,661          1,527                984
                                                                  ---------           ----------       --------          ---------
                                                                      1,784                1,704          1,571              1,074
      Acquired in-process research and development............           --                   --             --                 --
      Selling, general and administration:
         Stock option compensation............................          108                  107            107                308
         Other................................................          904                  612            435                376
                                                                  ---------           ----------       --------          ---------
                                                                      1,012                  719            542                684

      Amortization of intangible assets and goodwill..........           --                   --             --                 --
                                                                  ---------           ----------       --------          ---------
              Total operating expenses........................        2,796                2,423          2,113              1,758
                                                                  ---------           ----------       --------          ---------
Loss from operations..........................................       (2,796)              (2,423)        (2,113)            (1,758)
Other income (expense):
      Interest income.........................................          223                  161             99                 99
      Foreign currency translation and transaction
         gains (losses), net..................................           --                   --             --                 --
      Other...................................................           --                   --             --                 --
                                                                  ---------           ----------       --------          ---------
Loss before provision for income taxes........................       (2,573)              (2,262)        (2,014)            (1,659)

Provision for income taxes....................................           --                   --             --                 --
                                                                  ---------           ----------       --------          ---------
Net loss......................................................    $  (2,573)          $   (2,262)      $ (2,014)         $  (1,659)
                                                                  =========           ==========       ========          =========

Basic and diluted loss per common share.......................    $   (0.37)          $    (0.34)      $  (0.32)         $   (0.31)
                                                                  =========           == =======       ========          =========
Weighted-average shares used in computing basic and
      diluted loss per common share...........................        7,038                6,718          6,350              5,311
                                                                  =========           ==========       ========          =========
</TABLE>

         During 2000 there were two events that significantly impacted the
Company's results of operations. First, the Company acquired Microtune KG on
January 10, 2000 (Note 1), which generated the majority of the Company's
revenues and related cost of revenues in 2000, and also increased the Company's
research and development, acquired in-process research and development, selling,
general and administration, amortization of intangible assets and goodwill and
foreign currency translation and transaction gains (losses), net in 2000
compared to 1999. Second, the Company completed its initial public offering of
its common stock on August 4, 2000 (Note 1), which significantly increased the
Company's available resources for investments in marketable securities in the
third and fourth quarter of 2000 resulting in increased interest income.

                                      F-24