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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

(Mark One)

For the Quarterly Period Ended March 30, 2003

OR

For the transition period from         to         

Commission File Number 0-24758

Micro Linear Corporation

Registrant’s telephone number, including area code:
(408) 433-5200

Securities registered pursuant to Section 12(b) of the Act:
None

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

Common Stock, $.001 par value per share
Series A Participating Preferred Stock, $.001 par value per share
(Title of Class)

     Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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  þ    No  o

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

     The number of shares of the Registrant’s Common Stock outstanding as of May 13, 2003, net of shares held in treasury, was 12,200,298.

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CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

Certification of the Chief Executive Officer Certification of the Chief Financial Officer

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MICRO LINEAR CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)

See accompanying notes to unaudited consolidated condensed financial statements.

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MICRO LINEAR CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

See accompanying notes to unaudited consolidated condensed financial statements.

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MICRO LINEAR CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

See accompanying notes to unaudited consolidated condensed financial statements.

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MICRO LINEAR CORPORATION

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

1.

Organization and Summary of Significant Accounting Policies

Organization

     Micro Linear develops integrated circuits and modules that enable cost effective, high performance digital wireless communications and connectivity for a broad range of voice and data applications. We are headquartered in San Jose, CA with design centers in Salt Lake City, UT and Cambridge, England. We serve our customers through worldwide direct sales, manufacturers’ representatives and distributors.

Fiscal Year

     We report results of operations on the basis of fifty-two or fifty-three week periods, ending on the Sunday closest to December 31. Fiscal year 2002 ended on December 29, 2002. The first quarter of 2003 ended on March 30, 2003. For presentation purposes, the accompanying financial statements refer to the calendar year end and month end of each respective period.

Principles of Consolidation

     The consolidated financial statements include the accounts of Micro Linear Corporation and our subsidiary in the United Kingdom. All significant inter-company accounts and transactions have been eliminated.

     The Company has designated the U.S. dollar as the functional currency for its United Kingdom subsidiary since that subsidiary is dependent on the parent company’s economic environment. The gains and losses resulting from the translation of the United Kingdom subsidiary are recorded as other income and expense. For the first quarters of 2002 and 2003, translation gains and losses were not significant.

Basis of Presentation

     The consolidated financial statements included herein have been prepared by us in accordance with accounting principles generally accepted in the United States of America and reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary to state fairly our financial position, results of operations, and cash flows for the periods presented.

     The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q, and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. The unaudited consolidated condensed financial statements and notes should be read in conjunction with the consolidated financial statements and notes in the Annual Report on Form 10-K for the year ended December 29, 2002, filed with the Securities and Exchange Commission on March 27, 2003.

Use of Estimates

     The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and such differences may be material to the financial statements.

Net Income (Loss) Per Share

     Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share excludes potential common stock if the effect is anti-dilutive. Diluted net earnings (loss) per share includes the effect of all potentially dilutive common stock outstanding during the period. We compute diluted earnings (loss) per share using the treasury stock method for stock options outstanding.

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     A total of 3,905,540 and 3,823,268 shares of potential common stock were not included in the dilutive net loss per share calculations for the period ended March 31, 2003 and 2002, respectively, because to include them would be anti-dilutive.

     Following is a reconciliation of the basic and diluted loss per share computations (in thousands, except per share amounts):

Stock-Based Compensation

     We account for our employee stock option plans in accordance with Accounting Principles Board No. 25, “Accounting for Stock Issued to Employees.” Under APB No. 25, compensation cost is measured as the excess, if any, of the quoted market price of our stock at the date of grant over the exercise price of the option granted. Compensation cost for stock options, if any, is recognized ratably over the vesting period. We provide additional pro forma disclosures as required under SFAS No. 123, “Accounting for Stock-Based Compensation” and SFAS No. 148, “Accounting for Stock-Based Compensation, Transition and Disclosure” in Note 1: Pro Forma Net Income (Loss) Per Share.

     We account for stock issued to non-employees in accordance with the provisions of SFAS 123. Stock option awards issued to non-employees are accounted for at fair value using the Black-Scholes option pricing model. The fair value of each non-employee stock award is re-measured at each period end until a commitment date is reached, which is generally the vesting date.

Pro Forma Net Income (Loss) Per Share

     As required by SFAS 123, we disclose our pro forma net income (loss) as if we had accounted for our employee stock purchase plan, employee stock options and director stock options subsequent to December 31, 1994 under the fair value method of SFAS 123. We estimate the fair value for these options at the date of grant using the Black-Scholes option pricing model and the multiple option approach with the following weighted-average assumptions:

     The Black-Scholes option valuation model was intended for use in estimating the fair value of publicly traded options that have no vesting restrictions and are fully transferable, which differs significantly from the terms of our stock option awards. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility and the expected life of the options before exercise, which greatly affect the calculated grant date fair value. The weighted average estimated fair values of shares to be issued under the Employee Stock Purchase Plan, which were granted during the three months ended March 31, 2003 and 2002, were $1.10 and $1.10 respectively. The weighted average fair values of options granted under the employee and directors’ stock option plans during the three months ended March 31, 2003 and 2002 were $1.81 and $1.38 respectively.

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     SFAS No. 148 amends SFAS No. 123 in December 2002 to require that disclosures of the pro forma effect of using the fair value method of accounting for stock-based employee compensation be displayed more prominently and in a tabular format. The following table illustrates the effect on our net income (loss) and net income (loss) per share if we had recorded compensation costs based on the estimated grant date fair value as defined by SFAS No. 123 for all granted stock-based awards.

2.		Financial Statement Details
		Inventories consist of the following (in thousands):

Property, plant and equipment consist of the following (in thousands):

Provision for Income Taxes

     The provision for income taxes for the three months ended March 31, 2003 consists of taxes of our subsidiary in the United Kingdom. No benefit for income taxes was recorded in the U.S., as we believe that the available objective evidence creates sufficient uncertainty regarding the realization of the deferred tax assets such that we have recorded a full valuation allowance. The effective tax rate for the three months ended March 31, 2003 was 1%, compared to the three months ended March 31, 2002 of 3%.

Comprehensive Loss

     For the three months ended March 31, 2003 and 2002, comprehensive loss, which consists of the net loss for the periods and unrealized gain or loss on short-term marketable securities, is as follows (in thousands):

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3.

Recent Accounting Pronouncements

     In June 2002, the FASB issued SFAS No. 146, “Accounting for Exit or Disposal Activities”. SFAS No. 146 addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for under Emerging Issues Task Force (EITF) No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The scope of SFAS No. 146 also includes costs related to terminating a contract that is not a capital lease and termination benefits that employees who are involuntarily terminated receive under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred-compensation contract. SFAS No. 146 will be effective for exit or disposal activities that are initiated after December 31, 2002 and early application is encouraged. The provisions of EITF No. 94-3 shall continue to apply for an exit activity initiated under an exit plan that met the criteria of EITF No. 94-3 prior to the adoption of SFAS No. 146. The adoption of the provisions of SFAS No. 146 did not have a material impact on our financial position or results of operations.

     In December 2002, the FASB issued Statement of SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of SFAS 123.” SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 also requires that disclosures of the pro forma effect of using the fair value method of accounting for stock-based employee compensation be displayed more prominently and in a tabular format. Additionally, SFAS No. 148 requires disclosure of the pro forma effect in interim financial statements. The transition and annual disclosure requirements of SFAS No. 148 are effective for fiscal years ended after December 15, 2002. The interim disclosure requirements are effective for interim periods beginning after December 15, 2002. We intend to continue to account for employee options under APB No. 25. We adopted the disclosure requirements of SFAS 148 as of December 31, 2002.

     In November 2002, the FASB issued FASB Interpretation (“FIN”) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. FIN No. 45 requires that a liability be recorded at fair value in the guarantor’s balance sheet upon issuance of a guarantee. In addition, FIN No. 45 requires disclosures about the guarantees that an entity has issued, including a reconciliation of changes in the entity’s product warranty liabilities. The initial recognition and initial measurement provisions of FIN No. 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year-end. We did not have significant warranty expense for the three months ended March 31, 2003. The adoption of the provisions of FIN No. 45 did not have a material impact on our financial position and results of operations.

     In January 2003, the FASB issued FASB Interpretation (“FIN”) No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51. FIN No. 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN No. 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN No. 46 must be applied for the first interim or annual period beginning after June 15, 2003. The adoption of the provisions of FIN No. 46 did not have a material impact on our financial position and results of operations.

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4.

Operations by Geographic Regions

     The following is a summary of operations by geographical regions (in thousands):

Identifiable assets by geographic region are as follows (in thousands):

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The statements in this report or incorporated by reference which are not historical are forward-looking statements and include, without limitation, statements under the caption, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Terms such as “may,” “will,” “could,” “should,” “project,” “believe,” “anticipate,” “expect,” “plan,” “estimate,” “forecast,” “potential,” “intend,” “continue” and variations of these words or similar expressions are intended to identify forward-looking statements.

     These forward-looking statements include, but are not limited to, statements regarding: anticipated revenue from our wireless and networking products, our beliefs regarding our accounting policies, our beliefs regarding deferred tax assets, our expectation that international revenue will account for a significant percentage of our revenues for the next 12 months, our expectations regarding trends in our future gross margin, our ability to expand our revenue base in competitive, consumer-oriented markets for digital cordless telephones and other wireless networks, our belief that existing cash resources are sufficient to fund any anticipated operating losses and purchases of capital equipment, provide adequate working capital for the next 12 months, and fund our patent and intellectual property costs.

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     Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited, to our dependence on key products and customers, changes in the demand for our products and seasonal factors affecting certain of our products, our ability to attract and retain customers and distribution partners for existing and new products, our ability to develop and introduce new and enhanced products in a timely manner, our dependence on international sales and risks associated with international operations, our dependence on outside foundries and test subcontractors in the manufacturing process and other outside suppliers, our ability to recruit and retain qualified employees, and the strength of competitive offerings and the prices being charged by those competitors, and the risks set forth below under “Factors that May Affect Future Operating Results”.

     These forward-looking statements are made only as of the date of this report. We do not undertake to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. We caution you not to give undue weight to any of the forward-looking statements. You should not regard the inclusion of forward-looking information as a representation by us or any other person that we will achieve our objectives or plans.

Critical Accounting Policies

     Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and other assumptions that are believed to be reasonable under the circumstances, the results which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Senior management has discussed the development, selection and disclosure of these estimates with the Audit Committee of Micro Linear’s Board of Directors. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies reflect its more significant estimates and assumptions used in the preparation of its consolidated financial statements. They include those regarding (1) revenue recognition, (2) estimating accrued liabilities and allowance for doubtful accounts, (3) inventory and related allowance for obsolete and excess inventory, (4) accounting for income taxes, and (5) valuation of long-lived and intangible assets.

     The critical accounting policies are described in Item 7, “Management Discussion and Analysis of Financial Condition and Results of Operations,” of our Annual Report on Form 10-K for the year ended December 29, 2002.

Overview

     Micro Linear develops integrated circuits and modules that enable cost effective, high performance digital wireless communications and connectivity for a broad range of voice and data applications.

     We were founded in 1983 and until 2000, we were a supplier of advanced analog and mixed signal integrated circuits to the computer, communications, telecommunications, consumer and industrial markets. During 2000, we divested our manufacturing test operation and our non-communication product lines and focused our marketing, engineering and product development on new communications products, including some wired networking products, but most notably wireless integrated circuits. During 2001, we established ourselves as a volume supplier of RF transceivers to the digital cordless telephone segment of the communications market. Wireless product revenues represented 55% of net revenues for the first quarter of 2003 compared to 48% of net revenues for the first quarter of 2002. We expect the revenue contribution from wireless products to continue to increase as a percentage of total revenues.

     On October 8, 2002 we announced that in order to better align our product development activities with our revenue-producing markets, we would stop development of 802.11a broadband wireless products. The realignment process included redirecting certain engineering activities, and reorganizing sales, marketing and applications to strengthen major account support.

Results of Operations

Three Months Ended March 31, 2003 Compared with Three Months Ended March 31, 2002

Net Revenues

     Net revenues for the first quarter of 2003 were $4.7 million compared to net revenues of $5.6 million for the first quarter of 2002. The decrease in net revenues from the comparable first quarter of 2002 was due primarily to a decrease in shipments of older

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networking products. Revenues from RF transceivers totaled $2.6 million, or 55% of net revenues, for the first quarter of 2003, compared to $2.7 million, or 48% of net revenues, for the first quarter of 2002. Revenues from networking products for the first quarter of 2003 totaled $2.1 million, or 45% of net revenues, compared to $2.9 million, or 52% of net revenues, for the first quarter of 2002. In the first quarter of 2003, Uniden Corporation accounted for more than 10% of our net revenues. In the first quarter of 2002, Uniden Corporation, Allied Telesyn International and All American, a domestic distributor, each accounted for 10% or more of our net revenues.

     International revenues for the first quarter of 2003 totaled $4.3 million, or 91% of net revenues, compared to $4.7 million, or 84% of net revenues, for the first quarter of 2002. Domestic revenues were approximately 9% of net revenues for the first quarter of 2003, compared to 16% for the first quarter of 2002. The increase in international revenues as a percentage of total net revenues was primarily due to the sales of our RF transceiver wireless products to Uniden Corporation.

Gross Margin

     Gross margin for the first quarter of 2003 was $2.5 million, or 53% of net revenues, compared to $3.1 million for the first quarter of 2002, or 55% of net revenues. The decrease in gross margin was primarily due to the increased weighting of wireless revenues in our product sales mix and a decrease in our legacy networking revenues from the first quarter of 2003 compared to the first quarter of 2002. Average gross margins on our wireless products are lower than our networking products. Although the release of new products at higher prices may have a favorable effect on margins, we expect that the general trend in gross margins in the future may be downward, as we expand our revenue base in competitive, consumer-oriented markets for digital cordless telephones and other wireless networks.

     Gross margins are affected by the volume of product shipments, selling prices, product mix, manufacturing subcontract costs, manufacturing utilization, and product yields. It is also periodically affected by costs incurred in connection with start-up and installation of new process technologies at outside manufacturing foundries.

Research and Development Expenses

     Research and development expenses include costs associated with the definition, design and development of new products. In addition, research and development expenses include test development and prototype costs associated with new product development.

     We expense wafers and new production mask sets related to new products as research and development costs until products based on new designs are fully characterized, support published data sheets and satisfy reliability tests.

     Research and development expenses were $2.9 million for the first quarter of 2003 compared to $4.2 million for the first quarter of 2002. The decrease in research and development expenses was primarily due to the cancellation of our 802.11a broadband wireless product development effort.

Selling, General and Administrative Expenses

     Selling, general and administrative expenses were $2.2 million for the first quarter of 2003 compared to $1.8 million for the first quarter of 2002. The increase in expenses was primarily due to increases in legal and consulting expenses, as well as increases in material costs associated with the introduction of new products, and travel expenses associated with our sales and marketing efforts.

Interest and Other Income and Interest Expense

     Interest and other income was $0.1 million for the first quarter of 2003 compared to $0.3 million for the first quarter of 2002. The decrease in interest and other income was primarily due to the changes in cash balances as well as lower prevailing interest rates. Interest and other expense, primarily attributable to a mortgage on the facilities, was $0.1 million in the first quarters of 2003 and 2002.

Provision for Income Taxes

     The provision for income taxes for the three months ended March 31, 2003 consists of taxes incurred by our subsidiary in the United Kingdom. We did not record a benefit for income taxes related to our net losses in the U.S., as we believe that the available

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objective evidence creates sufficient uncertainty regarding the realization of the deferred tax assets such that we have recorded a full valuation allowance. The effective tax rate for the first quarter of 2003 was 1%, compared to 3% in the first quarter of 2002.

Liquidity and Capital Resources

     Net cash used in operating activities was $3.5 million for the first three months of 2003 and $3.7 million in the first three months of 2002. Net cash used in operating activities during the first thee months of 2003 was due primarily to a net operating loss of $2.6 million, an increase in accounts receivable of $0.3 million and a decrease in deferred revenue of $1.0 million. These were partially offset by non-cash charges for depreciation and amortization of $0.3 million.

     Net cash provided by investing activities was $1.6 million in the first three months of 2003 and $3.0 million in the comparable period of 2002. Investing activities during these periods consisted primarily of net sales of short-term investments, which totaled $1.7 million for the first three months of 2003, and $3.1 million for the first three months of 2002. Capital expenditures of $0.1 million for the first three months of 2003 were essentially unchanged from the first quarter of 2002.

     Cash used in financing activities, consisting of principal payments on our long-term debt, was $0.1 million in the first three months of both 2003 and 2002.

     Working capital amounted to $21.7 million as of March 31, 2003, compared to $24.3 million as of December 31, 2002. Working capital at March 31, 2003 includes cash and cash equivalents of $8.8 million and short-term investments of $13.0 million.

     We anticipate that existing cash resources are sufficient to fund any anticipated operating losses, purchases of capital equipment, and provide adequate working capital for at least the next 12 months. Our liquidity is affected by many factors, including, among others, the extent to which we pursue additional wafer fabrication capacity from existing foundry suppliers or new suppliers, capital expenditures, the level of our product development efforts, and other factors related to the uncertainties of the industry and global economies. Accordingly, there can be no assurance that events in the future will not require us to seek additional capital sooner or, if so required, that such capital will be available on terms acceptable to us.

Recent Accounting Pronouncements

     In June 2002, the FASB issued SFAS No. 146, “Accounting for Exit or Disposal Activities”. SFAS No. 146 addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for under Emerging Issues Task Force (EITF) No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The scope of SFAS No. 146 also includes costs related to terminating a contract that is not a capital lease and termination benefits that employees who are involuntarily terminated receive under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred-compensation contract. SFAS No. 146 will be effective for exit or disposal activities that are initiated after December 31, 2002 and early application is encouraged. The provisions of EITF No. 94-3 shall continue to apply for an exit activity initiated under an exit plan that met the criteria of EITF No. 94-3 prior to the adoption of SFAS No. 146. The adoption of the provisions of SFAS No. 146 did not have a material impact on our financial position or results of operations.

     In December 2002, the FASB issued Statement of SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of SFAS 123.” SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 also requires that disclosures of the pro forma effect of using the fair value method of accounting for stock-based employee compensation be displayed more prominently and in a tabular format. Additionally, SFAS No. 148 requires disclosure of the pro forma effect in interim financial statements. The transition and annual disclosure requirements of SFAS No. 148 are effective for fiscal years ended after December 15, 2002. The interim disclosure requirements are effective for interim periods beginning after December 15, 2002. We intend to continue to account for employee options under APB No. 25. We adopted the disclosure requirements of SFAS 148 as of December 31, 2002.

     In November 2002, the FASB issued FASB Interpretation (“FIN”) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. FIN No. 45 requires that a liability be recorded at fair value in the guarantor’s balance sheet upon issuance of a guarantee. In addition, FIN No. 45 requires disclosures about the guarantees that an entity has issued, including a reconciliation of changes in the entity’s product warranty liabilities. The initial recognition and initial measurement provisions of FIN No. 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year-end. We did not have significant warranty expense for the three months ended March 31, 2003. The adoption of the provisions of FIN No. 45 did not have a material impact on our financial position and results of operations.

     In January 2003, the FASB issued FASB Interpretation (“FIN”) No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51. FIN No. 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN No. 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN No. 46 must be applied for the first interim or annual period beginning after June 15, 2003. The adoption of the provisions of FIN No. 46 did not have a material impact on our financial position and results of operations.

Factors That May Affect Future Operating Results

     The risks and uncertainties described below are not the only ones we face. If any of the following risks actually occurs, our business, financial condition or results of operations could be materially and adversely affected:

Our operating results are difficult to predict and are likely to fluctuate significantly. They may fail to meet or exceed the expectations of securities analysts or investors, causing our stock price to decline.

     Our operating results are difficult to predict and have fluctuated significantly in the past. They are likely to continue to fluctuate in the future as a result of many factors, some of which are outside of our control. Some of the factors that may cause these fluctuations include, but are not limited to, those listed below and those identified throughout this “Factors That May Affect Future Operating Results” section:

	•		the level and timing of spending by our customers, both in the U.S. and in foreign markets;
	•		changes in market demand, including seasonal and cyclical fluctuations;
	•		timing, amount, cancellation or rescheduling of customer orders;
	•		the gain or loss of a key customer, design win or order;
	•		fluctuations in manufacturing yields;
	•		timing of revenue from contracts, which may span several quarters;
	•		competitive market conditions;
	•		new product introductions;

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	•		market acceptance of new or existing products;
	•		the timely development, introduction, marketing, and transition to volume production of new products and technologies;
	•		mix of products sold;
	•		economic conditions specific to the networking and wireless industries and markets, as well as general economic conditions;
	•		ability to hire and retain qualified technical and other personnel;
	•		development of new industry standard communication protocols;
	•		availability and performance of advanced silicon process technologies from foundry sources;
	•		international conflicts and acts of terrorism and economic and political conditions worldwide; and
	•		major health concerns, such as the spread of severe acute respiratory syndrome (“SARS”).

     We believe that period-to-period comparisons of our operating results will not necessarily be meaningful. You should not rely on these comparisons as an indication of our future performance. If our operating results in one or more future periods fail to meet or exceed the expectations of securities analysts or investors, the trading price of our common stock may decline, possibly by a significant amount.

The markets in which we operate are intensely competitive, and many competitors are larger and more established. If we do not compete successfully, we will be unable to gain market share or enter into new markets.

     Intense international and domestic competition, decreasing selling prices, rapid technological change, short product life cycles and cyclical patterns characterize the markets for our products. Competitors include significantly larger corporations. New entrants in these markets could provide additional competition. Most of our competitors are substantially larger and have greater financial, technical, marketing and other resources than we do. Many of these large organizations are in a better position to withstand any significant reduction in spending by customers in these markets. They often have broader product lines and market focus, and will therefore not be as susceptible to downturns in a particular market. These competitors may be able to adapt more quickly to new or emerging technologies and changes in customer requirements. In addition, many competitors have focused on the wireless market for longer than we have, and therefore have more long-standing and established relationships with domestic and foreign customers. If we fail to compete successfully, we will be unable to gain market share or enter into new markets.

     The computer networking equipment and wireless markets have undergone a period of rapid growth and consolidation in recent years. We expect our dependence on sales to network equipment manufacturers to continue. Our business and results of operations would be materially and adversely affected in the event of a significant slowdown in the computer networking equipment market. In addition, as a result of competitive pricing pressures, we have experienced lower margins in some of our products. Such pricing pressures will continue to have an adverse effect on our results of operations, and our business could suffer unless they can be offset by higher margins on other products or lower operating expenses.

     We do not currently manufacture our own semiconductor wafers. As a result, we are vulnerable to process technology advances competitors use to manufacture products offering higher performance and lower cost. Larger companies with wafer manufacturing facilities, broader product lines, greater technical and financial resources and greater service and support capabilities have an advantage in this market.

     In addition, our products are generally sole-sourced to our customers. If our customers were to develop other sources for our products, our operating results would suffer.

The market for wireless applications is characterized by rapid technological change. Our future success depends on our ability to respond to these changes.

     Rapidly changing technology, frequent product introductions and evolving industry standards make it difficult to accurately predict the market’s future growth rate, size or technological direction. In view of the evolving nature of this market, suppliers of wireless products may decide to adopt alternative standards or technologies that are incompatible with our products. If we are unable to design,

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develop, manufacture and sell products that are compatible with these new standards or technologies, our business and operating results will suffer. We have, in the past, invested substantial resources in emerging technologies that did not achieve the market acceptance that we had expected. If new markets do not develop as we anticipate, or if our products do not gain acceptance in these markets, our business and operating results will suffer.

If we are unable to develop and introduce new products successfully, and in a cost-effective and timely manner, or achieve market acceptance of new products, our business and operating results could suffer.

     Continuing technological advancement, changes in customer requirements and evolving industry standards characterize the wireless and computer equipment networking markets. To compete successfully, we must design, develop, manufacture and sell new or enhanced products that:

	•		provide increasingly higher levels of performance and reliability;
	•		meet performance or other objective specified parameters;
	•		are cost effective;
	•		are brought to market in a timely manner;
	•		are in accordance with existing or evolving industry standards; and
	•		achieve market acceptance.

     The development of these new circuits is highly complex. We have sometimes experienced delays in completing the development and introduction of new products. Successful product development and introduction depends on many factors, including:

	•		ability to predict market requirements and evolving industry standards;
	•		proper new product definition;
	•		timely completion and introduction of new product designs;
	•		availability of foundry capacity;
	•		acceptable manufacturing yields; and
	•		market acceptance of our products and our customers’ products.

     We must be able to adjust to changing market conditions quickly and cost-effectively to compete successfully. Furthermore, we must introduce new products in a timely manner, and achieve market acceptance for these products. In the fourth quarter of 2002 we discontinued product development activities for our 802.11a products because of competitive pressures in the 802.11a product market. In connection with the discontinuance, we redirected certain engineering activities to focus on a variety of wireless products. If we are unable to successfully compete in the wireless product market, our business and operating results will suffer. In addition, our customers’ products which incorporate our products must be introduced in a timely manner and achieve market acceptance. If we, or our customers, fail to develop and introduce new products successfully, our business and operating results will suffer.

     To successfully develop and market certain of our planned products, we may need to enter into technology development or licensing agreements with third parties. If we cannot enter into such agreements on acceptable terms, our ability to develop and market new products could suffer, and our business and operating results would be adversely affected.

     Customers typically take a long time to evaluate our new products. It takes 3 to 6 months or more for customers to test new products, and at least an additional 3 to 12 months until customers begin significant production of products incorporating our products.

     We may, therefore, experience a lengthy delay between product development and the generation of revenues from new products. Delays inherent in such a long sales cycle raise additional risks of customer decisions to cancel or change their product plans. Such

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changes could result in the loss of anticipated sales. Our business, financial condition, and results of operations would suffer if customers reduce or delay orders, or choose not to release products incorporating our products.

We have a history of losses and, because of continued investment in product development, expect to incur losses in the future. We may not become profitable.

     We have incurred quarterly net losses from June 2000 through March 2003, except for a profit in the third quarter of 2002 which was attributable to an income tax refund. Because of those losses, we had an accumulated deficit of $12,495,000 as of March 31, 2003.

     Successful engineering development and market penetration in the product areas we have chosen require high levels of engineering and product development expense. We intend to continue to spend significant amounts on new product and technology development. If revenues do not correspondingly increase, our operating results and financial condition could be harmed. Our networking products are reaching maturity, and revenue from this product line has declined and is expected to decline further over the next twelve months. We anticipate that our existing cash will fund any anticipated operating losses, purchases of capital equipment, and provide adequate working capital for at least the next 12 months. We expect to incur losses in the future and may not achieve our additional goals of positive net income and cash flow. As a result, we may not be able to retain employees, or new product and technology development or sales and marketing programs to successfully compete against our competitors. For example, in the fourth quarter of 2002, in connection with the discontinuance of development of 802.11a products, we completed a reduction in our work force and job eliminations to balance the size of our employee base with then anticipated revenue levels. There can be no assurance that we will not be required to further reduce our work force. If we do not achieve or increase profitability in the future at a level expected by securities analysts or investors, the market price of our common stock will likely decline.

To the extent that our existing resources and cash generated from operations are insufficient to fund our future activities, we may need to raise additional capital. If funds are not available on acceptable terms, we may not be able to hire and retain employees, fund our operations or compete effectively.

     We believe that our existing capital resources and cash generated from operations will enable us to maintain our operations for at least the next 12 months. However, if our capital requirements vary materially from those currently planned, we may require additional financing sooner than anticipated. If additional funds are raised through the issuance of debt securities, these securities could have rights, preferences and privileges senior to holders of common stock, and the terms of this debt could impose restrictions on our operations. The sale of additional equity or convertible debt securities could result in additional dilution to our stockholders. We cannot be certain that additional financing will be available in amounts or on terms acceptable to us, if at all. If adequate funds are not available, or are not available on acceptable terms, our ability to hire, train or retain employees, to fund our operations and sales and marketing efforts, take advantage of unanticipated opportunities, develop or enhance services or products, or respond to competitive pressures would be significantly limited, which could harm our business, financial condition and operating results.

We depend on networking, wireless, and telecommunications spending for our revenue. Any decrease or delay in spending in these industries would negatively impact future operating results and financial condition.

     Demand for our products in the future will depend on the amount and timing of spending by network providers, manufacturers of wireless consumer products, and telecommunications equipment suppliers. Spending in these areas depends upon a variety of factors, including competitive pressures, discretionary consumer spending patterns, and general economic conditions.

     During 2002 and in the first three months of 2003, new orders slowed, customers cancelled or placed holds on existing orders, and orders dropped from prior periods, due to developments in the general economy and capital markets. This situation could recur in the future. Because the majority of our revenues come from sales to a few customers, a delay in orders from one customer could have a significant negative effect on future revenues.

     Relatively short product life cycles characterize the computer network equipment and digital cordless telephone markets. If one or more of our significant customers were to select circuits manufactured by a competitor for future products, our business will suffer. The loss of one or more of our current customers, failure to attract new customers, or disruption of our sales and distribution channels would adversely affect our business and operating results.

We have relied and expect to continue to rely on a limited number of customers for a significant portion of our revenue. Our revenue could decline due to the delay of customer orders or if we are unable to maintain or develop relationships with current or new customers.

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     A significant majority of our revenues come from sales to relatively few customers. Sales to our ten largest customers, excluding domestic distributors, accounted for approximately 78% of net revenues for the three months ended March 31, 2003 and approximately 79% of net revenues in fiscal year 2002. Sales to domestic distributors for the three months ended March 31, 2003 accounted for approximately 6% of net revenues and 7% in fiscal year 2002. We anticipate that a limited number of key customers and distributors will continue to provide a significant portion of our net revenues for the foreseeable future. Our future success depends on our ability to retain our current customers and attract new customers. A reduction, delay or cancellation of orders from one or more significant customers could materially and adversely affect our operating results. In addition, our operating results could be adversely affected if one or more of our major customers were to develop other sources for the products we now supply them.

     Because many of our current competitors have pre-existing relationships with our current and potential new customers, we might not be able to achieve sufficient market penetration to achieve or sustain profitability. Many of our competitors have established relationships with our current and potential customers and can devote substantial resources aimed at preventing us from establishing or enhancing our customer relationships. If we are unable to gain additional market share or enter new markets due to these pre-existing relationships with potential customers, our operating results could be harmed.

     Customers may generally cancel or reschedule orders to purchase standard products without significant penalty until 30 days prior to shipping. Customers frequently revise delivery schedules, and the quantities of products to be delivered, to reflect changes in their needs. Since backlog can be canceled or rescheduled, our backlog at any time is not necessarily indicative of future revenue.

We depend on international sales and are subject to the risks associated with international operations, which may negatively affect our business.

     Sales to customers outside of the United States represented 91% of net revenues for the three months ended March 31, 2003 and 89% of net revenues in fiscal year 2002. We expect that international sales will continue to generate a substantial proportion of net revenues for the foreseeable future. Our international operations are subject to a number of risks, including:

	•		changes in foreign government regulations and telecommunications standards;
	•		import and export legislation and license requirements, tariffs, taxes, quotas and other trade barriers;
	•		compliance with foreign laws, treaties and technical standards;
	•		delays resulting from difficulty in obtaining export licenses for certain technology;
	•		fluctuations in currency exchange rates;
	•		difficulty in collecting accounts receivable;
	•		difficulty in staffing and managing foreign operations;
	•		loss of one or more international distributors;
	•		geopolitical risks, changes in diplomatic and trade relationships and economic instability;
	•		the effects of the terrorist attacks on the United States, the United States’ war on international terrorism and any related conflicts or similar events worldwide; and
	•		major health concerns, such as the spread of SARS.

     Substantially all of our international sales must be licensed by the Office of Export Administration of the U.S. Department of Commerce. To date, we have not experienced any material difficulties in obtaining export licenses.

     Our international sales are typically denominated in U.S. dollars. Fluctuations in currency exchange rates could cause our products to become relatively more expensive to customers in a particular country, while competitors’ products denominated in local currencies become less expensive. This may lead to a reduction in sales or profitability in that country, which could adversely affect our business.

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     Gains and losses on the conversion to U.S. dollars of accounts receivable, accounts payable and other international assets and liabilities may contribute to fluctuations in operating results. In addition, international customers typically take longer to pay for purchases than customers in the United States. If foreign markets do not continue to develop, or foreign sales cycles prove unpredictable, our revenue and business may be adversely affected.

Selling prices for networking and wireless products typically decrease, which could lead to lower operating results.

     Average selling prices for products in the networking and wireless markets have rapidly declined due to many factors, including:

	•		rapidly changing technologies;
	•		price-performance enhancements;
	•		product introductions by competitors;
	•		price pressure from significant customers; and
	•		product maturity and obsolescence.

     The decline in the average selling prices of our products may cause substantial fluctuations in our operating results. We continue to develop and market new products that incorporate valued new features and sell at higher prices. Failure to deliver new products offering increased value would result in a decline in both revenues and margins, harming our business, financial condition, and results of operations.

Defects in our products, product returns and product liability could result in a decrease in customers and revenues, unexpected expenses and loss of market share.

     Complex products such as ours frequently contain errors, defects, and bugs upon release. Despite thorough testing by Micro Linear, our test houses and customers, these errors, defects and bugs are sometimes discovered after we begin to ship products. We expend significant resources to remedy these problems, but occasionally have faced legal claims by customers and others. Product defects can also cause interruptions, delays or cancellations of sales to customers, in addition to claims against us, all of which could adversely affect our operating results.

We depend on the health of the semiconductor industry, which is highly cyclical. The decline in demand in the semiconductor industry could affect our financial condition and results of operations.

     The semiconductor industry experiences significant downturns and wide fluctuations in supply and demand. The industry also experiences significant fluctuations in anticipation of changes in general economic conditions. This causes significant variances in product demand and production capacity, and aggravates selling price fluctuations. These cyclical patterns, which we expect to continue, may substantially harm our business, financial condition, and results of operations.

If we fail to adequately forecast demand for our products, we may incur product shortages or excess product inventory.

     We regularly request indications from customers as to their future plans and requirements, to ensure that we will be prepared to meet production demand for our products. However, we may not receive anticipated purchase orders for our products. We must be able to effectively manage the expenses and inventory risks associated with meeting potential demand. If we fail to meet customers’ supply expectations, we may lose business from such customers. If we expend resources and purchase materials, or enter into commitments to acquire materials and manufacture products, and customers do not purchase these products, our business and operating results will suffer.

     Design wins, which require significant expenditures, often precede the generation of volume sales by a year or more. The value of any design win will largely depend upon the commercial success of the customer’s product, and on the extent to which the design of the customer’s product accommodates components manufactured by our competitors. We cannot assure that we will achieve design wins, or that any design win will result in significant future revenues.

We depend on a limited number of outside foundries and test subcontractors in the manufacturing process, and any failure to

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obtain sufficient foundry or testing capacity could significantly delay our ability to ship our products, damage our customer relationships, and result in reduced revenue.

     We utilize outside foundries for all wafer production. We believe that utilizing outside foundries enable us to focus on our design strengths, minimize fixed costs and capital expenditures and access diverse manufacturing technologies. We currently intend to continue to rely exclusively upon our outside foundries for our wafer fabrication requirements. However, there are significant risks associated with the reliance on outside foundries, including the lack of assured wafer supply and control over delivery schedules, delays in obtaining access to key process technologies, and limited control over manufacturing yields and production costs.

     The manufacture of integrated circuits is a highly complex and technically demanding process. We have diversified our sources of wafer supply and have worked closely with our foundries to minimize the likelihood of reduced manufacturing yields. However, our foundries have sometimes experienced lower than anticipated manufacturing yields, particularly in connection with the introduction of new products and the installation and start-up of new processes. Reduced yields have, at times, negatively affected our operating results, a situation which may recur in the future.

     Dependence on foundries located outside of the United States subjects us to numerous risks, including exchange rate fluctuations, export and import restrictions, trade sanctions, political and labor instability and tariff increases. Our main foundries are located in Singapore and Hong Kong, which presents specific risks, including political instability and health concerns related to the recent outbreak of cases of SARS.

     We purchase wafers from outside foundries pursuant to customers’ purchase orders. We generally do not have a guaranteed level of wafer capacity or wafer costs at our foundries. Our wafer suppliers could prioritize capacity for other uses, or reduce or eliminate deliveries to us on short notice. In addition, we depend upon a limited number of foundries for our wafer requirements. Any sudden demand for an increased amount of wafers, or sudden reduction or elimination of any source of wafers, could result in a material delay in the shipment of products. Disruptions in supply, which have occurred in the past, may occur in the future. If such a disruption occurred, and we were unable to qualify alternative manufacturing sources for our products in a timely manner, or if such sources were unable to produce wafers with acceptable manufacturing yields, our business and operating results would be materially and adversely affected.

     We rely on two outside test service subcontractors to test our products. The same risks described in the paragraphs above, concerning guaranteed capacity, dependence upon a limited number of test service subcontractors, and disruptions in service, also apply to our test and assembly subcontractors.

     Rapid technological change and frequent new product introductions characterize the markets for our products. To remain competitive, we must develop or obtain access to new semiconductor process technologies in order to reduce die size, increase die performance and functional complexity, and improve manufacturing yields. If we are unable to obtain access to advanced wafer processing technologies, limiting our ability to introduce competitive products on a timely basis, our future operating results may suffer.

     Minute levels of contaminants in the semiconductor manufacturing environment, defects in the masks used to print circuits on a wafer, difficulties in the fabrication process and other factors can cause a substantial percentage of wafers to be rejected or a significant number of die on each wafer to be nonfunctional. Many of these manufacturing problems are difficult to diagnose and time consuming and expensive to remedy. Our foundries have, at times, experienced lower than anticipated yields, which have adversely affected production and operating results.

     The manufacturing processes utilized by our foundries are continuously being improved in order to increase yield and product performance. Process changes can, however, result in interruptions in production or significantly reduced yields. New process technologies or new products are especially susceptible to wide variations in manufacturing yields and efficiency. Irregularities, adverse yield fluctuations or other manufacturing problems at our foundries could result in production interruption or delivery delays, adversely affecting our business and results of operations.

     We have granted nontransferable, limited process licenses to some of our foundries to utilize our processes to manufacture and sell wafers to other customers. We protect our proprietary technology, particularly our design methodology, but may not be able to prevent its misappropriation by our foundries or others.

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We and the independent foundries and subcontractors we use to manufacture and test our products are subject to environmental laws. Failure to comply with these laws could delay manufacturing of our products and result in unexpected expenses.

     Our wafer suppliers and test and assembly subcontractors are subject to a variety of U.S. and foreign government regulations related to the discharge or disposal of toxic, volatile or otherwise hazardous chemicals used in their manufacturing processes. Failure by our suppliers or subcontractors to comply with environmental regulations could result in fines, suspension of production or cessation of operations. Environmental regulations could also require our suppliers or subcontractors to acquire equipment or incur other expenses to comply with environmental regulations. If our suppliers or subcontractors incur substantial additional expenses, product costs could significantly increase, adversely affecting our results of operations.

     We are also subject to a variety of environmental regulations relating to our operations. If we fail to comply with present and future regulations, the government could impose fines on us, or compel us to suspend or cease operations. If we or our suppliers or subcontractors fail to control the use or discharge of hazardous substances, we could be subject to civil or criminal liabilities, which could have a material adverse effect on our business and operating results.

Because competition for qualified personnel is intense, we may not be successful in attracting and retaining personnel, which could have an impact upon the development or sales of our products.

     Our future success will depend to a significant extent on our ability to attract, retain and motivate personnel, especially those with engineering design experience and expertise. We may not be successful in attracting and retaining such personnel. In the fourth quarter of 2002 we completed a reduction in our work force and job eliminations to balance the size of our employee base with then anticipated revenue levels. Reductions in our workforce could make it difficult to motivate and retain remaining employees or attract needed new employees, and provide distractions affecting our ability to develop new products and technologies and deliver products in a timely fashion.

     Competitors may attempt to recruit our employees. While employees are required to sign standard agreements concerning confidentiality and ownership of inventions, we do not have employment contracts or non-competition agreements with most of our personnel. The loss of the services of key employees, the inability to attract or retain qualified personnel, or delays in hiring personnel, particularly engineers and other technical personnel, could negatively affect our business and prevent us from achieving our business goals.

Our success depends on our ability to protect our intellectual property and proprietary rights.

     We own 12 U.S. patents, and have 5 U.S. patent applications and 10 foreign patent applications pending. Through a sale of a portion of our assets, we maintain a royalty-free license to 45 U.S. patents, 3 foreign patents, 7 U.S. patent applications, and 3 foreign patent applications.

     We attempt to protect our intellectual property rights through patents, trademarks, copyrights, licensing arrangements, maintaining certain technology as trade secrets and other measures. However, any patent, trademark, copyright or other intellectual property rights we own may be invalidated, circumvented or challenged. We cannot be certain that our intellectual property rights will provide competitive advantages, or that any pending or future patent applications will be issued with the scope of the claims sought by us. Competitors may develop technologies that are similar or superior to our technology, duplicate our technology or design around the patents that we own. In addition, effective patent, copyright and trade secret protection may be unavailable or limited in certain foreign countries in which we do business.

     We believe that the future success of our business will depend on our ability to translate technological expertise and innovation into new and enhanced products. We enter into confidentiality or license agreements with our employees, consultants, vendors and customers, and limit access to and distribution of our proprietary information. Nevertheless, we may not be able to prevent misappropriation of our technology.

     In addition, we have taken legal action to enforce our patents and other intellectual property rights, protect our trade secrets, determine the validity and scope of the proprietary rights of others, and defend against claims of infringement or invalidity. If a third party makes a valid claim, and we cannot obtain a license to the technology on reasonable terms, our operations could be adversely affected.

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     We may be subject to legal proceedings and claims from time to time in the ordinary course of our business, including claims of alleged infringement of the proprietary rights and other intellectual property rights of third parties. Intellectual property litigation is expensive and time-consuming, and could divert our management’s attention away from running our business.

We have in the past, and may in the future, be parties to legal proceedings that could have a negative financial impact on us.

     In December 1995, Pioneer Magnetics, Inc. (“Pioneer”) filed a complaint in the Federal District Court for the Central District of California alleging that certain of our integrated circuits violate a Pioneer patent. Pioneer sought monetary damages and an injunction against the alleged patent violation. The District Court concluded that Micro Linear did not infringe on Pioneer’s patent. Pioneer then appealed the District Court’s decision to the Court of Appeals for the Federal Circuit, which affirmed the District Court’s Judgment. In May 2001, Pioneer filed a petition for appeal with the Supreme Court. On June 3, 2002, the Supreme Court granted the petition, vacated the judgment, and remanded the case to the Court of Appeals for further consideration, in light of the recently decided case of Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki. The Court of Appeals has not yet determined what further action to take with respect to this case. Although we believe that this claim is unwarranted and without merit, we cannot provide any assurance as to the outcome of this proceeding. We cannot estimate the possible loss or range of loss, if any, that may result from this claim and therefore have not recorded any related accruals, other than accruals for legal fees expected to be incurred in defense of this claim.

     From time to time we have received correspondence from vendors, distributors, customers or end-users of our products regarding disputes with respect to contract rights, product performance or other matters that occur in the ordinary course of business. Some of these disputes may involve us in costly litigation or other actions, the outcome of which cannot be determined in advance and may adversely affect our business. The defense of lawsuits or other actions could divert our management’s attention away from running our business. In addition, negative developments with respect to litigation could cause the price of our common stock to decline significantly.

Our stock price has been and will likely continue to be volatile because of stock market fluctuations that affect the price of technology stocks. A decline in our stock price could result in securities class action litigation against us, which could divert management’s attention and harm our business.

     Our stock price has been and is likely to continue to be highly volatile. Between January 1, 2003 and March 31, 2003, our stock price has traded as high as $4.00 on February 20, 2003, and as low as $3.05 on January 9, 2003. Our stock price could fluctuate significantly due to a number of factors, including:

	•		variations in our actual or anticipated operating results;
	•		sales of substantial amounts of our stock;
	•		announcements about us or about our competitors, including technological innovation or new products;
	•		litigation and other developments relating to our patents or other proprietary rights or those of our competitors;
	•		conditions in the computer networking equipment and wireless markets;
	•		governmental regulation and legislation; and
	•		changes in securities analysts’ estimates of our performance, or our failure to meet analysts’ expectations.

     Many of these factors are beyond our control. In addition, the stock markets in general, and the Nasdaq National Market and the market for technology companies in particular, have experienced extreme price and volume fluctuations recently. These fluctuations often have been unrelated or disproportionate to the operating performance of these companies. These broad market and industry factors may decrease the market price of our common stock, regardless of our actual operating performance. In the past, companies that have experienced volatility in the market prices of their stock have been the object of securities class action litigation. If we were the object of securities class action litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.

Our Certificate of Incorporation and Bylaws, Stockholder Rights Plan and Delaware law contain provisions that could discourage a change in control, even if the change in control would be beneficial to our stockholders.

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     Provisions of our Amended and Restated Certificate of Incorporation, Bylaws, the 1998 Shareholder Rights Plan, our stock option plans and Delaware law could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. These provisions could limit the price that investors might be willing to pay in the future for shares of our common stock.

     Under the Shareholder Rights Plan, adopted in August 1998, each share of our outstanding common stock carries one Right to purchase 1/1000 of a share of Series A Participating Preferred Stock at an exercise price of $30.00 per Right. If someone acquires 15% or more of our common stock, each Right not owned by a holder of 15% or more of our common stock entitles the holder, upon payment of the $30.00 exercise price, to receive common stock having a current market value of $60.00. This issuance of additional common stock would significantly reduce the percentage of common stock held by a potential acquirer. The Rights expire in August 2008.

     In addition, Section 203 of the Delaware General Corporation Law and the terms of our stock option plans may discourage, delay or prevent a change in control of Micro Linear. Specifically, Section 203 prohibits a Delaware corporation from engaging in any business combination with an interested stockholder for three years after the date the stockholder became an interested stockholder unless specific conditions are met. Also, in the event outstanding options granted pursuant to certain of our stock option plans are not assumed by an acquiring corporation, the unvested portion of such options may be accelerated upon a change of control. In addition, some individual stock option grants provide for the partial or complete acceleration of vesting upon a change of control.