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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
                          _____                   _____

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes         X             No
                          _____                   _____

As of January 31, 2005, there were 187,526,189 shares of the registrant's common stock outstanding. 

RF MICRO DEVICES, INC. AND SUBSIDIARIES

INDEX

PART I - FINANCIAL INFORMATION

ITEM 1.                 

RF MICRO DEVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

See accompanying Notes to Condensed Consolidated Financial Statements.

RF MICRO DEVICES, INC. AND SUBSIDIARIES

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

 

See accompanying Notes to Condensed Consolidated Financial Statements.

RF MICRO DEVICES, INC. AND SUBSIDIARIES

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

 

See accompanying Notes to Condensed Consolidated Financial Statements.

RF MICRO DEVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)

      See accompanying Notes to Condensed Consolidated Financial Statements. 

RF MICRO DEVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.             BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES    

The accompanying condensed consolidated financial statements of RF Micro Devices, Inc. and Subsidiaries (the Company) have been prepared in conformity with accounting principles generally accepted in the United States.  The preparation of these financial statements requires management to make estimates and assumptions, which could differ materially from actual results.  In addition, certain information or footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed, or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission.  In the opinion of management, the financial statements include all adjustments (which are of a normal and recurring nature) necessary for the fair presentation of the results of the interim periods presented.  For comparative purposes, certain fiscal 2004 amounts have been reclassified to conform to fiscal 2005 presentation.  These reclassifications had no effect on net income (loss) or shareholders' equity as previously stated.  The results of operations for interim periods are not necessarily indicative of the results that may be expected for a full year.  These condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended March 31, 2004.

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.  All significant intercompany accounts and transactions have been eliminated in consolidation.  The Company reports information as one operating segment in accordance with Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS 131).

The Company uses a 52- or 53-week fiscal year ending on the Saturday closest to March 31 of each year.  The first fiscal quarter of each year ends on the Saturday closest to June 30, the second fiscal quarter of each year ends on the Saturday closest to September 30 and the third fiscal quarter of each year ends on the Saturday closest to December 31; however, in this report the Company's fiscal year is described as ending on March 31 and the first, second, and third quarters of each fiscal year are described as ending June 30, September 30 and December 31, respectively.  Fiscal 2005 is a 52-week fiscal year compared to fiscal 2004 which was a 53-week fiscal year, and thus the third quarter ended December 31, 2004 includes 13 weeks compared to 14 weeks for the third quarter ended December 31, 2003.

Stock-Based Compensation
The Company accounts for employee stock options and employee restricted stock in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25). Under APB 25, no compensation expense is recognized for stock options or restricted stock issued to employees with exercise prices or share prices at or above quoted market value.  For stock options or restricted shares granted at exercise prices below quoted market value, the Company records deferred compensation expense for the difference between the price of the shares and the market value.  Deferred compensation expense is amortized ratably over the vesting period of the related options or shares of restricted stock.

Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), provides an alternative to APB 25 in accounting for stock-based compensation issued to employees.  SFAS 123 provides for a fair value based method of accounting for employee stock options and similar equity instruments.  Companies that continue to account for stock-based compensation arrangements under APB 25 are required by SFAS 123 to disclose the pro forma effect on net (loss) income and net (loss) income per share as if the fair value based method prescribed by SFAS 123 had been applied.  The Company has continued to account for stock-based compensation using the provisions of APB 25 and presents the information required by SFAS 123, as amended by Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure" (SFAS 148).

RF MICRO DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

1.             BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)              

Pro forma Disclosures

Pro forma information regarding net income (loss) and net income (loss) per share is required by SFAS 123, as amended by SFAS 148, and has been determined as if the Company accounted for its employee stock options using the fair value method of SFAS 123, as amended by SFAS 148. 

The Company's pro forma information follows (in thousands, except per share data):

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), "Share-Based Payment," which is a revision of SFAS No. 123, "Accounting for Stock-Based Compensation."  SFAS No. 123 (R) supersedes APB Opinion No. 25 "Accounting for Stock Issued to Employees" (APB No. 25) and amends SFAS No. 95, "Statement of Cash Flows."  Generally, the approach in SFAS 123 (R) is similar to the approach in SFAS No. 123.  However, SFAS No. 123 (R) requires that the compensation cost relating to share-based payment transactions, including grants of employee stock options, be recognized in financial statements based on the estimated fair value of those options using an acceptable valuation technique.  Pro forma disclosure will no longer be an alternative.  SFAS No. 123 (R) covers a wide range of share-based compensation arrangements including stock options, restricted share plans, performance-based awards, share appreciation rights and employee stock purchase plans. 

SFAS No. 123 (R) is effective for public companies at the beginning of the first interim or annual period beginning after June 15, 2005 (the second quarter of fiscal 2006 for the Company) and companies may elect to use either the modified-prospective or modified-retrospective transition method.  The Company expects to use the modified-prospective transition method.   Under this method, compensation cost is recognized for all awards granted, modified or settled after the adoption date as well as for any awards that were granted prior to the adoption date for which the requisite service has not yet been rendered.

The pro forma compensation costs presented in the table above and in prior filings have been calculated using a Black-Scholes option pricing model and may not be indicative of amounts which should be expected in future periods.  As of the date of this filing, the Company is still evaluating the option pricing model that it will use to estimate the fair value of its options when SFAS No. 123 (R) becomes effective. 

RF MICRO DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
 

2.             NET INCOME (LOSS) PER SHARE

The following table sets forth a reconciliation of the numerators and denominators in the computation of basic and diluted net income (loss) per share (in thousands, except per share data):

In the computation of diluted net income per share for the three months ended December 31, 2004 and December 31, 2003, outstanding stock options to purchase approximately 15.2 million shares and 12.0 million shares, respectively, were excluded and for the nine months ended December 31, 2003, outstanding stock options to purchase approximately 14.0 million shares were excluded because the exercise price of the options was greater than the average market price of the underlying common stock and the effect of their inclusion would have been anti-dilutive.  In the computation of the net loss for the nine months ended December 31, 2004, all outstanding stock options were excluded because the effect of their inclusion would have been anti-dilutive. 
 

The computation of diluted net income (loss) per share for the three months and nine months ended December 31, 2004 did not assume the conversion of the Company's 1.50% convertible subordinated notes due 2010 because the inclusion would have been anti-dilutive.  The computation for the three months and nine months ended December 31, 2003 assumed the conversion of the Company's 1.50% convertible subordinated notes due 2010.  The 1.50% notes are convertible at a price of $7.63 per share, and the closing price of the Company's common stock on the date that it committed to sell the notes was $5.78.

RF MICRO DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

2.             NET INCOME (LOSS) PER SHARE (continued)

On August 15, 2004, the Company called for the redemption of the remainder of its outstanding 3.75% convertible subordinated notes.  As an alternative to redemption, the holders of the notes were entitled to convert the notes at a price of $45.09 per share.  However, on the date that the redemption was announced (July 27, 2004), the closing price of the Company's common stock was $5.92.  Accordingly, all of the 3.75% convertible subordinated notes were surrendered by the holders for redemption.

3.             INVENTORIES

Inventories are stated at the lower of cost or market determined using the average cost method.  The components of inventories are as follows (in thousands):

 
4.             OTHER COMPREHENSIVE INCOME (LOSS)

Accumulated other comprehensive income (loss) for the Company consists of accumulated unrealized (losses) and gains on marketable securities and foreign currency translation adjustments.  This amount is included as a separate component of shareholders' equity.  The components of comprehensive income (loss), net of tax, are as follows for the periods presented (in thousands):

5.             LONG-TERM DEBT

During August 2004, the Company repurchased all of its outstanding 3.75% convertible subordinated notes due 2005.  These notes were redeemed for $100.0 million, plus accrued interest of $1.9 million.  The Company also recorded a non-cash charge of $0.6 million related to the repurchase for unaccreted discounts and unamortized issuance costs in interest expense.

The Company's 1.50% convertible subordinated notes had a fair value of $260.8 million as of December 31, 2004, on the Private Offerings, Resale and Trading Through Automated Linkages (PORTAL) Market.

RF MICRO DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

6.             INCOME TAXES                

Income tax expense for the third quarter of fiscal 2005 and fiscal 2004 was $0.2 million and $0.1 million, respectively, primarily representing foreign income taxes on international operations.  Income tax expense for the nine months ended December 31, 2004 and December 31, 2003 was $0.5 million and $0.4 million, respectively, primarily representing foreign income taxes on international operations.  The effective combined domestic income tax rate was 0% for both the third quarter of fiscal 2005 and the third quarter of fiscal 2004. The Company's overall tax rate for the third quarter of fiscal 2005 differed from the statutory rate due to adjustments to the valuation allowance primarily related to the non-recognition of the U.S. tax benefits on the domestic net operating losses, tax credits, rate differences on foreign transactions, and other differences between book and tax treatment of certain expenditures.  The Company's overall tax rate for the third quarter of fiscal 2004 differed from the statutory rate due to adjustments to the valuation allowance primarily related to the partial recognition of the U.S. tax benefits on the domestic net operating losses, tax credits, rate differences on foreign transactions, and other differences between book and tax treatment of certain expenditures.

At December 31, 2004, the Company had outstanding net operating loss carryforwards (NOLs) for federal domestic tax purposes of approximately $81.4 million, which will begin to expire in 2022, if unused, and state losses of approximately $78.0 million, which will begin to expire in 2009, if unused.  Included in the amounts above are certain NOLs and other tax attribute assets acquired in conjunction with the Company's acquisitions of Resonext Communications, Inc. and Silicon Wave, Inc.  The utilization of acquired assets may be subject to certain annual limitations as required under Internal Revenue Code Section 382.  In accordance with the Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," a valuation allowance of $37.8 million related to domestic operating losses and credit carryforwards has been established because it is more likely than not that some portion of the deferred tax assets will not be realized. The Company considered this review, along with the timing of the reversal of the Company's temporary differences and the expiration dates of the NOLs and credits, in reaching its decision.
 

7.          BUSINESS ACQUISITION   

On May 24, 2004, the Company completed the acquisition of Silicon Wave, Inc., a privately held San Diego-based supplier of highly integrated Bluetooth® solutions for wireless personal area networks.  As a result of the Silicon Wave acquisition, the Company acquired all of the assets and liabilities of Silicon Wave, including in-process research and development.  Silicon Wave's Bluetooth product portfolio includes integrated single-chip silicon complementary metal-oxide-semiconductor (CMOS) radio processors (including the radio modem and digital baseband functions), as well as stand-alone CMOS radio modem solutions. 

The Company paid approximately $16.8 million in cash for all outstanding shares of Silicon Wave capital stock with available cash on hand at the closing date and accrued an additional $4.0 million during the third quarter of fiscal 2005 for the earn-out consideration as an additional cost of the acquired entity.  Immediately prior to the closing of the acquisition, the Company sold all of the shares of Silicon Wave that the Company had purchased during fiscal 2004 to an existing Silicon Wave investor group for $6.0 million, the Company's original cost for these shares.  As a result, the Company paid net cash consideration of $10.8 million for all Silicon Wave shares not previously owned by the Company.  In addition to the above-mentioned payment, the Company agreed to pay earn-out consideration to the former Silicon Wave stockholders upon achievement of revenue goals for certain Silicon Wave products for the period from April 4, 2004 to April 1, 2006.  If the Company's revenue derived from certain Silicon Wave products for the period from April 4, 2004 to April 2, 2005 exceeds $6.0 million it will pay an aggregate cash amount equal to one-half of the revenue derived from certain Silicon Wave products during this period.  As of December 31, 2004, revenue derived from certain Silicon Wave products totaled $7.9 million, triggering recognition of a liability and purchase price adjustment of approximately $4.0 million at December 31, 2004, which must be paid on or before May 2, 2005.  In addition, the Company is estimating that it will incur an additional contingent liability in the fourth quarter of fiscal 2005 of between $1.8 million and $2.3 million as a result of revenue from certain Silicon Wave products for the period of January 1, 2005 through April 2, 2005.  If the Company's revenue derived from certain Silicon Wave products for the period from April 3, 2005 to April 1, 2006 exceeds $25.0 million, it will pay an additional aggregate cash amount equal to the revenue derived from these Silicon Wave products during this period up to a maximum of $75.0 million.  The Silicon Wave acquisition was accounted for in accordance with APB Opinion No. 18, "The Equity Method of Accounting for Investments in Common Stock," as a step acquisition and in accordance with

 

RF MICRO DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

7.    BUSINESS ACQUISITION (continued)

the Statement of Financial Accounting Standards No. 141, "Business Combinations" (SFAS 141), using the purchase method of accounting. 

The Company has incurred direct acquisition costs related to the Silicon Wave business combination of $0.3 million. The direct acquisition costs of $0.3 million were accounted for as part of the Company's purchase price allocation. These costs consist of legal, accounting and appraisal fees. The direct costs of the business combination will be included in the Company's purchase price allocation in accordance with SFAS 141.

The total purchase price components are as follows (in thousands): 

The total purchase price of $21.1 million (which includes direct acquisition costs of $0.3 million and additional earn-out consideration of $4.0 million) was preliminarily allocated
to the assets acquired and liabilities assumed based on their fair values as determined by the Company with the assistance of a third party valuation specialist as of May 24, 2004,
as follows (in thousands):
 

Of the $9.5 million of acquired identifiable intangible assets, $3.3 million represents the value of acquired core and developed technology and $6.2 million represents the value of in-process research and development cost that has no alternative future use (Note 8).  The core and developed technology assets acquired are being amortized over their estimated useful lives of two and ten years, respectively, and such amortization is included in cost of goods sold.  The acquired in-process research and development with no alternative future use was charged to "other operating expense" at the acquisition date in accordance with SFAS 141.

The $8.8 million allocated to goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed.  In accordance with Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS 142), the goodwill is not being amortized and will be evaluated for impairment on an annual basis.  Of the total amount of goodwill, none is expected to be deductible for federal income tax purposes.

RF MICRO DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

7.    BUSINESS ACQUISITION (continued)

The following unaudited pro forma consolidated financial information for the three and nine months ended December 31, 2004 and December 31, 2003 assumes that the Silicon Wave acquisition, which was closed by the Company on May 24, 2004, was completed at the beginning of the periods presented below (in thousands):

These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the operating results that would have been achieved had the acquisition actually taken place at the beginning of the periods presented above.  In addition, these results are not intended to be a projection of future results and do not reflect any synergies that might be achieved from the combined operations.

8.     GOODWILL AND INTANGIBLE ASSETS

During the first quarter of fiscal 2005, the Company acquired $3.3 million of core and developed technology as a result of the Silicon Wave acquisition.  This acquisition also resulted in an $8.8 million excess purchase price over the fair value of the assets acquired and liabilities assumed, which was allocated to goodwill. 

The change in the carrying amount of goodwill for the nine months ended December 31, 2004 is as follows (in thousands):
                                                                           

The components of identifiable intangible assets are as follows (in thousands):
 

 
Intangible asset amortization expense was $1.7 million and $5.0 million for the three months and nine months ended December 31, 2004 and $1.7 million and $5.6 million for the three and nine months ended December 31, 2003.  Amortization expense for the Company's identifiable intangible assets as of December 31, 2004 is estimated to be $1.7 million for the remainder of fiscal 2005, $6.8 million in fiscal 2006, $6.7 million in fiscal 2007, $5.8 million in fiscal 2008 and $5.7 million in fiscal 2009.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

9.     NEW ACCOUNTING PRONOUNCEMENTS

In June 2004, the FASB Emerging Issues Task Force ("EITF") issued EITF Issue No. 04-08, "The Effect of Contingently Convertible Instruments on Diluted Earnings per Share."  This Issue, effective for reporting periods ending after December 31, 2004, determined that contingently convertible instruments should be included in diluted earnings per share regardless of whether the market price trigger (or other contingent feature) has been met.  For purposes of this Issue, contingently convertible instruments are instruments that have embedded conversion features that are contingently convertible or exercisable based on (a) a market price trigger or (b) multiple contingencies if one of the contingencies is a market price trigger and the instrument can be converted or share settled based on meeting the specified market condition.  The FASB plans to issue an amendment to SFAS No. 128, "Earnings Per Share," during the first half of calendar 2005, in connection with EITF Issue No. 04-08.  We evaluated our 1.50% convertible subordinated notes and determined that they are not considered to be contingently convertible instruments as defined by the FASB.  Therefore, we currently do not have any debt instruments that will be impacted by this EITF.

10.    NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), "Share-Based Payment," which is a revision of SFAS No. 123, "Accounting for Stock-Based Compensation."  SFAS No. 123 (R) supersedes APB Opinion No. 25 "Accounting for Stock Issued to Employees" (APB No. 25) and amends SFAS No. 95, "Statement of Cash Flows."  Generally, the approach in SFAS 123 (R) is similar to the approach in SFAS No. 123.  However, SFAS No. 123 (R) requires that the compensation cost relating to share-based payment transactions, including grants of employee stock options, be recognized in financial statements based on the estimated fair value of those options using an acceptable valuation technique.  Pro forma disclosure will no longer be an alternative.  SFAS No. 123 (R) covers a wide range of share-based compensation arrangements including stock options, restricted share plans, performance-based awards, share appreciation rights and employee stock purchase plans. 

SFAS No. 123 (R) is effective for public companies at the beginning of the first interim or annual period beginning after June 15, 2005 (the second quarter of fiscal 2006 for the Company) and companies may elect to use either the modified-prospective or modified-retrospective transition method.  The Company expects to use the modified-prospective transition method.   Under this method, compensation cost is recognized for all awards granted, modified or settled after the adoption date as well as for any awards that were granted prior to the adoption date for which the requisite service has not yet been rendered. 

As permitted by SFAS No. 123, the Company currently accounts for share-based payments to employees using APB No. 25's intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options.  Accordingly, the adoption of SFAS No. 123 (R)'s fair value method will have a significant impact on the Company's results of operations, although it will have no impact on our overall financial position.   The impact of adoption of SFAS No. 123 (R) in fiscal 2006 and beyond cannot be predicted at this time because it will depend upon various factors including levels of share-based payments granted in the future and the Company's future compensation strategy.  However, had the Company adopted SFAS No. 123 (R) in prior periods, the impact would have approximated the impact of SFAS No. 123 as described in the disclosure of pro forma net income and earnings per share in Note 2 to our consolidated financial statements.  SFAS No. 123 (R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature.  This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption.  While the Company cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options), the amount of operating cash flows recognized in prior periods for such excess tax deductions were $0.0 million, $0.0 million, and $8.4 million in fiscal years ended 2004, 2003, and 2002, respectively. 

RF MICRO DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

10.    NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED (continued)

In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an amendment of ARB No. 43, Chapter 4."  SFAS No. 151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material and requires that such items be recognized as current-period charges regardless of whether they meet the "so abnormal" criterion outlined in ARB No. 43.  SFAS No. 151 also introduces the concept of "normal capacity" and requires the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities.  Unallocated overheads must be recognized as an expense in the period incurred.  SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005.  While we are still evaluating the impact of this statement, we do not currently believe that it will have a material impact on our consolidated financial statements.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that relate to our plans, objectives, estimates and goals.  Words such as "expect," "anticipate," "intend," "plan," "believe," and "estimate," and variations of such words and similar expressions, identify such forward-looking statements.  Our business is subject to numerous risks and uncertainties, including the following:

•         The rate of growth and development of wireless markets;

•         The risks associated with the operation of our molecular beam epitaxy (MBE) facility, our wafer fabrication facilities and our other
   foreign and domestic manufacturing facilities;

•         Our ability to attract and retain skilled personnel and develop leaders for key business units and functions;

•         Dependence on third parties, including wafer foundries, passive component manufacturers, assembly and packaging suppliers and
  test, tape and reel suppliers;

•         The risks associated with the development of our own assembly capabilities for module production packaging in Beijing, China;

•         Variability in operating results;

•         Variability in production yields, raw material costs and availability;

•         Dependence on a limited number of customers;

•         Dependence on our gallium arsenide (GaAs) heterojunction bipolar transistor (HBT) products;

•         Our ability to reduce costs and improve margins in response to declining average selling prices by implementing innovative technologies;

•         Our ability to adjust production capacity in a timely fashion in response to changes in demand for our products;

•         Our ability to bring new products to market in response to market shifts and to use technological innovation to shorten
  time-to-market for our products;

•         Currency fluctuations, tariffs, trade barriers, taxes and export license requirements and health and security issues associated with
  our foreign operations;

•         Our ability to integrate acquired companies, including the risk that we may not realize expected synergies from our business
  combinations;

•         Our ability to obtain patents, trademarks and copyrights, maintain trade secret protection and operate our business without infringing
  on the proprietary rights of other parties; and

•         Our ability to comply with changes in environmental laws.

These and other risks and uncertainties, which are described in more detail in our most recent Annual Report on Form 10‑K filed with the Securities and Exchange Commission, could cause the actual results and developments to be materially different from those expressed or implied by any of these forward-looking statements.

We design, develop, manufacture and market proprietary radio frequency integrated circuits (RFICs) for wireless communications products and applications.  We are a leading supplier
of power amplifiers, one of the most critical radio frequency (RF) components in cellular phones.  We are also the leading manufacturer of GaAs HBT, which offers distinct advantages
over other technologies for the manufacture of current- and next- generation power amplifiers.  Our products are included primarily in cellular phones, base stations, wireless local area
networks (WLANs), cable television modems and global positioning systems (GPS).  We derive revenue from the sale of standard and custom-designed products.  We offer a broad
array of products including amplifiers, mixers, modulators/demodulators and single-chip transmitters, Bluetooth® products and receivers and transceivers that represent a substantial
majority of the RFICs required in wireless subscriber equipment.  Our goal is to be the premier supplier of low-cost, high-performance integrated circuits and solutions for applications
that enable wireless connectivity.

THIRD QUARTER FISCAL 2005 FINANCIAL AND OPERATIONAL HIGHLIGHTS:

• Quarterly revenue decreased by 12.5% as compared to the corresponding quarter of fiscal 2004, due to the third quarter of fiscal 2005 containing 13 weeks as compared to 14 weeks for the third quarter of fiscal 2004 and the decline in the U.S. market for Time Division Multiple Access (TDMA) handsets that was not entirely offset by sales of global system for mobile communications (GSM)/general packet radio system (GPRS) cellular handsets in Asia.  In addition, we are continuing to experience normal downward pressure on the average selling prices of our power amplifier products.

• Gross profit margin for the quarter was 34.6% as compared to 41.7% in the corresponding quarter of fiscal 2004 due primarily to lower sales volume and a change in our product mix.

• Inventory turns decreased to 5.5 in the third quarter as compared to 7.3 in the corresponding quarter of fiscal 2004 due to the ramp of new silicon-based platform products.  The longer lead times associated with these silicon products have negatively impacted our inventory turnover.

• We continue to ramp volume production of our first power amplifier modules containing silicon control chips from Jazz Semiconductor, Inc. and we are currently designing several high volume components in this silicon foundry.

• We commenced volume production shipments of our POLARIS™ 2 transceiver chipsets for Enhanced Data for Global Evolution (EDGE) handsets.  POLARIS™ TOTAL RADIO™ shipments in the December quarter were approximately 1.8 million units.

• We began ramping in-house module assembly at our manufacturing facility in Beijing, China, which we believe will improve power amplifier module margins beginning mid-calendar year 2005.

 • We are expanding our MBE facility and our wafer fabrication facility in order to meet anticipated customer demand for our power amplifier products and to support new opportunities, new product developments, and new product technologies such as pseudomorphic high electron mobility transistor (pHEMT) and gallium nitride (GaN).

During the current quarter, we continued to experience weakness in the market for GSM/GPRS cellular handsets with respect to certain manufacturers located in Asia as well as a decline in the U.S. market for TDMA handsets.  The lower sales volume negatively impacted our gross margin for the quarter and contributed partially to our increase in inventory.  Inventory levels were also impacted by a build up of  POLARIS™ 2 components to support forecasted customer demand.

We believe that the overall handset market is healthy and unit volume grew approximately 25% in calendar year 2004 as compared to calendar year 2003.  We believe that there are several opportunities for growth for the Company in the near future, including increasing our cellular content in handsets through market share gains in our primary market of cellular power amplifiers (PAs), through sales of our POLARIS™ TOTAL RADIO™ transceivers and through the proliferation of multiple radio protocols in mobile and portable wireless devices.  We believe that our opportunities in cellular, wireless connectivity and Infrastructure will continue to increase.  

We plan to continue to diversify our product portfolio by introducing products that increase the content we provide for existing applications and by introducing products to markets that we do not currently address, thereby expanding our total available market opportunity.

We have implemented a number of strategic initiatives relating to margin improvement, including ramping volume production of our first PA modules containing silicon control chips from Jazz Semiconductor, shipping products from our recently qualified module packaging production line in Beijing, China and improving our manufacturing yields.  We anticipate that these and other initiatives, along with anticipated increases in sales volume, will allow us to improve our gross margin over the next 12 months.

RESULTS OF OPERATIONS

The following table sets forth our unaudited condensed consolidated statement of operations data expressed as a percentage of total revenue for the periods indicated:
 

REVENUE
Revenue for the three months ended December 31, 2004 decreased 12.5% to $168.9 million, compared to $193.0 million for the three months ended December 31, 2003.  The decrease in revenue for the three months ended December 31, 2004 as compared to the three months ended December 31, 2003 was due to the third quarter of fiscal 2005 containing 13 weeks as compared to 14 weeks for the third quarter of fiscal 2004 and a decline in the U.S. market for TDMA handsets that was not entirely offset by sales of GSM/GPRS cellular handsets in Asia.  In addition, we are continuing to experience normal downward pressure on the average selling prices of our power amplifier products.

For the nine months ended December 31, 2004, revenue decreased 0.9% to $483.8 million, compared to $488.0 million for the nine months ended December 31, 2003.  During fiscal 2005, increased demand for Wideband CDMA, EDGE and Bluetooth products helped to offset the declining demand for TDMA products. 

International shipments (based on the "bill to" address of the customer) were $149.7 million and accounted for 88.6% of revenue for the three months ended December 31, 2004, compared to $158.6 million, or 82.2% of revenue, for the three months ended December 31, 2003.  For the nine months ended December 31, 2004, international shipments were $406.4 million, or 84.0% of revenue, up from $400.1 million, or 82.0% of revenue, for the nine months ended December 31, 2003.  Although sales dollars to Asia decreased 9.4% for the three months ended December 31, 2004 as compared to the three months ended December 31, 2003, sales to Asia as a percentage of total sales increased slightly.  The decrease in GSM sales volume to certain customers in Asia was partially offset by new wireless connectivity business which positively impacted revenue for the three and nine month periods ended December 31, 2004 as compared to the same periods in the prior year. 

GROSS PROFIT
Gross profit for the three months ended December 31, 2004 decreased to $58.4 million, or 34.6% of revenue, compared to $80.4 million, or 41.7% of revenue, for the three months ended December 31, 2003.  For the nine months ended December 31, 2004, gross profit decreased to $172.3 million, or 35.6% of revenue, compared to $185.5 million, or 38.0% of revenue, for the same period ended December 31, 2003. The gross profit percentage decrease for the three and nine months ended December 31, 2004 compared to the three and nine months ended December 31, 2003 was primarily due to lower sales and production volumes, price erosion and a change in our product mix. 

We have historically experienced significant fluctuations in gross profit margins and, consequently, our operating results, and we expect such fluctuations to continue.  Gross margins are routinely affected by downward pressure on average selling prices and the cost of silicon components and other raw materials.  As a result, we will continue to focus on cost reduction efforts, including (1) strategic supply relationships, such as with Jazz Semiconductor, which provides us with a committed, lower-cost source of supply for silicon wafers, (2) achieving higher levels of product integration, (3) successfully implementing test yield and assembly improvement plans, such as investing in our own assembly capabilities in Beijing, China to obtain a lower overall cost structure and other supply chain savings, and (4) increasing our capacity utilization.
 

RESEARCH AND DEVELOPMENT
Research and development expenses for the three months ended December 31, 2004 were $38.8 million, or 23.0% of revenue, compared to $31.9 million, or 16.5% of revenue, for the three months ended December 31, 2003.  For the nine months ended December 31, 2004, research and development expenses were $111.3 million, or 23.0% of revenue, compared to $93.8 million, or 19.2% of revenue, for the same period in the prior year.  The increase year over year resulted from investments in research and development efforts to support the design of next generation EDGE and multi-mode transceivers, additional investments in modeling tools and resources to decrease our product development cycle time, new developments of semiconductor technology and the acquisition of Silicon Wave during the first quarter of fiscal 2005.  These investments resulted in increased headcount and related personnel expenses, including salaries and benefits.  We plan to continue to make investments in research and development and expect that such expenses will continue to increase in absolute dollars in future periods.
 

MARKETING AND SELLING
Marketing and selling expenses for the three months ended December 31, 2004 were $12.0 million, or 7.1% of revenue, compared to $11.9 million, or 6.2% of revenue, for the three months ended December 31, 2003.  For the nine months ended December 31, 2004, marketing and selling expenses increased to $34.5 million, or 7.1% of revenue, compared to $33.6 million, or 6.9% of revenue, for the nine months ended December 31, 2003.  We plan to continue to make investments in marketing and selling and expect that such expenses will continue to increase in absolute dollars in future periods.  
 

GENERAL AND ADMINISTRATIVE
General and administrative expenses for the three months ended December 31, 2004 were $6.6 million, or 3.9% of revenue, compared to $5.7 million, or 3.0% of revenue, for the three months ended December 31, 2003. For the nine months ended December 31, 2004, general and administrative expenses were $17.8 million, or 3.7% of revenue, compared to $15.5 million, or 3.2% of revenue, in the same period last fiscal year.  The increase in absolute dollars for the three and nine months ended December 31, 2004 was primarily due to increased headcount and related personnel expenses as well as fees related to compliance with the Sarbanes-Oxley Act of 2002.  We expect that general and administrative expenses will continue to increase in absolute dollars in future periods.   
 

OTHER OPERATING EXPENSE
Other operating expense for the three months ended December 31, 2004 and December 31, 2003 was $0.0 million and $0.5 million, respectively.  Other operating expense for the nine months ended December 31, 2004 was $7.1 million compared to $1.6 million for the nine months ended December 31, 2003.  During the first quarter of fiscal 2005, we recorded a $6.2 million charge in accordance with SFAS 141 for acquired in-process research and development associated with the Silicon Wave acquisition that the Company, with the assistance of an independent valuation firm, determined had no alternative future use.  SFAS 141 specifies that the portion of the purchase price assigned to acquired intangible assets to be used in a particular research and development project that have no alternative future use shall be charged to expense at the merger date.  The in-process research and development was primarily related to a single-chip integrated circuit built on 0.13-micron CMOS technology and designed for usage with mobile phones.  As of the valuation date, the fair value of the acquired in-process research and development was estimated to be $6.2 million, based on a discounted cash flow model.  As of December 31, 2004, the estimated cost to complete this project is approximately $3.6 million with an estimated completion date during the fiscal year of 2006.

Also included in other operating expense was $0.9 million related to start-up costs associated with the expansion of the Company's test, tape and reel facility in Beijing, China to add module assembly manufacturing functions.   The start-up costs have been expensed as incurred in accordance with the American Institute of Certified Public Accountants' Statement of Position 98-5, "Reporting on the Costs of Start-up Activities."  During the current quarter, the operating costs of the module assembly manufacturing functions at the Beijing facility have been included in cost of goods sold as a result of achieving production qualification at this facility at the end of September 2004.
 

LOSS IN EQUITY METHOD INVESTEE
Prior to the Company's acquisition of Silicon Wave, the Company invested an aggregate of $6.0 million in Silicon Wave in two installments during fiscal 2004 as part of a broader strategic relationship between the companies.  During the first quarter of fiscal year 2004, the Company made a $4.0 million investment, which represented less than a 20% ownership interest, and, because the Company did not have the ability to exercise significant influence over the management of Silicon Wave, the investment was carried at its original cost and accounted for using the cost method of accounting for investments in accordance with APB Opinion No. 18, "The Equity Method of Accounting for Investments in Common Stock" (APB 18). 

During the third quarter of fiscal 2004, the Company made an additional $2.0 million equity investment in Silicon Wave.  The additional investment increased the Company's ownership interest to greater than 20%.  In accordance with APB 18, the Company re-evaluated its ownership interest and whether it had the ability to exercise significant influence over the operation of Silicon Wave and determined that the additional investment triggered a change in accounting for the investment from the cost method to the equity method, which the Company adopted in the third quarter of fiscal 2004.  As required by APB 18, the investment and results of operations for the prior periods presented were adjusted retroactively and have been restated to reflect the application of the equity method.  Application of the equity method resulted in an equity method loss in Silicon Wave of $1.8 million for the period from March 31, 2004 through May 24, 2004 (the closing date of the Silicon Wave acquisition) and a $0.8 million equity method loss and $1.7 million equity method loss for the three and nine months ended December 31, 2003, respectively. 

INTEREST EXPENSE
Interest expense was $1.0 million for the three months ended December 31, 2004, compared to $2.2 million for the third quarter of the prior year.  Interest expense for the nine months ended December 31, 2004 and 2003 was $5.4 million and $10.8 million, respectively. During the second quarter of fiscal 2004, we repurchased $200.0 million of the $300.0 million aggregate principal amount of 3.75% convertible subordinated notes due 2005.  This transaction resulted in a non-cash charge for unaccreted discounts and unamortized issuance costs of $2.6 million.  During the second quarter of fiscal 2005, the Company repurchased the remaining $100.0 million principal of its outstanding 3.75% convertible subordinated notes and recorded a non-cash charge of $0.6 million for unaccreted discounts and unamortized issuance costs.   The decrease in interest expense for the nine months ended December 31, 2004 compared to December 31, 2003 was due to the lower write-off of the unaccreted discounts and unamortized issuance costs as well as lower outstanding debt during the period.
 

INCOME TAX  
Income tax expense for the third quarter of fiscal 2005 and fiscal 2004 was $0.2 million and $0.1 million, respectively, primarily representing foreign income taxes on international operations.  Income tax expense for the nine months ended December 31, 2004 and December 31, 2003 was $0.5 million and $0.4 million, respectively, primarily representing foreign income taxes on international operations.  The effective combined domestic income tax rate was 0% for both the third quarter of fiscal 2005 and the third quarter of fiscal 2004.  Our overall tax rate for the third quarter of fiscal 2005 differed from the statutory rate due to adjustments to the valuation allowance primarily related to the non-recognition of the U.S. tax benefits on the domestic net operating losses, tax credits, rate differences on foreign transactions, and other differences between book and tax treatment of certain expenditures.  Our overall tax rate for the third quarter of fiscal 2004 differed from the statutory rate due to adjustments to the valuation allowance primarily related to the partial recognition of the U.S. tax benefits on the domestic net operating losses, tax credits, rate differences on foreign transactions, and other differences between book and tax treatment of certain expenditures.

At December 31, 2004, we had outstanding net operating loss carryforwards (NOLs) for federal domestic tax purposes of approximately $81.4 million, which will begin to expire in 2022, if unused, and state losses of approximately $78.0 million, which will begin to expire in 2009, if unused.  Included in the amounts above are certain NOLs and other tax attribute assets acquired in conjunction with the Company's acquisitions of Resonext Communications and Silicon Wave.  The utilization of acquired assets may be subject to certain annual limitations as required under Internal Revenue Code Section 382. In accordance with the Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," a valuation allowance of $37.8 million related to domestic operating losses and credit carryforwards has been established because it is more likely than not that some portion of the deferred tax assets will not be realized.  We considered this review, along with the timing of the reversal of our temporary differences and the expiration dates of the NOLs and credits, in reaching our conclusion.

LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations to date through revenue from product sales, sales of equity and debt securities, bank borrowings and capital equipment leases.  Through public and Rule 144A securities offerings, we have raised approximately $687.0 million, net of offering expenses.  As of December 31, 2004, our working capital was $300.0 million, including $99.3 million in cash and cash equivalents, compared to working capital at March 31, 2004 of $426.9 million.  The decrease in working capital was primarily due to the redemption on August 15, 2004 of the remainder of the Company's outstanding 3.75% convertible subordinated notes for $100.0 million plus accrued interest of $1.9 million.

Operating activities for the nine months ended December 31, 2004 generated $53.6 million in cash, compared to $88.0 million for the nine months ended December 31, 2003.  This year over year decrease was primarily attributable to lower earnings and an increase in inventory, which was offset by a decrease in accounts receivable.  The increase in inventory levels was impacted by lower than forecasted sales volume as well as a build up of POLARIS 2 components to support forecasted customer demand.  Accounts receivable balances were $12.7 million lower (or 14.4%) at December 31, 2004 as compared to December 31, 2003 as days sales outstanding improved to 40.1 days for the three months ended December 31, 2004 as compared to 44.2 days for the three months ended December 31, 2003.

Net cash used in investing activities for the nine months ended December 31, 2004 was $78.6 million, compared to $89.1 million in the prior year.  The year over year decrease in cash used was primarily attributable to lower purchases of securities available for sale offset by the acquisition of Silicon Wave and increased purchases of property and equipment due to our expansion of our MBE facility, our wafer fabrication facility, and the upfit of our module assembly manufacturing facility in Beijing.

Net cash used in financing activities for the nine months ended December 31, 2004 was $96.7 million, compared to cash provided of $28.6 million for the nine months ended December 31, 2003 due to the repurchase of the $100.0 million outstanding principal amount of our 3.75% convertible subordinated notes.

COMMITMENTS

Convertible Debt  During fiscal 2004, we completed the private placement of $230.0 million aggregate principal amount of 1.50% convertible subordinated notes due 2010. The net proceeds of the offering were approximately $224.7 million after payment of the underwriting discount and expenses of the offering totaling $5.3 million. The net proceeds from the 1.50% offering were offset by the repurchase of $200.0 million of the $300.0 million aggregate principal amount of our 3.75% convertible subordinated notes due 2005.  On August 15, 2004, the Company redeemed the remainder of the outstanding principal amount of the Notes for $100.0 million plus accrued interest with cash flow from operations and cash on hand.  Our interest expense will decrease by $3.75 million over the next 12 months as a result of this redemption.

Capital Commitments  At December 31, 2004, we had long-term capital commitments of approximately $49.1 million, consisting of approximately $31.4 million for the expansion of our wafer fabrication facilities, approximately $5.1 million for equipment related to our molecular beam epitaxy facility, approximately $5.3 million for our investment in assembly capabilities as we continue to invest in our internal manufacturing process for module production packaging in Beijing, China, approximately $1.3 million for equipment related to our U.S. and Beijing, China, test, tape and reel facilities, and the remainder for general corporate requirements.

Business Combination Contingency  We agreed to pay earn-out consideration to former Silicon Wave stockholders upon achievement of certain revenue goals for the period from April 4, 2004 to April 1, 2006.  If our revenue derived from certain Silicon Wave products for the period from April 4, 2004 to April 2, 2005 exceeds $6.0 million, we will pay an aggregate cash amount equal to one-half of the revenue derived from these Silicon Wave products during this period.  As of December 31, 2004, total revenue derived from certain Silicon Wave products totaled $7.9 million, triggering recognition of a liability and purchase price adjustment of approximately $4.0 million at December 31, 2004, which must be paid on or before May 2, 2005.  In addition, we are estimating that we will incur an additional contingent liability in the fourth quarter of fiscal 2005 of between $1.8 million and $2.3 million as a result of revenue from certain Silicon Wave products for the period of January 1, 2005 through April 2, 2005.  If our revenue derived from certain Silicon Wave products for the period from April 3, 2005 to April 1, 2006 exceeds $25.0 million, we will pay an additional aggregate cash amount equal to the revenue derived from these Silicon Wave products during this period up to a maximum of $75.0 million. 

Future Sources of Funding  Our future capital requirements may differ materially from those currently anticipated and will depend on many factors, including, but not limited to, market acceptance of our products, volume pricing concessions, capital improvements, demand for our products, technological advances and our relationships with suppliers and customers.  Based on current and projected levels of cash flow from operations, coupled with our most recent note offering, we believe that we have sufficient liquidity to meet both our short-term and long-term cash requirements.  However, if there is a significant decrease in demand for our products, or in the event that growth is faster than we anticipated, operating cash flows may be insufficient to meet our needs.  If existing resources and cash from operations are not sufficient to meet our future requirements or if we perceive conditions to be favorable, we may seek additional debt or equity financing, additional credit facilities or obtain asset-based financing.  We maintain a $500.0 million shelf registration statement providing for the offering from time to time of debt securities, common stock, preferred stock, depositary shares, warrants and subscription rights.  We do not, however, currently have any plans to issue any securities under this registration statement.  We cannot be sure that any additional equity or debt financing will not be dilutive to holders of our common stock.  Further, we cannot be sure that additional equity or debt financing, if required, will be available on favorable terms.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's market risk has not changed significantly for the risks disclosed in Item 7A of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2004.

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, the Company's Chief Executive Officer and the Chief Financial Officer evaluated the effectiveness of the Company's disclosure controls and procedures in accordance with Rule 13a-15 under the Exchange Act.  Based on their evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company's disclosure controls and procedures enable the Company to record, process, summarize and report in a timely manner the information that the Company is required to disclose in its Exchange Act reports.

There were no changes in the Company's internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 6.   EXHIBITS

SIGNATURES

                 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
 

EXHIBIT INDEX