UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

þ    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended April 2, 2005

OR

o    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                             to                            

Commission file number 0-22511

RF MICRO DEVICES, INC.

(Exact name of registrant as specified in its charter)

NORTH CAROLINA

(State or other jurisdiction of incorporation or organization)

56-1733461

(I.R.S. Employer Identification No.)

7628 Thorndike Road Greensboro, North Carolina 27409-9421, (336) 664-1233

(Address of principal executive offices, zip code and registrant’s telephone number, including area code)

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

Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par value

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     þ

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

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $1,229,989,220 as of October 1, 2004. For purposes of such calculation, shares of common stock held by persons who hold more than 10% of the outstanding shares of common stock and shares held by directors and officers of the registrant and their immediate family members have been excluded because such persons may be deemed to be affiliates. This determination is not necessarily conclusive.

There were 188,107,321 shares of the registrant’s common stock outstanding as of May 27, 2005.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant has incorporated by reference into Part III of this report portions of its proxy statement for its 2005 annual meeting of shareholders to be held on August 2, 2005.

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RF Micro Devices, Inc.

Form 10-K

For The Fiscal Year Ended April 2, 2005

Index.

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RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

Forward-Looking Information

This report includes “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about our plans, objectives, representations and contentions and are not historical facts and typically are identified by use of terms such as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue” and similar words, although some forward-looking statements are expressed differently. You should be aware that the forward-looking statements included herein represent management’s current judgment and expectations, but our actual results, events and performance could differ materially from those expressed or implied by forward-looking statements. We do not intend to update any of these forward-looking statements or publicly announce the results of any revisions to these forward-looking statements, other than as is required under the federal securities laws.

The following discussion should be read in conjunction with, and is qualified in its entirety by reference to, our consolidated financial statements, including the notes thereto.

PART I

We use a 52- or 53-week fiscal year ending on the Saturday closest to March 31 of each year. Fiscal years 2005 and 2003 were 52-week years and fiscal year 2004 was a 53-week year. Our other fiscal quarters end on the Saturday closest to June 30, September 30 and December 31 of each year. For purposes of this Annual Report on Form 10-K, we describe each fiscal year as having ended on March 31 and the first three quarters of each fiscal year are described as having ended on June 30, September 30 and December 31.

Unless the context requires otherwise, references in this report to “RF Micro,” the “Company,” “we,” “us” and “our” refer to RF Micro Devices, Inc. and its subsidiaries on a consolidated basis.

Introduction

RF Micro Devices, Inc. was incorporated under the laws of the State of North Carolina in 1991. We design, develop, manufacture and market proprietary radio frequency (RF) components and system level solutions (“products”) primarily for wireless communications products and applications. We are the leading supplier of power amplifiers (PAs), one of the most critical radio frequency components in cellular phones. Our aluminum gallium arsenide (AlGaAs) heterojunction bipolar transistor (also referred to as GaAs HBT) process technology offers distinct advantages over other technologies for the manufacture of current and next-generation PAs. Our products are included primarily in cellular phones, base stations, wireless local area networks (WLANs), cable television modems and global positioning systems (GPS). The majority of our revenue is derived from sales of products designed for cellular phones. We offer a broad array of products including amplifiers, mixers, modulators/demodulators, Bluetooth® components and transmitters, receivers and transceivers that represent a substantial majority of the products required in wireless subscriber equipment. These products perform the transmit and receive functions that are critical to the performance of wireless devices.

We design and manufacture products that are fabricated using multiple semiconductor process technologies. These technologies include GaAs HBT, GaAs metal-semiconductor field-effect transistor (MESFET), indium gallium phosphide (InGaP) HBT, silicon bipolar transistor, silicon complementary metal-oxide-semiconductor (CMOS), silicon BiCMOS (integration of bipolar transistors and CMOS) and silicon germanium (SiGe) BiCMOS. We are continuing to invest in the development of integrated circuits utilizing gallium nitride (GaN) and currently expect to commence commercial production of GaN-based products during calendar year 2007. We will begin production shipments of switching devices in fiscal 2006 using our GaAs pseudomorphic high electron mobility transistor (pHEMT) process. Handset manufacturers try to maximize trade-offs between performance and cost. Our approach to using multiple semiconductor process technologies allows us to offer customers products that fulfill their performance, cost and time-to-market requirements. We call this approach to business Optimum Technology Matching®.

Our products are purchased by essentially all of the leading original equipment handset manufacturers (OEMs) such as Nokia Corporation, Motorola, Inc., Samsung Electronics Co., Ltd., LG Electronics, Inc., Siemens, A.G., Sony Ericsson Mobile Communications, Sanyo Electric Company, Ltd., NEC Corp. and DBTel Networks. In addition, our products are purchased by leading original design manufacturers (ODMs) such as Arima Communications Corporation, Curitel Communications, Inc. and its affiliate Pantech, Inc., BENQ Corporation and Lite-On Technology Corporation. ODMs offer lower-cost wireless devices for resale by OEMs.

A key element of our business strategy involves the potential acquisition of businesses, assets, products or technologies that allow us to reduce the time required to develop new technologies and products and bring them to market, complement our existing product offerings, expand our market coverage, increase our engineering workforce and enhance our technological capabilities.

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RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

During fiscal 2003, we entered into a strategic relationship with Jazz Semiconductor, Inc. (Jazz), a privately-held RF and mixed signal silicon wafer foundry, for silicon manufacturing and development. As a part of the strategic relationship, we invested $60.0 million in Jazz, which resulted in an approximate 11 percent ownership interest. Within the strategic relationship, we obtained a committed low cost source of supply for wafers fabricated utilizing Jazz’s silicon manufacturing processes and the ability to collaborate with Jazz on joint process development and the optimization of these processes for fabrication of next-generation silicon products.

In May 2004, we completed the acquisition of Silicon Wave, Inc. Silicon Wave’s Bluetooth® product portfolio included CMOS radio solutions as well as highly integrated single-chip CMOS solutions, which included radio, baseband processor, processor core and memory — or what is commonly referred to as system-on-chip (SoC). Our CMOS Bluetooth® solutions reduce the requirements for external flash memory and minimize the use of external RF components. This represents a cost and size advantage compared to competitors’ solutions. Our Bluetooth® products are currently in production and in use supporting multiple applications, including cellular handsets, headsets, PC peripherals and consumer electronics devices.

We report information as one operating segment. Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information” (SFAS 131), established standards for the way that public companies report information about operating segments in annual consolidated financial statements. Although we had three business units as of March 31, 2005 (Cellular, Wireless Connectivity and Infrastructure), we report information as one operating segment pursuant to the aggregation criteria set forth in SFAS 131.

As part of our cellular business we have expanded our product portfolio to include other radio functions. For example, we entered the transceiver market with our POLARIS^tm TOTAL RADIO^tm transceiver solutions, which provide handset manufacturers with a reduced-size, highly integrated radio solution that helps reduce component count and total cost while providing superior radio performance, thereby enabling handset manufacturers to add additional functionality and content such as GPS, WLAN, MP3, televisions, e-mail, FM radios and cameras. We believe our POLARIS^tm 2 TOTAL RADIO^tm transceiver solution for Enhanced Data for Global Evolution (EDGE) handsets provides EDGE functionality with fewer components than competing approaches through a unique and innovative architecture called open-loop large signal polar modulation. During the third quarter of fiscal 2005, we reached volume production shipments of our POLARIS^tm TOTAL RADIO^tm transceiver solution for global system for mobile communications (GSM)/general packet radio system (GPRS) handsets and our POLARIS^tm 2 TOTAL RADIO^tm transceiver solution for EDGE handsets.

We believe that a trend in the market for GSM/GPRS and EDGE cellular handsets is the transition from the PA module to the highly integrated transmit module. By combining the PA and antenna switch, the transmit module reduces the component count in cellular phones. During fiscal 2005, we focused our research and development efforts on this transition and expect shipments to begin in fiscal 2006.

Our wireless connectivity business focuses on developing and producing components for WLAN and developing and producing solutions for Bluetooth® and GPS. During the first quarter of fiscal 2005, the acquisition of Silicon Wave enhanced our Bluetooth® product portfolio. We are continuing to develop a highly integrated SoC Bluetooth® solution that features Enhanced Data Rate (EDR) and utilizes 0.13 micron CMOS. This product consumes less power than current Bluetooth® products and, as a result of its small size, low power consumption and low materials cost, is specifically designed for mobile phone applications. We have recently licensed Near Field Communications technology for cellular handset applications, which we believe will enable handsets to replace credit cards for point of sale financial transactions. This technology provides secure wireless transactions that prevent fraud and minimize identity theft. We also recently announced production shipments of the industry’s first sole-sourced “converged” Bluetooth®/GPS solution.

In the fourth quarter of fiscal 2005, we discontinued our internal WLAN chipset development efforts, which were focused on a two-chip solution comprised of an all CMOS integrated baseband and media access controller (MAC) chip and an all CMOS transceiver for 802.11 a/b/g. We took this action as a result of our difficulties in bringing competitive WLAN chipset solutions to the market in a timely manner. We are continuing to invest in our WLAN component business, which includes transceivers for gaming and other applications as well as 802.11 PAs, radios and front-end modules for all WLAN applications.

Our infrastructure business is comprised of components for wireless base stations, which historically have included a variety of small signal devices including adjustable gain control (AGC) amplifiers, gain blocks, multi-stage amplifiers, low noise amplifiers (LNA) and quadrature modulators. Recently, we introduced infrastructure pre-driver PAs that leverage thermal enhancements that we have made to our GaAs process, which we believe enables superior efficiency. We expect production shipments of these products during fiscal 2006. We are also working to commercialize our GaN RF power transistor process, which we plan to use to design high power amplifiers (HPAs) specifically for use in 2.5G and 3G wireless base stations. In addition,

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RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

during fiscal year 2005 we contracted with the U.S. Department of Defense to conduct research and development on GaN technology. We expect to transition our GaN semiconductor processes from our research and development facility in Charlotte, North Carolina, to one of our wafer fabrication facilities in Greensboro, North Carolina, during fiscal 2006.

Industry Overview

The wireless communications industry has grown rapidly over the past 20 years as a result of technological advances, changes in telecommunications regulations and the allocation and licensing of additional radio spectrum. These factors have led to the emergence of competing wireless communications businesses, the expansion of wireless services into new markets such as China and India and the continuing development of new wireless applications and services. Higher data access speeds, multimedia capabilities, simultaneous access to multiple services and global roaming are now common features on wireless devices.

The wireless communications industry growth is being fueled by several sources. The availability and mass deployment of additional telecommunications standards, such as GPRS, EDGE, Code Division Multiple Access Next Generation (CDMA-1X), Wideband Code Division Multiple Access (WCDMA), IEEE 802.11 for WLANs and Bluetooth®, have increased the overall size of the market. New wireless products with improved features, such as telephones with cameras, Bluetooth® peripherals, personal digital assistants (PDAs), smartphones, Personal Computer (PC) Cards and GPS, have contributed to the industry growth. In addition, the emergence of new communications services and technologies, such as Voice Over Internet Protocol (VOIP) and public area “hot spots” that facilitate wireless Internet connectivity through the use of WLANs, has increased the demand for wireless communication products. Moreover, technological advances throughout the entire supply chain have reduced barriers to entry and enabled broad access to entry level voice-only cellular phones. Although voice-only cellular phones initially were the primary end-use application for our products, we now supply products to rapidly growing segments in the wireless communications industry focused on data communication, including WLANs and next-generation cellular handsets. The total available market for wireless devices is anticipated to expand as the industry moves to data-intensive applications such as multimedia messaging service, gaming and video. Higher data rate standards require higher functionality phones and in some cases the convergence of multiple standards, thereby promoting the development and manufacturing of new feature-enhanced wireless devices. At the same time, the market for lower-tier voice-only phones requires low-cost, less complex optimized wireless devices that can be brought to market quickly. Such phones are especially appropriate for new users in developing nations who historically have not been able to afford a phone. If this market can be tapped, the potential for phone sales could increase significantly.

The industry trend is to develop new wireless communications devices for operation under air interface standards with higher data rates. Classic analog and digital communication standards used primarily for voice, such as Advanced Mobile Phone Service (AMPS), GSM, Time Division Multiple Access (TDMA) and CDMA are being replaced in the design cycle by the emergence and deployment of additional telecommunications standards, including GPRS, EDGE, CDMA-1X and WCDMA. The handsets designed for each air interface standard generally require unique radio frequency and baseband integrated circuit solutions and these solutions become more complex and technically challenging as data rates increase. Similarly, Bluetooth® has evolved to a higher data rate, and WLANs, which function under the IEEE 802.11 standards, are migrating to higher data transmission rates and higher frequencies. Additional communications standards make it more difficult for OEMs of subscriber equipment to develop and supply all of the required components in a timely and cost-effective manner. For this reason, some OEMs have begun to rely on third party value-added technology providers that have the component- and systems-level expertise to design and the captive production capacity to supply these solutions. This technology-outsourcing trend is particularly evident in the radio frequency segment of the equipment due to scarcity of engineers and the design complexity of the radio technologies. Technology outsourcing has materialized both in OEMs’ reliance on suppliers to provide more integrated RF solutions and OEMs’ use of ODMs and contract manufacturers for handset production.

In addition, due to the recent increases in handset functionality, OEMs are utilizing their in-house resources to focus on the addition of newly-available hardware and software functions, such as FM radios, MP3 players, cameras, televisions, GPS, e-mail and Java-based applications. As a result, OEMs have increased their reliance on third party value-added technology providers since they have redeployed or reduced in-house research and development resources. Therefore, we have continued to sharpen our focus on high performance, integrated solutions, and we expect to increase our market share by expanding our footprint with these integrated products, such as our single-chip complete Bluetooth® solution, the expansion of our PowerStar® family of PA modules and the continued development of our POLARIS^tm TOTAL RADIO^tm solutions.

The emergence of technological advances has led to the rapid growth of the wireless communications industry, and the industry continues to evolve at a fast pace. As this market changes, new communications standards emerge, new competitors enter the market,

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RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

new products, applications and services become the primary forces for growth and new risks are presented. We believe this dynamic market presents us with significant opportunities to accomplish our business objectives.

Strategy

Our goal is to be the premier supplier of low-cost, high-performance integrated components and system level solutions for applications that enable wireless communications. To meet this goal, we have developed a strategy centered on customer relationships, technology leadership and manufacturing excellence that we believe will help us achieve better than industry average revenue and earnings growth over the long-term. The key elements are:

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RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

Markets

We design, develop, manufacture and market our products to both domestic and international OEMs and ODMs for commercial applications primarily for wireless markets such as cellular handsets, base stations and WLAN equipment.

Cellular

In cellular applications, calls are placed through handheld subscriber devices by making a connection with a base station via radio frequency channels.

Base Stations

Base stations installed across an area create a wireless telecommunications network that enables cellular telephones to communicate with one another or with wired telephones. Each base station is equipped to receive and send radio frequency signals through an antenna, as well as amplify outgoing signals to ensure the transmission reaches its destination without fading. For both existing and future generation wireless technologies, these base stations provide the system backbone and must be in place before cellular telephones can be used.

Wireless Networks

Wireless networking involves the transmission and reception of data such as e-mail, faxes, computer files and Internet content by desktop and portable computers via wireless radio frequency links rather than wired lines. Network coverage ranges from WLANs, which might be found within a business or single building, to metropolitan area networks, which would be limited to a defined metropolitan or geographic area, to wide area networks, which connect individuals and work groups over larger geographic areas.

Other Markets

We also supply custom components for other applications. In the wireless market, we supply components for wireless local loop systems, cordless telephony, portable gaming systems, industrial radios, satellite radio, GPS, security systems, utility meter reading systems, two-way paging, monitoring devices, interactive toys, home networking, PC modem cards, keyless entry and handheld devices used for point-of-sale, bar coding and other applications. In other markets, we supply components for set-top converter boxes and cable modems and for optical transceivers and transponders. We also market various components for satellite, microwave communications, and certain wired applications.

Manufacturing, Packaging and Testing

As part of our total quality program, the Company’s quality management system is registered to ISO 9001 and the Company’s environmental management system is registered to ISO 14001. This means that a third party independent auditor has determined that these systems meet the requirements developed by the International Organization of Standardization, a non-governmental network of the national standards institutes of over 150 countries. The ISO 9001 standards provide models for quality assurance in design/development, production, installation and servicing and the ISO 14001 standards provide a structure within which a company can develop or strengthen its quality system for managing its environmental affairs.

For the majority of our products, the production process begins with GaAs, silicon or other semiconductor materials, called wafers. GaAs products incorporate a transistor layer that is grown on the wafer using a molecular beam epitaxy (MBE) process in our MBE facility. These wafers are sent to our wafer fabrication facility where we isolate the transistor layer and interconnect the transistors according to the circuit design. The wafers are then singulated into individual die. A die is a rectangular piece of semiconductor material upon which electronic circuitry has been created. The circuitry determines the specific function that the die is intended to perform and is connected to the outside world by means of a microelectronic package and small wires. Semiconductor die are manufactured while still part of the wafers, which range in diameter from 100-300mm. The circuitry is printed on the wafers using microscopic imaging technology and thin films of deposited materials. Upon completion of the manufacturing process, die are cut individually from the wafer and must be assembled, or packaged, and then the final product must be tested. Packaging can come in the form of either a simple lead frame package or a more complicated multi-chip module. Our products are 100 percent parametric tested based on the product specifications and, after testing, are prepared for shipment through a tape and reel process.

We have one MBE facility for the manufacture of our GaAs devices, which is located in Greensboro, North Carolina. We have two GaAs wafer fabrication facilities located in Greensboro, North Carolina. During fiscal 2005, we manufactured substantially all of our GaAs products at these fabrication facilities. Our first wafer fabrication facility is a four-inch wafer production facility and our second wafer fabrication facility is a six-inch wafer production facility. In fiscal 2005, we invested approximately $63.0 million to increase the capacity in our MBE and wafer fabrication facilities in order to meet our customers’ forecasts. Through the use of six-inch wafers, we have reduced our costs through improved operating and raw material usage efficiencies. During fiscal 2006, we expect to continue to add capacity to our six-inch fabrication facility which will allow us the opportunity to utilize our existing investment in our four-inch facility towards the development of alternative components, such as the design and manufacturing of pHEMT switches and GaN-based products.

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RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

Our original GaAs HBT process technology was licensed to us by Northrop Grumman Space Technology (formerly TRW Space & Electronics, Inc.) (Northrop) in 1996 to design and manufacture products for commercial wireless applications. The GaAs HBT and MBE patent rights expressly referenced in the license agreement expire at various times between March 2007 and July 2016. The license agreement provides that Northrop will offer to us, on the same terms as are offered to third parties, certain future non-HBT related technologies that it develops for a period of 10 years following June 15, 1998. We have agreed to share with Northrop any modifications or improvements that we make in the technology or the products developed therefrom, and to grant Northrop a non-exclusive, royalty-free license to use any of these modifications or improvements in applications outside our field of use. Upon any termination of the license agreement because of a default by either party, our rights to Northrop’s technologies would cease. We are continually improving our GaAs HBT processes and manufacture substantially all of our own GaAs HBT products at our wafer fabrication facilities. We also are continuing to explore additional process technologies.

We currently use several international and domestic assembly suppliers, as well as our internal assembly facility in Beijing, China (which was established and qualified during fiscal 2005), to package and assemble our products. All of our key vendors and suppliers are compliant with applicable ISO 9000 or QS 9000 series specifications, which means that their operations have in each case been determined by auditors to comply with certain internationally developed quality control standards. We qualify and monitor assembly contractors based on cost and quality. These contractors typically provide us with per-unit pricing. Our internal assembly facility provides internal module packaging capabilities and we plan to continue ramping production at this facility in fiscal 2006. We believe the use of our internal assembly operation will result in cost reductions and better inventory management and control of our work-in-process inventory.

We currently have our own test, tape and reel facilities located in Greensboro, North Carolina, and Beijing, China, and we also utilize contract suppliers and partners in Asia to test our products. During fiscal 2005, we continued to shift a portion of our test, tape and reel functions from our Greensboro location to our Beijing facility. We expect to increase our reliance on our Beijing facility as well as our utilization of contract suppliers and partners in Asia for test, tape and reel in order to minimize the movement of inventory, which improves cycle time and results in lower costs.

During fiscal 2005, our operations management team focused on improvements in supply chain cycle times and strategic supplier relationships that have enabled us to more tightly control the procurement and management of raw materials. During fiscal 2006, we plan to continue to streamline the configuration of our supply chain to minimize the geographical movement of material during the manufacturing process.

Products and Applications

We offer a broad range of standard and custom-designed RF components and system level solutions. Custom-designed products are usually developed for volume production orders from large OEMs. Custom products are normally manufactured on an exclusive basis for a negotiated period. We attempt to convert custom products into standard products in order to broaden our customer base and leverage our design and product expenditures. At March 31, 2005, we offered over 375 products in the following categories:

Power Amplifiers

PAs are our largest product class, representing approximately 44 percent of our products offered during fiscal 2005. PAs provide signal amplification in the transmitter section of a wireless system in order to boost a signal through the antenna. PAs operate at different frequencies, power levels and air interface standards and generally are classified either as linear amplifiers, which add a minimum amount of distortion to the shape of the input signal, or non-linear amplifiers, which are used in analog devices. PAs are often the most critical RF component because (1) they can have a significant effect on the reliability of the handset, (2) they are difficult to design and implement, (3) they consume a significant amount of battery power in a handset, which impacts talk time, and (4) they generally dissipate the greatest amount of heat.

Gain Blocks (General Purpose Amplifiers)

Gain blocks are simple general-purpose amplifiers that boost signals over a broad frequency range. They are used for amplifier applications whenever noise is not a concern and whenever a signal’s strength has been diminished by processing through a filter or other component. Gain blocks accounted for approximately 21 percent of our products offered in fiscal 2005.

Low-Noise Amplifiers/ Mixers (Front-Ends and Mixers)

Low-noise amplifiers/mixers accounted for approximately 9 percent of our products offered in fiscal 2005. A low-noise amplifier is a device in the receiver section of a wireless system that receives signals from an antenna at extremely low microvolt levels and amplifies the signals by a factor of approximately 10 to 1,000 with the addition of as little interference as possible. Low-noise amplifiers are commonly integrated into circuits with mixers (also referred to as “down-mixers” or “down converters”), and this combination generally is referred to as a “receiver front end.” Mixers accept the filtered output from the low-noise amplifiers, which is typically at a high frequency and

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RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

difficult to process, and mix it with a local oscillator signal to produce a lower intermediate frequency (IF) signal, which is easier to process.

Transmitters, Receivers and Transceivers

Single chip transmitters and receivers send and receive wireless signals. Transceivers are highly integrated circuits that combine transmitters with receivers into a single device. This category accounted for approximately 7 percent of our products offered during fiscal 2005.

Quadrature Modulators/ Demodulators

Quadrature modulators are devices in the transmitter section of a wireless system that combine digital information with a radio frequency signal by varying the phase and amplitude of the signal so that the resulting signal can be transmitted. Quadrature demodulators reverse this process in the receiver section by taking received RF signals and recovering the embedded digital information for further processing. Approximately 5 percent of our products offered in fiscal 2005 were quadrature modulators/demodulators.

Bluetooth® Radio Processors, Radio Modems and Software

Bluetooth® is an open specification for short-range wireless communication of voice and data between devices such as mobile phones, wireless headsets, personal computers, PDAs and other portable devices. Bluetooth® technology enables devices to synchronize and exchange information with other Bluetooth® enabled devices at speeds of up to 3 Mbps, while operating in 2.4 GHz band. Our family of single-chip Bluetooth® devices and software provides a complete solution for manufacturers who wish to integrate Bluetooth® into their products. This category accounted for approximately 5 percent of our products offered during fiscal 2005.

Global Positioning System Receiver/ Chipset

A GPS receiver processes signals from visible GPS satellites broadcasting RF navigation information. The GPS receiver works with a wide variety of end products including handheld, marine and in-vehicle automotive devices. A GPS chipset enables systems to receive signals from GPS satellites using signal-processing techniques that produce highly accurate, smoothed navigation data. The chipset is suited to a broad range of applications including in-vehicle systems, recreational navigation and asset location services. This category accounted for approximately 2 percent of our products offered during fiscal 2005.

Intermediate Frequency Components

In the receive function of a typical handset, high frequency RF signals are converted into lower frequency IF signals by the low noise amplifier/mixer and then to baseband outputs, such as voice. In the transmit function, baseband inputs are converted from analog to digital form and processed through the IF range to the higher radio frequency before transmission through the antenna. Our IF devices include digitally controlled IF amplifiers, which amplify baseband signals after they have been converted from analog to digital form, and IF amplifiers with automatic gain control and received signal strength indicators, which are used for IF-to-baseband conversion in the receive mode. IF components accounted for approximately 2 percent of our products offered during fiscal 2005.

Other

The remaining 5 percent of products offered in fiscal 2005 include products such as attenuators and switches, voltage controlled oscillators and linear cable television amplifiers.

Raw Materials

We purchase numerous production component parts, such as surface mount devices, and substrates from external suppliers. We currently use independent foundries to supply all of our silicon-based requirements and a portion of pHEMT product requirements. The use of external suppliers involves a number of risks, including the possibility of material disruptions in the supply of key components and the lack of control over delivery schedules, manufacturing yields, quality and fabrication costs. In order to alleviate our dependence on external suppliers, we are integrating into our semiconductor die the functionality formerly fulfilled by many of the surface mount devices. However, we continue to aggregate increased functionality and new technologies into our products, which increases our dependence on external suppliers for products that we do not currently manufacture.

Customers

Sales to our largest customers, Nokia and Motorola, were approximately $224.1 million and $60.6 million, respectively, in fiscal 2005, which represented approximately 35 percent and 10 percent, respectively, of our revenue.

We have agreed to provide Nokia with access to certain RF technologies and to our GaAs HBT wafer fabrication facilities, and Nokia has agreed to provide us with rights to bid for and supply Nokia’s requirements for certain products. This arrangement does not obligate Nokia to purchase any additional products from us, and there can be no assurance that Nokia will remain a significant customer of ours or that this relationship will continue.

During fiscal 2005, we have continued to diversify our customer base and, with the predicted growth of our non-handset business during fiscal 2006, we expect that customer diversification will continue.

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RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

Sales and Marketing

We sell our products worldwide directly to customers as well as through a network of domestic and foreign sales representative firms and distributors. We select our domestic and foreign sales channels based on technical skills and sales experience, as well as the presence of complementary product lines and the customer base served. We provide ongoing training to our representatives and distributors to keep them informed of and educated about our products. We maintain an internal marketing organization that is responsible for key account management, application engineering support to customers, developing sales and advertising literature, such as product announcements, catalogs, brochures and magazine articles in trade and other publications, and preparing technical presentations for industry conferences. We have sales and customer support centers located throughout the world. During fiscal 2005, we added resources to help us to sell systems solutions, such as Bluetooth® and POLARIS^tm TOTAL RADIO^tm, which are more complex and require certain levels of technical expertise from our sales employees in order to integrate with our customers’ handsets.

We believe that maintaining a close relationship with customers and providing customers with ongoing technical support is essential to customer satisfaction in the wireless communications industry. Our applications engineers interact with customers during all stages of design and production, provide customers with current product application notes and engineering data, maintain regular contact with customer engineers and assist in the resolution of technical problems. We assign to our largest customers a contract account manager who maintains regular contact with the customer to determine its product needs and concerns. Members of senior management also are involved in managing relationships with significant customers. We believe that maintaining close contact with customers improves their level of satisfaction and enables us to anticipate their future product needs.

Research and Development

Our research and development efforts are focused primarily on developing new products, developing new manufacturing technologies and improving final product test yields. We currently operate design centers that are located throughout the world, in addition to our design engineering staff in Greensboro, North Carolina.

Our design staff is continually developing solutions for new and emerging wireless applications. Our research and development activities include not only new circuit designs, but also the development and refinement of proprietary design tools and models to facilitate new product development. Moreover, we are continually evaluating new circuits and emerging semiconductor process technologies to meet our customers’ future wireless equipment needs and to augment our Optimum Technology Matching® strategy. As part of this strategy, we utilize multiple semiconductor process technologies in order to offer our customers products that best meet their performance, cost and time-to-market requirements. Our Advanced Development Group focuses on next-generation technology in the areas of design, packaging, semiconductor processes and radio systems architecture. The purpose of this group is to develop innovative technologies prior to our customers’ needs and to allow our product development cycles to be more repeatable, which often results in the commercialization of new technologies.

In fiscal 2005, 2004 and 2003, we incurred approximately $156.5 million, $128.2 million and $101.7 million, respectively, in research and development expenses. We do not separately account for customer-sponsored research and development expenses from those research and development expenses paid directly by us.

The market for our products is characterized by rapid changes in product designs and the emergence of new semiconductor technologies used to fabricate higher performance devices. Because the demand by OEMs for continual improvements in product performance is expected to continue, we believe that our future success depends in part on our ability to design products using emerging technologies that meet the cost and performance parameters of our customers. Moreover, we believe that we must be able to continue to attract and retain qualified research and development personnel.

Competition

Competition in the markets for our products is intense. We face competition from several companies engaged in the business of designing, manufacturing and selling RF components, as well as suppliers of module products and total systems solutions. We also experience competition for products manufactured using GaAs HBT process technology from companies that have or may develop GaAs HBT or other fabrication processes. In addition, our current and potential competitors include OEMs that have or may develop the ability to produce RF components or discrete products internally for their own requirements.

The industry is characterized by rapid advances in technology and new product introductions. Our competitiveness depends on our ability to improve our products and processes faster than our competitors, anticipate changing customer requirements, and successfully develop and launch new products, while reducing our cost. Our competitiveness is also affected by the quality of customer service, technical support and our ability to design customized products that address each customer’s particular requirements within the customer’s cost limitations. Many of our

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RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

current and potential competitors have entrenched market positions, established patents, copyrights, trade names, trademarks and intellectual property rights and substantial technological capabilities. In some cases, our competitors are also our customers and/or suppliers. Further, many of our competitors may have significantly greater financial, technical, manufacturing and marketing resources than we do. Increased competition could adversely affect our revenue and profitability by causing us to reduce prices or by reducing demand for our products.

Intellectual Property

It is our practice to seek U.S. patent and copyright protection on our products and developments, where appropriate, and to protect our proprietary technology under U.S. and foreign laws affording protection for trade secrets and for integrated circuit designs. We own numerous U.S. patents bearing on RF communications and related circuits and semiconductor processes, the earliest of which will likely expire in 2015. Numerous additional patent applications are pending, although it is possible that the inventions referenced in patent applications will not mature to issued patents or will infringe upon intellectual property rights of others. It is also possible that a court will find the issued patents invalid or unenforceable under numerous legal principles relating to prior art disclosures or inequitable conduct before the United States Patent and Trademark Office.

We have numerous trademark registrations and applications pending in the United States and throughout the world. We seek registrations for our primary trademarks, servicemarks and trade names; however, others may have trademark rights superior to ours in certain jurisdictions, and in some instances our designations may not be viewed as sufficiently distinctive to warrant exclusive trademark protection. We believe that we have the right to use our selected designations, and that these designations are distinctive and capable of trademark protection. Nevertheless, if our marks are successfully challenged on this basis, it is possible that we will not be permitted to operate in a jurisdiction under our trademark, servicemark or trade name or that we will not have the exclusive right to use these designations.

We also rely upon trade secrets, technical know-how and other unpatented proprietary information relating to our product development and manufacturing activities. To protect our trade secrets, technical know-how and other proprietary information, our employees are required to enter into agreements providing for maintenance of confidentiality and the assignment of rights to inventions made by them while in our employ. We also have entered into non-disclosure agreements to protect our confidential information delivered to third parties in conjunction with possible corporate collaborations and for other purposes. However, we cannot be sure that these types of agreements will effectively prevent unauthorized disclosure of our confidential information, that these agreements will not be breached, that we would have adequate remedies for any breach or that our trade secrets and proprietary know-how will not otherwise become known or independently discovered by others.

We have been named a defendant in a patent infringement lawsuit filed on August 3, 2001, in the U.S. District Court for the District of Arizona by Lemelson Medical, Education and Research Foundation, LP. The suit alleges that we have infringed claims of a total of at least 17 and possibly 18 patents, including “machine vision” claims of 12 patents, “bar code” claims of seven patents (some of which are the same as the 12 “machine vision” patents) and “integrated circuit” claims of three or four patents, and seeks injunctive relief, damages for the alleged infringements and payment of the plaintiff’s attorneys’ fees. The suit has been stayed pending resolution of one of two related actions to which we are not a party. This case was stayed before any discovery and is in its very preliminary stages. In one of the related actions, a U.S. District Judge has held that claims of 14 patents (each patent being among those patents at issue in our litigation) were unenforceable and claims were invalid. Such ruling is currently under appeal. We cannot predict the ultimate outcome of this litigation.

We have on occasion been made aware that aspects of our technology may overlap technology discussed or claimed in issued U.S. patents. On these occasions, we have attempted to investigate thoroughly the underlying issues and determine whether design changes or patent licenses were appropriate.

Backlog

We do not believe that backlog as of any particular date is indicative of future results. Our sales are the result of consumption of custom products from consigned inventory held by our customers and from purchase orders for delivery of standard and custom products. The quantities projected for consumption of consigned inventory, quantities on purchase orders, as well as the shipment schedules, are frequently revised within agreed-upon lead times to reflect changes in the customer’s needs. Due to industry practice and our experience, we do not believe that such agreements are meaningful or reliable for determining future results.

Employees

At May 27, 2005, we had 2,570 employees. We believe that our future prospects will depend, in part, on our ability to continue to attract and retain skilled technical, marketing and management personnel. Competition for such personnel is intense, and the number of persons with relevant experience, particularly in engineering, product design and technical

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RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

marketing, is limited. None of our employees is represented by a labor union, and we have never experienced any work stoppage. We believe that our current employee relations are good.

Geographic Financial Summary

A summary of our operations by geographic area is as follows (in thousands):

Of our total revenue for fiscal 2005, 16 percent was for customers in the United States, 20 percent for customers in China, 18 percent for customers in Europe, 15 percent for customers in Korea and 14 percent for customers in Taiwan. Customers in Central and South America, Japan and Singapore accounted for the majority of the remaining fiscal 2005 revenue.

Sales, for geographic disclosure purposes, are based on the “bill to” address of the customer. The “bill to” address is not always an accurate representation of the location of final consumption of our products. Long-lived assets include property and equipment and at March 31, 2005, approximately $32.0 million (or 9.4%) of our total property and equipment was located in China.

Environmental Matters

By virtue of operating our MBE and wafer fabrication facilities, we are subject to a variety of extensive and changing federal, state and local governmental laws, regulations and ordinances related to the use, storage, discharge and disposal of toxic, volatile or otherwise hazardous chemicals used in the manufacturing process. Any failure to comply with such requirements currently in effect or subsequently adopted could result in the imposition of fines on us, the suspension of production or a cessation of operations, the occurrence of which could have an adverse impact upon our capital expenditures, earnings and competitive position. In addition, such requirements could restrict our ability to expand our facilities or require us to acquire costly equipment or incur other significant expenses to comply with environmental regulations. We believe that costs arising from existing environmental laws will not have a material adverse effect on our financial position or results of operations. We are an ISO 14001 certified manufacturer with a comprehensive Environmental System (EMS) in place in order to assure control of the environmental aspects of the manufacturing process. EMS mandates compliance and establishes appropriate checks and balances to minimize the potential for non-compliance. However, there can be no assurance that the environmental laws will not become more stringent in the future or that we will not incur significant costs in the future in order to comply with these laws. We do not currently anticipate any material capital expenditures for environmental control facilities for fiscal year 2006 or fiscal year 2007.

Access to Public Information

We make available, free of charge through our website (http://www.rfmd.com), our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file these reports with, or furnish them to, the Securities and Exchange Commission (SEC). The public may also request a copy of our forms filed with the SEC, without charge upon written request, directed to:

Investor Relations Department

RF Micro Devices, Inc.

7628 Thorndike Road

Greensboro, NC 27409-9421

In addition, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. You may also read and copy any documents that the Company files with the SEC at the SEC’s Public Reference Room located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for information on the operation of the Public Reference Room.

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RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

RISK FACTORS

In addition to the other information in this Annual Report on Form 10-K, readers should carefully consider the following important factors. These factors, among others, in some cases have affected, and in the future could affect, our financial condition and results of operations and could cause our future results to differ materially from those expressed or implied in any forward-looking statements that appear in this Annual Report on Form 10-K or that we have made or will make elsewhere.

Our industry’s technology changes rapidly and we depend on the development and growth of the wireless markets.

We depend on the development and growth of markets for wireless communications products and services. We cannot be sure about the rate at which markets for these products will develop or our ability to produce competitive products for these markets as they develop. In particular, in fiscal year 2006, the market adoption of EDGE, the execution on our product development efforts, and the success of our customers with EDGE-based products will be significant factors for our revenue growth.

We supply RF components and system level solutions primarily for wireless applications. The wireless markets are characterized by frequent introduction of new products and services in response to evolving product and process technologies and consumer demand for greater functionality, lower costs, smaller products and better performance. As a result, we have experienced and will continue to experience some product design obsolescence. We expect our customers’ demands for improvements in product performance to continue, which means that we must continue to improve our product designs and develop new products that may use new technologies. It is possible that competing technologies will emerge that permit the manufacture of integrated circuits that are superior to the products we make under existing processes. If that happens and we cannot design products using that technology or develop competitive products, our operating results will be adversely affected.

To remain competitive in our silicon-based products, we expect to continue to transition our silicon semiconductor products to increasingly smaller line width geometries, and as smaller geometry processes become more prevalent, we expect to continue to integrate greater levels of functionality, as well as customer and third party intellectual property and software, into our products. However, we may not be able to achieve higher levels of design integration or deliver new integrated products on a timely basis, or at all. Moreover, even if we are able to achieve higher levels of design integration, such integration may have a short-term adverse impact on our operating results, as we may reduce our revenue by integrating the functionality of multiple chips into a single chip.

We face risks associated with the operation of our MBE, wafer fabrication, assembly and test, tape and reel facilities.

We operate one MBE facility and two wafer fabrication facilities. We currently use several international and domestic assembly suppliers, as well as our internal assembly facility in Beijing, China, to package and assemble our products. We currently have our own test, tape and reel facilities located in Greensboro, North Carolina, and Beijing, China, and we also utilize contract suppliers and partners in Asia to test our products.

A number of factors will affect the future success of our facilities, including the following:

We face challenges managing the growth of our Company.

To manage our growth effectively, we must:

Competition for these resources is intense. We must also manage multiple relationships with various customers, business partners and other third parties, such as our foundry, assembly and test, tape and reel partners. Our systems, networks, software tools, procedures or controls may not be adequate to support our operations, and we may not be able to expand quickly enough to exploit potential market opportunities. Our future operating results and success may also depend

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RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

on keeping key technical personnel and management and expanding our sales and marketing, research and development and administrative support. We do not have employment agreements with the substantial majority of our employees. We must also continue to attract qualified personnel. The competition for qualified personnel is intense, and the number of people with experience, particularly in RF engineering, integrated circuit design, and technical marketing and support, is limited. We cannot be sure that we will be able to attract and retain other skilled personnel in the future.

We depend heavily on third parties.

We purchase numerous production component parts, such as surface mount devices, substrates and silicon-based products, from external suppliers. The use of external suppliers involves a number of risks, including the possibility of material disruptions in the supply of key RF components and the lack of control over delivery schedules, manufacturing yields, quality and fabrication costs.

We currently use several international and domestic assembly suppliers, as well as our internal assembly facility in Beijing, China, to package and assemble our products. All of our key vendors and suppliers are compliant with applicable ISO 9000 or QS 9000 standards. However, if these vendors’ processes vary in reliability or quality, they could negatively affect our products and, therefore, our results of operations.

We currently have our own test, tape and reel facilities located in Greensboro, North Carolina, and Beijing, China, and we also utilize contract suppliers and partners in Asia to test our products. We expect to increase our reliance on our Beijing facility as well as our utilization of contract suppliers and partners in Asia for test, tape and reel in order to minimize the movement of inventory, which improves cycle time and results in lower costs.

Our operating results fluctuate.

Our revenue, earnings and other operating results have fluctuated significantly in the past and may fluctuate significantly in the future. Our future operating results will depend on many factors, including the following:

It is likely that our future operating results will be adversely affected by the factors set forth above or other factors. If our future operating results are below the expectations of stock market analysts or our investors, our stock price may decline.

If we experience poor manufacturing yields, our operating results may suffer.

Our products are very complex. Each product has a unique design and is fabricated using semiconductor process technologies that are highly complex. In many cases, the products are assembled in customized packages. Our products, which primarily consist of multiple components in a single package, feature enhanced levels of integration and complexity. Our customers insist that our products be designed to meet their exact specifications for quality, performance and reliability.

Our manufacturing yield is a combination of:

Due to the complexity of our products, we periodically experience difficulties in achieving acceptable yields on certain new and existing products.

Our customers also test our components once they have been assembled into their products. The number of usable products that result from our production process can fluctuate as a result of many factors, including the following:

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RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

We are constantly trying to improve our manufacturing yields. Typically, for a given level of sales, when our yields improve, our gross margins improve, and when our yields decrease, our unit costs are higher, our margins are lower, and our operating results are adversely affected.

We depend on a few large customers for a substantial portion of our revenue.

Historically, a substantial portion of our revenue has come from large purchases by a small number of customers and we expect that trend to continue. In fiscal 2005, our top five customers accounted for approximately 62 percent of our total revenue and our top 10 customers accounted for approximately 71 percent of our total revenue. Our future operating results depend on both the success of our largest customers and on our success in diversifying our products and customer base.

We typically manufacture custom products on an exclusive basis for one customer for a negotiated period of time. The concentration of our revenue with a few large customers makes us particularly dependent on factors affecting those customers. For example, if demand for their products decreases, they may stop purchasing our products and our operating results would suffer. Most of our customers can cease incorporating our products into their products with little notice to us and with little or no penalty. The loss of a large customer and failure to add new customers to replace lost revenue would have a material adverse effect on our business, financial condition and results of operations.

Our operating results are dependent on our GaAs HBT process technology and demand for our GaAs HBT products.

Although we design products using multiple distinct process technologies, a substantial portion of our revenue comes from the sale of products manufactured using GaAs HBT process technology. Our dependence on GaAs HBT products could have an adverse effect on our operating results in the future. Competitors can enter the market and offer their own GaAs products, and direct competition with competitors who utilize GaAs HBT process technology could adversely affect our selling prices. Also, new process technologies are being developed, and one or more of these processes could have characteristics that are superior to GaAs HBT. If we are unable to access these technologies through licenses or foundry service arrangements, we will be competitively disadvantaged. These and other factors could reduce the demand for GaAs HBT components or otherwise adversely affect our operating results.

We depend on our exclusive license from Northrop Grumman Space Technology for our GaAs HBT technology. If the license is terminated for breach of contract or if it were determined that this technology infringed on a third party’s intellectual property rights, our operating results would be adversely affected. Northrop made no representation to us about whether the licensed technology infringed on the intellectual property rights of anyone else.

We operate in a very competitive industry and must continue to implement innovative technologies and increase capacity utilization in order to reduce costs and improve margins.

Competition in the markets for our products is intense. We compete with several companies primarily engaged in the business of designing, manufacturing and selling of RF components and system level solutions, as well as suppliers of discrete products such as transistors, capacitors and resistors. Several of our competitors either have GaAs HBT process technology or are developing GaAs HBT or new fabrication processes. In addition, many of our existing and potential customers manufacture or assemble wireless communications devices and have substantial in-house technological capabilities. Any of these customers could develop products that compete with or replace our products. A decision by any of our large customers to design and manufacture integrated circuits internally could have an adverse effect on our operating results. Increased competition could mean lower prices for our products, reduced demand for our products and a corresponding reduction in our ability to recover development, engineering and manufacturing costs. In order to improve our margins, we need to reduce our costs by making continual operational improvements to reduce cycle time, increase capacity utilization and improve test yields. Our inability to meet these objectives could have an adverse effect on our operating results.

Many of our existing and potential competitors have entrenched market positions, considerable internal manufacturing capacity, established intellectual property rights and substantial technological capabilities. Many of our existing and potential competitors may have greater financial, technical, manufacturing or marketing resources than we do. We cannot be sure that we will be able to compete successfully with our competitors.

Our operating results are substantially dependent on development of new products.

Our future success will depend on our ability to develop new product solutions for existing and new markets. We must introduce new products in a timely and cost-effective manner and secure production orders from our customers. The development of new products is a highly complex process, and we have experienced delays in completing the development and

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RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

introduction of new products at times in the past, including during fiscal 2005. Our successful product development depends on a number of factors, including the following:

We may not be able to design and introduce new products in a timely or cost-efficient manner, and our new products may fail to meet the requirements of the market or our customers. In that case, we will not likely reach the expected level of production orders, which could adversely affect our operating results. Even when a design win is achieved, our success is not assured. Design wins require significant expenditures by us and typically precede volume revenues by six to nine months or more. The actual value of a design win to us will ultimately depend on the commercial success of our customers’ products.

We are subject to risks from international sales and operations.

We operate globally with sales offices and research and development activities as well as manufacturing, assembly and testing facilities in several countries. As a result, we are subject to risks and factors associated with doing business outside the United States. Global operations involve inherent risks that include currency controls and fluctuations as well as tariff, import and other related restrictions and regulations.

Sales to customers located outside the United States accounted for about 84 percent of our revenue in fiscal 2005. We expect that revenue from international sales will continue to be a significant part of our total revenue. Because the majority of our foreign sales are denominated in U.S. dollars, our products become less price-competitive in countries with currencies that are low or are declining in value against the U.S. dollar. Also, we cannot be sure that our international customers will continue to accept orders denominated in U.S. dollars. If they do not, our reported revenue and earnings will become more directly subject to foreign exchange fluctuations.

The majority of our assembly and test, tape and reel vendors are located in Asia. This subjects us to regulatory, geopolitical and other risks of conducting business outside the United States. We do business with our foreign assemblers in U.S. dollars. Our assembly costs increase in countries with currencies that are increasing in value against the U.S. dollar. Also, we cannot be sure that our international assemblers will continue to accept orders denominated in U.S. dollars. If they do not, our costs will become more directly subject to foreign exchange fluctuations.

In addition, if terrorist activity, armed conflict, civil or military unrest or political instability occur in the United States or other locations, such events may disrupt manufacturing, assembly, logistics, security and communications, and could also result in reduced demand for our products. Major health concerns could also adversely affect our business and our customer order patterns. We could also be affected if labor issues disrupt our transportation arrangements or those of our customers or suppliers. On a worldwide basis, we regularly review our key infrastructure, systems, services and suppliers, both internally and externally, to seek to identify significant vulnerabilities as well as areas of potential business impact if a disruptive event were to occur. Once identified, we assess the risks, and as we consider it to be appropriate, we initiate actions intended to minimize the risks and their potential impact. However, there can be no assurance that we have identified all significant risks or that we can mitigate all identified risks with reasonable effort.

We may engage in future acquisitions that dilute our shareholders, cause us to incur debt and assume contingent liabilities.

As part of our business strategy, we expect to continue to review potential acquisitions that could complement our current product offerings, augment our market coverage or enhance our technical capabilities, or that may otherwise offer growth opportunities. While we currently have no definitive agreements providing for any such acquisitions, we may acquire businesses, products or technologies in the future. In the event of such future acquisitions, we could issue equity securities that would dilute our current shareholders’ percentage ownership, incur substantial debt or other financial obligations or assume contingent liabilities. Such actions by us could seriously harm our results of operations or the price of our common stock. Acquisitions also entail numerous other risks that could adversely affect our business, results of operations and financial condition, including:

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RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

We rely on intellectual property and face actual and potential claims of infringement.

Our success depends in part on 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. It could be determined in the future that we are infringing a third party’s intellectual property rights. We cannot be sure that we could obtain licenses on commercially reasonable terms or that litigation would not occur if there were any infringements. If we were unable to obtain necessary licenses or if litigation arose out of infringement claims, our operating results could be adversely affected.

In addition to patent and copyright protection, we also rely on trade secrets, technical know-how and other unpatented proprietary information relating to our product development and manufacturing activities. We try to protect this information by entering into confidentiality agreements with our employees and other parties. We cannot be sure that these agreements will not be breached, that we would have adequate remedies for any breach or that our trade secrets and proprietary know-how will not otherwise become known or independently discovered by others.

We may be subject to various other lawsuits and claims relating to our products.

We cannot be sure that third parties will not assert additional claims against us, our customers or our licensors with respect to existing and future products. Any litigation to determine the validity of any third party’s claims could result in significant expense to us and divert the efforts of our technical and management personnel, whether or not the litigation is determined in our favor. The wireless industry is subject to frequent litigation, often regarding patent and other intellectual property rights. Leading companies and organizations in the wireless industry have numerous patents that protect their intellectual property rights in these areas. In the event of an adverse result of any intellectual property rights litigation, we could be required to expend significant resources to develop non-infringing technology or to obtain licenses to the technology, which is the subject of the litigation. We cannot be sure that we would be successful in such development or that any such license would be available on commercially reasonable terms.

We are subject to stringent environmental regulations.

We are subject to a variety of federal, state and local requirements governing the protection of the environment. These environmental regulations include those related to the use, storage, handling, discharge and disposal of toxic or otherwise hazardous materials used in our manufacturing processes. A change in environmental laws or our failure to comply with environmental laws could subject us to substantial liability or force us to significantly change our manufacturing operations. In addition, under some of these laws and regulations, we could be held financially responsible for remedial measures if our properties are contaminated, even if we did not cause the contamination.

Our stock price is subject to volatility.

The trading price of our common stock is subject to wide fluctuations in response to quarterly variations in operating results, positive or adverse business developments, changes in financial estimates by securities analysts, announcements of technological innovations, introduction of new products by us or our competitors, transactions by corporate insiders and other events and factors. In addition, the stock market has experienced extreme price and volume fluctuations based on factors outside our control that have particularly affected the market prices for many high technology companies. These broad market fluctuations may materially and adversely affect the market price of our common stock.

Future sales of shares could have an adverse effect on the market price of our common stock.

Sales of substantial amounts of common stock in the public market or the prospect of such sales could adversely affect the market price for our common stock and our ability to raise equity capital in the future. At May 27, 2005, we had outstanding a total of 188,107,321 shares of common stock. As of March 31, 2005, options to purchase 25.4 million shares of common stock were outstanding under our formal stock option plans for employees and directors, with a weighted average exercise price of $13.13 per share and a weighted average remaining contractual life of 6.5 years. Of these, options to purchase 25.2 million shares were exercisable at March 31, 2005, at a weighted average exercise price of $13.19 per share.

Provisions in our governing documents could discourage takeovers and prevent shareholders from realizing an investment premium.

Certain provisions of our articles of incorporation and bylaws could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of our Company. These provisions include the ability of our board of directors to designate the rights and preferences of preferred stock and issue such shares without shareholder approval and the requirement of supermajority shareholder approval of certain transactions with parties affiliated with our Company. Such

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RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

provisions could limit the price that certain investors might be willing to pay in the future for shares of our common stock.

On August 10, 2001, our Board of Directors adopted a shareholder rights plan, pursuant to which uncertificated stock purchase rights were distributed to our shareholders at a rate of one stock purchase right for each share of common stock held of record as of August 30, 2001. The rights plan is designed to enhance the Board’s ability to prevent an acquirer from depriving shareholders of the long-term value of their investment and to protect shareholders against attempts to acquire us by means of unfair or abusive takeover tactics. The rights become exercisable based upon certain limited conditions related to acquisitions of stock, tender offers and certain business combination transactions involving us. The existence of the rights plan may impede a takeover of us not supported by the Board, including a takeover that may be desired by a majority of our shareholders or involving a premium over the prevailing stock price.

We currently lease all of our facilities with the exception of our second wafer fabrication facility and our assembly and test, tape and reel facility in Beijing, China.

We lease two office buildings, suites in three other office buildings and one storage facility in Greensboro, North Carolina. Adjacent to our office facilities are our two wafer fabrication facilities and our research and development packaging facility. We believe these facilities are suitable and adequate for our present purposes and the productive capacity in such facilities is substantially being utilized or we have plans to further utilize the facilities.

We lease two additional facilities in Greensboro, North Carolina. One facility houses our MBE wafer starting material production operations and the other facility houses our RF test, tape and reel operations. As noted above, we own an assembly and test, tape and reel facility in Beijing, China. We believe our MBE facility and test, tape and reel operations (North Carolina and China) are suitable and adequate for our present purposes and the productive capacity in such facilities is substantially being utilized or we have plans to further utilize the facilities.

We also lease space for our design centers in Scotts Valley, Irvine, Carlsbad and San Jose, California; Cedar Rapids, Iowa; Boulder, Colorado; Chandler, Arizona; Boston, Massachusetts; Pandrup, Denmark; Calgary, Canada; and Charlotte, North Carolina. In addition, we lease space for sales and customer support centers in San Diego, California; Reading, England; Oulu, Finland; Toulouse, France; Seoul, South Korea; Taipei, Taiwan; Shenzhen and Beijing, China; and Tokyo, Japan. In the opinion of our management, our properties have been well maintained, are in sound operating condition and contain all equipment and facilities necessary to operate at present levels.

We have been named a defendant in a patent infringement lawsuit, captioned Lemelson Medical, Education & Research Foundation, LP v. Broadcom Corporation; RF Micro Devices, Inc.; SanDisk Corporation; TransSwitch Corporation; WJ Communications, Inc., filed August 3, 2001, in the United States District Court for the District of Arizona by Lemelson Medical, Education & Research Foundation, LP. The suit alleges that we have infringed claims of a total of at least 17 and possibly 18 patents, including “machine vision” claims of 12 patents, “bar code” claims of seven patents (some of which are the same as the 12 “machine vision” patents) and “integrated circuit” claims of three or four patents and seeks injunctive relief, damages for the alleged infringements and payment of the plaintiff’s attorneys’ fees. This case was stayed pending resolution of one of two related actions to which we are not a party. This case was stayed before any discovery and is in its very preliminary stages. In one of the related actions, a U.S. District Judge has ruled that claims of 14 patents (each patent being among those patents at issue in the Company’s litigation) were unenforceable and claims were invalid. Such ruling is currently under appeal. We cannot predict the ultimate outcome of this litigation.

Not applicable.

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RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Our common stock is traded on the Nasdaq National Market under the symbol “RFMD.” The table below shows the high and low bid quotations of our common stock for the periods indicated, as reported by the Nasdaq Stock Market. As of May 20, 2005, there were 2,150 holders of record of our common stock.

We have never declared or paid cash dividends on our common stock. We currently intend to retain our earnings for use in our business and do not anticipate paying any cash dividends in the foreseeable future.

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RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

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RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

All statements, trend analyses and other information contained in the following discussion relative to markets for our products and trends in revenue, gross margins and anticipated expense levels, as well as other statements including but not limited to words such as “expect,” “anticipate,” “intend,” “plan,” “believe” and “estimate,” and variations of such words and similar expressions, identify forward-looking statements.

Our business is subject to numerous risks and uncertainties, including the following:

These and other risks and uncertainties, which are described in more detail in the section entitled “Risk Factors” on page 13 of this report, could cause our actual results and developments to be materially different from those expressed or implied by any of these forward-looking statements.

The following discussion should be read in conjunction with, and is qualified in its entirety by reference to, our consolidated financial statements, including the notes thereto.

OVERVIEW

Company

We design, develop, manufacture and market proprietary RF components and system level solutions for wireless communications products and applications. We are the leading supplier of PAs, one of the most critical 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 PAs. Our products are included primarily in cellular phones, base stations, WLANs, cable television modems and 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 products required in wireless devices. These integrated circuits perform the transmit and receive functions that are critical to the performance of wireless devices. We design products for manufacture using the following multiple semiconductor process technologies: GaAs HBT, silicon bipolar transistor, silicon CMOS, silicon BiCMOS, SiGe BiCMOS, GaAs MESFET and InGaP HBT. We are continuing to invest in the development of integrated circuits utilizing GaN and currently expect to begin commercial production of GaN-based products during calendar year 2007. We will begin production shipments of switching devices in fiscal 2006 using our GaAs pHEMT process. Handset manufacturers try to maximize trade-offs between performance and cost. Our approach to using multiple semiconductor process technologies allows us to offer customers products that fulfill their performance, cost and time-to-market requirements. We call this approach to business Optimum Technology Matching®.

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RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

Business Segments

We report information as one operating segment. SFAS 131 established standards for the way that public companies report information about operating segments in annual consolidated financial statements. Although we had three business units as of March 31, 2005 (Cellular, Wireless Connectivity and Infrastructure), we report information as one operating segment pursuant to the aggregation criteria set forth in SFAS 131.

2005 Management Summary

The Company’s key financial results for the fiscal year ended March 31, 2005, are as follows:

The Company faced the following challenges and opportunities in fiscal 2005:

2006 Objectives and Management Expectations:

We believe the challenges and opportunities experienced in fiscal 2005 have put us in the position to increase our revenue and gross margin in fiscal 2006.

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RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

We expect to continue to expand our dollar content opportunity in cellular handsets by offering best in class wireless semiconductor solutions that offer high levels of integration and a distinct product roadmap to next-generation platforms.

Revenue and Gross Margins

We derive revenue from the sale of standard and custom-designed products and our products are purchased by leading domestic and international OEMs and ODMs. Revenue in fiscal 2005 was $634.2 million, a decrease of 2.6% over revenue of $651.4 million in fiscal 2004.

Sales to our significant customers, as a percentage of net revenue, were as follows:

The percentage of our revenues derived from customers located outside of the United States was 84% in fiscal 2005, 81% in fiscal 2004 and 80% in fiscal 2003.

We believe that revenue growth in fiscal 2006 will depend upon sales of new products that we expect to ramp across multiple product segments, including POLARIS^tm TOTAL RADIO^tm modules, transmit modules and Bluetooth® products.

Our gross profit margin decreased to 34.2% of revenue in fiscal 2005 compared to 37.8% of revenue in fiscal 2004 as a result of lower capacity utilization, average selling price erosion and a change in our product mix from relatively higher margin TDMA products to lower margin GSM products. We expect to improve gross margins during fiscal 2006 by improving capacity utilization rates, improving assembly yields through the ramping of our internal assembly operation and improving final test yields.

Strategy

Our goal is to be the premier supplier of low-cost, high-performance integrated components and system level solutions for applications that enable wireless communications. To meet this goal, we have developed a strategy centered on customer relationships, technology leadership and manufacturing excellence that we believe will help us achieve better than industry average revenue and earnings growth over the long-term.

We believe that our customer relationships are central to our ability to continue growing our business and we have established solid customer relationships with the leading OEMs and ODMs that have put us in the position to continue our growth. We provide our customers with world-class design and application support that is enhanced by our ability to deliver on our manufacturing commitments and we will continue to make investments to fully service the increasing needs of our customers.

Bringing innovative technology to market is also critical to our continued growth. We are technology innovators in several key areas, including circuit design, packaging technology and semiconductor process technology. Our design engineering teams focus on developing products that solve real world problems for our customers. The components that we design are becoming more integrated and in many cases require multiple person design teams to complete and, as a result, we have invested extensively in providing our design engineers software and modeling tools to complete these more complex products and have focused our recruiting efforts to address the additional need for digital design expertise, system level architecture and software development.

Our world-class manufacturing capabilities allow us to respond quickly to changes in customer demand, giving us what we believe is a significant competitive advantage. We are the world’s leading manufacturer of GaAs HBT devices and plan to continue making investments in GaAs HBT and GaAs pHEMT manufacturing capacity to meet the growing needs of our customers. We have also invested in our own assembly capabilities, which enables us to further guarantee as-

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RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

sembly capacity and lower our overall cost structure. We currently test the majority of our components in our own high-volume, low-cost test facilities. We also outsource product testing to certain assembly houses and will likely outsource an increasing percentage of our production test volume in the future. We are continuing to focus on reducing manufacturing cycle time. We believe that reducing manufacturing cycle time significantly improves our ability to respond to changes in customer demand and also lowers inventory carrying costs.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of consolidated financial statements requires management to use judgment and estimates. The level of uncertainty in estimates and assumptions increases with the length of time until the underlying transactions are completed. Actual results could ultimately differ from those estimates. The accounting policies that are most critical in the preparation of our consolidated financial statements are those that are both important to the presentation of the Company’s financial condition and results of operations and require significant judgments and estimates on the part of management. Our critical accounting policies are reviewed periodically with the Audit Committee of the Board of Directors.

We believe the following critical accounting policies require us to make significant judgments and estimates in the preparation of our consolidated financial statements:

Historically, the inventory reserves have fluctuated as new technologies have been introduced and customers’ demands shift to new innovative products. Over the past three years, additions charged to cost and expenses have ranged from zero in fiscal 2003 to $11.4 million in fiscal 2005.

Each quarter we evaluate inventory levels against sales forecasts on a product family basis to determine inventory risk. Inventory reserves are adjusted to reflect inventory values in excess of the forecasted sales. In the event we sell inventory that had been covered by a specific inventory reserve, the related cost of goods sold is recorded at the full inventory cost.

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RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

We review the carrying values of goodwill for impairment at least annually or whenever events or changes in circumstances indicate that such carrying values may not be recoverable. In order to evaluate goodwill, we use certain assumptions in analyzing existing goodwill, including two generally accepted valuation methodologies: (1) the income approach — discounted cash flows and (2) the market approach — enterprise value and guideline company analysis. Newly acquired goodwill determinations are based on independent appraisals. Our impairment review process compares the fair value of the reporting unit in which goodwill resides to its carrying value. During the fourth quarter of fiscal 2005, we completed our most recent review with the assistance of an independent valuation firm and determined that there was no impairment to our recorded goodwill. We believe, however, that unforeseen events, changes in circumstances or market conditions could create differences in the value of goodwill that could negatively affect the fair value of our assets and result in an impairment charge.

We also review the carrying value of identifiable intangibles for impairment at least annually. In making impairment determinations for intangible assets, we utilize estimations of future cash flows expected to be generated by these assets, which are based on additional assumptions such as asset utilization, length of service that the asset will be used in our operations and estimated salvage values, as well as independent valuation analysis of newly acquired intangible assets. In estimating future cash flows, we use our internal business plan as reviewed and approved by our Board of Directors. On February 28, 2005, we announced the discontinuation of our WLAN chipset development efforts and we revised our cash flow estimates for certain intangible assets. As a result, we recorded an impairment charge to intangibles of $37.1 million.

In making impairment determinations for long-lived assets, we utilize certain assumptions, including but not limited to: (1) estimations and quoted market prices of the fair market value of the assets; and (2) estimations of future cash flows expected to be generated by these assets, which are based on additional assumptions such as asset utilization, length of service that the asset will be used in our operations and estimated salvage values.

On February 28, 2005, we announced the discontinuation of our WLAN chipset development efforts and we revised our cash flow estimates for certain assets. As a result, we recorded an impairment charge to long-lived assets of $0.4 million.

We entered into a strategic alliance with Agere Systems, Inc. in May 2001, pursuant to which we agreed to invest approximately $58.0 million over two years to upgrade manufacturing clean room space and purchase semiconductor manufacturing equipment to be deployed within Agere’s Orlando, Florida, manufacturing facility. On January 23, 2002, Agere announced that it was seeking a buyer for its Orlando wafer fabrication operation. As a result of this announcement and the related uncertainty concerning the future of Agere’s Orlando facility, we and Agere suspended further performance under the arrangement. As of March 31, 2004, we had invested $16.4 million and in April 2004 an agreement was reached with Agere to terminate this arrangement and transfer title to the equipment to Agere in exchange for $4.5 million in settlement of all obligations resulting from the strategic alliance. These negotiations to settle required us to evaluate our equipment for impairment. The equipment had a net book value of $12.2 million at March 31, 2004, prior to any impair-

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RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

ment charges. As a result, we recorded a non-cash asset impairment charge of $7.7 million to reduce the asset to its recoverable value in fiscal 2004.

During fiscal 2005, we recorded $0.1 million for the impairment of a $5.0 million investment in the equity of a privately-held company, for which a $4.9 million charge had been recorded in previous periods. The fiscal 2005 charge of $0.1 million reduced the value of this investment to zero. The impairment charge represented management’s best estimate of other-than-temporary decline in value. Over the past three years, impairment charges for investments have ranged from $0.1 million in fiscal 2005 to $1.8 million in fiscal 2003.

We review all of our investments quarterly for indicators of impairment. In making impairment determinations for investments in privately-held companies and investments in available-for-sale securities, we consider several factors, including each company’s cash position, financing needs, earnings, revenue outlook, operational performance, management or ownership changes as well as competition. In making impairment determinations for investments of available-for-sale securities, we also review the current market price for other-than-temporary declines in values following the latest guidance required by Financial Accounting Standards Board (FASB) Emerging Issues Task Force Issue 03-01, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.”

RESULTS OF OPERATIONS

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

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RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

REVENUE

Fiscal 2005

Revenue in fiscal 2005 was $634.2 million, a decrease of 2.6% compared to revenue of $651.4 million in fiscal 2004. The decrease in revenue was primarily the result of the decline in the U.S. market for TDMA handsets which was not entirely offset by our market share gain in products for GSM/ GPRS/ EDGE cellular handsets.

We expect that the ramp of new products, along with our cost-savings initiatives, will allow us to increase revenues and improve our profitability in fiscal 2006. In addition, a portion of these new products will allow us the opportunity to increase our dollar content per phone. During fiscal 2006, we will focus our efforts on our greatest opportunities for long-term, profitable growth, including our industry-leading cellular PAs and transmit modules, our POLARIS^tm TOTAL RADIO^tm cellular transceivers and modules and our Bluetooth® products.

International shipments were $532.1 million in fiscal 2005 and accounted for 84% of revenue compared to $529.9 million, or 81% of revenue in fiscal 2004. Shipments to Asia totaled $385.9 million, or 61% of revenue, in fiscal 2005 and $374.7 million, or 58% of revenue, in fiscal 2004.

Fiscal 2004

Revenue in fiscal 2004 was $651.4 million, an increase of 28% compared to revenue of $507.8 million in fiscal 2003. The growth resulted primarily from an increase in our PA market share, strength in the cellular handset market and diversification of our wireless handset customer base. The following key factors contributed to our revenue growth in fiscal 2004:

The revenue growth and gross margin improvement was achieved despite (1) a reduction in our WLAN products revenue in fiscal 2004 as compared to fiscal 2003 and (2) continued downward pressure on the average selling prices of our products. Our previous WLAN design efforts did not take full advantage of our market strength in the cellular handset space. Our overall weighted average selling price in fiscal 2004 declined as compared to fiscal 2003, which is consistent with the current trend in our industry, as our customers expect the average selling price of our products to decline over time. However, the number of PA units that we sold in fiscal 2004 increased by 53%, which offset the decline in our average selling price.

International shipments were $529.9 million in fiscal 2004 and accounted for 81% of revenue compared to $405.7 million, or 80% of revenue in the prior year. Shipments to Asia totaled $374.7 million, or 58% of revenue, in fiscal 2004 and $274.9 million, or 54% of revenue, in fiscal 2003. The increase in sales to Asia is the result of (1) the shift in customer demand which in turn caused a corresponding shift in production by our customers to Asia, (2) the industry trend to higher utilization of ODMs by our OEM customers and, (3) the establishment of our sales and customer support centers in Shenzhen and Beijing, China, as well as our expansion of our Taipei, Taiwan, and Seoul, South Korea, sales and customer support centers and the expansion of our Tokyo, Japan, sales office.

GROSS PROFIT

Fiscal 2005

Gross profit margin in fiscal 2005 decreased to 34.2% of revenue compared to 37.8% of revenue in fiscal 2004. The decrease in gross profit margin was prima-

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RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

rily attributable to lower capacity utilization, average selling price erosion and a change in our product mix from relatively higher margin TDMA products to lower margin GSM products.

We believe that we have several opportunities to improve gross margins during fiscal 2006. We expect to improve gross margins by (1) improving our supply chain utilization rates by increasing sales volumes, (2) improving our assembly yields and lowering assembly costs by ramping of our internal assembly operation, and (3) improving our test yields . We believe that our recent entry into new product categories, such as pHEMT switches and transmit modules, will increase our semiconductor content, and as a result increase our gross margins.

Fiscal 2004

Gross profit margin in fiscal 2004 increased to 37.8% of revenue compared to 36.0% of revenue in fiscal 2003. The increase in gross profit margin was primarily attributable to our cost reduction efforts consisting of test and assembly yield improvements, material cost reductions, reduction in the cost to assemble our products, capacity utilization and cost savings from the conversion from four-inch to six-inch GaAs wafer fabrication. These positive factors more than offset a reduction in our average gross profit percentage from a product mix shift from higher margin microwave monolithic integrated circuits (MMICs) to modules which are more complex, highly integrated module PAs. In addition, our gross margin improvement was achieved despite continued downward pressure on the average selling prices of our products. Although our overall weighted average selling price declined during fiscal 2004, the number of PA units we sold in fiscal 2004 increased by 53%, which offset the decline in our average selling price.

RESEARCH AND DEVELOPMENT

Fiscal 2005

Research and development expenses in fiscal 2005 were $156.5 million, an increase of 22% compared to fiscal 2004 expense of $128.2 million. The increase 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 process 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 currently operate design centers that are located throughout the world, in addition to our design engineering staff in Greensboro, North Carolina.

A key element of our business strategy involves the potential acquisition of businesses, assets, products or technologies that allow us to reduce the time required to develop new technologies and products and bring them to market, complement our existing product offerings, expand our market coverage, increase our engineering workforce and enhance our technological capabilities.

In May 2004, we completed the acquisition of Silicon Wave. Silicon Wave’s Bluetooth® product portfolio included CMOS radio solutions as well as highly integrated single-chip CMOS solutions, which include a radio, baseband processor, processor core and memory — all on a single chip of silicon. The CMOS Bluetooth® solutions do not require external flash memory and minimize the use of external RF components. This represents a cost and size advantage compared to competitors’ solutions. Our Bluetooth® products are currently in production and in use supporting multiple applications, including cellular handsets, headsets, PC peripherals and consumer electronics devices.

As part of our strategic relationship with Jazz, we invested a total of $60.0 million in fiscal 2003 and fiscal 2004 for an ownership interest of approximately 11 percent. Through our relationship with Jazz, we have a guaranteed low-cost source of supply for wafers fabricated utilizing Jazz’s manufacturing processes, including SiGe BiCMOS and RF CMOS. This relationship also allows us to collaborate with Jazz on developing wireless technology roadmaps, including joint process development and the optimization of these processes for fabrication of next-generation silicon products.

During the fourth quarter of fiscal 2005, our Board of Directors committed to a plan to discontinue our internal WLAN chipset development efforts as a result of our difficulties in bringing competitive WLAN chipset solutions to market in a timely manner. We will continue to support our WLAN component business, which includes our transceiver for gaming and other applications as well as our WLAN PAs and front-end modules for all WLAN markets. As a result of this action, we expect to save approximately $18.0 million to $22.0 million per year in research and development expenses, commencing in our 2006 fiscal year, (which

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RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

began April 1, 2005) which will be partially offset by our other research and development investments.

Fiscal 2004

Research and development expenses in fiscal 2004 were $128.2 million, an increase of 26% compared to fiscal 2003 expense of $101.7 million. This increase was primarily attributable to increased headcount and related personnel expenses, including salaries and benefits. Our WLAN product line, which we expanded with the acquisition of Resonext Communications, Inc. (Resonext) in December 2002, contributed to the increased headcount, related personnel expenses and additional amortization expense from the acquired intangible assets. The increases were also attributable to our focus on product development related to our POLARIS^tm TOTAL RADIO^tm family of cellular transceivers, WLAN products, next generation PAs and infrastructure products. Our spending also included research expenses for semiconductor process technologies related to GaAs, silicon and GaN.

We operated 13 design centers at March 31, 2004, that are located throughout the world, in addition to our design engineering staff in Greensboro, North Carolina.

MARKETING AND SELLING

Fiscal 2005

Marketing and selling expenses in fiscal 2005 were $47.4 million, a 5% absolute dollar increase compared to expenses of $45.2 million in fiscal 2004. 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.

We sell our products worldwide directly to customers as well as through a network of domestic and foreign sales representative firms. We have sales and customer support centers located throughout the world. During fiscal 2005, we added resources to help us to sell systems solutions, such as Bluetooth® and POLARIS^tm TOTAL RADIO^tm, as well as to integrate these products into our customers’ handsets.

We are focusing our efforts on building the staffing and capabilities of our existing sales infrastructure and believe that our existing sales offices and customer support centers provide the geographic coverage necessary to address our product markets and customer base.

Fiscal 2004

Marketing and selling expenses in fiscal 2004 were $45.2 million, a 23% increase compared to expenses of $36.8 million in fiscal 2003. This increase was primarily attributable to increased personnel expenses, including salaries, benefits and equipment. Our WLAN product line, which we expanded through the Resonext acquisition in December 2002, contributed to the increased personnel expenses and additional amortization expense from the acquired intangible assets. The fiscal 2004 increase compared to fiscal 2003 was partially offset by a decrease in commission expense in fiscal 2004 compared to fiscal 2003, which was attributable to shifts in revenue from third-party commission-based accounts to in-house accounts. Marketing and selling expenses remained relatively flat as a percentage of sales.

GENERAL AND ADMINISTRATIVE

Fiscal 2005

General and administrative expenses in fiscal 2005 were $25.1 million or 4% of revenue, a 19% absolute dollar increase compared to fiscal 2004 expenses of $21.1 million or 3% of revenue. The fiscal 2005 increase was due primarily to increased headcount and related personnel expenses, including salaries and benefits and increased costs related to our compliance with the Sarbanes-Oxley Act of 2002 and related regulatory requirements. We expect that general and administrative expenses will continue to increase in absolute dollar amounts in future periods.

Fiscal 2004

General and administrative expenses in fiscal 2004 were $21.1 million or 3% of revenue, a 15% absolute dollar increase compared to fiscal 2003 expenses of $18.4 million or 4% of revenue. The fiscal 2004 increase in absolute dollars compared to fiscal 2003 was due primarily to increased headcount and related personnel expenses, including salaries, benefits, increased directors’ compensation cost and expenses, increased premiums related to key employee insurance and increased legal and audit fees related to our compliance with the Sarbanes-Oxley Act of 2002 and related regulatory requirements and business operations in China.

OTHER OPERATING EXPENSES

Fiscal 2005

Other operating expenses were $49.5 million in fiscal 2005 compared to $9.8 million in fiscal 2004. During the fourth quarter of fiscal 2005, we discontinued our internal WLAN chipset development efforts due to our

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RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

difficulties in bringing competitive WLAN chipset solutions to market in a timely manner. We recorded a non-cash charge of approximately $37.1 million for impairment of intangible assets, consisting of acquired technology licenses, a non-cash charge of approximately $0.9 million for the impairment of fixed assets and prepaids and cash charges of approximately $2.4 million related to severance and related payroll costs. In addition, we recorded contractual obligations related to software and license agreements of approximately $1.7 million, as well as miscellaneous accruals totaling approximately $0.3 million which is expected to be paid during fiscal 2006. See Note 11 to the Consolidated Financial Statements.

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 we, along 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 March 31, 2005, the estimated cost to complete this project is approximately $3.7 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 our 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 third quarter of fiscal 2005, 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.

Fiscal 2004

Other operating expenses were $9.8 million in fiscal 2004 compared to $14.0 million in fiscal 2003, a 30% decrease. Other operating expenses in fiscal 2004 were comprised of a non-cash asset impairment charge of $7.7 million which resulted from the termination of our strategic alliance with Agere. In addition, other operating expenses for fiscal 2004 included $2.1 million of depreciation expense for assets held and used related to the Agere facility.

Other operating expenses in fiscal 2003 totaled $14.0 million and included a $10.5 million charge for acquired in-process research and development in connection with the merger with Resonext, $2.1 million of depreciation expense for assets held and used related to the Agere facility and $1.4 million of start-up costs associated with our test, tape and reel facility in Beijing, China. The Resonext related acquired in-process research and development charge in fiscal 2003 was expensed in accordance with SFAS 141. SFAS 141 specifies that the amount 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 projects were related to first- and second-generation products for 802.11a/b/g applications. The first- and second-generation product efforts have been discontinued, and, accordingly, no additional expenditures were incurred for these projects.

INTEREST EXPENSE

Fiscal 2005

Interest expense in fiscal 2005 was $6.5 million compared to $12.9 million in fiscal 2004. During fiscal 2004, we repurchased $200.0 million of the $300.0 million aggregate principal amount of our 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, we repurchased the remaining $100.0 million principal of our 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 fiscal year ended March 31, 2005, compared to March 31, 2004, was primarily due to lower outstanding debt during the period.

Fiscal 2004

Interest expense in fiscal 2004 was $12.9 million compared to $24.4 million in fiscal 2003. The $11.5 million decrease resulted primarily from the retirement of an interest rate swap arrangement for $7.8 million during the third quarter of fiscal 2003. Also, during

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RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

July 2003, we completed the private placement of $230.0 million aggregate principal amount of 1.50% convertible subordinated notes due 2010 and used a portion of the proceeds to repurchase $200.0 million of the $300.0 million aggregate principal amount of our 3.75% convertible subordinated notes due 2005, therefore reducing our interest expense on our 3.75% convertible subordinated notes.

LOSS IN EQUITY METHOD INVESTEE

Fiscal 2005

On May 24, 2004, we completed the acquisition of Silicon Wave, Inc., a privately-held San Diego-based supplier of highly integrated Bluetooth® solutions for wireless personal area networks. 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 SFAS 141, using the purchase method of accounting. 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).

Fiscal 2004

Prior to our acquisition of Silicon Wave, we 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, we made a $4.0 million investment, which represented less than a 20% ownership interest and, because we 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 18.

During the third quarter of fiscal 2004, we made an additional $2.0 million equity investment in Silicon Wave. The additional investment increased our ownership interest to greater than 20%. In accordance with APB 18, we re-evaluated our ownership interest and whether we 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 we 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 $2.8 million for the fiscal year ended March 31, 2004.

INCOME TAX EXPENSE

Fiscal 2005

Income tax expense for fiscal 2005 was $0.6 million as compared to $0.5 million for fiscal 2004, primarily representing foreign income taxes on international operations. The effective combined domestic income tax rate was 0% for fiscal 2005 and 0% for fiscal 2004. Our effective tax rate was 0.9% for fiscal 2005 compared to 1.6% for fiscal 2004. Our overall tax rate for 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 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 and tax credits, rate differences on foreign transactions and other differences between book and tax treatment of certain expenditures.

At March 31, 2005, we had outstanding net operating loss carryforwards (NOLs) for federal domestic tax purposes of approximately $111.5 million, which may expire in years 2012-2025, if unused, and state losses of approximately $120.8 million, which may expire in years 2009-2025, if unused. Included in the amounts above are certain NOL and other tax attribute assets acquired in conjunction with our acquisition of Resonext 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 $67.9 million related to domestic operating losses and credit carryforwards has been established, as it is management’s opinion that it is more likely than not that some portion of the deferred tax assets will not be realized.

Fiscal 2004

The effective combined domestic income tax rate for fiscal 2004 was 0%. Income tax expense of $0.5 million was incurred due to taxes on our foreign subsidiaries. Income tax expense was higher than the $0.3 million incurred in 2003 due primarily to an increase in activities in our foreign offices.

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RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

LIQUIDITY AND CAPITAL RESOURCES

We have funded our operations to date through sales of equity and debt securities, bank borrowings, capital equipment leases and revenue from product sales. Through public and Rule 144A securities offerings, we have raised approximately $687.0 million, net of offering expenses. As of March 31, 2005, we had working capital of approximately $246.8 million, including $26.0 million in cash and cash equivalents, compared to working capital at March 31, 2004, of $426.9 million, including $103.0 million in cash and cash equivalents. The decrease in working capital was primarily due to the redemption on August 15, 2004, of the remainder of our outstanding 3.75% convertible subordinated notes for $100.00 million plus accrued interest of $1.9 million. During fiscal 2005 we reclassified our auction rate securities, previously classified as cash equivalents, as short-term investments in the amount of $118.0 million as of March 31, 2004. See Note 2 to the Consolidated Financial Statements.

Operating activities in fiscal 2005 provided cash of $56.4 million, compared to $117.1 million provided in fiscal 2004. This decrease was primarily attributable to lower earnings and an increase in inventory which was offset by the charges incurred as a result of the discontinuation of our internal WLAN chipset development efforts and a decrease in our accounts receivable. The increase in inventory levels was impacted by lower than forecasted sales volume as well as a buildup of POLARIS^tm TOTAL RADIO^tm family of components to support forecasted customer demand. Accounts receivable balances were $11.7 million lower (or 13.6%) at March 31, 2005, as compared to March 31, 2004, as days sales outstanding improved to 42.3 days for fiscal 2005 as compared to 47.7 days for fiscal 2004.

Net cash used in investing activities in fiscal 2005 was $38.9 million, compared to $128.7 million in fiscal 2004. This decrease 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.

While our capital expenditures totaled approximately $116.6 million during fiscal 2005, we are currently expecting to spend between $50.0 million-$60.0 million in fiscal 2006. We have substantially completed the expansions of all of our operating facilities, which are currently equipped to handle a significant increase in customer demand. We currently expect to fund our 2006 capital expenditures with cash flow from operations and cash on hand.

Net cash used in financing activities for the fiscal year ended March 31, 2005, was $94.5 million, compared to cash provided of $31.3 million for the fiscal year ended March 31, 2004, due to the repurchase of the $100.0 million outstanding principal amount of our 3.75% convertible subordinated notes. We currently expect to pay off our debt with cash flow from operations and cash on hand.

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 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.

IMPACT OF INFLATION

Management does not believe that the effects of inflation have had a significant impact on our net sales, revenues or income from continuing operations during fiscal years 2005, 2004 and 2003.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have transactions or relationships with “special purpose” entities, and we do not have any off-balance sheet financing other than normal operating leases.

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RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

COMMITMENTS

The following table summarizes our significant contractual obligations and commitments (in thousands) at March 31, 2005, and the effect such obligations are expected to have on our liquidity and cash flows in future periods. This table excludes amounts already recorded on our balance sheet as current liabilities at March 31, 2005:

Capital Commitments

At March 31, 2005, we had long-term capital commitments of approximately $13.4 million, consisting of approximately $4.9 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 $4.3 million for the expansion of our wafer fabrication facilities, approximately $0.8 million related to equipment for our MBE facility, approximately $0.2 million for equipment related to our U.S. and Beijing, China, test, tape and reel facilities and the remainder for general corporate requirements.

Capital Leases

We are a party to one capital lease with an equipment-financing company. The lease, which expired on June 1, 2005, had an effective interest rate of 8.7% at March 31, 2005. Capital lease amortization totaling approximately $0.3 million is included in depreciation expense for the fiscal year ended March 31, 2005, and no interest expense related to this equipment under capital leases has been capitalized in fiscal 2005.

Operating Leases

We lease the majority of our corporate, wafer fabrication and other facilities from several third party real estate developers. The terms of these operating leases range from six months to 15 years and several have renewal options up to two 10-year periods. Several also include standard inflation escalation terms. We also lease various machinery and equipment and office equipment under non-cancelable operating leases. As of March 31, 2005, the total future minimum lease payments were approximately $50.1 million related to facility operating leases and approximately $0.1 million related to equipment operating leases.

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% note 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 3.75% convertible subordinated notes for $100.0 million plus accrued interest with cash flow from operations and cash on hand.

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, exceeded $6.0 million, we agreed to pay an aggregate cash amount equal to one-half of the revenue derived from these Silicon Wave products during this period. As of March 31, 2005, total revenue derived from certain Silicon Wave products triggered recognition of a liability and

33

RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

purchase price adjustment of approximately $4.9 million, which was paid during the first quarter of fiscal 2006. 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. We cannot currently estimate the probability of the contingent consideration or reasonably estimate the amount of the contingent consideration for fiscal 2006.

Purchase Obligations

At March 31, 2005, we had potential obligations related to external processing totaling approximately $12.4 million.

We address our exposure to market risks, principally the market risk associated with changes in interest rates, through a controlled program of risk management that has in the past included the use of derivative financial instruments, such as interest rate swap agreements. We do not hold or issue derivatives, derivative commodity instruments or other financial instruments for trading or speculative purposes. We do not believe that our exposure to market risk is material to our financial position or results of operations.

Short-term and Long-term Investments

Our investments in short-term and long-term investments are classified as available-for-sale securities and are comprised of auction rate securities, corporate debt securities, U.S. government/agency securities, equity securities, municipal securities and investments in privately-held companies, in accordance with an investment policy approved by our Board of Directors. Classified as available-for-sale, all of these investments are held at fair value. Although we manage investments under an investment policy, economic, market and other events may occur that we cannot control. Although the risks are minimal, fixed rate securities may have their fair value adversely impacted because of changes in interest rates and credit ratings. Due in part to these factors, our future investment income may fall short of expectations because of changes in interest rates, or we may suffer principal losses if we were to sell securities that have declined in value because of changes in interest rates or issuer credit ratings.

During fiscal year 2005, we reclassified certain auction rate securities from cash equivalents to short-term investments. Auction rate securities are variable rate bonds tied to short-term interest rates with maturities on the face of the securities in excess of 90 days. Our auction rate securities have interest rate resets through a modified Dutch auction, at predetermined short-term intervals, ranging from 28 to 360 days. They trade at par and are callable at par on any interest payment date at the option of the issuer. Interest paid during a given period is based upon the interest rate determined during the prior auction. Although these securities are issued and rated as long-term bonds, they are priced and traded as short-term instruments because of the liquidity provided through the interest rate reset. We had historically classified these instruments as cash equivalents if the period between interest rate resets was 90 days or less, which was based on our ability to either liquidate our holdings or roll our investments over to the next reset period.

Based upon our re-evaluation of the maturity dates associated with the underlying bonds, we have reclassified our auction rate securities, previously classified as cash equivalents, as short-term investments in the amount of $118.0 million as of March 31, 2004.

Convertible Debt and Capital Lease Obligations

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% note 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 3.75% convertible subordinated notes for $100.0 million plus accrued interest with cash flow from operations and cash on hand.

Because our 1.50% convertible subordinated notes due 2010 have a fixed interest rate we do not have significant interest rate cash flow exposure on our long-term debt. However, the fair value of the 1.50% convertible subordinated notes is subject to significant fluctuations due to their convertibility into shares of our stock and other market conditions. The fair value of these convertible subordinated notes is also sensitive to fluctuations in the general level of the U.S. interest rates. As of March 31, 2005, the

34

RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

1.50% convertible subordinated notes had a fair value of $213.7 million. We would be exposed to interest rate risk if we used additional financing to fund capital expenditures. The interest rate that we may be able to obtain on financings will depend on market conditions at that time and may differ from the rates that we have secured in the past.

Our capital lease obligations have fixed interest rates and the fair value of these instruments is affected by changes in market interest rates. As a result, we believe that the market risk arising from holdings of our financial instruments is not material.

Foreign Currency Risk

We have limited exposure to currency exchange fluctuations, as we manage the sensitivity of our international sales, purchases of raw materials and equipment by denominating most transactions in U.S. dollars. In the third quarter of fiscal 2003, we completed the establishment of an operation in Beijing, China, where domestic sales are denominated in Renminbi. The currency exchange rate fluctuations in Renminbi are immaterial to our overall operating results and cash flows. We do not currently engage in foreign currency hedging transactions.

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RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

36

RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

CONSOLIDATED BALANCE SHEETS

See accompanying notes.

37

RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes.

38

RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

See accompanying notes.

39

RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes.

40

RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

Notes to Consolidated Financial Statements

March 31, 2005

1.    COMPANY INFORMATION

RF Micro Devices, Inc. (the “Company”) designs, develops, manufactures and markets proprietary radio frequency (RF) components and system level solutions (“products”) for wireless communications products and applications. The Company’s products are primarily included in cellular phones, base stations, wireless local area networks (WLAN), cable television modems and global positioning systems (GPS). The Company derives revenue from the sale of standard and custom-designed products. The Company offers 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 products required in wireless subscriber equipment. These products perform the transmit and receive functions that are critical to the performance of wireless devices.

The Company addresses the various wireless markets by a product delivery strategy called Optimum Technology Matching®. This product delivery strategy utilizes multiple distinct semiconductor process technologies in order to offer customers products that fulfill their performance, cost and time-to-market requirements. The process technologies include: aluminum gallium arsenide (AlGaAs) (also referred to as gallium arsenide (GaAs)) heterojunction bipolar transistor (HBT), silicon bipolar transistor, silicon complementary metal-oxide-semiconductor (CMOS), silicon BiCMOS (integration of bipolar transistors and CMOS), silicon germanium (SiGe) BiCMOS, GaAs metal-semiconductor field-effect transistor (MESFET), and indium gallium phosphide (InGaP) HBT. The Company is continuing to invest in product development utilizing gallium nitride (GaN).

The Company reports information as one operating segment. Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information” (SFAS 131), established standards for the way that public companies report information about operating segments in annual consolidated financial statements. Although the Company had three business units at March 31, 2005 (Cellular, Wireless Connectivity and Infrastructure), the Company reports information as one operating segment pursuant to the aggregation criteria set forth in SFAS 131.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS

Principles of Consolidation

The 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.

Accounting Periods

The Company uses a 52- or 53-week fiscal year ending on the Saturday closest to March 31 of each year. The most recent three fiscal years ended on April 2, 2005, April 3, 2004 and March 29, 2003. Fiscal years 2005 and 2003 were 52-week years and fiscal year 2004 was a 53-week year. For purposes of financial statement presentation, each fiscal year is described as having ended on March 31.

Reclassifications

Certain auction rate securities have been reclassified from cash equivalents to short-term investments. Auction rate securities are variable rate bonds tied to short-term interest rates with maturities on the face of the securities in excess of 90 days. The Company’s auction rate securities have interest rate resets through a modified Dutch auction, at predetermined short-term intervals, ranging from 28 days to 360 days. They trade at par and are callable at par on any interest payment date at the option of the issuer. Interest paid during a given period is based upon the interest rate determined during the prior auction. Although these securities are issued and rated as long-term bonds, they are priced and traded as short-term instruments because of the liquidity provided through the interest rate reset. The Company had historically classified these instruments as cash equivalents if the period between interest rate resets was 90 days or less, which was based on the Company’s ability to either liquidate its holdings or roll its investment over to the next reset period.

Based upon the Company’s re-evaluation of the maturity dates associated with the underlying bonds, the Company has reclassified its auction rate securities,

41

RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

Notes to Consolidated Financial Statements

previously classified as cash equivalents, as short-term investments in the amount of $118.0 million as of March 31, 2004. In addition, “Purchase of available-for-sale securities” and “Proceeds from maturities of available-for-sale securities,” included in the accompanying statements of cash flows, have been revised to reflect the purchase and sale of auction rate securities for the years ended March 31, 2004, and March 31, 2003.

Certain amounts in the March 31, 2004, and 2003 consolidated financial statements have been reclassified to conform to the March 31, 2005, presentation. These reclassifications had no effect on net (loss) income or shareholders’ equity as previously reported.

Fair Value of Financial Instruments

The carrying values of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and other accrued liabilities approximate fair values as of March 31, 2005 and 2004. The 1.50% convertible subordinated notes had a fair value of $213.7 million as of March 31, 2005, on the Private Offerings, Resale and Trading through Automated Linkages (PORTAL) Market compared to the carrying amount of $226.2 million. At March 31, 2004, the Company’s 3.75% convertible subordinated notes had a fair value of $100.0 million and the 1.5% convertible subordinated notes had a fair value of $318.0 million on the PORTAL Market, compared to the carrying amounts of $99.2 million and $225.5 million, respectively. The fair values of the cost method investments are not estimated unless there are events or changes identified that may have a significant adverse effect on the fair value; such estimates of fair value could not be made without incurring excessive costs.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company makes estimates for the returns reserve, allowance for doubtful accounts, inventory reserves, warranty reserves, income tax valuation, impairment of investments, goodwill, long-lived assets and other financial statement amounts on a regular basis and makes adjustments based on historical experiences and existing and expected future conditions. Actual results could differ from these estimates.

Cash and Cash Equivalents

Cash and cash equivalents consist of demand deposit accounts, money market funds and temporary, highly liquid investments with original maturities of three months or less when purchased.

Investments

The Company invests in available-for-sale securities and privately-held companies.

Available-for-Sale Investments

Investments are accounted for in accordance with Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments In Debt and Equity Securities” (SFAS 115). Investments available-for-sale at March 31, 2005, March 31, 2004, consisted of corporate debt securities, U.S. government/agency securities, auction rate securities and equity and municipal securities. Available-for-sale securities are carried at fair value as determined by quoted market prices, with the unrealized gains and losses, net of tax, reported as a separate component of shareholders’ equity in accordance with SFAS 115. The cost of securities sold is based on the specific identification method and any realized gain or loss is included in other (expense) income. The amortized cost of debt securities is adjusted for amortization of premium and accretion of discounts and is included as a portion of interest. The Company monitors investments for impairment and records other-than-temporary declines in value if the market value is estimated to be below its cost basis for an extended period or the issuer has experienced significant financial difficulties.

Other Investments

The Company’s other investments include investments in privatey-held companies. Pursuant to APB 18, the Company accounts for these investments either at historical cost or, if the Company has significant influence over the investee, the Company accounts for these investments using the equity method of accounting.

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RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

Notes to Consolidated Financial Statements

We review all of our investments quarterly for indications of impairment. In making impairment determinations for investments in privately-held companies and investments in available-for-sale securities, we consider certain factors, including each company’s cash position, financing needs, earnings, revenue outlook, operational performance, management or ownership changes as well as competition. In making impairment determinations for investments of available-for-sale securities, we also review the current market price for other-than-temporary declines in values following the latest guidance required by Financial Accounting Standards Board (FASB) Emerging Issues Task Force Issue 03-01, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.”

Inventories

Inventories are stated at the lower of cost or market determined using the average cost method. The Company’s business is subject to the risk of technological and design changes. The Company evaluates inventory levels quarterly against sales forecasts on a product family basis to evaluate its overall inventory risk. Reserves are adjusted to reflect inventory values in excess of forecasted sales as well as overall inventory risk assessments by management. In the event the Company sells inventory that had been covered by a specific inventory reserve, the sale is recorded at the actual selling price and the related cost of goods sold at the full inventory cost. Inventory deemed obsolete pursuant to Company policy regarding inventory obsolescence is required by the policy to be carried for a period not to exceed one year so that customers may be notified and find a suitable replacement. Once the one-year period is complete, the inventory will be disposed of and the inventory value and related reserve will be written off by the Company.

Property and Equipment

Property and equipment are stated at cost. Depreciation of property and equipment is provided using the straight-line method over the estimated useful lives of the assets, ranging from two to 20 years. The Company’s assets acquired under capital leases and leasehold improvements are amortized over the lesser of the asset life or lease term and included in depreciation.

Intangibles Assets and Goodwill

Intangibles consist primarily of technology licenses and assets resulting from business combinations. Technology licenses are amortized on a straight-line basis over the lesser of the estimated useful life of the technology or the term of the license agreement, ranging from two to 20 years. Acquired product technology and other intangible asset costs are also amortized on a straight-line basis over the estimated useful life, ranging from one to 10 years.

The Company assesses the recoverability of its intangibles and other assets by determining its ability to generate future cash flows sufficient to recover the unamortized balances over the remaining useful lives. Intangibles and other assets determined to be unrecoverable based on future cash flows would be written off in the period in which the non-recoverability determination was made as required by Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS 142) and Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS 144).

Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed in a business combination. SFAS 142 eliminates the amortization of goodwill and instead requires that goodwill be evaluated for impairment on an annual basis, or whenever events indicate impairment may have occurred. In accordance with SFAS 142, the Company assesses impairment of acquired goodwill on an annual basis on the first day of the fourth quarter in each fiscal year. Upon completion of the fiscal 2005 and 2004 impairment assessments, no impairment was indicated as the estimated fair values of the reporting units exceeded their respective carrying values. The methods used to evaluate goodwill included two generally accepted valuation methodologies: the income approach and the market approach. The specific methods applied include the discounted cash flow method, the allocation of market capitalization method, and the guideline company method. Newly acquired goodwill determinations are based on independent appraisals.

The value of acquired in-process research and development is determined by estimating the costs to develop the purchased in-process research and

43

RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

Notes to Consolidated Financial Statements

development into a commercially viable product, estimating the resulting cash flows from the sale of the products resulting from the completion of the in-process research and development and discounting the net cash flows using a present value factor. The acquired in-process research and development with no alternative future use is charged to expense at the acquisition date in accordance with SFAS 141. See Note 8 to the Consolidated Financial Statements.

Revenue Recognition

The Company’s net revenue is generated principally from sales of semiconductor products. Such sales represented approximately 99% of its total net revenue in each of fiscal 2005, 2004 and 2003. The Company derives the remaining balance of its net revenue from non-recurring engineering fees and cost-plus contracts for research and development work, which collectively are less than 1% of consolidated revenue for any period. Sales of products are generally done through either the Company’s sales force, manufacturers’ representatives or through a distribution network. In accordance with Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements (“SAB 101”) as well as SAB No. 104, Revenue Recognition (“SAB 104”), the Company recognizes revenue from product sales when the fundamental criteria are met, such as the title and risk and rewards of product ownership are transferred to the customer, price and terms are fixed, no significant vendor obligation exists and collection of the resulting receivable is reasonably assured. Revenue from non-recurring engineering fees are recognized when the service is completed or upon certain milestones as provided for in the agreements. Revenues from cost plus contracts are recognized on the percentage of completion method based on the costs incurred to date and the total contract amount, plus the contractual fee. The Company’s revenue recognition policy is significant because revenue is a key component of the Company’s operations and the timing of revenue recognition determines the timing of certain expenses, such as sales commissions. Revenue results are difficult to predict, and any shortfall in revenues could cause the Company’s operating results to vary significantly from period to period.

Accounts receivable are recorded for all revenue items listed above. The Company evaluates the collectibility of accounts receivable based on a combination of factors. In cases where the Company is aware of circumstances that may impair a specific customer’s ability to meet its financial obligations subsequent to the original sale, the Company will record an allowance against amounts due, and thereby reduce the receivable to the amount the Company reasonably believes will be collected. For all other customers, the Company recognizes allowances for doubtful accounts based on the length of time the receivables are past due, industry and geographic concentrations, the current business environment and the Company’s historical experience. Based on these factors, the Company’s allowance for doubtful accounts has typically represented less than 1% of sales and accounts receivable write-offs to date have been minimal. The Company relates its low write-offs to the financial strength of its customers, conservative payment terms and stringent credit policies. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

The Company’s terms and conditions do not give its customer the right of return associated with the original sale of its product. However, the Company will authorize sales returns under certain circumstances which include perceived quality problems, courtesy returns and like-kind exchanges. The Company evaluates its estimate of returns by analyzing all types of returns and the timing of such returns in relation to the original sale. The reserve is adjusted to reflect changes in the estimated returns versus the original sale of product. Historically, sales returns have not fluctuated as a percent of sales and have remained at approximately 1%.

The Company’s products generally carry 12 to 27 month warranties against defects depending on the specific type of product. The Company provides for estimated warranty costs in the period the related sales are made based on historical experience as well as assessment of overall risk.

Shipping and Handling Cost

The Company recognizes amounts billed to a customer in a sale transaction related to shipping and handling as revenue. The costs incurred by the Com-

44

RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

Notes to Consolidated Financial Statements

pany for shipping and handling are classified as cost of goods sold.

Research and Development

The Company charges all research and development costs to expense as incurred.

Advertising Costs

The Company expenses advertising costs as incurred. The Company recognized advertising expense of $0.9 million for the fiscal year ended March 31, 2005, and $1.0 million for both fiscal years ended March 31, 2004, and 2003.

Income Taxes

The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (SFAS 109). Under SFAS 109, the liability method is used in accounting for income taxes, and deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities.

Stock-Based Compensation

The Company accounts for employee stock options, employee restricted stock and its employee stock purchase plan 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 or for the employee stock purchase plan, which are non-compensatory under APB 25. For stock options or restricted stock granted at exercise prices below quoted market value, the Company records deferred compensation expense for the difference between the price of the underlying 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, employee stock purchase plans 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).

In March 2005, the Company’s Board of Directors, upon recommendation of the Board’s Compensation Committee, approved the accelerated vesting of all unvested and “out-of-the-money” stock options. As a result of this action, options to purchase approximately 10.2 million shares of the Company’s common stock that would otherwise have vested at various times within the next four years became fully vested. The decision to accelerate the vesting, which the Company believes to be in the best interest of the Company and its shareholders, was made primarily to reduce compensation expense that might be recorded in future periods following the Company’s adoption of SFAS 123(R). The SFAS 123 pro forma stock-based compensation cost of $56.9 million for the year ended March 31, 2005, in the table below includes a charge of approximately $22.1 million as a result of the acceleration.

Pro forma Disclosures

Pro forma information regarding net (loss) income and net (loss) income 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, awards and employee stock purchase plans using the fair value method of SFAS 123 as amended by SFAS 148. The fair value for these options was esti-

45

RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

Notes to Consolidated Financial Statements

mated at the date of grant using a Black-Scholes option pricing model with the following assumptions:

For purposes of pro forma disclosures, the estimated fair value of stock-based awards is amortized to expense over the awards’ vesting periods. The weighted average fair value of options granted during fiscal years 2005, 2004 and 2003 were $6.03, $7.01 and $7.28, respectively. The pro forma stock-based compensation costs for fiscal years 2004 and 2003 have been revised from amounts previously reported. The Company’s pro forma information follows (in thousands, except per share data):

On December 16, 2004, the FASB issued SFAS 123(R), which is a revision of SFAS 123. SFAS 123(R) supersedes APB Opinion No. 25 “Accounting for Stock Issued to Employees” (APB 25) and amends SFAS 95, “Statement of Cash Flows.” Generally, the approach in SFAS 123(R) is similar to the approach in SFAS 123. However, SFAS 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 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 123(R) was originally effective for public companies at the beginning of the first interim or annual period beginning after June 15, 2005. However, on April 15, 2005, the SEC amended the date for compliance with SFAS 123(R) to be the first interim or annual reporting period of the registrant’s first fiscal year beginning on or after June 15, 2005. Therefore, the Company will prepare its financial statements in accordance with SFAS 123(R) beginning on April 1, 2006. In accordance with SFAS 123(R), 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 adoption of SFAS 123(R)’s fair value method may have a significant impact on the Company’s results of operations, although it will have no impact on the Company’s overall financial position. The impact of adoption of SFAS 123(R) in fiscal 2007 and beyond cannot be predicted at this time because it will depend upon various factors including levels of share-based awards granted in the future and the Company’s future compensation strategy.

If the Company had adopted SFAS 123(R) in prior periods, the impact would have approximated the impact of SFAS 123 as described in the pro forma disclosure above. SFAS 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

46

RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

Notes to Consolidated Financial Statements

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 for such excess tax deductions were $0.0 million in each of the fiscal years ended 2005, 2004 and 2003, respectively.

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 123(R) becomes effective.

Foreign Currency Translation

The financial statements of foreign subsidiaries have been translated into United States dollars in accordance with Statement of Financial Accounting Standards No. 52 “Foreign Currency Translation.” All balance sheet accounts have been translated using the exchange rates in effect at the balance sheet dates. Income statement amounts have been translated using the average exchange rates for the respective years. The gains and losses resulting from the changes in exchange rates from year to year have been reported in accumulated other comprehensive (loss) income included in the consolidated statements of stockholders’ equity.

Impact of Recently Issued Accounting Standards

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 calendar year 2005, in connection with EITF Issue No. 04-08. The Company evaluated its 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.

New Accounting Pronouncements Not Yet Adopted

In November 2004, the FASB issued SFAS 151, “Inventory Costs, an amendment of Accounting Research Bulletin No. 43 (ARB 43), Chapter 4.” SFAS 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 43. SFAS 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 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. While the Company is still evaluating the impact of this statement, management does not currently believe that it will have a material impact on our consolidated financial statements.

3.    CONCENTRATIONS OF CREDIT RISK

The Company’s principal financial instrument subject to potential concentration of credit risk is accounts receivable, which is unsecured. The Company provides an allowance for doubtful accounts equal to estimated losses expected to be incurred in the collection of accounts receivable.

47

RF Micro Devices, Inc. and Subsidiaries Annual Report on Form 10-K 2005

Notes to Consolidated Financial Statements

Revenues from significant customers, those representing 10% or more of total sales for the respective periods, are summarized as follows:

For the fiscal year ended March 31, 2005, the Company’s accounts receivable balance did not include any balances from these customers greater than 10% of its accounts receivable balance. At March 31, 2004, customer 3 had an accounts receivable balance representing 13% of the Company’s total accounts receivable and at March 31, 2003, 27% of the Company’s accounts receivable was due from customer 1.

4.    INVESTMENTS

The following is a summary of available-for-sale securities at March 31, 2005 and March 31, 2004 (in thousands):