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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended January 25, 2004

OR

For the transition period from              to             

Commission file number 1-6395

SEMTECH CORPORATION

(Exact name of registrant as specified in its charter)

200 Flynn Road, Camarillo, California, 93012-8790

(Address of principal executive offices, Zip Code)

Registrant’s telephone number, including area code: (805) 498-2111

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

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

Common Stock par value $.01 per share

Rights to Purchase Series X Junior Participating Preferred Stock

(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

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

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

The aggregate market value of the voting stock held by non-affiliates of the registrant as of July 25, 2003 (the last business day of the Company’s most recently completed second fiscal quarter) was approximately $846,248,538. Stock held by directors, officers and shareholders owning 5% or more of the outstanding common stock (as reported on Schedules 13D and 13G) were excluded as they may be deemed affiliates. This determination of affiliate status is not a conclusive determination for any other purpose.

The number of shares of the Registrant’s common stock outstanding at April 1, 2004 was 74,324,246.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following documents are incorporated by reference in Part III of this report: Definitive Proxy Statement in connection with registrant’s annual meeting of shareholders to be held on June 10, 2004.

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SEMTECH CORPORATION

INDEX TO FORM 10-K

FOR THE YEAR ENDED JANUARY 25, 2004

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This Annual Report on Form 10-K for the year ended January 25, 2004 (the “Form 10-K”) contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are statements other than historical information or statements of current condition and relate to future events or the future financial performance of the Company. Some forward-looking statements may be identified by use of such terms as “expects,” “anticipates,” “intends,” “estimates,” “believes” and words of similar import. These forward-looking statements relate to plans, objectives and expectations for future operations.

In light of the risks and uncertainties inherent in all such projected operational matters, the inclusion of forward-looking statements in this Form 10-K should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved or that any of the Company’s operating expectations will be realized. Net sales and results of operations are difficult to forecast and could differ materially from those projected in the forward-looking statements contained in this Form 10-K for the reasons detailed in the “Risk Factors” section of this Form 10-K, beginning on page 10 or elsewhere in this Form 10-K. We assume no obligation to update any of the forward- looking statements after the date of this Form 10-K.

PART I

ITEM 1. BUSINESS

General

We are a leading supplier of analog and mixed-signal semiconductors and were incorporated in Delaware in 1960. We design, produce and market a broad range of products that are sold principally to customers in the computer, communications and industrial markets. Our products are designed into a wide variety of end applications, including notebook and desktop computers, computer gaming systems, personal digital assistants (PDAs), cellular phones, wireline networks, wireless base stations and test systems. Our end-customers are primarily original equipment manufacturers and their suppliers, including Agilent, Cisco, Compal Electronics, Dell, Hewlett Packard, IBM, Intel, Lucky Goldstar, Microsoft, Motorola, Quanta Computer, Samsung, Sony and Unisys.

Overview of the Semiconductor Industry

The semiconductor industry is broadly divided into analog and digital semiconductor products. Analog semiconductors condition and regulate “real world” functions such as temperature, speed, sound and electrical current. Digital semiconductors process binary information, such as that used by computers. Mixed-signal devices incorporate both analog and digital functions into a single chip and provide the ability for digital electronics to interface with the outside world.

The market for analog and mixed-signal semiconductors differs from the market for digital semiconductors. The analog and mixed-signal industry is characterized by significantly longer product life cycles than the digital industry. In addition, analog semiconductor manufacturers tend to have lower capital investment requirements for manufacturing because their facilities tend to be less dependent than digital producers on state-of-the-art production equipment. The end-product markets for analog and mixed-signal semiconductors are smaller, more varied and more specialized than the relatively standardized digital semiconductor product markets.

Another difference between the analog and digital markets is the amount of available talented labor. The analog industry relies more heavily than the digital industry on design and applications talent to distinguish its products from one another. While digital expertise is extensively taught in universities due to its overall market size, analog and mixed-signal expertise tends to be learned over time based on experience and hands-on training. Consequently, personnel with this training are scarce, a fact that makes it difficult for new suppliers to quickly gain significant market share.

The markets for computer and communications products today are characterized by several trends that we believe are driving demand for our products. Electronic systems are being designed to operate at increasingly lower operating voltages, battery-powered devices such as handheld computers and cellular telephones are proliferating, and devices are becoming smaller and requiring higher levels of integration. We have designed our products to

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address these needs by providing solutions that extend battery life, meet tighter voltage requirements, improve the human interface of systems, and support higher transmission and processor speeds. As communications functions are increasingly integrated into a range of systems and devices, these products require analog processing capabilities and the number and size of our end-markets grows. Finally, industrial, medical, consumer and other end-market applications have increasingly incorporated data processing and communications features into their finished system, which in turn has broadened the opportunities for selling our analog and mixed-signal devices.

Advancements in digital processing technology typically drive the need for corresponding advancements in analog and mixed-signal solutions. We believe that the diversity of our applications allows us to take advantage of areas of relative market strength and limits our vulnerability to competitive pressure in any one area.

Semtech End-Markets

A majority of our products are sold to customers in the computer, communications and industrial markets. Until nine years ago, we had largely been focused on serving the military and aerospace market. We used the desktop segment of the computer market as our first major entry into the commercial marketplace for our circuits. Six years ago, approximately half of our revenues were derived from desktop computer related applications. In recent years, we have seen relative growth from the communications and industrial markets as a percentage of the total. We have also seen a greater diversification within our computer market segment, beyond our initial focus on desktop computer applications. For the fiscal year ended January 25, 2004, our revenues from the computer and communications end-markets were 40% each. The remaining 20% of net sales were from industrial, military and aerospace, and various other end-markets.

Computer market applications include notebook and desktop computers, computer gaming systems, and PDAs. End-product applications for our products within the communication market include local area networks, wide area networks, cellular phones and base stations. Industrial applications include automated test equipment (ATE), medical devices and factory automation systems. We believe that our diversity in the end-markets provides stability to our business and opportunity for growth.

The following table depicts our main product lines and their end-product applications:

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Business Strategy

Our objective is to be the leading supplier of analog and mixed-signal devices to the fastest growing segments of our target markets, particularly within the computer, communications and industrial segments. We intend to leverage our pool of skilled technical personnel to develop new products, or, where appropriate, use acquisitions, to serve the fastest growing segments of these markets. In order to capitalize on our strengths in analog and mixed-signal processing design, developing and marketing, we intend to pursue the following strategies:

Maintain our leading analog design expertise

We have developed a strategy to invest heavily in human resources needed to define and market high-performance products. We have been able to add to our engineering design talent through acquisitions. In general, our staff engineers have work experience in the analog and the mixed-signal industry ranging from 10 to 15 years. We have built a team of experienced engineers who combine industry expertise with advanced semiconductor design expertise to meet customer requirements and enable our customers to get their products to market rapidly. We intend to leverage this strategy to achieve new levels of integration, power reduction and miniaturization, enabling our customers to achieve leading performance in their products.

Leverage outsourced semiconductor fabrication capacity

We outsource most of our production and manufacturing in order to focus more of our resources on defining, developing and selling our products. We use outside wafer foundries that are based in Asia, the United States and Europe. Our largest wafer source is a foundry based in China. We believe that outsourcing provides us numerous benefits, including capital efficiency, the flexibility to adopt and leverage emerging process technologies without significant investment risk and a more variable cost of goods, which provides us with greater operating flexibility.

Focus on fast-growing market segments

We have chosen to target the analog segments of the fastest growing end-markets. We intend to enhance this growth potential by focusing on specific products within the analog and mixed-signal market, including high-end personal computers, notebook computers, PDAs, cellular phones, wide area and local area networks and test systems. These products are characterized by their need for leading-edge, high-performance analog and mixed-signal semiconductor technology.

Continue to release unique new products and achieve new design wins

We are focused on developing unique, new, high-margin products to serve our target markets. These markets have experienced growing consumer demand for increased product performance at competitive price points. We also focus on achieving design wins for our products with current and future customers. Design wins are indications by the customers that they intend to incorporate our products into new designs. Our technical talent works closely with our customers in securing design wins, developing new products and in implementing and integrating our products into their systems.

Diversify into new markets

We intend to enter new markets that complement our existing operations through internal development of new products and by strategic acquisitions. Our focus during fiscal year 2004 was to expand our presence within the markets of portable devices, networking and more broad-based industrial applications. A large amount of design and marketing talent was focused on developing products for these markets. We believe strategic acquisitions will allow us to expand our pool of skilled technical personnel, as well as expand the range of complementary products that we offer. We have acquired four companies over the past eight years that have permitted us to successfully enter new market segments and develop new products.

Concentrate on cross-selling our products and services

We consider the ability to sell additional products and services to our existing customers as a major opportunity. Many of our large customers produce a wide variety of end-products that require analog and mixed-signal products. By leveraging existing relationships, we believe that we will be able to sell a wider variety of our products to these organizations. In addition, we believe the high level of our technical expertise in our marketing department permits it to identify and capitalize on cross-selling opportunities.

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Product Segments

We have two product segments

Standard Semiconductor Products. Included in Standard Semiconductor Products are integrated circuits (ICs) and discrete components designed for use in standard and specific applications. Standard Semiconductor Products represented approximately 95% of our overall net sales for fiscal year 2004. The main product lines within our Standard Semiconductor Products are described below.

Rectifier, Assembly and Other Products. Rectifiers, assemblies and other products are older-technology products. Rectifier, Assembly and Other Products represented approximately 5% of our overall net sales for fiscal year 2004.

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For further financial information on these segments, refer to the information contained in Note 15. “Business Segments and Concentrations of Risk”, in the Notes to Consolidated Financial Statements included in Item 8.

Intellectual Capital and Product Development

We believe that our emphasis on the development of our intellectual capital and introduction of new proprietary product designs are key to our success. Recruiting and retaining technical talent is the foundation for developing and selling new products into the marketplace. In the past, we have added experienced engineers through the acquisition of companies. We have recruited additional talent through our strategy of establishing multiple design center locations throughout the United States and the world.

Circuit design engineers are our most valuable engineers. Circuit designers perform the critical task of designing and laying out integrated circuits. As of January 25, 2004, we employed more than 80 circuit designers and layout engineers. A majority of these individuals have senior-level expertise in the design, development and layout of circuits targeted for use in power management, protection, test, measurement and communication applications. We also employ a limited number of engineers that specialize in the development of software, sometimes referred to as firmware that is incorporated into certain of our HID and advanced communications products. We intend to make further investments in research and development in the future, including increasing our employee headcount, investing in design and development equipment and supporting our development efforts overall.

We have dedicated design centers in Santa Clara, California; Raleigh, North Carolina; Austin, Texas; Glasgow, Scotland; and Romsey, England. In addition, dedicated test and measurement circuit design occurs at our San Diego location, and HID design and protection product design occurs at our Camarillo, California, headquarters.

We spent $30.4 million or 16% of net sales on product development and engineering in fiscal year 2004. Product development and engineering costs were $31.3 million or 16% of net sales and $29.7 million or 16% of net sales in fiscal years 2003 and 2002, respectively.

Sales and Marketing

Sales made directly to original equipment manufacturers during fiscal year 2004 were approximately 49% of net sales. The remaining 51% of net sales were made through independent distributors. We have direct sales personnel located throughout the United States, who manage the sales activities of independent sales representative firms and independent distributors within North America. We expense our advertising costs as they are incurred.

We operate internationally primarily through our wholly-owned Swiss subsidiary, Semtech International AG. Semtech International serves the European markets through its wholly-owned subsidiaries based in France, Germany and the United Kingdom. Semtech International maintains branch sales offices, either directly or through one of its wholly owned subsidiaries, in Taiwan, Korea and Japan and has a small representative office located in Shanghai, China. Independent representatives and distributors are also used to serve customers throughout the world. Some of our distributors and sales representatives may also offer products from our competitors, as is customary in the industry.

Customers, Sales Data and Backlog

For fiscal year 2004, we estimate that more than 1,000 customers purchased our products either directly from us or through our authorized distributors. The following is a representative sample of our customers by end-markets:

Representative Customers by End-Markets:

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Our customers include major computer and peripheral manufacturers and their subcontractors, ATE manufacturers, data communications and telecommunications equipment vendors, and a variety of large and small companies serving the industrial, automotive, aerospace and military markets.

During fiscal years 2004, 2003 and 2002, foreign sales constituted 69%, 67% and 62%, respectively, of our net sales. Approximately 88% of foreign sales in fiscal year 2004 were to customers located in the Asia-Pacific region, as compared to approximately 90% in fiscal year 2003 and approximately 85% in fiscal year 2002. The remaining foreign sales were to customers in Europe.

No end-customer accounted for 10% or more of net sales in fiscal years 2004 and 2003. In fiscal year 2002, one of our ATE end customers and its subcontractors accounted for approximately 13% of net sales. For fiscal years 2004, 2003 and 2002, one of our Asian distributors accounted for approximately 10%, 14% and 12%, respectively, of net sales. For fiscal year 2004, another one of our Asian distributors accounted for approximately 14% of net sales.

Our backlog of orders as of the end of fiscal years 2004, 2003 and 2002 were approximately $45.4 million, $26.6 million and $40.1 million, respectively. Nearly all backlog is deliverable within six months; experience has shown that short-delivery lead times are required by most customers. A backlog analysis at any given time gives little indication of our future business except on a short-term basis, principally within the next 45 days. We do not have any significant contracts with our customers calling for shipments over a period of more than 18 months.

Manufacturing Capabilities

As part of our business strategy, we outsource a majority of our manufacturing functions to third-party contractors that fabricate silicon wafers and package and test our products. We perform a very limited amount of test and probe activities in our Camarillo and San Diego, California facilities.

We sold our Santa Clara, California wafer fabrication facility in 2001 and in December of 2002, we stopped production at our last remaining commercial wafer fabrication facility located in Corpus Christi, Texas. Our Reynosa, Mexico facility now fabricates a very small amount of silicon and performs the packaging activity needed to support our rectifier and assembly products. In fiscal year 2004, we purchased wafers from eight different third-party wafer foundries and used more than 20 different manufacturing processes, including various Bipolar, High-Speed Bipolar, CMOS, and Bi-CMOS processes.

For fiscal year 2004, we supported approximately 5% of our end product sales with wafers that were fabricated internally. The remaining 95% of our end products were supported with finished silicon wafers purchased from outside wafer foundries. Only our rectifier and assembly products were supported by internal wafer production in fiscal year 2004. All of our products, with the exception of the rectifier and assembly product lines, are packaged and tested by outside subcontractors.

Unlike digital products, our products are less reliant on state-of-the-art manufacturing and more reliant on design and applications support. As a result, our outside wafer foundries tend to be significantly less costly than state-of-the-art digital fabrication facilities and likewise utilize equipment that is less subject to obsolescence.

We use outside wafer foundries that are based in Asia, the United States and Europe. Our largest wafer source is a foundry based in China. In fiscal year 2004, this Chinese foundry provided 62% of our total silicon requirements in terms of wafers purchased. Virtually all the silicon we use will be sourced from outside foundries in fiscal year 2005 in order to take advantage of the best available technology, leverage the capital investment of others and reduce our operating costs associated with manufacturing assets and increase the variable component of our cost of goods sold. While we do have some redundancy of fab processes by using multiple outside foundries, any interruption of supply by one or more of these foundries could materially impact us. Likewise, we maintain some amount of business interruption insurance to help reduce the risk of wafer supply interruption, but we are not fully insured against such risk.

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While we rely on third-party wafer foundries for a majority of our wafer needs, in a few cases we have made prepayments in order to reserve a minimum level of capacity, transferred equipment to a foundry in return for capacity reservation, or otherwise have a contract that guarantees us some amount of capacity. In some cases, we have also negotiated pricing for the reserved wafers.

Despite the divestiture of our own internal wafer fab facilities in favor of outside wafer foundries for sourcing a majority of our silicon needs, we do maintain internal process development capabilities. These departments work closely with our outside foundry partners on the improvement and development of process capabilities.

We use third-party contractors to perform assembly and test operations. A majority of our assembly and test activity is conducted by third-party contractors that are based in Malaysia, the Philippines and China. We have an operations office located in the Philippines that supports and coordinates some of the worldwide shipment of products. We have installed our own test equipment at some of our packaging and testing subcontrators in order to ensure a certain level of capacity, assuming the subcontractor has ample employees to operate the equipment.

In the case of both outside wafer foundries and package and test subcontractors, our arrangements with these vendors are designed to provide some assurance of capacity but are not expected to assure access to all the manufacturing capacity we may need in the future.

Our products are made from basic materials (principally silicon, metals and plastics), all of which are widely available from a number of suppliers.

Competition

The analog and mixed-signal semiconductor industry is highly competitive, and we expect competitive pressures to continue. Our ability to compete effectively and to expand our business will depend on our ability to continue to recruit applications and design talent, our ability to introduce new products and the rate at which we introduce these new products to offset the generally short product life cycles. Our industry is characterized by decreasing unit selling prices over the life of a product. We believe we compete effectively based upon our ability to capitalize on efficiencies and economies of scale in production and sales, and our ability to maintain or improve our productivity and product yields to reduce manufacturing costs.

We are in direct and active competition, with respect to one or more of our product lines, with at least 30 manufacturers of such products, of varying size and financial strength. A number of these competitors are dependent on semiconductor products as their principal source of income, and some are much larger than we are. The number of our competitors has grown due to expansion of the market segments in which we participate. We consider our primary competitors to include Texas Instruments, National Semiconductor, Linear Technology, Maxim Integrated Products, Fairchild Semiconductor and Intersil Semiconductor, all with respect to our power management products; ST Microelectronics N.V. and Microsemi with respect to our protection products; Analog Devices, Maxim Integrated Products, ON Semiconductors and Micrel Semiconductor, all with respect to our test and measurement products; Silicon Laboratories and Zarlink Semiconductor with respect to our advanced communications products; and Alps Electronics and Synaptics Inc. with respect to our HID products.

Intellectual Property and Licenses

Our business is highly reliant on the design talents, technical abilities, applications knowledge, and creativity of our employees. We attempt to protect our intellectual property by filing patent applications, trademark applications, and copyright registrations. We consider these actions to be helpful in maintaining a competitive advantage, but do not believe that patents and other intellectual property rights create definitive competitive barriers to entry.

At this time, we do not license our patents or products. We do, however, license certain technology from other companies. We do not consider any of the licensed technology to be material in terms of royalties payable, and we believe the duration and other terms of the licenses are appropriate for our needs.

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Environmental Matters

On February 7, 2000, we were notified by the United States Environmental Protection Agency (EPA) with respect to the Casmalia Disposal Site in Santa Barbara, California. We were included in the Superfund program to clean up this disposal site due to our use of this site for waste disposal. We accepted a settlement offer from the EPA and certain State agencies under which we were required to pay approximately $783,000 with respect to the wastes at the Casmalia Disposal Site attributable to us. We recorded $765,000 of the proposed settlement amount as an accrued liability in fiscal year 2002 and recorded an accrued liability to cover the remainder in fiscal year 2003. We paid approximately $732,000 of the settlement into escrow in April 2003, and we paid the remainder in October 2003 when the settlement became effective.

On June 22, 2001, we were notified by the California Department of Toxic Substances Control (“State”) that we may have liability associated with the clean-up of the one-third acre Davis Chemical Company site in Los Angeles, California. We have been included in the clean-up program because we are one of the companies that used the Davis Chemical Company site for waste recycling and/or disposal between 1949 and 1990. The Company has joined with other potentially responsible parties in an effort to resolve this matter with the State. The group has entered into a Consent Order with the State that requires the group to perform a soils investigation at the site. The soils investigation has been completed and submitted to the State for review. The State has the right to require the removal of contaminated soils and to expand the scope of work to include investigation of groundwater contamination. The Consent Order does not require the group to remediate the site. Our share of the cost of the soils investigation was not material and has been expensed. At this time, there is not a specific proposal or budget with respect to additional studies or the clean-up of the site. Thus, no reserve has been established for this matter.

In November, 2003 we and other members of the Davis Chemical Site group received notices under Proposition 65 from Consumer Defense Group Action (“CDGA”) alleging violations of California’s Proposition 65 occurring in connection with the site. Proposition 65 prohibits the discharge of listed chemicals in a manner that reaches or threatens to reach a source of drinking water and requires warnings on products or locations known to contain listed chemicals. The notice letter sent by the CDGA is a prerequisite for bringing a private enforcement action. Although the statutory notice period expired in January 2004, the Company is unaware of any lawsuit having been filed against it or any member of the group. Thus, no reserve has been established for this Proposition 65 matter.

We used an environmental firm, specializing in hydrogeology, to perform periodic monitoring of the groundwater at the facility in Newbury Park, California that we leased for approximately forty years. We vacated the building in May 2002. Certain contaminants have been found in the local groundwater. Monitoring results over a number of years indicate that contaminants are coming from adjacent facilities. It is currently not possible to determine the ultimate amount of future clean-up costs, if any, that may be required of us for this site. There are no claims pending with respect to environmental matters at the Newbury Park site. Accordingly, no reserve for clean-up has been provided at this time.

Employees

As of January 25, 2004, we had 587 full-time employees. There were 133 employees in research and development, 116 in sales, marketing and field services, and 66 in general, administrative and finance. The remaining 272 employees support operational activities, including product and test engineering, manufacturing, distribution and quality functions. We have never had a work stoppage and only our Mexican operation has unionized employees. Our employee relations during the last fiscal year have been, and remain, satisfactory. Competition for key design and application engineers is significant.

During fiscal year 2003, we reduced a limited amount of headcount associated with the closure of our Corpus Christi, Texas wafer fabrication facility. In fiscal year 2004, we reduced a limited amount of headcount associated with our test and measurement and power management product lines.

Government Regulations

We are required to comply with numerous government regulations that are normal and customary to manufacturing businesses that operate in our markets and operating locations.

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Our sales that serve the military and aerospace markets primarily consist of products from the Rectifier, Assembly, and Other Products segment that have been qualified to be sold in these markets by the U.S. Department of Defense (DOD). In order to maintain these qualifications, we must comply with certain specifications promulgated by the DOD. As part of maintaining these qualifications, we are routinely audited by DOD personnel. Based on current specifications, we believe we can maintain our qualifications for the foreseeable future. However, these specifications could be modified by the DOD in the future or we could become subject to other government requirements, which could make the manufacturing of these products more difficult and thus, could adversely impact our profitability in those product lines. The U.S. State Department has determined that a small number of special assemblies from the Rectifier, Assembly, and Other Products segment are subject to the International Traffic in Arms Regulations (ITAR). We have a Technical Assistance Agreement in place that permits us to assemble these products in Mexico. Shipment of these products internationally requires a State Department license. Sales of products subject to the ITAR are not material relative to the total sales of the Company.

Available Information

We maintain a website at www.semtech.com. We make available free of charge, either by direct access or a link to the SEC website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC. Our reports filed with, or furnished to, the SEC are also available directly at the SEC’s website at www.sec.gov.

RISK FACTORS

You should carefully consider and evaluate all of the information in this Form 10-K, including the risk factors listed below. The risks described below are not the only ones facing our company. Additional risks not now known to us or that we currently deem immaterial may also impair our business operations.

If any of these risks actually occur, our business could be materially harmed. If our business is harmed, the trading price of our common stock could decline.

This Form 10-K also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward looking statements as a result of certain factors, including the risks faced by us described below and elsewhere in this Form 10-K. We undertake no duty to update any of the forward-looking statements after the date of this Form 10-K.

Economic decline may have adverse consequences for our business

We sell our products into several commercial markets, primarily the computer, communication and industrial end-markets, whose performance is tied to the overall economy. Many of these industries were severely impacted in calendar years 2001 and 2002 due to an economic slowdown in the United States and globally. If economic conditions were to once again worsen or a wider global slowdown were to occur, demand for our products may be reduced. In addition, economic slowdowns may also affect our customers’ ability to pay for our products. Accordingly, economic slowdowns may harm our business.

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The cyclical nature of the electronics and semiconductor industries may limit our ability to maintain or increase revenue and profit levels during industry downturns

The semiconductor industry is highly cyclical and has experienced significant downturns, which are characterized by reduced product demand, production overcapacity, increased levels of inventory, industry-wide fluctuations in the demand for semiconductors and the erosion of average selling prices. The occurrence of these conditions has adversely affected our business in the past. In fiscal year 2002, our net sales declined by 26% compared to the prior year as a result of a dramatic slowdown in the industry. Past downturns in the semiconductor industry have resulted in a sudden impact on the semiconductor and capital equipment markets. Consequently, any future downturns in the semiconductor industry may harm our business.

We compete against larger, more established entities and our market share may be reduced if we are unable to respond to our competitors effectively

The semiconductor industry is intensely competitive and is characterized by price erosion, rapid technological change and design and other technological obsolescence. We compete with domestic and international semiconductor companies, many of which have substantially greater financial and other resources with which to pursue engineering, manufacturing, marketing and distribution of their products. Some of these competitors include: Texas Instruments, National Semiconductor, Linear Technology, Maxim Integrated Products, Fairchild Semiconductor and Intersil Semiconductor, with respect to our power management products; ST Microelectronics N.V., with respect to our protection products; Analog Devices, Maxim Integrated Products, ON Semiconductor and Micrel Semiconductor, with respect to our test and measurement products; Zarlink Semiconductor and Silicon Laboratories, with respect to our advanced communications products; and Alps Electric and Synaptics Inc., with respect to our HID products. We expect continued competition from existing competitors as well as competition from new entrants in the semiconductor market. Our ability to compete successfully in the rapidly evolving area of integrated circuit technology depends on several factors, including:

To the extent that our products achieve market success, competitors typically seek to offer competitive products or lower prices, which, if successful, could harm our business.

Fluctuations and seasonality and economic downturns in any of our end-markets may have adverse consequences for our business

Many of our products are used in personal computers and related peripherals. For the fiscal year ended January 25, 2004, approximately 40% of our sales are used in computer applications. Industry-wide fluctuations in demand for desktop and notebook computers have in the past, and may in the future, harm our business. In addition, our past results have reflected some seasonality, with demand levels being higher in computer segments during the third and fourth quarters of the year in comparison to the first and second quarters.

For the fiscal year ended January 25, 2004, shipment of our products to the automated test equipment (ATE) customers represented approximately 12% of our net sales. Consequently, a downturn in the ATE market may adversely affect our business.

In fiscal year 2004, we saw demand from cellular phone manufacturers increase throughout the year, and we estimated 32% of our sales in the fourth quarter of fiscal year 2003 were tied to this end-market application. Any decline in the number of cellular phones made, especially feature-rich phones with color displays, could adversely affect our business.

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We obtain many essential components and materials and certain critical manufacturing services from a limited number of suppliers and subcontractors, including foreign-based entities

Our reliance on a limited number of outside subcontractors and suppliers for silicon wafers, packaging, test and certain other processes involves several risks, including potential inability to obtain an adequate supply of required components and reduced control over the price, timely delivery, reliability and quality of components. These risks may be attributable to several factors, including limitation on resources, labor problems, equipment failures or the occurrence of natural disasters. There can be no assurance that problems will not occur in the future with suppliers or subcontractors. Disruption or termination of our supply sources or subcontractors could significantly delay our shipments and harm our business. Delays could also damage relationships with current and prospective customers. Any prolonged inability to obtain timely deliveries or quality manufacturing or any other circumstances that would require us to seek alternative sources of supply or to manufacture or package certain components internally could limit our growth and harm our business.

Most of our outside subcontractors and suppliers, including third-party foundries that supply silicon wafers, are located in foreign countries, including China, Malaysia, the Philippines and Germany. For fiscal year 2004, approximately 62% of our silicon in terms of finished wafers, was supplied by a third-party foundry in China, and this percentage could be even higher in future years. While we do have some redundancy of fab processes by using multiple outside foundries, any interruption of supply by one or more of these foundries could materially impact us. Likewise, we maintain some amount of business interruption insurance to help reduce the risk of wafer supply interruption, but we are not fully insured against such risk.

A majority of our package and test operations are performed by third-party contractors that are based in Malaysia, the Philippines and China. Our international business activities, in general, are subject to a variety of potential risks resulting from certain political and economic uncertainties. Any political turmoil or trade restrictions in these countries, particularly China, could limit our ability to obtain goods and services from these suppliers and subcontractors. The effect of an economic crisis or a political turmoil on our suppliers located in these countries may impact our ability to meet the demands of our customers. If we find it necessary to transition the goods and services received from our existing suppliers or subcontractors to other firms, we would likely experience an increase in production costs and a delay in production associated with such a transition, both of which could have a significant negative effect on our operating results, as these risks are substantially uninsured.

We may be unsuccessful in developing and selling new products required to maintain or expand our business

We operate in a dynamic environment characterized by price erosion, rapid technological change and design and other technological obsolescence. Our competitiveness and future success depend on our ability to achieve design wins for our products with current and future customers and introduce new or improved products that meet customer needs while achieving favorable margins. A failure to achieve design wins, to introduce these new products in a timely manner or to achieve market acceptance for these products, could harm our business.

The introduction of new products presents significant business challenges because product development commitments and expenditures must be made well in advance of product sales. The success of a new product depends on accurate forecasts of long-term market demand and future technological developments, as well as on a variety of specific implementation factors, including:

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The failure of our products to achieve market acceptance due to these or other factors could harm our business.

Our products may be found to be defective, product liability claims may be asserted against us and we may not have sufficient liability insurance

One or more of our products may be found to be defective after shipment, requiring a product replacement, recall or a software solution, that would cure the defect but impede performance of the product. We may also be subject to product returns which could impose substantial costs and harm our business.

Product liability claims may be asserted with respect to our technology or products. While we maintain some insurance, there can be no assurance that we have obtained a sufficient amount of insurance coverage, that asserted claims will be within the scope of coverage of the insurance, or that we will have sufficient resources to satisfy any asserted claims.

The costs associated with our general product warranty policy and our indemnification of certain customers, distributors, and other parties could be higher in future periods

Our general warranty policy provides for repair or replacement of defective parts or a refund of the purchase price. In certain instances, we have agreed to other warranty terms, including some indemnification provisions, that could prove to be significantly more costly. If there is a substantial increase in the rate of customer claims, if our estimate of probable losses relating to identified warranty exposures prove inaccurate, or our efforts to contractually limit liability prove inadequate, we may record a charge against future cost of sales. Other than the customer dispute resolved in March 2003, over at least the last decade, warranty expense has been immaterial to our financial statements.

We indemnify certain customers, distributors, and other parties for damages, costs, and attorneys fees for certain matters, such as acts or omission of Company employees or if our products are alleged to infringe third-party intellectual property rights. In some cases there are limits on and exceptions to our potential liability for this indemnification. We cannot estimate the amount of potential future payments, if any, that we might be required to make as a result of these agreements. Over at least the last decade, we have not incurred any significant expense as a result of these agreements. Accordingly, we have not accrued any amounts for such indemnification obligations. However, there can be no assurances that we will not incur expense under these indemnification provisions in the future.

Our share price could be subject to extreme price fluctuations, and shareholders could have difficulty trading shares

The markets for high technology companies in particular have been volatile, and the market price of our common stock has been and may continue to be subject to significant fluctuations. Fluctuations could be in response to operating results, announcements of technological innovations and market conditions for technology stocks in general. Additionally, the stock market in recent years has experienced extreme price and volume fluctuations that often have been unrelated to the operating performance of individual companies. These market fluctuations, as well as general economic conditions, may adversely affect the price of our common stock.

In the past, securities class action litigation has often been instituted against a company following periods of volatility in the company’s stock price. This type of litigation, if filed against us, could result in substantial costs and divert our management’s attention and resources.

In addition, the future sale of a substantial number of shares of common stock by us or by our existing stockholders may have an adverse impact on the market price of the shares of common stock. There can be no assurance that the trading price of our common stock will remain at or near its current level.

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We sell and trade with foreign customers, which subjects our business to increased risks applicable to international sales

Sales to foreign customers accounted for approximately 69% of net sales in the fiscal year ended January 25, 2004. Sales to our customers located in Taiwan and Korea constituted 28% and 21%, respectively, of net sales for fiscal year 2004. International sales are subject to certain risks, including unexpected changes in regulatory requirements, tariffs and other barriers, political and economic instability, difficulties in accounts receivable collection, difficulties in managing distributors and representatives, difficulties in staffing and managing foreign subsidiary operations and potentially adverse tax consequences. These factors may harm our business. Our use of the Semtech name may be prohibited or restricted in some countries, which may negatively impact our sales efforts. In addition, substantially all of our foreign sales are denominated in U.S. dollars and currency exchange fluctuations in countries where we do business could harm us by resulting in pricing that is not competitive with prices denominated in local currencies.

The outbreak of severe acute respiratory syndrome (SARS) or other heath related issues, could impact our customer or supply base, especially in Asia

A large percentage of our sales are to customers located in Asia and a large percentage of our products are manufactured in Asia. Our largest customer base in Asia is located in Taiwan. Our largest wafer source is located in China. SARS or other health related issues could have a negative impact on consumer demand, on travel needed to secure new business, on transportation of our products from our suppliers or to our customers, or on workers needed to manufacture our products or our customers’ products.

Our foreign currency exposures may change over time as the level of activity in foreign markets grows and could have an adverse impact upon financial results

As a global enterprise, we face exposure to adverse movements in foreign currency exchange rates. Certain of our assets, including certain bank accounts, exist in nondollar-denominated currencies, which are sensitive to foreign currency exchange rate fluctuations. The nondollar-denominated currencies are principally the Euro, Swiss Francs, and British Pounds Sterling. If the value of the United States dollar weakens relative to these specific currencies, our cost of doing business in terms of United States dollars goes up. With the growth of our international business, our foreign currency exposures may grow and under certain circumstances, could harm our business.

We do a very limited amount of hedging of our foreign exchange exposure. In some cases, we purchase forward contracts that lock in our right to purchase foreign currencies at an agreed upon rate. In other cases, we convert United Sates dollars into foreign currency in advance of the expected payment. The use of forward contracts to hedge foreign exchange exposure may be required to be marked-to-market each quarter and likewise, can create volatility in net income not directly tied to our operating results.

Our future operating results may fluctuate, fail to match past performance or fail to meet expectations

Our operating results may fluctuate in the future, may fail to match our past performance or fail to meet the expectations of analysts and investors. Our operating results may fluctuate as a result of:

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As a result of these factors, our past financial results are not necessarily indicative of our future results.

We receive a significant portion of our revenues from a small number of customers and the loss of any one of these customers or failure to collect a receivable from them could adversely affect our operations and financial position

Historically, we have had significant customers that individually accounted for 10% or more of consolidated revenues in certain quarters or represented 10% or more of net accounts receivables at any given date. The identity of our largest customers has varied from year to year. In fiscal year 2002, one of our ATE end-customers, including its subcontractors, accounted for approximately 13% of net sales. For fiscal year 2004, two of our Asian distributors accounted for approximately 14% and 10%, respectively, of net sales. As of the end of fiscal year 2004, one of these Asian distributors accounted for approximately 11% of net accounts receivable. Receivables from our customers are not secured by any type of collateral and likewise, are subject to the risk of being uncollectible.

We primarily conduct our sales on a purchase order basis, rather than pursuant to long-term supply contracts. The loss of any significant customer, any material reduction in orders by any of our significant customers, the cancellation of a significant customer order or the cancellation or delay of a customer’s significant program or product could harm our business.

We have acquired and may continue to acquire other companies and may be unable to successfully integrate these companies into our operations

In the past, we have expanded our operations through strategic acquisitions, and we may continue to expand and diversify our operations with additional acquisitions. If we are unsuccessful in integrating these companies into our operations or if integration is more difficult than anticipated, then we may experience disruptions that could harm our business. Some of the risks that may affect our ability to integrate acquired companies include those associated with:

We must commit resources to product production prior to receipt of purchase commitments and could lose some or all of the associated investment

Sales are made primarily on a current delivery basis, pursuant to purchase orders that may be revised or cancelled by our customers without penalty, rather than pursuant to long-term supply contracts. Some contracts require that we maintain inventories of certain products at levels above the anticipated needs of our customers. As a result, we must commit resources to the production of products without binding purchase commitments from customers. Our inability to sell products after we devote significant resources to them could harm our business.

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The loss of any of our key personnel or the failure to attract or retain the specialized technical and management personnel could impair our ability to grow our business

Our future success depends upon our ability to attract and retain highly qualified technical, marketing and managerial personnel. We are dependent on a relatively small group of key technical personnel with analog and mixed-signal expertise. Personnel with highly skilled managerial capabilities, analog and mixed-signal design expertise are scarce and competition for personnel with these skills is intense. There can be no assurance that we will be able to retain existing key employees or that we will be successful in attracting, integrating or retaining other highly qualified personnel in the future. If we are unable to retain the services of existing key employees or are unsuccessful in attracting new highly qualified employees, our business could be harmed.

We are subject to government regulations which impose operational requirements

We and our suppliers are subject to a variety of United States federal, foreign, state and local governmental laws, rules and regulations, including those related to the use, storage, handling, discharge or disposal of certain toxic, volatile or otherwise hazardous chemicals used in the manufacturing process. If we or our suppliers were to incur substantial additional expenses to acquire equipment or otherwise comply with environmental regulations, product costs could significantly increase, thus harming our business. We are also subject to laws, rules, and regulations related to export licensing and customs requirements, including the North American Free Trade Agreement and State Department and Commerce Department rules. Failure to comply with present or future laws, rules and regulations of any kind that govern our business could result in suspension of all or a portion of production, cessation of all or a portion of operations, or the imposition of significant administrative, civil, or criminal penalties, any of which could harm our business.

Major earthquakes may cause us significant losses

Our corporate headquarters, a portion of our assembly and research and development activities and certain other critical business operations are located near major earthquake fault lines. We do not maintain earthquake insurance and could be harmed in the event of a major earthquake.

Terrorist attacks, war and other acts of violence may negatively affect our operations and your investment

Terrorist attacks, such as the attacks that took place on September 11, 2001, wars, such as the war in Iraq, and other acts of violence, such as those that may result from the increasing tension in the Middle East and the Korean peninsula, or any other national or international crisis, calamity or emergency, may result in interruption to the business activities of many entities, business losses and overall disruption of the U.S. economy at many levels. These events or armed conflicts may directly impact our physical facilities or those of our customers and suppliers. Additionally, these events or armed conflicts may cause some of our customers or potential customers to reduce the level of expenditures on their services and products that ultimately may reduce our revenue. The consequences of these reductions are unpredictable, and we may not be able to foresee events that could have an adverse effect on our business. For example, as a result of these events, insurance premiums for businesses may increase and the scope of coverage may be decreased. Consequently, we may not be able to obtain adequate insurance coverage for our business and properties. A “high” or “Orange” or “severe” or “Red” threat condition announced by the Homeland Security Advisory System or similar agency and any consequent effect on the transportation industry may adversely affect our ability to timely import materials from our suppliers located outside the United States or impact our ability to deliver our products to our customers without incurring significant delays. To the extent that these disruptions result in delays or cancellations of customer orders, a general decrease in corporate spending, or our inability to effectively market our services and products, our business and results of operations could be harmed.

We may be unable to adequately protect our intellectual property rights

We pursue patents for some of our new products and unique technologies, but we rely primarily on a combination of nondisclosure agreements and other contractual provisions, as well as our employees’ commitment to confidentiality

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and loyalty, to protect our know-how and processes. We intend to continue protecting our proprietary technology, including through trademark and copyright registrations and patents. Despite this intention, we may not be successful in achieving adequate protection. Our failure to adequately protect our material know-how and processes could harm our business. There can be no assurance that the steps we take will be adequate to protect our proprietary rights, that our patent applications will lead to issued patents, that others will not develop or patent similar or superior products or technologies, or that our patents will not be challenged, invalidated, or circumvented by others. Furthermore, the laws of the countries in which our products are or may be developed, manufactured or sold may not protect our products and intellectual property rights to the same extent as laws in the United States.

The semiconductor industry is characterized by frequent claims of infringement and litigation regarding patent and other intellectual property rights. Due to the number of competitors, patent infringement is an ongoing risk since other companies in our industry could have patent rights that may not be identifiable when we initiate development efforts. Litigation may be necessary to enforce our intellectual property rights and we may have to defend ourselves against infringement claims. Any such litigation could be very costly and may divert our management’s resources. If one of our products is found to infringe, we may have liability for past infringement and may need to seek a license going forward. If a license is not available or if we are unable to obtain a license on terms acceptable to us, we would either have to change our product so that it does not infringe or stop making the product.

We could be required to register as an investment company and become subject to substantial regulation that would interfere with our ability to conduct our business

The Investment Company Act of 1940 requires the registration of companies which are engaged primarily in the business of investing, reinvesting or trading in securities, or which are engaged in the business of investing, reinvesting, owning, holding or trading in securities and which own or propose to acquire investment securities with a value of more than 40% of the company’s assets on an unconsolidated basis (other than U.S. government securities and cash). We are not engaged primarily in the business of investing, reinvesting or trading in securities, and we intend to invest our cash and cash equivalents in U.S. government securities to the extent necessary to take advantage of the 40% safe harbor. To manage our cash holdings, we invest in short-term instruments consistent with prudent cash management and the preservation of capital and not primarily for the purpose of achieving investment returns. U.S. government securities generally yield lower rates of income than other short-term instruments in which we have invested to date. Accordingly, investing substantially all of our cash and cash equivalents in U.S. government securities could result in lower levels of interest income and net income.

If we were deemed an investment company and were unable to rely upon a safe harbor or exemption under the Investment Company Act, we would among other things be prohibited from engaging in certain businesses or issuing certain securities. Certain of our contracts might be voidable, and we could be subject to civil and criminal penalties for noncompliance.

We are subject to review by taxing authorities, including the Internal Revenue Service

We are subject to review by domestic and foreign taxing authorities, including the Internal Revenue Service (IRS). The IRS recently completed a routine review of our 1995 through 2001 tax filings. The proposed audit adjustments will not have a material impact on our financial statements.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the information in this Form 10-K and in the documents that are incorporated by reference, including the risk factors in this section, contains forward-looking statements that involve risks and uncertainties. These statements relate to future events or our future financial performance. In many cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” or the negative of these terms and other comparable terminology. These statements are only predictions. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including the risks faced by us described above and elsewhere in this Form 10-K.

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ITEM 2. PROPERTIES

Our headquarters facility is located in Camarillo, California where we own an approximately 85,000 square foot building that was built in March 2002. The original parcel on which the headquarters is located will accommodate substantial expansion, and we purchased a vacant lot adjacent to the headquarters when it became available in fiscal year 2003. Prior to occupying the Camarillo headquarters, we leased a facility in Newbury Park, California. The Camarillo facility supports a very limited amount of test and probe activity, as well as all of our inside sales, marketing and administrative offices. The Camarillo facility serves as the business headquarters for our Rectifier, Assembly and Other Products segment and all the product lines that make up the Standard Semiconductor Products segment, with the exception of our test and measurement product line that is headquartered in San Diego, California.

We own a 30,000 square foot building in Reynosa, Mexico that supports the production needs of our rectifier and assembly product lines.

We also lease a 44,000 square foot facility in Corpus Christi, Texas, which housed a wafer fabrication line, production testing and certain engineering functions for our protection product line (part of the Standard Semiconductor Products segment). In December 2002, we stopped production in the Corpus Christi facility as part of the strategic move to obtain nearly all of our silicon wafers from outside sources. The Corpus Christi lease runs through December 2021, but we have the ability to terminate it in 2011. We are investigating sublease opportunities and exploring other alternatives with respect to this property.

Our San Diego, California facility is an approximately 25,000 square foot building that houses design, test and administrative functions and serves as the business headquarters for our test and measurement product line (part of the Standard Semiconductor Product segment). The lease on this facility runs through September 2009.

We also lease space to house certain of our other design, sales and marketing and operations facilities in Santa Clara, California, Raleigh, North Carolina; Austin, Texas; China; England; France; Germany; Japan; Korea; the Philippines; Scotland; Switzerland; and Taiwan. Some space in New York City that previously housed our HID product group has been sublet and we are seeking subtenants for the remaining space.

In December 2000, we purchased a parcel of land in San Diego, California for approximately $7.9 million and began exploring plans to build a facility to support our test and measurement product line. We deferred the project due to the significant downturn in the product line’s business. We are exploring the possible sale of this parcel of land.

We believe that our existing leased and owned space is more than adequate for our current operations, and that suitable replacement and additional space will be available in the future on commercially reasonable terms.

ITEM 3. LEGAL PROCEEDINGS

We periodically become subject to legal proceedings in the ordinary course of our business. During fiscal year 2003, Maxim Integrated Products, Inc. announced that it had filed a patent infringement lawsuit against us. This lawsuit was settled during the fourth quarter of fiscal year 2004 on confidential terms that have no material effect on our financial condition. We are not currently involved in any legal proceedings that we believe will materially and adversely affect our business.

On June 22, 2001, we were notified by the California Department of Toxic Substances Control (“State”) that we may have liability associated with the clean-up of the one-third acre Davis Chemical Company site in Los Angeles, California. We have been included in the clean-up program because we are one of the companies that used the Davis Chemical Company site for waste recycling and/or disposal between 1949 and 1990. We have joined with other potentially responsible parties in an effort to resolve this matter with the State. The group has entered into a Consent Order with the State that requires the group to perform a soils investigation at the site. The soils investigation has been completed and submitted to the State for review. The State has the right to require the removal of contaminated soils and to expand the scope of work to include investigation of groundwater contamination. The Consent Order does not require the group to remediate the site. Our share of the cost of the soils investigation was not material and has been expensed. At this time there is not a specific proposal or budget with respect to additional studies or the clean-up of the site. Thus, no reserve has been established for this matter.

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

During the fourth quarter of the fiscal year covered by this report, no matter was submitted to a vote of the security holders through the solicitation of proxies or otherwise.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Market Information

Our common stock is traded on the Nasdaq National Market under the symbol “SMTC.” The following table sets forth, for the periods indicated, the high and low sale prices of our common stock, as reported on the Nasdaq National Market, giving effect to all stock splits through the date hereof.

Holders

On April 1, 2004, the reported last sale price of our common stock on the Nasdaq National Market was $23.36 per share. As of April 1, 2004, we had approximately 9,558 common stockholders of record.

Dividends

The payment of dividends on our common stock is within the discretion of our board of directors. Currently, we intend to retain earnings to finance the growth of our business. We have not paid cash dividends on our common stock during the two most recent fiscal years and the board of directors does not expect to declare cash dividends on the common stock in the foreseeable future.

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ITEM 6. SELECTED FINANCIAL DATA

The selected historical financial data for each of the fiscal years in the five-year period ended January 25, 2004 have been derived from our audited financial statements. Such information for the three fiscal years ended January 25, 2004 is contained in and should be read in conjunction with our audited financial statements and accompanying notes included in this Form 10-K.

Consolidated Statements of Income Data:

Consolidated Balance Sheet Data:

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Selected Consolidated Financial Data” and our consolidated financial statements and related notes included elsewhere in this Form 10-K. In addition to historical information, the discussion in this Form 10-K contains certain forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated by these forward-looking statements due to factors, including but not limited to, those set forth under “Risk Factors” and elsewhere in this Form 10-K. We assume no obligation to update any of the forward-looking statements after the date of this Form 10-K.

Overview

We design, produce and market a broad range of products that are sold principally to customers in the computer, communications and industrial markets. Our products are designed into a wide variety of end applications, including notebook and desktop computers, computer gaming systems, personal digital assistants (PDAs), cellular phones, wireline networks, wireless base stations and automated test equipment (ATE). Products within the communications market include products for local area networks, metro and wide area networks, cellular phones and base stations. Industrial applications include ATE, medical devices and factory automation systems. Our end-customers are primarily original equipment manufacturers and their suppliers, including Agilent, Cisco, Compal Electronics, Dell, Hewlett Packard, IBM, Intel, Lucky Goldstar, Microsoft, Motorola, Quanta Computer, Samsung, Sony and Unisys.

We recognize product revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectibility is probable. Product design and engineering revenue is recognized during the period in which services are performed. We defer revenue recognition on shipment of certain products to distributors where return privileges exist until the products are sold through to end-users. Gross profit is equal to our net sales less our cost of sales. Our cost of sales includes materials, shipping costs, direct labor and overhead. We determine the cost of inventory by the first-in, first-out method. Our operating costs and expenses generally consist of selling, general and administrative (SG&A), product development and engineering costs (R&D), costs associated with acquisitions, and other operating related charges.

Most of our sales to customers are made on the basis of individual customer purchase orders. Many large commercial customers include terms in their purchase orders, which provide liberal cancellation provisions. Trends within the industry toward shorter lead-times and “just-in-time” deliveries have resulted in our reduced ability to predict future shipments. As a result, we rely on orders received and shipped within the same quarter for a significant portion of our sales. Sales made directly to original equipment manufacturers during fiscal year 2004 were 49% of net sales. The remaining 51% of net sales were made through independent distributors.

We divide and operate our business based on two reportable segments: Standard Semiconductor Products and Rectifier, Assembly and Other Products. We evaluate segment performance based on net sales and operating income of each segment. We do not track segment data or evaluate segment performance on additional financial information. We do not track balance sheet items by individual reportable segments. As such, there are no separately identifiable segment assets nor are there any separately identifiable statements of income data (below operating income). The Standard Semiconductor Products segment makes up the vast majority of overall sales and includes our power management, protection, test and measurement, advanced communications and human input device product lines. The Rectifier, Assembly and Other Products segment includes our line of assembly and rectifier devices, which are the remaining products from our founding as a supplier into the military and aerospace market. It also includes other products made up of custom integrated circuits and foundry sales.

Our business involves reliance on foreign-based entities. Most of our outside subcontractors and suppliers, including third-party foundries that supply silicon wafers, are located in foreign countries, including China, Malaysia, the Philippines and Germany. For the fiscal year ended January 25, 2004, approximately 62% of our silicon in terms of wafers purchased was manufactured in China. Foreign sales for fiscal year 2004 constituted approximately 69% of our net sales. Approximately 88% of foreign sales in fiscal year 2004 were to customers located in the Asia-Pacific region. The remaining sales were to customers in Europe.

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In the past, we have made several small acquisitions in order to increase our pool of skilled technical personnel and penetrate new market segments such as test and measurement, advanced communications and system management devices. These acquisitions include: USAR Systems Incorporated; Practical Sciences, Inc.; Acapella Limited; and Edge Semiconductor. The acquisitions of USAR, Acapella and Edge were accounted for as poolings of interests.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

On an ongoing basis, we evaluate and discuss with our audit committee our estimates, including those related to our allowance for doubtful accounts and sales returns, inventory reserves, asset impairments and income taxes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Our critical accounting policies and estimates do not vary between our two reportable segments. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies, among others, affect the significant judgments and estimates we use in the preparation of our consolidated financial statements:

Accounting for Temporary and Long-Term Investments

Our temporary and long-term investments consist of government, bank and corporate obligations. Temporary investments have original maturities in excess of three months, but mature within twelve months of the balance sheet date. Long-term investments have maturities in excess of one year from the date of the balance sheet. We classify our investments as “available for sale” because we expected to possibly sell some securities prior to maturity. We included $118,000, $1.4 million and $3.8 million of unrealized gain, net of tax, in the comprehensive income portion of our Consolidated Statements of Stockholders’ Equity and Comprehensive Income for fiscal year 2004, fiscal year 2003 and fiscal year 2002, respectively.

Allowance for Doubtful Accounts

We evaluate the collectibility of our accounts receivable based on a combination of factors. If we are aware of a customer’s inability to meet its financial obligations to us, we record an allowance to reduce the net receivable to the amount we reasonably believe we will be able to collect from the customer. For all other customers, we recognize allowances for doubtful accounts based on the length of time the receivables are past due, the current business environment and our historical experience. If the financial condition of our customers were to deteriorate or if economic conditions worsen, additional allowances may be required in the future.

Revenue Recognition

We recognize product revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectibility is probable. Product design and engineering revenue is recognized during the period in which services are performed. We defer revenue recognition on shipment of certain products to distributors where return privileges exist until the products are sold through to end-users. In addition, we record a provision for estimated sales returns in the same period as the related revenues are recorded. We base these estimates on historical sales returns and other known factors. Actual returns could be different from our estimates and current provisions for sales returns and allowances, resulting in future charges to earnings.

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Inventory Valuation

Our inventories are stated at lower of cost or market and consist of materials, labor and overhead. We determine the cost of inventory by the first-in, first-out method. At each balance sheet date, we evaluate our ending inventories for excess quantities and obsolescence. This evaluation includes analyses of sales levels by product and projections of future demand. In order to state our inventory at lower of cost or market, we maintain reserves against our inventory. If future demand or market conditions are less favorable than our projections, a write-down of inventory may be required, and would be reflected in cost of goods sold in the period the revision is made.

Contingencies and Litigation

We are involved in various disputes and litigation matters as a claimant and as defendant. We record any amounts recovered in these matters when collection is certain. We record liabilities for claims against us when the losses are probable and estimable. Any amounts recorded are based on reviews by outside counsel, in-house counsel and management. Actual results may differ from estimates.

Accounting for Income Taxes

As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items such as deferred revenue for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must include an expense within the tax provision in the statement of operations.

Significant management judgment is required in determining our provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. Management continually evaluates our deferred tax asset as to whether it is likely that the deferred tax assets will be realized. If management ever determined that our deferred tax asset was not likely to be realized, a write-down of that asset would be required and would be reflected as a cost in the accompanying period.

Results of Operations

Fiscal Year 2004 Compared With Fiscal Year 2003

Net Sales. Net sales for fiscal year 2004 were $192.1 million, a less than a 1% decline compared to $192.9 million for fiscal year 2003. Semiconductor and electronics industry conditions, as well as overall macro economic conditions were weak during the first half of fiscal year 2004 but improved during the second half of the year.

Presented below are the estimated sales by end-market. End-products in the computer end-market include notebook and desktop computers, graphics applications, PDAs and computer gaming systems. Communications include cellular phone handsets, wireless base stations, set-top boxes, and networking, broadband and long-hail communications infrastructure equipment. The end-market for industrial/other products includes traditional industrial and automation equipment, power supplies, military, aerospace and medical applications.

Within the computer end-market category, sales to notebook computer customers increased during fiscal year 2004 but were more than offset by a decline in sales of products used in desktop computers and computer gaming

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systems. Sales in the communications category were most impacted by increased sales of products used in cellular handsets. The small decline in the industrial end-market category reflected a modest decline in sales into the automated test equipment (ATE) market.

Standard Semiconductor Products represented 95% of net sales in fiscal year 2004, while 5% were represented by the Rectifier, Assembly and Other Products segment. Details on net sales by reportable segment are presented below.

Increased sales of Standard Semiconductor Products reflected strength in portable applications such as notebook computers and cellular phones but was partially offset by weakness in desktop computers and computer gaming systems. Strength in these end-applications was partially offset by weakness in the desktop computer, ATE and other capital intensive end-market segments.

Sales of our Rectifier, Assembly and Other Products segment shrank in fiscal year 2004 due to declining demand for these older technology products and other non-strategic product offerings, which we have de-emphasized due to their lower growth and profit margin opportunities.

Gross Profit. Gross profit for fiscal year 2004 was $110.7 million, compared to $109.9 million for the prior year. This increase was due to higher gross margin on products sold as compared to prior years. We continue to try and develop new products that are more complex, which in turn generally provides for higher gross margin. Our gross margin was 58% for fiscal year 2004, compared to a gross margin of 57% for fiscal year 2003.

In fiscal year 2004 and fiscal year 2003, we sold $1.4 million and $1.3 million, respectively, of inventory of the Standard Semiconductor Products segment that had been reserved during the second quarter of fiscal year 2002.

Operating Costs and Expenses. Operating costs and expenses were $67.6 million for the fiscal year 2004, down from $79.0 million in fiscal year 2003. Detailed below are the operating costs and expenses for fiscal years 2004 and 2003.

The increase in selling, general and administrative costs in fiscal year 2004 reflects added headcount in the area of marketing and field applications support. The decline in product development and engineering costs, also referred to as research and development (R&D), was mostly due to lower spending not related to salaries and headcount levels.

Operating costs and expenses for fiscal year 2003 include one-time costs of $13.2 million; which included $12.0 million of cost associated with the Standard Semiconductor Products segment for the settlement of a customer dispute, $852,000 of cost not assigned to a reportable segment for an expected loss on the future sub-lease of the our New York office and $350,000 of cost assigned to a reportable segment for asset impairment at the Corpus Christi, Texas wafer fabrication facility.

Operating costs and expenses for fiscal year 2004 did not include any significant one-time costs.

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Operating Income. Operating income was $43.2 million in fiscal year 2004, up from operating income of $30.9 million in fiscal year 2003. Operating income was impacted by improvement in gross margin and lower operating costs and expenses.

We evaluate segment performance based on net sales and operating income of each segment. Detailed below is operating income by reportable segment.

Operating income for the Standard Semiconductor Products increased in fiscal year 2004, having benefited by an increase in gross margin and a decline in one-time costs. Standard Semiconductor Products segment operating income in fiscal year 2003 was negatively impacted by a one-time cost of $12.0 million for the settlement of a customer dispute.

Operating income for the Rectifier, Assembly and Other Products segment improved in fiscal year 2004 due to lower spending and better manufacturing efficiencies.

Interest and Other Income (Expense), Net. Net interest and other income and expense was a net expense of $451,000 for fiscal year 2004, down from income of $15.2 million in fiscal year 2003. Interest, other income and expenses includes interest income from investments, interest expense associated with our previously outstanding convertible subordinated notes, and gain and expense on the extinguishment of debt.

The decline in net interest and other income and expense in fiscal year 2004 was mostly due to a one-time cost of $6.8 million for the retirement of debt, partially offset by $2.9 million of gain on the extinguishment of debt. The interest income portion of this category was lower in fiscal year 2004 due to lower rates of return on our investments as compared to the prior year. Interest and other income in fiscal year 2003 included $12.7 million of gain on the extinguishment of debt.

Provision for Taxes. Provision for income taxes was $10.3 million for fiscal year 2004, compared to $11.9 million in fiscal year 2003. The effective tax rate for fiscal year 2004 and fiscal year 2003 were 24% and 26%, respectively. The decline is due to increased sales by our foreign-based subsidiaries that are in lower tax jurisdictions.

Fiscal Year 2003 Compared With Fiscal Year 2002

Net Sales. Net sales for fiscal year 2003 were $193.0 million, an increase of 1% compared to $191.2 million for fiscal year 2002. Semiconductor and electronics industry conditions, as well as overall macro economic conditions remained weak during fiscal year 2003, following difficult market conditions in fiscal year 2002.

Presented below are the estimated sales by end-market. End-products included in the computer end-market include notebook and desktop computers, graphics applications, PDAs and computer gaming systems. Communications include cellular phone handsets, wireless base stations, set-top boxes, and networking, broadband and long-hail communications infrastructure equipment. The end-market for industrial/other products includes traditional industrial and automation equipment, power supplies, military, aerospace and medical applications.

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Weak unit demand coupled with declines in average selling prices impacted the ability to grow net sales in fiscal year 2003. The computer end-market category was benefited by gains in notebook computer and computer gaming related products that was partially offset by declines in the desktop computer segment. Sales into the communications end-market category were impacted by overall weak conditions in both wireless and wireline applications. The decline in the industrial /other end-market category was largely due to weakness in the ATE market.

Standard Semiconductor Products represented 95% of net sales in fiscal year 2003, while 5% were represented by the Rectifier, Assembly and Other Products segment. Details on net sales by reportable segment are presented below.

Sales of our Standard Semiconductor Products segment increased 4% in fiscal year 2003, while Rectifier, Assembly and Other Products’ sales declined 37%. Increased sales of Standard Semiconductor Products reflected strength in computer and portable applications, such as notebook computers and cellular phones. Strength in these end-applications was partially offset by weakness in the desktop computer, ATE and other capital intensive end-market segments.

Sales of our Rectifier, Assembly and Other Products segment shrank in fiscal year 2003 due to declining demand for these older technology products and other non-strategic product offerings, which we have de-emphasized due to their lower growth and profit margin opportunities.

Gross Profit. Gross profit for fiscal year 2003 was $109.9 million, compared to $93.3 million for the prior year. This increase was due to slightly higher sales and higher gross margin due in part to the absence of a write-down of inventory and discontinuation of certain products that occurred in fiscal year 2002. Our gross margin was 57% for fiscal year 2003, compared to a gross margin of 49% for fiscal year 2002.

The write-down of inventory and discontinuation of certain products during fiscal year 2002 was the result of a critical review we conducted during that year. A severe industry downturn and a related drop in demand from end-customers made certain inventories excess and obsolete, and certain product lines non-strategic. Of the $14.0 million write-down of inventory and discontinuation of certain products, $13.4 million was associated with the Standard Semiconductor Products segment and $550,000 with the Rectifier, Assembly and Other Products segment. In fiscal year 2003 and fiscal year 2002, we sold $1.3 million and $68,000, respectively, of inventory of the Standard Semiconductor Products segment that had been reserved during the second quarter of fiscal year 2002.

Operating Costs and Expenses. Operating costs and expenses were $79.0 million, or 41% of net sales, for the fiscal year 2003. Operating costs and expenses for fiscal year 2002 were $66.3 million, or 35% of net sales. Detailed below are the operating costs and expenses for fiscal years 2003 and 2002.

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The increase in absolute dollars of operating costs and expenses was the result of modest increases in spending in the areas of sales, general and administration and research and development. The increase in absolute dollars of operating costs and expenses was also impacted by higher one-time costs in fiscal year 2003.

Operating costs and expenses for fiscal year 2003 include one-time costs of $13.2 million; which included $12.0 million of cost associated with the Standard Semiconductor Products segment for the settlement of a customer dispute, $852,000 of cost not assigned to a reportable segment for an expected loss on the future sub-lease of the our New York office and $350,000 of cost assigned to a reportable segment for asset impairment at the Corpus Christi, Texas wafer fabrication facility.

Operating costs and expenses for fiscal year 2002 include one-time costs not assigned to a reportable segment of $2.0 million associated with an approximate 200-person reduction in headcount made in the first half of the year and one-time cost not assigned to a reportable segment of $765,000 associated with a pending Superfund settlement. As of January 26, 2003, substantially all of the one-time headcount reduction costs have been paid out in cash.

Operating Income. Operating income was $30.9 million in fiscal year 2003, up from operating income of $27.0 million in fiscal year 2002. Operating income was impacted by a slight increase in net sales and improvement in gross margin.

We evaluate segment performance based on net sales and operating income of each segment. Detailed below is operating income by reportable segment.

Operating income for the Standard Semiconductor Products segment increased in fiscal year 2003, having benefited by an increase in sales and higher gross margin. Standard Semiconductor Products segment operating income in fiscal year 2003 was negatively impacted by a one-time cost of $12.0 million for the settlement of a customer dispute. Gross margin and operating income for the Standard Semiconductor Products segment was negatively impact in fiscal year 2002 by a $13.4 million write-down of inventory and discontinuation of certain products within the Standard Semiconductor Products segment.

The Rectifier, Assembly and Other Products operating income decline in fiscal year 2003 reflected poor efficiencies associated with a lower sales level.

Interest and Other Income, Net. Net interest and other income of $15.2 million was realized in fiscal year 2003, up from $9.1 million in fiscal year 2002. Other income and expenses includes interest income from investments, interest expense associated with our outstanding convertible subordinated notes, and gain on the extinguishment of debt. The increase in interest and other income in fiscal year 2003 was mostly due to $12.7 million of gain on the extinguishment of debt. The interest income portion of Interest and Other Income for fiscal year 2003 was down due to lower rates of return on our investments as compared to the prior year. Interest and other income in fiscal year 2002 included $2.3 million of gain on the extinguishment of debt.

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Provision for Taxes. Provision for income taxes was $11.9 million for the fiscal year ended January 26, 2003, compared to $10.1 million in the fiscal year ended January 27, 2002. The effective tax rate for fiscal year 2003 and fiscal year 2002 were 26% and 28%, respectively. The decline is due to increased sales by our foreign-based subsidiaries that are in lower tax jurisdictions.

Selected Quarterly Financial Data (Unaudited)

The following tables set forth our unaudited consolidated statements of income data for each of the eight quarterly periods ended January 25, 2004, as well as that data expressed as a percentage of our net sales for the quarters presented. You should read this information in conjunction with our consolidated financial statements and related notes appearing in this Form 10-K. We have prepared this unaudited consolidated information on a basis consistent with our audited consolidated financial statements, and, in the opinion of our management, it reflects all normal recurring adjustments that we consider necessary for a fair presentation of our financial position and operating results for the quarters presented. You should not draw any conclusions about our future results from the operating results for any quarter.