OVERVIEW

We are a leading provider of semiconductor solutions in the growing broadband wireless and wireline communications markets. Our products include power amplifiers, tuner integrated circuits, active splitters, line amplifiers and other components, which can be sold individually or packaged as integrated radio frequency and front end modules. We believe that we are well-positioned to capitalize on the high growth voice, data and video segments of the broadband wireless and wireline communications markets. We offer 3G products that use the W-CDMA, EDGE and WEDGE standards, 3.5G products that use HSPA and EVDO standards, 4G products for WIMAX systems, WiFi products that use the 802.11 a/b/g and 802.11 n MIMO standards, CATV cable modem and set-top box products, CATV infrastructure products and FTTP products.

Our business strategy focuses on developing RF front end solutions and partnering with industry-leading wireless chipset providers to incorporate our solutions into their reference designs. Our integrated solutions enable our customers to improve RF performance, power efficiency, reliability, time-to-market and the integration of chip components into single packages, while reducing the size, weight and cost of their products.

We continue to focus on leveraging our technological advantages to remain a leading supplier of semiconductor solutions for broadband wireless and wireline communications. We believe our patented InGaP-plus technology, which combines the bipolar technology of a PA (HBT PA) with the surface device technology of an RF active switch (pHEMT) on the same die, provides us with a competitive advantage in the marketplace. For instance, we believe technologies such as HELP provide our customers a competitive advantage by enabling their 3G, 3.5G and 4G devices to consume less battery power and deliver longer talk time than comparable products in their markets.

Our six-inch diameter GaAs fab located at our corporate headquarters in Warren, New Jersey, has been operational since 1999. We are actively exploring future sources of additional manufacturing capacity including pursuing relationships with foundries. Unlike traditional CMOS silicon fabs that have short technology lifecycles and require frequent capital investments, GaAs fabs are more similar to analog fabs that have long lifecycles and do not become quickly outdated. Our six-inch wafer fab allows us to produce more than twice the RF die per wafer compared with the four-inch wafer fabs still used by some of our competitors.

Although we have achieved annual growth in revenue since 2004, we have experienced a decline in quarterly revenue in the third and fourth quarters of 2008, which has resulted from a combination of a reduction in market share with certain customers and an industry slowdown due to the current macroeconomic environment. We expect a sequential revenue decline in the first quarter 2009.

During the fourth quarter of 2008, we announced the implementation of a workforce reduction which eliminated approximately 100 positions. The workforce reduction along with other cost reduction actions were initiated with a view to achieving annual savings of approximating $15 million to $20 million which we expect to be realized in 2009. Additionally, in the fourth quarter, we re-evaluated and cancelled our previous plans for expanding wafer manufacturing to a facility we were constructing in China. After evaluating the recoverability of our capital investment in China, we recorded a $13.0 million impairment charge on that investment. Additionally, after evaluating and discounting future cashflows underlying our goodwill and intangible assets associated with our WiFi reporting unit, we have fully impaired those assets, resulting in impairment charges of $6.2 million.

We believe our markets are, and will continue to remain, competitive which could result in continued quarterly volatility in our net sales. This competition has resulted in, and is expected over the long-term to continue to result in competitive or declining average selling prices for our products and increased challenges in maintaining or increasing market share.

We have only one reportable segment. For financial information related to such segment and certain geographic areas, see Note 6 to the accompanying consolidated financial statements.

CRITICAL ACCOUNTING POLICIES & SIGNIFICANT ESTIMATES

GENERAL

We believe the following accounting policies are critical to our business operations and the understanding of our results of operations. Such accounting policies may require management to exercise a higher degree of judgment and make estimates used in the preparation of our consolidated financial statements.

REVENUE RECOGNITION

Revenue from product sales is recognized when title to the products is transferred to the customer, which occurs upon shipment or delivery, depending upon the terms of the sales order. We sell to certain distributors who are granted limited contractual rights of return and exchange and certain pre-negotiated individual product-customer price protection. Revenue from sales of our products to distributors is recognized, net of allowances, upon shipment of the products to the distributors. At the time of shipment, title transfers to the distributors and payment from the distributors is due on our standard commercial terms; payment terms are not contingent upon resale of the products. Revenue is appropriately reduced for the portion of shipments subject to return, exchange or price protection. Allowances for the distributors are recorded upon shipment and calculated based on the distributors' indicated intent, historical data, current economic conditions and contractual terms. We believe we can reasonably and reliably estimate allowances for credits to distributors in a timely manner. We charge customers for the costs of certain contractually-committed inventories that remain at the end of a product's life. Such amounts are recognized as cancellation revenue when cash is received. The value of the inventory related to cancellation revenue may, in some instances, have been reserved during prior periods in accordance with our inventory obsolescence policy.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

We maintain an allowance for doubtful accounts for estimated losses resulting from our customers' failure to make payments. If the financial condition of our customers were to erode, making them unable to make payments, additional allowances may be required.

WARRANTY COSTS

We provide for potential warranty claims by recording a current charge to income. We estimate potential claims by examining historical returns and other information deemed critical and provide for an amount which we believe will cover future warranty obligations for products sold. The liability for warranty costs is included in accrued liabilities in the consolidated balance sheets.

STOCK-BASED COMPENSATION

We account for stock-based compensation costs in accordance with Financial Accounting Standards Board Statement No. 123R, "Share Based Payment" (FAS 123R), which requires the measurement and recognition of compensation expense for all stock-based payment awards made to our employees and directors. Under the fair value recognition provisions of FAS 123R, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period which in most cases is the vesting period. Determining the fair value of certain awards at the grant date requires considerable judgment, including estimating expected volatility, expected term and risk-free interest rate. Our expected volatility has been a combination of both Company and peer company historical volatility, which at the time of grant, we deemed reflective of our development as a larger capitalization company. The expected term of the stock options is based on several factors including historical observations of employee exercise patterns and expectations of employee exercise behavior in the future giving consideration to the contractual terms of the stock-based awards. The risk free interest rate assumption is based on the yield at the time of grant of a U.S. Treasury security with an equivalent remaining term. If factors change and we employ different assumptions, stock-based compensation expense may differ significantly from what we have recorded in the past.

MARKETABLE SECURITIES

Available-for-sale securities are stated at fair value, as determined by quoted market prices or, as needed, independent valuation models, with unrealized gains and losses reported in other accumulated comprehensive income or loss. Independent valuations developed to estimate the fair value of illiquid auction rate securities (ARS) were determined using a combination of two calculations: (1) a discounted cash flow model, where the expected cash flows of the ARS are discounted to the present value using a yield that incorporates compensation for illiquidity, and (2) a market comparables method, where the ARS are valued based on indications, from the secondary market, of what discounts buyers demand when purchasing similar ARS. The valuations include numerous assumptions such as assessments of the underling structure of each security, expected cash flows, discount rates, credit ratings, workout periods and overall capital market liquidity. We review our investments on an ongoing basis for indications of possible impairment, and if an impairment is identified, we determine whether the impairment is temporary or other-than-temporary, in which case it is recorded as a charge to income. Determination of whether the impairment is temporary or other-than-temporary requires significant judgment. Unrealized losses are recognized in our consolidated statement of operations when a decline in fair value is determined to be other than temporary. The primary factors we consider in classifying the impairment are the extent to which and period of time that the fair value of each investment has declined below its cost basis.

INVENTORY

Inventories are valued at the lower of cost or market ("LCM"), using the first-in, first-out method. We capitalize production overhead costs to inventory on the basis of normal capacity of the production facility and in periods of abnormally low utilization we charge the related expenses as a period cost in the statement of operations. In addition to LCM limitations, we reserve against inventory items for estimated obsolescence or unmarketable inventory. The reserve for excess and obsolete inventory is primarily based upon forecasted short-term demand for the product. Once established, these write-downs are considered permanent adjustments to the cost basis of the excess inventory. If actual demand and market conditions are less favorable than those projected by management, additional inventory write-downs may be required. In the event we sell inventory that had been covered by a specific inventory reserve, the sale is recorded at the actual selling price and the related cost of goods sold at the full inventory cost, net of the reserve.

LONG-LIVED ASSETS

Long-lived assets include fixed assets, goodwill and other intangible assets. We regularly review these assets for indicators of impairment and assess the carrying value of the assets against market values. When an impairment exists, we record an expense to the extent that the carrying value exceeds fair market value.

Goodwill and intangibles impairment
Goodwill is required to be tested for impairment at the reporting unit level on an annual basis to assess whether the fair value of the reporting unit could be below its carrying value. Our goodwill represents the purchase price in excess of the net amount assigned to assets acquired and liabilities assumed. The first step of the two-step impairment test compares the carrying value of the reporting unit to its fair value calculated using the income approach based on the present value of estimated future cash flows. The income approach is dependent on a number of significant management assumptions, including estimates of future revenue growth, other operating costs and discount rates. If the fair value of the unit is less than the carrying value of its net assets, we perform step two of the impairment test. In step two, we allocate the fair value of the reporting unit to its underlying assets and liabilities as if the reporting unit had been acquired in a business combination and the fair value of the unit was the price paid to acquire the reporting unit. Any excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. During the fourth quarter of 2008, we performed an impairment test on our WiFi reporting unit in which our step two analysis resulted in no implied fair value of goodwill and such value was expensed as an impairment charge in our statement of operations.

Impairment of long-lived assets
We assess the impairment of long-lived assets, including intangible assets, whenever events or changes in circumstances indicate that their carrying value may not be recoverable. Factors which could trigger an impairment review include the following: significant changes in the manner of use of the assets; significant underperformance relative to historical or projected future operating results; or significant negative industry or economic trends. An impairment occurs when the future undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of such assets. Cash flow estimates are based on historical results adjusted to reflect management's best estimate of future market and operating conditions. The net carrying values of assets not recoverable through future cash flows are reduced to fair value. Estimates of fair value represent management's best estimates based on industry trends, and market rates and transactions. In connection with completing step two of our goodwill impairment analysis during the fourth quarter of 2008, we assessed the fair values of our related intangible assets, consisting principally of assembled workforce related to the WiFi reporting unit and expensed such value as an impairment charge in the statement of operations.

During the fourth quarter of 2008, we evaluated our future options with regard to our investment in constructing a wafer fabrication facility in Kunshan China and subsequently estimated and evaluated future cashflows associated with this investment. Such estimates included significant assumptions on possible recoveries through a sale of the facility, further investment, and a return in demand for production capacity and discount rate. After evaluating the discounted cash flows, we fully impaired the investment and charged such amounts within restructuring and impairment charges in our statement of operations.

Long-lived assets held for sale are reported at the lower of cost or fair value less costs to sell. Management considers sensitivities to capacity, utilization and technological developments in making its assumptions of fair value.

DEFERRED TAXES

We record a valuation allowance to reduce deferred tax assets when it is more likely than not that some portion of the amount may not be realized. During 2001, we determined that it was no longer more likely than not that we would be able to realize all or part of our net deferred tax asset in the future, and an adjustment to provide a valuation allowance against the deferred tax asset was charged to income. We continue to maintain a full valuation allowance on our deferred tax assets.

While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event we were to determine that we would be able to realize our deferred tax assets in the future, an adjustment to the deferred tax asset would increase income in the period such determination was made.

RESULTS OF OPERATIONS

The following table sets forth statements of operations data as a percentage of net sales for the periods indicated:

                                            2006         2007         2008

Net sales                                    100.0 %      100.0 %      100.0 %
Cost of sales                                 69.8         65.8         69.6

Gross profit                                  30.2         34.2         30.4
Research and development expense              21.1         20.2         21.1
Selling and administrative expenses           14.2         13.1         15.9
Restructuring and impairment charges             -            -          8.2

Operating (loss) income                       (5.1 %)       0.9  %     (14.8 %)
Interest income                                3.3          3.5          2.0
Interest expense                              (2.9 )       (1.1 )       (0.9 )
Other income                                     -         (0.3 )       (2.5 )

(Loss) income from continuing operations      (4.7 %)       3.0 %      (16.2 %)
Loss from discontinued operations             (0.6 %)      (0.4 %)         -
Net (loss) income                             (5.3 %)       2.6 %      (16.2 %)

2008 COMPARED TO 2007

NET SALES. Net sales for the year ended December 31, 2008 increased 12.0% to $258.2 million, compared to net sales for the year ended December 31, 2007 of $230.6 million. The net sales improvement was primarily due to increased demand for wireless third generation technologies (or 3G), most significantly WCDMA.

Net sales for the year ended December 31, 2008 for the Company's wireless products increased 19.9% to $154.7 million compared to net sales for the year ended December 31, 2007 of $129.0 million. The net sales improvement was primarily due to increased demand for power amplifiers for 3G applications of $34.7 million or 29.1%, most significantly in WCDMA applications. The growth in 3G was partially offset by lower net sales in power amplifiers for GSM of $9.1 million or 91.5%, which resulted from the Company's shift in market focus to 3G technologies.

Net sales for the year ended December 31, 2008 for the Company's broadband products increased to $103.5 million or 2.0% compared to net sales for the year ended December 31, 2007 of $101.5 million. The net sales improvement was due to increased demand for integrated circuits used in cable set-top boxes of $10.2 million or 55.4% partly offset by a decline in cable infrastructure and WiFi applications of $8.2 million or 9.9%.

GROSS MARGIN. Gross margin for 2008 declined to 30.4% of net sales, compared with 34.2% of net sales in the prior year. The decline in gross margin was impacted by $7.1 million in charges principally comprised of production equipment purchase cancelation charges of $1.9 million, impairment charges on equipment held for sale of $1.5 million and $3.5 million of inventory reserve charges on dedicated inventory which is surplus to reduced customer demand. In addition, depreciation expense increased by $5.4 million, which was partially offset by improvements in product mix.

RESEARCH & DEVELOPMENT. Company sponsored research and development expenses increased 17.0% during 2008 to $54.5 million from $46.5 million during 2007. The increase was primarily due to an expansion and focus in research and development efforts on new product development, requiring increased staffing and support costs, including automated design tools. In addition, our purchase of the RF group from Fairchild Semiconductor on September 5, 2007 which further added to our new product development capability, impacted the year on year comparison in the amount of $2.9 million, such amount was primarily comprised of staffing-related costs.

SELLING AND ADMINISTRATIVE. Selling and administrative expenses increased 36.2% during 2008 to $41.1 million from $30.2 million in 2007. The increase included $5.7 million associated with the departure of our former Chief Executive Officer, including $2.2 million of stock -based compensation upon accelerated vesting of certain equity awards. The remaining increase was primarily driven by increased staff and outside advisors costs.

RESTRUCTURING AND IMPAIRMENT CHARGES. During the fourth quarter of 2008, we implemented a workforce reduction which eliminated approximately 100 positions resulting in a restructuring charge of $2.1 million, principally for severance and related benefits.

During the fourth quarter of 2008, we evaluated alternatives with regard to our investment in the construction of a wafer fabrication facility in Kunshan China in light of surplus industry production capacity, reduced demand experienced by the Company, as well as the broader macroeconomic environment. We determined that the carrying amount of the China fabrication building was not recoverable as the carrying amount was greater than the sum of the undiscounted cash flows expected from the use and disposition of these assets. As a result of this impairment analysis, we recorded a full $13.0 million impairment charge in the fourth quarter of 2008.

Our annual goodwill impairment test determined that the fair value of the WiFi reporting unit was less than the carrying value of the net assets of the reporting unit, and thus we performed step two of the impairment test. Our step two analysis resulted in no implied fair value of goodwill and therefore, we recognized an impairment charge of $5.9 million in the fourth quarter of 2008, representing a write off of the entire amount of our previously recorded goodwill. In connection with our goodwill impairment analysis, we also assessed the fair values of our related intangible assets, which carried an unamortized value of $0.3 million consisting principally of assembled workforce related to the WiFi reporting unit noting it was similarly impaired and charged the remaining unamortized carrying value to restructuring and impairment charges.

INTEREST INCOME. Interest income decreased 34.6% to $5.3 million during 2008 from $8.0 million in 2007. The decrease was primarily due to lower interest rates globally as we reinvested funds and concentrated our investments in shorter-term vehicles which carried federal deposit insurance.

INTEREST EXPENSE. Interest expense was essentially flat at $2.4 million in 2008 compared to $2.5 million in 2007. The interest expense arises from obligations under our 5% Convertible Senior Notes due in October 2009 ("2009 Notes").

OTHER EXPENSE. Other expense was $6.5 million in 2008 compared to $0.7 million in 2007 and included charges for other than temporary declines in value on certain auction rate securities (ARS) held by the Company of $6.8 million and $1.0 million respectively. While interest continues to be paid currently by all the issuers of these ARS, due to the severity of the decline in fair value and the duration of time for which these ARS have been in a loss position, the Company concluded that ARS held at December 31, 2008 experienced an other-than-temporary decline in fair value and recorded impairment charges of $4.7 million for the year ended December 31, 2008. Additionally during 2008, a corporate debt ARS position was exchanged for the underlying 30 year notes. This debt trades in the market with a value of $1.9 million against its face value of $4.0 million. Due to the severity and duration of the decline, the Company has recorded an impairment of $2.1 million related to this security.

LOSS FROM DISCONTINUED OPERATIONS. Loss from discontinued operations was $1.0 million 2007 and included $0.5 million loss on the sale of the majority of the operating assets of Telcom Devices Inc. upon its sale at the close of the first quarter of 2007.

2007 COMPARED TO 2006

NET SALES. Net sales for the year ended December 31, 2007 increased 38.5% to $230.6 million, compared to net sales for the year ended December 31, 2006 of $166.4 million. The net sales improvement was primarily due to increased demand for wireless third generation technologies (or 3G) consisting of CDMA EVDO, EDGE, WEDGE, and W-CDMA power amplifiers used in wireless handsets and hand-held devices and increased demand for broadband products such as WiFi power amplifiers used in wireless personal computer access and RF integrated circuits used in cable and broadband applications.

Specifically, net sales for the year ended December 31, 2007 for the Company's wireless products increased 41.4% to $129.0 million compared to net sales for the year ended December 31, 2006 of $91.3 million. The net sales improvement was primarily due to increased demand for power amplifiers for 3G applications of $54.1 million or 85.6%, which was partially offset by lower net sales in power amplifiers for GSM of $16.4 million or 62.3%, which resulted from the Company's shift in market focus to 3G technologies.

Specifically, net sales for the year ended December 31, 2007 for the Company's broadband products increased to $101.5 million or 35.0% compared to net sales for the year ended December 31, 2006 of $75.2 million. The net sales improvement was primarily due to increased demand for power amplifiers for WiFi applications of $18.7 million or 52.6% and integrated circuits used in cable and infrastructure applications of $7.6 million or 19.9%.

Geographically, net sales in Asia increased 67.4% to $153.4 million from $91.6 million in 2006. The increase was primarily driven by the increased demand for our WiFi and 3G products.

GROSS MARGIN. Gross margin for 2007 improved to 34.2% of net sales, compared with 30.2% of net sales in the prior year. The improvement in gross margin was primarily due to the product mix of 3G technologies and WiFi applications further supported by improved cost absorption generated through increased production volumes.

RESEARCH & DEVELOPMENT. Company sponsored research and development expenses increased 32.8% during 2007 to $46.5 million from $35.1 million during 2006. The increase was primarily due to an expansion and focus in research and development efforts on new product development, which required increased staffing costs. Additionally, on September 5, 2007 we purchased the RF group from Fairchild Semiconductor, which included the hiring a staff of 23 employees. Non-cash stock-based compensation expense accounted for an increase of $2.6 million in 2007 over 2006.

SELLING AND ADMINISTRATIVE. Selling and administrative expenses increased 27.5% during 2007 to $30.2 million from $23.7 million in 2006. The increase was primarily due to increased sales and marketing efforts focused on addressing existing and potential market opportunities in 3G, WiFi and broadband. Non-cash stock-based compensation expense accounted for an increase of $2.9 million in 2007 over 2006.

INTEREST INCOME. Interest income increased 47.9% to $8.0 million during 2007 from $5.4 million in 2006. The increase was primarily due to higher average funds invested as a result of our underwritten public offering of 8.6 million shares of common stock in March of 2007 (the "March 2007 Offering") and higher interest rates.

INTEREST EXPENSE. Interest expense decreased to $2.5 million in 2007 from $4.8 million in 2006. In 2007, interest expense arose from obligations under our 5% Convertible Senior Notes due in 2009 ("2009 Notes") whereas in 2006 our 5% Convertible Senior Notes due in 2006 ("2006 Notes") was also outstanding. In November 2006, we repaid the remaining $46.7 million aggregate principal amount outstanding of our 2006 Notes.

LOSS FROM DISCONTINUED OPERATIONS. Loss from discontinued operations was $1.0 million compared with $1.0 million in 2006. The loss from discontinued operations in 2007 included $0.5 million loss on the sale of Telcom upon its sale at the close of the first quarter of 2007.

OTHER EXPENSE. Other expense was $0.7 million in 2007, for which, $1.0 million was recorded for an other than temporary decline in value on certain auction rate securities held by the Company. This was partly offset by gains on foreign currency transactions.

LIQUIDITY AND SOURCES OF CAPITAL

At December 31, 2008 we had $123.6 million of cash and cash equivalents on hand and $22.2 million in marketable securities. The cash and cash equivalents were primarily comprised of fully federally-insured accounts and investments. We had $38.0 million aggregate principal amount of our 2009 Notes outstanding as of December 31, 2008.

Operations generated $27.1 million in cash during 2008, primarily as a result . . .