Maxim Integrated Products, Inc. ("Maxim Integrated" or the "Company" and also referred to as "we," "our" or "us") disclaims any duty to and undertakes no obligation to update any forward-looking statement, whether as a result of new information relating to existing conditions, future events or otherwise or to release publicly the results of any future revisions it may make to forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, except as required by federal securities laws. Readers are cautioned not to place undue reliance on such statements, which speak only as of the date of this Quarterly Report on Form 10-Q. Readers should carefully review future reports and documents that the Company files with or furnishes to the SEC from time to time, such as its Annual Reports on Form 10-K, its Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K.

Overview of Business

Maxim Integrated is incorporated in the state of Delaware. Maxim Integrated designs, develops, manufactures and markets a broad range of linear and mixed-signal integrated circuits, commonly referred to as analog circuits, for a large number of geographically diverse customers. The Company also provides a range of high-frequency process technologies and capabilities that can be used in custom designs. The analog market is fragmented and characterized by many diverse applications, a great number of product variations and, with respect to many circuit types, relatively long product life cycles. The Company is a global company with wafer manufacturing facilities in the U.S., testing facilities in the Philippines and Thailand and sales and circuit design offices throughout the world. The major end-markets in which the Company's products are sold are the communications, computing, consumer and industrial markets.

CRITICAL ACCOUNTING POLICIES

The methods, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our consolidated financial statements. The SEC has defined the most critical accounting policies as the ones that are most important to the portrayal of our financial condition and results of operations, and that require us to make our most difficult and subjective accounting judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, our most critical accounting policies include revenue recognition and related allowances, which impact the recording of revenues; valuation of inventories, which impacts costs of goods sold and gross margins; the assessment of recoverability of long-lived assets, which impacts write-offs of fixed assets, intangible assets, and goodwill; accounting for stock-based compensation, which impacts cost of goods sold, gross margins and operating expenses; accounting for income taxes, which impacts the income tax provision; and assessment of contingencies, which impacts charges recorded in cost of goods sold and

operating expenses. We have other significant accounting policies that either do not generally require estimates and judgments that are as difficult or subjective, or are less likely to have a material impact on our reported results of operations for a given period.

There have been no material changes during the six months ended December 29, 2012 to the items that we disclosed as our critical accounting policies and estimates in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended June 30, 2012.

RESULTS OF OPERATIONS

The following table sets forth certain Condensed Consolidated Statements of
Income data expressed as a percentage of net revenues for the periods indicated:

                                    Three Months Ended                      Six Months Ended
                             December 29,        December 31,       December 29,        December 31,
                                 2012                2011               2012                2011

Net revenues                      100.0  %             100.0 %           100.0  %            100.0  %
Cost of goods sold                 40.0  %              41.2 %            39.0  %             39.4  %
Gross margin                       60.0  %              58.8 %            61.0  %             60.6  %
Operating expenses:
Research and development           22.4  %              24.0 %            21.9  %             23.0  %
Selling, general and
administrative                     13.2  %              13.7 %            13.0  %             13.3  %
Intangible asset
amortization                        0.6  %               0.7 %             0.6  %              0.7  %
Impairment of long-lived
assets                              3.7  %                 - %             2.0  %                -  %
Severance and
restructuring expenses              0.4  %               1.0 %             0.2  %              0.5  %
Other operating expenses
(income), net                       0.3  %                 - %             0.2  %             (0.3 )%
Total operating expenses           40.6  %              39.4 %            37.9  %             37.2  %
Operating income                   19.4  %              19.4 %            23.1  %             23.4  %
Interest and other income
(expense), net                     (0.5 )%               0.4 %            (0.7 )%             (0.1 )%
Income before provision
for income taxes                   18.9  %              19.8 %            22.4  %             23.3  %
Provision for income taxes          6.3  %               4.9 %             5.7  %              5.2  %
Net income                         12.6  %              14.9 %            16.7  %             18.1  %

The following table shows stock-based compensation included in the components of the Condensed Consolidated Statements of Income reported above as a percentage of net revenues for the periods indicated:

                                    Three Months Ended                      Six Months Ended
                             December 29,        December 31,       December 29,        December 31,
                                 2012                2011               2012                2011

Cost of goods sold                  0.6 %               0.6 %              0.5 %               0.6 %
Research and development            2.0 %               2.2 %              2.0 %               2.1 %
Selling, general and
administrative                      1.2 %               1.2 %              1.2 %               1.1 %
                                    3.8 %               4.0 %              3.7 %               3.8 %

Net Revenues

Net revenues were $605.3 million and $591.4 million for the three months ended December 29, 2012 and December 31, 2011, respectively, an increase of 2.4%. Net revenues were $1,228.4 million and $1,227.4 million for the six months ended December 29, 2012 and December 31, 2011, respectively, an increase of 0.1%. We classify our shipments by four major end market categories: Communications, Computing, Consumer and Industrial. Net shipments increased during the three and six months ended December 29, 2012 as compared to the three and six months ended December 31, 2011 due to improved demand for our products in the consumer markets primarily from growth in smart phones. This increase was offset by continued decline in our notebook business in the computing market.

During the three months ended December 29, 2012 and December 31, 2011, approximately 90% and 87% of net revenues, respectively, were derived from customers outside of the U.S. During the six months ended December 29, 2012 and December 31, 2011, approximately 90% and 88% of net revenues, respectively, were derived from customers outside of the U.S. While the

majority of these sales are denominated in U.S. dollars, we enter into foreign currency forward contracts to mitigate our risks on firm commitments and net monetary assets and liabilities denominated in foreign currencies. The impact of changes in foreign exchange rates on our revenue and results of operations for the three and six months ended December 29, 2012 and December 31, 2011 was immaterial.

Gross Margin

Our gross margin percentages were 60.0% and 58.8% for the three months ended December 29, 2012 and December 31, 2011, respectively. The gross margin increased primarily due to lower inventory reserve requirements and improved manufacturing efficiencies from test operations.

Our gross margin percentages were 61.0% and 60.6% for the six months ended December 29, 2012 and December 31, 2011, respectively. The gross margin increased primarily due to lower inventory reserve requirements and improved manufacturing efficiencies from test operations.

Research and Development

Research and development expenses were $135.7 million and $142.1 million for the three months ended December 29, 2012 and December 31, 2011, respectively, which represented 22.4% and 24.0% of net revenues, respectively. The $6.4 million decrease was primarily attributable to a decrease in salaries and related expenses of $6.0 million as a result of decreased headcount and one extra week in the fiscal quarter ended December 31, 2011.

Research and development expenses were $268.7 million and $282.3 million for the six months ended December 29, 2012 and December 31, 2011, respectively, which represented 21.9% and 23.0% of net revenues, respectively. The $13.6 million decrease was primarily attributable to a decrease in salaries and related expenses of $9.4 million as a result of decreased headcount and one extra week in the fiscal quarter ended December 31, 2011.

Selling, General and Administrative

Selling, general and administrative expenses were relatively flat at $80.1 million and $80.8 million for the three months ended December 29, 2012 and December 31, 2011, respectively, which represented 13.2% and 13.7% of net revenues, respectively. There were no significant fluctuations in line items making up the selling, general and administrative expenses.

Selling, general and administrative expenses were relatively flat at $160.2 million and $163.3 million for the six months ended December 29, 2012 and December 31, 2011, respectively, which represented 13.0% and 13.3% of net revenues, respectively. There were no significant fluctuations in line items making up the selling, general and administrative expenses.

Impairment of Long-lived Assets

Impairment of long lived assets was $22.2 million and $24.9 million in the three and six months ended December 29, 2012, respectively. The impairment was primarily due to the transition to utilizing newer, more efficient manufacturing equipment.. The Company recorded a charge for the write-down of the equipment to its estimated fair value less estimated cost to sell.

Other Operating Expenses (Income), net

Other operating expenses, net were $1.7 million and $0.2 million during the three months ended December 29, 2012 and December 31, 2011, respectively. The net increase in expense was primarily driven by contingent consideration adjustments related to certain acquisitions. Contingent consideration is measured at fair value with valuation adjustments made as progress toward achieving milestones becomes determinable.

Other operating expenses (income), net were $2.1 million and $(4.2) million during the six months ended December 29, 2012 and December 31, 2011, respectively. The net increase in expense was primarily driven by contingent consideration adjustments related to certain acquisitions of $2.3 million in the six months ended December 29, 2012 and a reversal of payroll related tax reserves totaling approximately $4.6 million due to the lapsing of the statutes of limitations in the six months ended December 31, 2011.

Interest and Other (Expense) Income, net

Interest and other (expense) income, net were $(2.8) million and $2.4 million for the three months ended December 29, 2012 and December 31, 2011, respectively. This net increase in expense was primarily driven by an increase in foreign exchange losses of

$2.8 million and a gain from sale of investments in privately-held companies of $1.8 million in the three months ended December 31, 2011, that did not recur in the three months ended December 29, 2012.

Interest and other expense, net were $8.5 million and $1.7 million for the six months ended December 29, 2012 and December 31, 2011, respectively. This net increase in expense was primarily driven by an increase in foreign exchange losses of $5.8 million and gain from sale of investments in privately-held companies of $1.8 million in the six months ended December 31, 2011, that did not recur in the six months ended December 29, 2012. This was partially offset by a decrease in interest expense.

Provision for Income Taxes

In the three and six months ended December 29, 2012, the Company recorded an income tax provision of $38.1 million and $69.9 million respectively, compared to an income tax provision of $28.8 million and $63.6 million in the three and six months ended December 31, 2011, respectively.

The Company's federal statutory tax rate is 35%. The Company's income tax provision for the three and six months ended December 29, 2012 and December 31, 2011 was lower than the amount computed by applying the statutory tax rate primarily because the earnings of the foreign subsidiaries were taxed at lower rates. The Company's income tax provision for the three and six months ended December 29, 2012 included a $21.4 million discrete tax charge for research and development expenses of a foreign subsidiary for which no tax benefit is available.
On January 2, 2013, the President signed into law The American Taxpayer Relief Act of 2012, which extended the research tax credit for two years from January 1, 2012 to December 31, 2013. As a result of the retroactive extension back to January 1, 2012, we expect to recognize a one-time benefit of $7.6 million for research tax credits earned in the fiscal year 2012 and first two quarters of fiscal year 2013. This benefit will be recognized in the third quarter of fiscal year 2013, which is the quarter in which the legislation that extended the research tax credit was enacted.
In fiscal year 2012 the U.S. Internal Revenue Service commenced an audit of the Company's federal corporate income tax returns for fiscal years 2009 through 2011, which is still ongoing.

BACKLOG

At December 29, 2012 and September 29, 2012, our current quarter backlog was approximately $353 million and $400 million, respectively. We include in backlog orders with customer request dates within the next three months. As is customary in the semiconductor industry, these orders may be canceled in most cases without penalty to customers. In addition, backlog includes orders from domestic distributors for which revenues are not recognized until the products are sold by the distributors. Accordingly, we believe that our backlog is not a reliable measure of future revenues. All backlog numbers have been adjusted for estimated future U.S. distribution ship and debit pricing adjustments.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Financial condition

Cash flows were as follows:
                                                             Six Months Ended
                                                      December 29,      December 31,
                                                          2012              2011
                                                              (in thousands)
Net cash provided by operating activities            $     391,842     $     370,129
Net cash used in investing activities                     (108,346 )        (304,146 )
Net cash used in financing activities                     (209,449 )        (287,364 )
Net increase (decrease) in cash and cash equivalents $      74,047     $    (221,381 )

Operating activities

Cash provided by operating activities is net income adjusted for certain non-cash items and changes in certain assets and liabilities.

Cash from operations for the six months ended December 29, 2012 increased by approximately $21.7 million compared with the six months ended December 31, 2011. This was due to net increases in cash provided by other accrued liabilities and income tax payable of $71.0 million and impairment of used fabrication tools and test manufacturing equipment of $24.9 million. These increases were offset by decreases in deferred taxes, inventories and accounts payable of $76.9 million.

Investing activities

Investing cash flows consist primarily of capital expenditures, net investment purchases and maturities and acquisitions.

Cash used in investing activities decreased by $195.8 million for the six months ended December 29, 2012 compared with the six months ended December 31, 2011. The decrease was primarily due to decreases in cash used for acquisitions of $166.3 million relating to SensorDynamics and other fiscal year 2012 acquisitions.

Financing activities

Financing cash flows consist primarily of repurchases of common stock and payment of dividends to stockholders.

Net cash used in financing activities decreased by approximately $77.9 million for the six months ended December 29, 2012 compared with the six months ended December 31, 2011. The decrease was primarily due to lower repurchases of common stock of $45.6 million and higher proceeds received on exercise of stock options of $23.1 million due to higher average share price.

Liquidity and Capital Resources
Debt Levels
On June 17, 2010, we completed a public offering of $300 million aggregate principal amount of the Company's 3.45% senior unsecured and unsubordinated notes due on June 14, 2013. In addition, on July 18, 2011, we acquired certain fixed and floating rate notes in conjunction with our acquisition of SensorDynamics. (Please refer to Note 5: Financial Instruments to the Condensed Consolidated Financial Statements).

Outstanding debt is at $309 million as of December 29, 2012 and June 30, 2012, bearing weighted average interest rates of 3.43% and 3.45% for the six months ended December 29, 2012 and for the year ended June 30, 2012, respectively.

As of December 29, 2012, our available funds consisted of $1,030.3 million in cash, cash equivalents and short-term investments. We anticipate that the available funds and cash generated from operations will be sufficient to meet cash and working capital requirements, including the anticipated level of capital expenditures, common stock repurchases, debt repayments and dividend payments for at least the next twelve months.

Off-Balance-Sheet Arrangements

As of December 29, 2012, the Company did not have any material off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.