You should read the following discussion of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended September 28, 2012 filed with the Securities and Exchange Commission (SEC) on November 28, 2012.

M/A-COM Technology Solutions Holdings, Inc. and its subsidiaries are collectively referred to herein as the "Company," "we," "us" or "our."

Cautionary Note Regarding Forward-Looking Statements

This Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and other sections of this Quarterly Report on Form 10-Q contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, we may make other written and oral communications from time to time that contain such statements. Forward-looking statements include statements as to industry trends and our future expectations and other matters that do not relate strictly to historical facts. These statements are often identified by the use of words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "estimate," or "continue," and similar expressions or variations. These statements are based on management's beliefs and assumptions as of the date of this report, based on information currently available to us. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from the forward-looking statements include, among others, the risks described herein in Part II. Item 1A, "Risk Factors" and in the section entitled "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended September 28, 2012 filed with the SEC on November 28, 2012. We caution the reader to carefully consider such factors. Furthermore, such forward-looking statements speak only as of the date of this report. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

Overview

We are a leading provider of high-performance analog semiconductor solutions for use in wireless and wireline applications across the radio frequency (RF), microwave and millimeterwave spectrum. We leverage our system-level expertise to design and manufacture differentiated, high-value products for customers who demand high performance, quality and reliability. The diversity and depth of our business across technologies, products, applications, end markets and geographies provide us with opportunities for growth and enable us to develop broad relationships with our customers. We offer over 2,700 standard and custom devices, which include integrated circuits (ICs), multi-chip modules, power pallets and transistors, diodes, switches and switch limiters, passive and active components and complete subsystems, across 38 product lines serving over 6,000 end customers in four large primary markets with opportunities for long-term future growth. Our semiconductor products are electronic components that our customers incorporate into their larger electronic systems, such as point-to-point radios, radar, automobile navigation systems, cable television (CATV) set-top boxes, magnetic resonance imaging systems and unmanned aerial vehicles. Our primary markets are Networks, which includes CATV, cellular backhaul, cellular infrastructure and fiber optic applications; Aerospace and Defense (A&D); Automotive, which includes global positioning modules (GPS) we sell to the automotive industry and Multi-market, which includes industrial, medical, mobile communications and scientific applications. Commencing in the three months ended December 28, 2012, we separated Automotive from Multi-market in presenting our revenue by market for the current and historical periods due to its growing significance to our overall business. We have one reportable operating segment, semiconductors and modules. We have a 52-or 53-week fiscal year ending on the Friday closest to September 30.

Description of Our Revenue, Cost of Revenue and Expenses

Revenue.Substantially all of our revenue is derived from sales of high-performance analog semiconductor solutions for use in wireless and wireline applications across the RF, microwave and millimeterwave spectrum. We design, integrate, manufacture and package differentiated product solutions that we sell to customers through our direct sales organization, our network of independent sales representatives and our distributors.

We believe the primary drivers of our future revenue growth will include:

• early customer engagement with our lead customers to develop products and solutions that can be driven across multiple growth markets;

• leveraging our core strength and leadership position in standard, catalog products that service multiple end applications;

• introduction of, and the market's reception to, new products that command higher prices because of added features, higher levels of integration and improved performance; and

• growth in the market for high-performance analog semiconductors generally, and in our four primary markets in particular.

Our core strategy is to develop innovative, high-performance products that address our customers' most difficult technical challenges in our primary markets: Networks, A&D, Automotive and Multi-market. While sales in any or all of our target markets may slow or decline from period to period, over the long term we generally expect to benefit from strength in these markets.

We expect growth in the Networks market to be primarily driven by continued upgrades and expansion of communications equipment to support expansion in Internet traffic, driven by the proliferation of mobile computing devices such as smartphones and tablets coupled with bandwidth rich services such as video on demand and cloud computing.

We expect growth in the A&D market to be driven by the upgrading of radar applications and battlefield communications devices designed to improve situational awareness. Growth in this market is subject to changes in governmental programs and budget funding, which is difficult to predict.

We expect continued strength in the Automotive market, subject to fluctuations in our largest customer's market share and overall macroeconomic conditions.

Multi-market is our most diverse market, and we expect steady growth over the long term in this market for our multi-purpose catalog products.

Cost of revenue. Cost of revenue consists primarily of the cost of semiconductor wafers and other materials used in the manufacture of our products, and the cost of assembly and testing of our products, whether performed by our internal manufacturing personnel or outsourced vendors. Cost of revenue also includes costs associated with personnel engaged in our manufacturing operations, such as wages and share-based compensation expense, as well as costs and overhead related to our manufacturing operations, including lease occupancy and utility expense related to our manufacturing operations, depreciation, production computer services and equipment costs, and the cost of our manufacturing quality assurance and supply chain activities. Further, cost of revenue includes the impact of warranty and inventory adjustments, including write-downs for excess and obsolete inventory as well as amortization of intangible assets related to acquired technology.

We seek to introduce high-performance products that are valued by our customers for their ability to address technically challenging applications, rather than commoditized products used in high-volume applications where cost, rather than performance, is the highest priority.

Our gross margin in any period is significantly affected by industry demand and competitive factors in the markets into which we sell our products. Gross margin is also significantly affected by our product mix, that is, the percentage of our revenue in that period that is attributable to relatively higher or lower-margin products. Additional factors affecting our gross margin include fluctuations in the cost of wafers and materials, including precious metals, utilization of our wafer fabrication operation, or fab, level of usage of outsourced manufacturing, assembly and test services, changes in our manufacturing yields, changes in foreign currencies and numerous other factors, some of which are not under our control. As a result of these or other factors, we may be unable to maintain or increase our gross margin in future periods and our gross margin may fluctuate from period to period.

Gross margin was 43.0% for both the three months ended December 28, 2012 and December 30, 2011. Over the long-term we generally expect continued improvement in our gross margin as we continue implementing cost savings initiatives, execute on our new product development and sales and marketing strategies and experience higher volumes.

Research and development. Research and development (R&D) expense consists primarily of costs relating to our employees engaged in the design and development of our products and technologies, including wages and share-based compensation. R&D expense also includes costs for consultants, facilities, services related to supporting computer design tools used in the engineering and design process, prototype development and project materials. We expense all research and development costs as incurred. We have made a significant investment in R&D since March 2009 and expect to maintain or increase the dollar amount of R&D investment in future periods, although amounts may increase or decrease in any individual quarter.

Selling, general and administrative. Selling, general and administrative (SG&A) expense consists primarily of costs of our executives, sales and marketing, finance, human resources and administrative organizations, including wages and share-based compensation. SG&A expense also includes professional fees, sales commissions paid to independent sales representatives, costs of advertising, trade shows, marketing, promotion, travel, occupancy and equipment costs, computer services costs, costs of providing customer samples and amortization of certain intangible assets relating to customer relationships.

Accretion of contingent consideration. We have partially funded the acquisition of businesses through contingent earn-out consideration in which we have agreed to pay contingent amounts to the previous owners of acquired businesses based upon those businesses achieving contractual milestones. We record these obligations as liabilities at fair value and any changes in fair value are reflected in our earnings.

Restructuring charges.Restructuring expense consists of severance and related costs incurred in connection with reductions in staff relating to initiatives designed to lower our manufacturing and operating costs.

Other income (expense). Other income (expense) consists of accretion of our common stock warrant liability, accretion of our Class B conversion liability, which was settled in March 2012, interest expense and income from our administrative and business development services agreement with GaAs Labs, which is an affiliate of our directors and majority stockholders John and Susan Ocampo.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements. The preparation of financial statements, in conformity with generally accepted accounting principles in the U.S. (GAAP) requires management 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 revenue and expenses during the reporting period. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty. On an ongoing basis, we re-evaluate our judgments and estimates. We base our estimates and judgments on our historical experience and on other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making the judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The accounting policies which our management believes involve the most significant application of judgment, or involve complex estimation, include revenue recognition, inventory, warranty obligations, share-based compensation, income taxes and fair value measurements related to contingent consideration liabilities, common stock warrant liabilities and, through the completion of the IPO in March 2012, Class B conversion liabilities. Actual results could differ from those estimates, and material effects on our operating results and financial position may result.

For a description of the accounting policies which, in our opinion, involve the most significant application of judgment, or involve complex estimation, and which could, if different judgments or estimates were made, materially affect our reported results of operations, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates" in our Annual Report on Form 10-K for the fiscal year ended September 28, 2012.

Results of Operations

The following table sets forth, for the periods indicated, our statement of
operations data (in thousands):



                                                                  Three Months Ended
                                                        December 28,              December 30,
                                                            2012                      2011
Revenue                                                $        75,014           $       73,035
Cost of revenue (1)                                             42,749                   41,620

Gross profit                                                    32,265                   31,415

Operating expenses:
Research and development (1)                                     9,823                    9,891
Selling, general and administrative (1) (4)                     10,867                   11,278
Accretion of contingent consideration                             (172 )                    169
Restructuring charges                                               -                     1,586

Total operating expenses                                        20,518                   22,924

Income from operations                                          11,747                    8,491

Other income (expense):
Accretion of common stock warrant liability (2)                 (2,026 )                  1,458
Accretion of Class B conversion liability (3)                       -                    13,620
Interest expense (1)                                              (226 )                   (181 )
Other income-related party                                          84                       -

Total other income (expense)                                    (2,168 )                 14,897

Income before income taxes                                       9,579                   23,388
Income tax provision                                             3,471                    1,346

Net income                                             $         6,108           $       22,042

(1) Amortization expense related to intangible assets arising from acquisitions, non-cash compensation expense and amortization of deferred financing costs recorded as interest expense included in our consolidated statements of operations is set forth below (in thousands):

                                                               Three Months Ended
                                                      December 28,            December 30,
                                                          2012                    2011
Amortization expense:
Cost of revenue                                       $         474           $         382
Selling, general and administrative                             315                     258
Non-cash compensation expense: (a)
Cost of revenue                                                 288                      36
Research and development                                        321                     106
Selling, general and administrative                             654                     391
Amortization of deferred financing costs -
interest expense                                                 99                      59

(a) Includes (i) share-based compensation and (ii) other non-cash incentive compensation.

(2) Represents changes in the fair value of common stock warrants recorded as liabilities and adjusted each reporting period to fair value.

(3) Represents changes in the fair value of certain features of our Class B convertible preferred stock that were recorded as liabilities and adjusted each reporting period to fair value. The liabilities were settled in connection with the IPO in March 2012.

(4) Includes Optomai litigation costs of $0.2 million incurred in the three months ended December 28, 2012.

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

                                                          Three Months Ended
                                                  December 28,           December 30,
                                                      2012                   2011
Revenue                                                    100.0 %               100.0 %
Cost of revenue                                             57.0                  57.0

Gross margin                                                43.0                  43.0

Operating expenses:
Research and development                                    13.1                  13.5
Selling, general and administrative                         14.5                  15.4
Accretion of contingent consideration                       (0.2 )                 0.2
Restructuring charges                                         -                    2.2

Total operating expenses                                    27.4                  31.4

Income from operations                                      15.7                  11.6

Other income (expense):
Accretion of common stock warrant liability                 (2.7 )                 2.0
Accretion of Class B conversion liability                     -                   18.6
Interest expense                                            (0.3 )                (0.2 )
Other income-related party                                   0.1                    -

Total other income (expense)                                (2.9 )                20.4

Income before income taxes                                  12.8                  32.0

Income tax provision                                         4.6                   1.8

Net income                                                   8.1 %                30.2 %

Comparison of the Three Months Ended December 28, 2012 to the Three Months Ended December 30, 2011

Revenue. Our revenue increased $2.0 million, or 2.7%, to $75.0 million for the three months ended December 28, 2012 from $73.0 million for the three months ended December 30, 2011. The increase in revenue in the 2012 period was primarily due to continued strength in our Automotive market, partially offset by soft demand in our Networks market, which we believe reflects a slowdown in capital spending by telecommunications operators, driven by a weak macroeconomic environment.

Revenue from our primary markets, the percentage of change between the periods, and revenue by primary markets expressed as a percentage of total revenue were (in thousands, except percentages):

                                   Three Months Ended
                            December 28,        December 30,          %
                                2012                2011           Change
             Networks       $      17,435      $       21,963        (20.6 )%
             A&D                   20,794              20,806         (0.1 )%
             Automotive            21,144              11,594         82.4 %
             Multi-Market          15,641              18,672        (16.2 )%

             Total          $      75,014      $       73,035


             Networks                23.2 %              30.1 %
             A&D                     27.7                28.5
             Automotive              28.2                15.9
             Multi-Market            20.9                25.6

             Total                    100 %               100 %

In the three months ended December 28, 2012, our Networks market revenue decreased by $4.5 million, or 20.6%, compared to the three months ended December 30, 2011. The decrease in the period was attributable primarily to a slowdown

in capital spending by telecommunications operators for cellular infrastructure and wireless backhaul, partially offset by growth in sales of our CATV, broadband, and optical products.

In the three months ended December 28, 2012, our A&D market revenue was unchanged at $20.8 million compared to the three months ended December 30, 2011. We attribute this to a generally consistent demand environment for our radar products in both periods.

In the three months ended December 28, 2012, our Automotive revenues increased by $9.6 million, or 82.4%, compared to the three months ended December 30, 2011. We attribute this growth primarily to adoption by our largest automotive customer of our GPS modules across the majority of its domestic fleet as well as further penetration into the international market.

In the three months ended December 28, 2012, our Multi-market revenues decreased by $3.0 million, or 16.2%, compared to the three months ended December 30, 2011. We attribute this decrease primarily to our ramp down of certain higher volume business targeting consumer products and general industry softness.

Gross margin. Gross margin was 43.0% for the three months ended December 28, 2012 and December 30, 2011. Gross margin in the 2012 period was negatively impacted by product mix, primarily due to the increase in revenue from lower gross margin automotive products, as well as increases in supplies, non-cash compensation, repairs, depreciation and amortization, offset by lower payroll, external services and relocation expenses.

Research and development.R&D expense decreased by $0.1 million to $9.8 million, or 13.1% of our revenue, for the three months ended December 28, 2012 compared with $9.9 million, or 13.5% of our revenue, for the three months ended December 30, 2011. Research and development costs in the 2012 period decreased as compared to the 2011 period primarily as a result of increases in foreign government research grants and tax credits, partially offset by higher costs for seminars and conferences, non-cash compensation and engineering supplies.

Selling, general and administrative. SG&A expense decreased $0.4 million, or 3.6%, to $10.9 million, or 14.5% of our revenue, for the three months ended December 28, 2012 compared with $11.3 million, or 15.4% of our revenue, for the three months ended December 30, 2011. In the 2011 period we incurred higher professional fees for preparation and audits of historical financial statements required for our IPO, as well as higher employee relocation costs, partially offset by increases in the 2012 period for non-cash compensation, litigation, insurance and other public company costs.

Accretion of contingent consideration. Accretion of contingent consideration resulted in a gain of $0.2 million for the three months ended December 28, 2012 compared with expense of $0.2 million for the three months ended December 30, 2011. Accretion of contingent consideration is a result of changes in the fair value of the contingent consideration we pay or expect to pay related to acquisitions.

Restructuring charges. Restructuring charges were zero for the three months ended December 28, 2012 compared with $1.6 million for the three months ended December 30, 2011. The restructuring charge in the 2011 period related to a reduction of staffing during the period and represents severance and related benefits that we paid in fiscal year 2012.

Income from operations. Income from operations increased $3.3 million, or 38.3%, to $11.7 million or 15.7% of our revenue for the three months ended December 28, 2012 compared with $8.5 million or 11.6% of our revenue for the three months ended December 30, 2011.

Accretion of common stock warrant liability. Common stock warrant expense of $2.0 million for the three months ended December 28, 2012 compares to a gain of $1.5 million for the three months ended December 30, 2011. The changes relate to the changes in the estimated fair value of common stock warrants we issued in December 2010, which we carry as a liability at fair value.

Interest expense. Interest expense was $0.2 million for the three months ended December 28, 2012 and December 30, 2011.

Other income-related party. In the three months ended December 28, 2012, we billed GaAs Labs $0.1 million, for services provided pursuant to our administrative and business development services agreement with it and have recorded the amount as other income.

Provision for income taxes. The difference between the U.S. federal statutory income tax rate of 35% and our effective income tax rate for the three months ended December 28, 2012 of 36.2% was driven primarily by $2.0 million of expense related to the change in fair value of our common stock warrant liabilities, which are not taxable, and income earned in foreign jurisdictions with lower income tax rates than in the U.S., partially offset by U.S. state income taxes. The American Taxpayer Relief Act of 2012 (ATR Act) was enacted on January 2, 2013 which, among other things, provides a retroactive two-year extension of the U.S. research and development tax credits that had previously expired on December 31, 2011. We have not

recorded the benefit of these credits since December 31, 2011. We will record the benefit from these credits in the second quarter of fiscal year 2013 as a result of the enactment of the ATR Act.

Liquidity and Capital Resources

As of December 28, 2012, we held $92.6 million of cash and cash equivalents, all deposited with financial institutions. Cash from operations was $9.0 million in the three months ended December 28, 2012, of which the principal components were . . .