This information should be read in conjunction with our unaudited consolidated condensed financial statements and the notes thereto included in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for our fiscal year ended September 28, 2012.

Overview

Mindspeed Technologies, Inc. designs, develops and sells semiconductor solutions for communications applications in wireline and wireless network infrastructure equipment, which includes broadband access networks (fixed and mobile), enterprise and metropolitan and wide area networks (WAN) (fixed and mobile). In previous reporting periods, we had organized our solutions for these interrelated and rapidly converging networks into three product lines:
communications convergence processing, high-performance analog and WAN communications. As previously reported, communications convergence processing included small cell wireless equipment. Beginning this quarter, to better align with our investment focus and provide greater transparency into the execution of our growth business, we are reporting small cell wireless infrastructure revenues as a standalone category. We are also combining the communications convergence processing, excluding small cell wireless infrastructure revenues, and WAN businesses into communications processors. High-performance analog will remain unchanged. Therefore, our three product lines will be wireless infrastructure, communications processors and high-performance analog. Our wireless infrastructure products include ultra-low-power, multi-core digital signal processor (DSP) system-on-chip (SoC) products for the mobile (3G/4G) carrier infrastructure, including residential, and enterprise platforms. Our communications processors products include ultra-low-power, multi-core digital signal processor (DSP) system-on-chip (SoC) products for the fixed carrier infrastructure platforms and WAN communication products that help optimize today's circuit-switched networks that furnish much of the Internet's underlying long-distance infrastructure. Our high-performance analog products include high-density crosspoint switches, optical drivers, equalization and signal-conditioning solutions that solve difficult switching, timing and synchronization challenges in next-generation optical networking, enterprise storage and broadcast video transmission applications.

Our products are sold to original equipment manufacturers (OEMs) for use in a variety of network infrastructure equipment, including:

• Wireless Infrastructure - 3G/4G long-term evolution (LTE) wireless small cell base stations in the carrier infrastructure, including residential and enterprise;

• Communications Processors - triple-play access gateways for Voice-over-Internet Protocol (VoIP) and data processing platforms; broadband customer premises equipment (CPE) gateways and other equipment that carriers use to deliver voice, data and video services to residential subscribers; Internet Protocol (IP) private branch exchange (PBX) equipment and security appliances used in the enterprise and circuit-switched networking equipment that implements asynchronous transfer mode (ATM) and T1/E1 and T3/E3 communications protocols; and

• High-Performance Analog - next-generation fiber access network equipment (including passive optical networking, or PON, systems); switching and signal conditioning products supporting fiber-to-the-premise, optical transport networks (OTN), storage and server systems and broadcast video, inclusive of routers and other systems that are driving the migration to 3G high-definition (HD) transmission.

Our customers include Alcatel-Lucent SA, Cisco Systems, Inc., Huawei Technologies Co. Ltd., Hitachi Ltd., LM Ericsson Telephone Company, Mitsubishi Electric Corporation, Nokia Siemens Networks and Zhongxing Telecom Equipment Corp., among others.

Trends and Factors Affecting Our Business

Our products are components of network infrastructure equipment. As a result, we rely on network infrastructure OEMs to select our products from among alternative offerings to be designed into their equipment. These "design wins"

are an integral part of the long sales cycle for our products. Our customers may need six months or longer to test and evaluate our products and an additional six months or more to begin volume production of equipment that incorporates our products. We believe our close relationships with leading network infrastructure OEMs facilitate early adoption of our products during development of their products, enhance our ability to obtain design wins and encourage adoption of our technology by the industry. We believe our diverse portfolio of semiconductor solutions has us well positioned to capitalize on some of the most significant trends in telecommunications spending, including: next generation network convergence; VoIP/fiber access deployment in developing and developed markets; 3G/4G wireless infrastructure build-out; the adoption of higher speed interconnectivity solutions; and the migration of broadcast video to HD.

We market and sell our semiconductor products directly to network infrastructure OEMs. We also sell our products indirectly through electronic component distributors and third-party electronic manufacturing service providers, who manufacture products incorporating our semiconductor networking solutions for OEMs. Sales to distributors accounted for approximately 63% of our net revenue for the first three months of fiscal 2013. Our revenue is well diversified globally, with 86% of net revenue for the first three months of fiscal 2013 coming from outside of the Americas. We believe a portion of the products we sell to OEMs and third-party manufacturing service providers in the Asia-Pacific region is ultimately shipped to end markets in the Americas and Europe. We believe we are well-situated in China, where fiber deployments are being rolled out by the country's major telecommunications carriers. Through our OEM customers, we are shipping into the fiber-to-the-building (FTTB) deployments of China Telecom, China Unicom and China Mobile. Approximately 29% of our net revenue for the first three months of fiscal 2013 was derived from customers in China.

We have significant research, development, engineering and product design capabilities. Our success depends to a substantial degree upon our ability to develop and introduce in a timely fashion new products and enhancements to our existing products that meet changing customer requirements and emerging industry standards. We have made, and plan to make, substantial investments in research and development and to participate in the formulation of industry standards. We spent approximately $15.6 million on research and development in the first three months of fiscal 2013. We seek to maximize our return on our research and development spending by focusing our research and development investment in what we believe are key growth markets, including wireless infrastructure solutions for small cell base station processing, communications processors for VoIP and other high-bandwidth multiservice access applications, and high-performance analog applications such as optical networking and broadcast-video transmission. We have completed a series of cost reduction actions, which have improved our operating cost structure, and we will continue to perform additional actions, when necessary.

We are dependent upon third parties for the development, manufacturing, assembly and testing of our products. Our ability to bring new products to market, to fulfill orders and to achieve long-term revenue growth is dependent upon our ability to obtain sufficient external manufacturing capacity, including wafer fabrication capacity. Periods of upturn in the semiconductor industry may be characterized by rapid increases in demand and a shortage of capacity for wafer fabrication and assembly and test services. In such periods, we may experience longer lead times or indeterminate delivery schedules, which may adversely affect our ability to fulfill orders for our products. During periods of capacity shortages for manufacturing, assembly and testing services, our primary foundries and other suppliers may devote their limited capacity to fulfill the requirements of their other customers that are larger than we are, or who have superior contractual rights to enforce manufacture of their products, including to the exclusion of producing our products. The foundries and other suppliers on whom we rely may experience financial difficulties or suffer disruptions in their operations due to causes beyond our control, including deteriorations in general economic conditions, labor strikes, work stoppages, electrical power outages, fire, earthquake, flooding or other natural disasters. We may also incur increased manufacturing costs, including costs of finding acceptable alternative foundries or assembly and test service providers. In order to achieve sustained profitability and positive cash flows from operations, we may need to further reduce operating expenses and/or increase our revenue.

Our ability to achieve revenue growth will depend on increased demand for network infrastructure equipment that incorporates our products, which in turn depends primarily on the level of capital spending by communications service providers, the level of which may decrease due to general economic conditions and uncertainty, over which we have no control. We believe the market for network infrastructure equipment in general, and for communications semiconductors in particular, offers attractive long-term growth prospects due to increasing demand for network capacity, the continued upgrading and expansion of existing networks and the build-out of telecommunication networks in developing countries. However, the semiconductor industry is highly cyclical and is characterized by constant and rapid technological change, rapid product obsolescence and price erosion, evolving technical standards, short product life cycles and wide fluctuations in product supply and demand. In addition, there has been an increasing trend toward industry consolidation,

particularly among major network equipment and telecommunications companies. Consolidation in the industry has generally led to pricing pressure and loss of market share. These factors have caused substantial fluctuations in our revenue and our results of operations in the past, and we may experience cyclical fluctuations in our business in the future.

Critical Accounting Policies and Estimates

The accounting policies that have the greatest impact on our financial condition and results of operations and that require the most judgment are those relating to inventories, stock-based compensation, revenue recognition, deferred income taxes and uncertain tax positions, business combinations, goodwill and other long-lived assets, and impairment of goodwill and other long-lived assets. These policies are described in further detail in our Annual Report on Form 10-K for the fiscal year ended September 28, 2012. There have been no significant changes in our critical accounting policies and estimates during the fiscal quarter ended December 28, 2012 as compared to what was previously disclosed in our Annual Report on Form 10-K for the fiscal year ended September 28, 2012.

Recent Accounting Pronouncements

In October 2012, the FASB issued accounting guidance covering a wide range of topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012. We do not expect the adoption of this guidance to have a material impact on our financial position or results of operations.

Results of Operations

Net Revenue by Product Line

The following table summarizes fiscal quarter net revenue by our new product
lines:



                                                              Three Months Ended
                                         December 28,      % of Net        December 30,      % of Net               Change
                                             2012           Revenue            2011           Revenue          $             %
                                                                    (in thousands, except percentages)
High-performance analog                 $       19,190            44 %    $       14,344            42 %    $  4,846          33.8 %
Communications processors                       14,630            33 %            19,226            57 %      (4,596 )       -23.9 %
Wireless infrastructure                          4,574             9 %               272             1 %       4,302        1581.6 %

Total net product revenue                       38,394            86 %            33,842           100 %       4,552          13.5 %
Intellectual property                            6,000            14 %                90             0 %       5,910

Net revenue                             $       44,394           100 %    $       33,932           100 %    $ 10,462          30.8 %

The following table summarizes fiscal quarter net revenue by the historical product lines:

                                                              Three Months Ended
                                         December 28,      % of Net        December 30,      % of Net              Change
                                             2012           Revenue            2011           Revenue          $            %
                                                                   (in thousands, except percentages)
High-performance analog products        $       19,190            43 %    $       14,344            43 %    $  4,846        33.8 %
Communications convergence processing
products                                        14,051            32 %            14,989            44 %        (938 )      -6.3 %
WAN communications products                      5,153            11 %             4,509            13 %         644        14.3 %

Total net product revenue                       38,394            86 %            33,842           100 %       4,552        13.5 %
Intellectual property                            6,000            14 %                90             0 %       5,910

Net revenue                             $       44,394           100 %    $       33,932           100 %    $ 10,462        30.8 %

Net revenue from high-performance analog products increased in the first quarter of fiscal 2013 when compared to the first quarter of fiscal 2012 due to increased demand for crosspoint switches and optical physical media devices. Net revenue from wireless infrastructure products also increased in the first quarter of fiscal 2013 when compared to the first quarter of fiscal 2012 due to increased shipments of our system-on-chip (SoC) products for small cell base stations. These increases were partially offset by a decrease in sales in communications processors products. Net revenue from our communications processors products decreased in the first quarter of fiscal 2013 when compared to the first quarter of fiscal 2012, despite a slight increase in Ethernet products for wide area networks. The decline is due to a slowdown in the infrastructure voice market, as well as a decrease in shipments of CPE products, which are used in broadband CPE gateways and other equipment that service providers are deploying in order to deliver voice, data and video services to residential subscribers.

In the first fiscal quarter of 2013, we also sold $6.0 million in intellectual property compared to $90,000 in intellectual property sales in the first fiscal quarter of 2012. We have developed and maintain a broad intellectual property portfolio, and we may periodically enter into strategic arrangements to leverage our portfolio by licensing or selling our intellectual property.

The demand environment was dynamic throughout the first quarter of fiscal 2013. Certain customers increased or accelerated product orders to earn financial incentives, while other customers requested product shipments that could not be supported due to standard manufacturing lead times exceeding the time between orders being placed and requested delivery dates. The net impact of these activities was an increase to net revenue of $2.1 million for the three months ended December 28, 2012.

Gross Margin

Gross margin represents net revenue less cost of goods sold. As a fabless semiconductor company, we use third parties, including Taiwan Semiconductor Manufacturing Co., Ltd. (TSMC), Amkor Technology, Inc., Unisem, Inc. and Advanced Semiconductor Engineering, Inc. (ASE), for wafer fabrication and assembly and test services. Cost of goods sold primarily consisted of: purchased finished wafers; assembly and test services; royalty and other intellectual property costs; labor and overhead costs associated with product procurement; asset impairments; amortization of the cost of mask sets purchased; and sustaining engineering expenses pertaining to products sold.

The following table presents fiscal quarter gross margin:

                                                            Three Months Ended
                                      December 28,       % of Net        December 30,       % of Net             Change
                                          2012           Revenue             2011           Revenue           $          %
                                                                         (in thousands, except percentages)

Gross margin increased for the first quarter of fiscal 2013 compared to the first quarter of fiscal 2012 by approximately $9.6 million due to a $4.6 million, or 13.5%, increase in product revenue and a $5.9 million increase in intellectual property revenue. The increase in our gross margin as a percent of net revenue for the first quarter of fiscal 2013 compared to the first quarter of fiscal 2012 was driven primarily by a change in product mix, as well as an increase in intellectual property revenue, which had no associated cost. These increases in gross margin as a percent of net revenue were partially offset by the amortization of acquired intangible assets related to the picoChip acquisition.

Research and Development

Research and development (R&D) expenses consisted primarily of: direct personnel
costs, including stock-based compensation; photomasks; electronic design
automation tools; and pre-production evaluation and test costs.

The following table presents details of fiscal quarter R&D expenses:



                                                             Three Months Ended
                                       December 28,       % of Net        December 30,       % of Net             Change
                                           2012           Revenue             2011           Revenue          $            %
                                                                 (in thousands, except percentages)
Personnel-related costs               $        9,473                     $        8,965                     $  508          5.7 %
Stock-based compensation                         913                                652                        261         40.0 %
Design & development costs                     2,117                              2,954                       (837 )      -28.3 %
Facilities                                     2,097                              1,362                        735         54.0 %
Depreciation                                     765                                592                        173         29.2 %
Other                                            232                                483                       (251 )      -52.0 %

Research and development              $       15,597             35 %    $       15,008             44 %    $  589          3.9 %

R&D expenses increased modestly for the first quarter of fiscal 2013 compared to the first quarter of fiscal 2012 due to an increase in personnel-related costs. This increase was primarily due to the addition of personnel costs related to the picoChip R&D employees obtained during the second quarter of fiscal 2012. R&D expense also increased due to increased facilities and depreciation expense related to the additional facilities and property, plant and equipment obtained through the acquisition of picoChip. These increases were mostly offset by design and development cost reductions, as part of the restructuring plan we undertook in fiscal 2012.

Selling, General and Administrative

Our selling, general and administrative (SG&A) expenses include personnel costs, independent sales representative commissions and product marketing, applications engineering and other marketing costs. Our SG&A expenses also include costs of corporate functions, including accounting, finance, legal, human resources, information systems and communications.

The following table presents details of fiscal quarter SG&A expenses:

                                                             Three Months Ended
                                       December 28,       % of Net        December 30,       % of Net             Change
                                           2012           Revenue             2011           Revenue          $            %
                                                                  (in thousands, except percentages)
Personnel-related costs                $       5,051                     $        5,056                     $   (5 )       -0.1 %
Stock-based compensation                       1,713                              1,541                        172         11.2 %
Professional fees & outside services           1,061                              1,870                       (809 )      -43.3 %
Facilities                                       508                                781                       (273 )      -35.0 %
Depreciation                                     166                                186                        (20 )      -10.8 %
Other                                          1,111                                696                        415         59.6 %

Selling, general and administrative    $       9,610             22 %    $       10,130             30 %    $ (520 )       -5.1 %

SG&A expenses decreased for the first quarter of fiscal 2013 compared to the first quarter of fiscal 2012 primarily due to a reduction in professional fees and outside services. In the first quarter of fiscal 2012, professional fees and outside services included approximately $800,000 in expenses incurred related to the acquisition of picoChip which closed on February 6, 2012.

Restructuring Charges

We have, and may in the future, commit to restructuring plans to help manage our costs or to help implement strategic initiatives, among other reasons.

Fourth Quarter of Fiscal 2012 Restructuring Plan - In the fourth quarter of fiscal 2012, we committed to the implementation of a restructuring plan, which consisted primarily of a headcount reduction in our research and development functions and selling, general and administrative functions. The restructuring plan is expected to be substantially completed during the fourth quarter of fiscal 2013. We made the decision to implement the restructuring in furtherance of our efforts to reduce operating expenses and cash consumption. Approximately $2.3 million in net charges were incurred through the first quarter of fiscal 2013 related to this plan. Of the amounts incurred, $2.1 million related to severance costs for affected employees and approximately $206,000 related to contractual obligations on vacated office space.

Activity and liability balances related to our fourth quarter of fiscal 2012 restructuring plan from September 28, 2012 through December 28, 2012 were as follows:

                                                  Workforce                Facilities
                                                  Reductions               and Other                  Total
                                                (in thousands)           (in thousands)           (in thousands
Restructuring balance, September 28, 2012      $            382         $             -          $           382
Charges to costs and expenses                             1,362                      210                   1,572
Cash payments                                              (993 )                     -                     (993 )
Non-cash adjustments                                        (97 )                     (4 )                  (101 )

Restructuring balance, December 28, 2012       $            654         $            206         $           860

The remaining accrued restructuring balance principally represents employee severance costs and contractual obligations on vacated office space. We expect to pay these remaining employee severance obligations through the third quarter of fiscal 2013 and the remaining contractual obligations on vacated office space through the second quarter of fiscal 2015, the end of the related lease term.

Fourth Quarter of Fiscal 2011 Restructuring Plan - In the fourth quarter of fiscal 2011, we implemented a restructuring plan, which consisted primarily of a targeted headcount reduction in the selling, general and administrative functions and (WAN) product line, which is now part of the communications processors product line. We incurred $1.1

million of charges related to severance costs for the affected employees during the fourth quarter of fiscal 2011. The restructuring plan was substantially completed during the fourth quarter of fiscal 2011. An additional $138,000 of charges was incurred related to severance costs for the affected employees during the third quarter of fiscal 2012.

Activity and liability balances related to our fourth quarter of fiscal 2011 restructuring plan from September 28, 2012 through December 28, 2012 were as follows:

                                                         Workforce
                                                         Reductions
                                                       (in thousands)
          Restructuring balance, September 28, 2012   $             45
          Cash payments                                            (13 )

          Restructuring balance, December 28, 2012    $             32

The remaining accrued restructuring balance principally represents employee severance costs. We expect to pay these remaining obligations through the third quarter of fiscal 2013.

. . .