Summary of RF MICRO DEVICES INC

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This Annual Report on Form 10-K includes "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about our plans, objectives, representations and contentions and are not historical facts and typically are identified by use of terms such as "may," "will," "should," "could," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential," "continue" and similar words, although some forward-looking statements are expressed differently. You should be aware that the forward-looking statements included herein represent management's current judgment and expectations, but our actual results, events and performance could differ materially from those expressed or implied by forward-looking statements. We do not intend to update any of these forward-looking statements or publicly announce the results of any revisions to these forward-looking statements, other than as is required under the federal securities laws. Our business is subject to numerous risks and uncertainties, including risks associated with the recent worldwide economic turmoil and its effect on our business and the business of our suppliers and customers, variability in quarterly operating results, the rate of growth and development of wireless markets, risks associated with the reduction or elimination of our investments in our wireless systems business, risks that restructuring charges may be greater and that the cost savings and other benefits from our restructurings may be lower than originally anticipated, risks associated with the operation of our wafer fabrication facilities, molecular beam epitaxy facility, assembly facilities and test and tape and reel facilities, our ability to complete acquisitions and integrate acquired companies, including the risk that we may not realize expected synergies from our business combinations, our ability to attract and retain skilled personnel and develop leaders, variability in production yields, our ability to reduce costs and improve gross margins by implementing innovative technologies, our ability to bring new products to market, our ability to adjust production capacity in a timely fashion in response to changes in demand for our products, dependence on a limited number of customers, dependence on third parties and our ability to manage channel partners and customer relationships.. These and other risks and uncertainties, which are described in more detail under Item 1A, "Risk Factors" in this Annual Report on Form 10-K, could cause actual results and developments to be materially different from those expressed or implied by any of these forward-looking statements.
The following discussion should be read in conjunction with, and is qualified in its entirety by reference to, our audited consolidated financial statements, including the notes thereto.
OVERVIEW
Company
We are a global leader in the design and manufacture of high-performance radio frequency (RF) components and compound semiconductors. Our products enable worldwide mobility, provide enhanced connectivity and support advanced functionality in the cellular handset, wireless infrastructure, wireless local area network (WLAN), cable television (CATV)/broadband and aerospace and defense markets. We are recognized for our diverse portfolio of semiconductor technologies and RF systems expertise and we are a preferred supplier to the world's leading mobile device, customer premises and communications equipment providers.
Our design and manufacturing expertise encompasses all major applicable semiconductor process technologies, which we obtain through both internal and external sources. We are the world's largest manufacturer of gallium arsenide (GaAs)-based compound semiconductors. We access silicon, silicon germanium and other technologies through leading foundries. Our broad design and manufacturing resources enable us to deliver products optimized for performance and cost in order to best meet our customers' performance, cost and time-to-market requirements.
Business Segments
We follow Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS 131), which establishes standards for the way public companies report information about operating segments in annual financial statements and in interim reports to shareholders. The method for determining what information to report is based on the way that management organizes the segments within the Company for the chief operating decision maker to make operating decisions, allocate resources and assess financial performance. Although we had two business units as of March 28, 2009 (Cellular Products Group (CPG)

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and Multi-Market Products Group (MPG)), we report financial information as one operating segment pursuant to the aggregation criteria set forth in SFAS 131. Fiscal 2009 Management Summary
Our key financial and operational highlights for the fiscal year ended March 28, 2009, are as follows:
• In early fiscal 2009, we initiated a restructuring to reduce our investment in wireless systems, including cellular transceivers and global positioning systems (GPS) solutions, in order to focus on RF component opportunities. As a result, we recorded expenses of $47.1 million in fiscal 2009 related to this restructuring.

• In the second half of fiscal 2009, we initiated a restructuring to reduce manufacturing capacity and costs and operating expenses due primarily to lower current and forecasted demand for our products resulting from the global economic slowdown. As a result, we recorded expenses of $67.1 million in fiscal 2009 related to this restructuring.

• We recorded an impairment charge of $686.5 million to goodwill and intangibles as a result of global macroeconomic conditions.

• We consolidated our production test facilities in an effort to reduce cycle time and reduce our manufacturing cost structure.

• We completed the integrations of Sirenza, Filtronic and UMC.

• Our revenue decreased 7.3% in fiscal 2009 to $886.5 million as compared to $956.3 million in fiscal 2008. This decrease was due primarily to lower demand for our products resulting from the global economic slowdown. The impact of the global economic slowdown was partially offset by the revenue generated as a result of the acquisitions of Sirenza, Filtronic and UMC (approximately 20% of total fiscal 2009 revenue and approximately 5% of total fiscal 2008 revenue was attributable to these acquisitions).

• Operating loss was $869.3 million in fiscal 2009 as compared to an operating loss of $50.9 million for fiscal 2008, primarily due to impairment charges and restructuring activities. We recorded an impairment charge of $686.5 million to goodwill and intangibles as a result of the macroeconomic conditions and we recorded restructuring charges totaling $114.2 million in fiscal 2009. We believe the restructuring activities that occurred in fiscal 2009, which reduced both our manufacturing and operating costs, position RFMD for substantial and sustainable improvement in our future financial performance.

• Our gross profit was 24.5% of revenue in fiscal 2009 as compared to 28.8% of revenue in fiscal 2008. This decrease was primarily due to lower factory utilization rates beginning in the second quarter of fiscal 2009 as a result of reduced demand and forecasted demand for our products. Also contributing to the lower gross profit was an increase in amortization expense related to acquired intangibles, and an increase in inventory reserves. These decreases were partially offset by a decrease in amortization for inventory step-up related to our acquisition of Sirenza, a shift in product mix to higher margin products and license fee revenue, increased efficiencies of internally-sourced assembly and improved pricing on externally-sourced materials.

• Our net loss per diluted share was $3.42 for fiscal 2009, compared to a net income per diluted share of $0.02 for fiscal 2008.

• Inventory totaled $113.6 million at March 28, 2009, reflecting total inventory reserves of $39.5 million. During fiscal 2009, inventory reserves increased and resulted in a charge of approximately $21.0 million as a result of the significant reduction in demand for our products in the second half of fiscal 2009.

• We generated positive cash flow from operations of $112.2 million for fiscal 2009 as compared to $59.9 million for fiscal 2008, primarily due to improved inventory management. Although our revenue decreased only 7.3% year over year, our inventory balance was reduced by 40% year over year. Improvements in our management of other aspects of working capital also contributed to the positive cash flow during fiscal 2009.

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• Capital expenditures totaled $46.5 million in fiscal 2009 as compared to $122.7 million in fiscal 2008.

• Other (expense) income included a gain of approximately $22.1 million in fiscal 2009 as a result of our repurchase of $55.3 million principal amount of our convertible subordinated notes due 2010 and 2014.

RESULTS OF OPERATIONS FOR FISCAL 2009 VERSUS FISCAL 2008
The following table presents a summary of our results of operations for fiscal years 2009 and 2008:

                                                      % of                        % of                  Variance
(In thousands, except percentages)      2009        Revenue         2008        Revenue           $              %

Revenue                              $  886,506        100.0 %    $ 956,270        100.0 %    $  (69,764 )         (7.3 )%
Cost of goods sold                      669,163         75.5        681,314         71.2         (12,151 )         (1.8 )
Research and development                170,778         19.3        207,362         21.7         (36,584 )        (17.6 )
Marketing and selling                    64,946          7.3         57,330          6.0           7,616           13.3
General and administrative               50,352          5.7         42,080          4.4           8,272           19.7
Goodwill impairment                     619,551         69.9              -            -         619,551              -
Other operating expense                 181,012         20.4         19,085          2.0         161,927          848.5

Operating loss $ (869,296 ) (98.1 )% $ (50,901 ) (5.3 )% (818,395 ) (1,607.8 )

REVENUE
Our revenue decreased in fiscal 2009 as compared to fiscal 2008, due primarily to lower demand for our products resulting from the global economic slowdown. Our third and fourth quarter revenues in fiscal 2009 declined as the normal seasonal demand increase did not occur (see Note 20 to the Consolidated Financial Statements). The softness in demand spanned multiple customers and end markets. Additionally, in early fiscal 2009, we initiated a restructuring to reduce or eliminate our investment in wireless systems, including cellular transceivers and GPS solutions, in order to focus on RF component opportunities. Revenues declined in fiscal 2009 versus 2008 due to this decision to reduce or eliminate our investment in wireless systems. The decreases were partially offset by the revenue generated as a result of the acquisitions of Sirenza, Filtronic and UMC (approximately 20% of total fiscal 2009 revenue and approximately 5% of total fiscal 2008 revenue were attributable to these acquisitions) and an increase in license fee revenue.
Sales to our significant customers, as a percentage of net revenue, were as follows:

                                             Fiscal Year
                                            2009      2008
                             Customer 1       52 %     59 %
                             Customer 2        8 %     14 %

International shipments amounted to $726.6 million in fiscal 2009 (approximately 82% of revenue) compared to $855.4 million in fiscal 2008 (approximately 89% of revenue). Shipments to Asia totaled $554.2 million in fiscal 2009 (approximately 63% of revenue) compared to $640.7 million in fiscal 2008 (approximately 67% of revenue).
OPERATING LOSS
We experienced an operating loss of approximately $869.3 million for fiscal 2009 compared to an operating loss of $50.9 million for fiscal 2008 primarily related to impairment charges and restructuring activities. We recorded an impairment charge of $686.5 million to goodwill and other intangibles as a result of the macroeconomic conditions and we recorded restructuring expenses of approximately $114.2 million in fiscal 2009.
Our operating loss of approximately $50.9 million for fiscal 2008 was attributable to increased expenses associated with the acquisition of Sirenza during the third quarter of fiscal 2008, including the $13.9 million charge to "other operating expense" related to the in-process research and development with no alternative future use.

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Cost of Goods Sold
Our cost of goods sold for fiscal 2009 increased as a percentage of revenue, primarily due to the under-absorption of fixed manufacturing costs, an increase in inventory reserves and the amortization of intangibles. The increase in amortization expense of acquired intangibles resulted from our acquisitions of Sirenza in the third quarter of fiscal 2008, Filtronic in the fourth quarter of fiscal 2008, and UMC in the first quarter of fiscal 2009. The increase in inventory reserves was the result of excess inventory on-hand, as the decline in demand during the third and fourth quarters of fiscal 2009 resulting from the global economic slowdown, exceeded our ability to slow production accordingly. These increases in cost of goods sold were partially offset by increased efficiencies of internally-sourced assembly and improved pricing on externally-sourced raw materials.
Research and Development
Research and development headcount and spending dollars decreased primarily as a result of fiscal 2009 restructuring activities. This decrease was partially offset by a full year of Sirenza research and development expenses in fiscal 2009 compared to approximately five months of Sirenza research and development expenses in fiscal 2008.
Marketing and Selling
The increase in marketing and selling expenses for fiscal 2009 was primarily due to an increase in intangible amortization related to acquired customer relationships from Sirenza as well as an increase in headcount and personnel expenses, which primarily was attributable to our recent acquisitions. We sell our products worldwide directly to customers as well as through a network of domestic and foreign sales representative firms. We have sales and customer support centers located throughout the world. We are continuing to focus our efforts on building the staffing and capabilities of our existing sales infrastructure and believe that our existing sales offices and customer support centers provide the geographic coverage necessary to address our product markets and customer base.
General and Administrative
The increase in general and administrative expenses for fiscal 2009 was due to an increase in headcount and related personnel expenses attributable in part to both our recent acquisitions and an increase in share-based compensation expense.
Goodwill Impairment
As a result of an interim impairment review, we concluded that as of November 22, 2008, the fair value of both of our reporting units was below their respective carrying values. As such, we completed a step-two analysis in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets" (SFAS 142) in the fourth quarter of fiscal 2009. Based on the work performed and in accordance with SFAS 142, we recorded a goodwill impairment charge of $619.6 million in "other operating expense" in the Consolidated Statement of Operations for fiscal 2009 (see Note 6 to the Consolidated Financial Statements).
Other Operating Expense
Intangible Assets
We performed an impairment analysis of our finite-lived intangible assets based on a comparison of the undiscounted cash flows to the recorded carrying value of the intangible assets and our analysis indicated the existence of an impairment. As a result of this finding, we were required to determine the fair value of our finite-lived intangible assets and compare the fair value to the carrying value. The value of developed technology was determined by discounting forecasted cash flow directly related to the developed technology, net of returns on contributory assets. The value of customer relationships is based on the benefit derived from the incremental revenue and related cash flow as a direct result of the customer relationship. These forecasted cash flows are discounted to present value using an appropriate discount rate. As a result, the carrying value exceeded the fair value and we recorded impairments of $33.7 million related to developed technology and $33.2 million related to customer relationships. The impairment charges were recorded in "other operating expense" in the Consolidated Statement of Operations for fiscal 2009 (see Note 6 to the Consolidated Financial Statements).
Restructuring and Impairment of Property and Equipment During fiscal 2009, we initiated a restructuring to reduce our manufacturing capacities and costs and operating expenses, due primarily to lower demand for our products in the second half of fiscal 2009 resulting from the global economic slowdown. The restructuring decreased our workforce and impaired certain property and

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equipment. As a result of these restructuring activities, we recorded $67.1 million of expenses in fiscal 2009 (see Note 11 to the Consolidated Financial Statements).
The following table summarizes the restructuring activities associated with the adverse macroeconomic business environment restructuring during the year ended March 28, 2009 (in thousands):

                                               One-Time Employee                               Lease and Other
                                                  Termination                Asset                Contract
                                                   Benefits               Impairments           Terminations             Total
Accrued restructuring balance as of
March 29, 2008                                $                 -        $           -        $               -        $       -
Costs incurred and charged to expense                       4,390               51,432                   11,292           67,114
Cash payments                                              (2,483 )                  -                     (386 )         (2,869 )
Non-cash settlement                                             -              (51,432 )                                 (51,432 )

Accrued restructuring balance as of
March 28, 2009                                $             1,907        $           -        $          10,906        $  12,813

We have incurred and expect to incur the following restructuring charges associated with the adverse macroeconomic business environment restructuring (in thousands):

                                                   2009        Thereafter       Total
   One-time employee termination benefit costs   $  4,390     $        771     $  5,161
   Asset impairments                               51,432                -       51,432
   Lease and other contract termination costs      11,292            6,276       17,568

   Total restructuring charges                   $ 67,114     $      7,047     $ 74,161

We will continue to evaluate the global macroeconomic environment and consider any appropriate actions over the next several quarters. As of March 28, 2009, we expect to record approximately $7.0 million of additional restructuring charges associated with ongoing expenses related to exited leased facilities and one-time employee termination benefits.
In early fiscal 2009, we initiated a restructuring to reduce investments in wireless systems, including cellular transceivers and GPS solutions, in order to focus on our RF component opportunities. Additionally, we consolidated our production test facilities in an effort to reduce cycle time, better serve our customer base and improve our overall profitability. As a result of these restructuring activities, we recorded $47.1 million of expenses for fiscal 2009 (see Note 11 to the Consolidated Financial Statements).
The following table summarizes restructuring activities associated with our decision to reduce or eliminate our investments in wireless systems during the year ended March 28, 2009 (in thousands):

                                               One-Time Employee                               Lease and Other
                                                  Termination                Asset                Contract
                                                   Benefits               Impairments           Terminations             Total
Accrued restructuring balance as of
March 29, 2008                                $                 -        $           -        $               -        $       -
Costs incurred and charged to expense                       9,023               24,573                   13,473           47,069
Cash payments                                              (8,865 )                  -                   (8,464 )        (17,329 )
Non-cash settlement                                           (97 )            (24,573 )                 (1,849 )        (26,519 )

Accrued restructuring balance as of
March 28, 2009                                $                61        $           -        $           3,160        $   3,221

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We have incurred and expect to incur the following restructuring charges associated with the decision to reduce or eliminate our investments in wireless systems (in thousands):

                                                   2009        Thereafter       Total
   One-time employee termination benefit costs   $  9,023     $          -     $  9,023
   Asset impairments                               24,573                -       24,573
   Lease and other contract termination costs      13,473            2,628       16,101

   Total restructuring charges                   $ 47,069     $      2,628     $ 49,697

As of March 28, 2009, the restructuring to reduce or eliminate our investments in wireless systems is substantially complete. We expect to record approximately $2.6 million of additional restructuring charges related to ongoing expenses associated with exited leased facilities.
We anticipate annualized manufacturing costs and operating expenses will be reduced by approximately $140.0 million commencing in fiscal 2010 as a result of the two fiscal 2009 restructurings. A portion of these expense reductions were realized in the first quarter of fiscal 2009, with the majority of the benefit realized in the third and fourth quarters of fiscal 2009. Other
During fiscal 2009, we recorded income of $3.5 million in "other operating expense" for the sale of patents related to certain of our products. In addition, we recorded $1.4 million in "other operating expense" related to the in-process research and development with no alternative future use that we acquired from UMC at the acquisition date in accordance with SFAS No. 141, "Business Combinations" (SFAS 141). See Note 7 to the Consolidated Financial Statements.
During fiscal 2008, the in-process research and development with no alternative future use that we acquired from Sirenza ($13.9 million) was charged to "other operating expense" at the acquisition date in accordance with SFAS 141. In addition, during fiscal 2008, we incurred approximately $2.1 million in start-up costs related to our development of flip chip assembly, approximately $1.7 million for restructuring and integration charges related to the acquisition of Sirenza and approximately $1.4 million for restructuring charges resulting from the sale in fiscal 2007 of substantially all of our assets associated with our Bluetooth® business.

RESULTS OF OPERATIONS FOR FISCAL 2008 VERSUS FISCAL 2007
The following table presents a summary of our results of operations for fiscal
years 2008 and 2007:

                                                     % of                          % of                Variance
(In thousands, except percentages)     2008        Revenue          2007         Revenue          $             %

Revenue                              $ 956,270        100.0 %    $ 1,023,615        100.0 %   $  (67,345 )       (6.6 )%
Cost of goods sold                     681,314         71.2          666,755         65.1         14,559          2.2
Research and development               207,362         21.7          184,979         18.1         22,383         12.1
Marketing and selling                   57,330          6.0           53,863          5.3          3,467          6.4
General and administrative              42,080          4.4           37,301          3.6          4,779         12.8
Other operating expense (income)        19,085          2.0          (33,834 )       (3.3 )       52,919        156.4

Operating (loss) income              $ (50,901 )       (5.3 )%   $   114,551         11.2 %     (165,452 )     (144.4 )

REVENUE
Our revenue decreased in fiscal 2008 due primarily to reduced demand for POLARIS® 2 cellular transceivers by a major customer. This decrease was partially offset by an increase in revenue of approximately 5.0% due to the acquisition of Sirenza in the third quarter of fiscal 2008.

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Sales to our significant customers, as a percentage of net revenue, were as follows:

                                             Fiscal Year
                                            2008      2007
                             Customer 1       59 %     44 %
                             Customer 2       14 %     30 %

International shipments amounted to $855.4 million in fiscal 2008 (approximately 89% of revenue) compared to $949.8 million in fiscal 2007 (approximately 93% of revenue). Shipments to Asia totaled $640.7 million in fiscal 2008 (approximately 67% of revenue) compared to $754.4 million in fiscal 2007 (approximately 74% of revenue).
OPERATING (LOSS) INCOME
We experienced an operating loss of approximately $50.9 million for fiscal 2008 compared to an operating income of $114.6 million for fiscal 2007. Our operating loss of approximately $50.9 million for fiscal 2008 was attributable to increased expenses associated with the acquisition of Sirenza during the third quarter of fiscal 2008, including the $13.9 million charge to "other operating . . .