The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the Consolidated Financial
Statements and related notes thereto included elsewhere in this report. This
discussion contains forward-looking statements. Please see the "Cautionary
Statement" and "Risk Factors" above for discussions of the uncertainties, risks
and assumptions associated with these statements. Our fiscal year-end financial
reporting periods are a 52- or 53-week fiscal year that ends on the Saturday
closest to December 31. Fiscal 2020 was a 53-week year with the extra week
occurring in the first quarter of the year and ended on January 2, 2021. Fiscal
2019 and 2018 were 52-week years and ended on December 28, 2019 and December 29,
2018, respectively.

Impact of COVID-19
A new strain of novel coronavirus which causes a severe respiratory disease
("COVID-19") was identified in 2019, and subsequently declared a worldwide
pandemic by the World Health Organization. We implemented a response plan and
continued operations while largely transitioning our global workforce to a
remote work model. The third parties that perform our semiconductor
manufacturing, assembly, packaging and testing have generally remained
operational. The extent of the impact of the COVID-19 pandemic on our
operational and financial performance will depend on future developments,
including the duration, severity and spread of the pandemic, related
restrictions on travel and transportation and other actions that may be taken by
governmental authorities, the impact to the business of our suppliers or
customers, and other items identified under "Risk Factors" above, all of which
are uncertain and cannot be predicted. An extended period of global supply chain
and economic disruption could materially affect our business, results of
operations, access to sources of liquidity and financial condition.

Overview

We are a leading provider of silicon, software and solutions for a smarter, more
connected world. Our award-winning technologies are shaping the future of the
Internet of Things (IoT), internet infrastructure, industrial automation,
consumer and automotive markets. Our world-class engineering team creates
products focused on performance, energy savings, connectivity and simplicity.
Our primary semiconductor products are mixed-signal integrated circuits (ICs),
which are electronic components that convert real-world analog signals, such as
sound and radio waves, into digital signals that electronic products can
process.

As a fabless semiconductor company, we rely on third-party semiconductor
fabricators in Asia, and to a lesser extent the United States and Europe, to
manufacture the silicon wafers that reflect our IC designs. Each wafer contains
numerous die, which are cut from the wafer to create a chip for an IC. We rely
on third parties in Asia to assemble, package, and, in most cases, test these
devices and ship these units to our customers. Testing performed by such third
parties facilitates faster delivery of products to our customers (particularly
those located in Asia), shorter production cycle times, lower inventory
requirements, lower costs and increased flexibility of test capacity.

Our expertise in analog-intensive, high-performance, mixed-signal ICs and
software enables us to develop highly differentiated solutions that address
multiple markets. We group our products into the following categories:

? Internet of Things products, which include wireless connectivity,

microcontroller (MCU) and sensor products; and

Infrastructure and automotive products, which include timing products (clocks

? and oscillators); power products (isolation and Power over Ethernet (PoE)

devices); broadcast products (consumer and automotive radio devices); and

   access products (Voice over IP (VoIP) products and embedded modems).

We have combined our previous product groups, Infrastructure, Broadcast and
Access, into the Infrastructure and automotive product group. Prior periods were
retrospectively adjusted.


The sales cycle for our ICs can be as long as 12 months or more. An additional
three to six months or more are usually required before a customer ships a
significant volume of devices that incorporate our ICs. Due to this lengthy
sales cycle, we typically experience a significant delay between incurring
research and development and selling, general and administrative expenses, and
the corresponding sales. Consequently, if sales in any quarter do not occur when
expected, expenses and inventory levels could be disproportionately high, and
our operating results for that quarter and, potentially, future quarters would
be adversely affected. Moreover, the amount of time between initial research and
development and commercialization of a product, if ever, can be substantially
longer than the sales cycle for the product. Accordingly, if we incur
substantial research and development costs without developing a commercially
successful product, our operating results, as well as our growth prospects,
could be adversely affected.

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Because some of our ICs are designed for use in consumer products such as
televisions, set-top boxes and radios, we expect that the demand for our
products will be typically subject to some degree of seasonal demand. However,
rapid changes in our markets and across our product areas make it difficult for
us to accurately estimate the impact of seasonal factors on our business.

Current Period Highlights

Revenues increased $49.1 million in fiscal 2020 compared to fiscal 2019 due to
increased revenues from both our IoT products and Infrastructure and automotive
products. Gross profit increased $17.2 million during the same period due
primarily to increased product sales. Gross margin decreased to 59.5% in fiscal
2020 compared to 60.9% in fiscal 2019 primarily due to variations in product
mix. Operating expenses increased $35.6 million in fiscal 2020 compared to
fiscal 2019 due primarily to increased personnel-related expenses, new product
introduction costs, amortization of intangible assets and occupancy costs.
Operating income in fiscal 2020 was $38.3 million compared to $56.7 million in
fiscal 2019.

We ended fiscal 2020 with $724.7 million in cash, cash equivalents and
short-term investments. Net cash provided by operating activities was $135.7
million during fiscal 2020. Accounts receivable were $95.2 million at January 2,
2021, representing 35 days sales outstanding (DSO). Inventory was $66.7 million
at January 2, 2021, representing 59 days of inventory (DOI). In fiscal 2020, we
repurchased 0.2 million shares of our common stock for $16.3 million.

Through acquisitions and internal development efforts, we have continued to
diversify our product portfolio and introduce new products and solutions with
added functionality and further integration. On April 28, 2020, we acquired the
Wi-Fi and Bluetooth business of Redpine Signals for approximately $317 million
in cash. We believe the acquisition will accelerate our roadmap for Wi-Fi and
Bluetooth silicon and software solutions.

In fiscal 2020, we introduced a Z-Wave Long Range (LR) solution enabling one
mile connectivity for Z-Wave 700 Series products; highly integrated modules
designed to simplify implementation of IEEE 1588 in communications, smart grid,
financial trading and industrial applications; new isolated gate drivers that
cut latency by 50 percent while significantly increasing transient immunity; new
small form-factor, high-performance crystal oscillators (XOs) and
voltage-controlled crystal oscillators (VCXOs) for applications that require low
jitter and frequency-flexible clock synthesis; a Bluetooth Low Energy
system-in-package (SiP) that adds turnkey Bluetooth connectivity to extremely
small products; a major upgrade to our Integrated Developer Environment (IDE)
with the launch of Simplicity Studio 5; energy-friendly power management ICs
(PMICs) that enhance the energy efficiency of battery-powered applications; a
Power over Ethernet (PoE) portfolio that reduces the cost and complexity of
adding 90 W PoE to power sourcing equipment (PSE) and powered devices (PD);
Secure Vault technology, an award-winning suite of state-of-the-art security
with features designed to help connected device manufacturers address escalating
IoT security threats and regulatory pressures; secure, proprietary wireless
system-on-chip (SoC) devices designed for power- and size-constrained IoT
products such as electronic shelf labels; secure, ultra-low-power SoCs optimized
for Zigbee Green Power applications powered by coin cell batteries or
energy-harvesting sources; and a Bluetooth SoC solution delivering a combination
of security features, wireless performance, energy efficiency, and software
tools and stacks to meet the market demand for high-volume, battery-powered IoT
products. We plan to continue to introduce products that increase the content we
provide for existing applications, thereby enabling us to serve markets we do
not currently address and expand our total available market opportunity.

During fiscal 2020, 2019 and 2018, we had no customer that represented more than
10% of our revenues. In addition to direct sales to customers, some of our end
customers purchase products indirectly from us through distributors and contract
manufacturers. An end customer purchasing through a contract manufacturer
typically instructs such contract manufacturer to obtain our products and
incorporate such products with other components for sale by such contract
manufacturer to the end customer. Although we actually sell the products to, and
are paid by, the distributors and contract manufacturers, we refer to such end
customer as our customer. Three of our distributors who sell to our customers,
Arrow Electronics, Edom Technology and Sekorm, each represented 26%, 22% and 11%
of our revenues during fiscal 2020, respectively. Arrow and Edom, each
represented 26% and 20% of our revenues during fiscal 2019, and 21% and 17% of
our revenues during fiscal 2018, respectively.

The percentage of our revenues derived from outside of the United States was 90%
in fiscal 2020, 87% in fiscal 2019 and 83% in fiscal 2018. All of our revenues
to date have been denominated in U.S. dollars. We believe that a majority of our
revenues will continue to be derived from customers outside of the United
States.

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Results of Operations

The following describes the line items set forth in our Consolidated Statements
of Income:


Revenues. Revenues are generated predominately by sales of our products. Our
revenues are subject to variation from period to period due to the volume of
shipments made within a period, the mix of products we sell and the prices we
charge for our products.

Cost of Revenues. Cost of revenues includes the cost of purchasing finished
silicon wafers processed by independent foundries; costs associated with
assembly, test and shipping of those products; costs of personnel and equipment
associated with manufacturing support, logistics and quality assurance; costs of
software royalties, other intellectual property license costs and certain
acquired intangible assets; and an allocated portion of our occupancy costs. Our
gross margin fluctuates depending on product mix, manufacturing yields,
inventory valuation adjustments, average selling prices and other factors.

Research and Development. Research and development expense consists primarily of
personnel-related expenses, including stock-based compensation, as well as new
product masks, external consulting and services costs, equipment tooling,
equipment depreciation, amortization of intangible assets and an allocated
portion of our occupancy costs. Research and development activities include the
design of new products, refinement of existing products and design of test
methodologies to ensure compliance with required specifications.

Selling, General and Administrative. Selling, general and administrative expense
consists primarily of personnel-related expenses, including stock-based
compensation, as well as an allocated portion of our occupancy costs, sales
commissions to independent sales representatives, amortization of intangible
assets, professional fees, legal fees, and promotional and marketing expenses.

Interest Income and Other, Net. Interest income and other, net reflects interest
earned on our cash, cash equivalents and investment balances, foreign currency
remeasurement adjustments, income or loss on equity method investments, and
other non-operating income and expenses.

Interest Expense. Interest expense consists of interest on our short and
long-term obligations, including our convertible senior notes and credit
facility. Interest expense on our convertible senior notes includes contractual
interest, amortization of the debt discount and amortization of debt issuance
costs.

Provision (Benefit) for Income Taxes. Provision (benefit) for income taxes
includes both domestic and foreign income taxes at the applicable tax rates
adjusted for non-deductible expenses, research and development tax credits and
other permanent differences.

The following table sets forth our Consolidated Statements of Income data as
a percentage of revenues for the periods indicated:




                                              Fiscal Year
                                        2020     2019     2018
Revenues                                100.0 %  100.0 %  100.0 %
Cost of revenues                         40.5     39.1     39.9
Gross margin                             59.5     60.9     60.1
Operating expenses:
Research and development                 32.5     30.7     27.5

Selling, general and administrative 22.7 23.4 22.8
Operating expenses

                       55.2     54.1     50.3
Operating income                          4.3      6.8      9.8
Other income (expense):
Interest income and other, net            1.3      1.5      0.8
Interest expense                        (3.9)    (2.4)    (2.3)
Income before income taxes                1.7      5.9      8.3
Provision (benefit) for income taxes      0.3      3.6    (1.3)
Net income                                1.4 %    2.3 %    9.6 %




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Comparison of Fiscal 2020 to Fiscal 2019

Revenues


                                    Fiscal Year
(in millions)                     2020       2019      Change     % Change
Internet of Things               $ 513.7$ 488.2$  25.5         5.2 %
Infrastructure and automotive      373.0      349.4       23.6         6.8 %
Total                            $ 886.7$ 837.6$  49.1         5.9 %



The change in revenues in fiscal 2020 was due to:

Increased revenues of $25.5 million for our IoT products, due primarily to

? increased demand for our MCU products and wireless connectivity products and

the addition of revenues from an acquisition.

? Increased revenues of $23.6 million for our Infrastructure and automotive

products, due primarily to increased demand for our power and timing products.



The increase in revenues in fiscal 2020 was also due to an adjustment of $11.9
million resulting from a change in the assumptions used to estimate variable
consideration. Unit volumes of our products increased by 13.8% and average
selling prices decreased by 6.7% compared to fiscal 2019. The average selling
prices of our products may fluctuate significantly from period to period due to
changes in product mix and other factors. In general, as our products become
more mature, we expect to experience decreases in average selling prices. We
anticipate that newly announced, higher priced, next generation products and
product derivatives will offset some of these decreases.

Gross Profit


                    Fiscal Year
(in millions)     2020       2019      Change
Gross profit     $ 527.5$ 510.3$  17.2
Gross margin        59.5 %     60.9 %    (1.4) %




Gross profit increased in fiscal 2020 due primarily to increased product sales.
The change in gross profit in fiscal 2020 was due to an increase in gross profit
of $11.7 million for our Infrastructure and automotive products and $5.5 million
for our Internet of Things products. Gross margin decreased in fiscal 2020
primarily due to lower gross margins on our IoT products. Gross margin declines
resulted primarily from lower average selling prices on such products in fiscal
2020.

We may experience declines in the average selling prices of certain of our
products. This creates downward pressure on gross margin and may be offset to
the extent we are able to introduce higher margin new products and gain market
share with our products; reduce costs of existing products through improved
design; achieve lower production costs from our wafer suppliers and third-party
assembly and test subcontractors; achieve lower production costs per unit as a
result of improved yields throughout the manufacturing process; or reduce
logistics costs.

Research and Development


                               Fiscal Year
(in millions)                2020       2019      Change     % Change
Research and development    $ 287.9$ 257.2$  30.7        12.0 %
Percent of revenue             32.5 %     30.7 %




The increase in research and development expense in fiscal 2020 was primarily
due to increases of $18.5 million for personnel-related expenses, including
costs associated with increased headcount and an acquisition, $5.5 million for
new product introduction costs, $3.7 million for the amortization of intangible
assets and $1.0 million for occupancy costs. We expect that research and
development expense will increase in absolute dollars in the first quarter of
2021 compared to the fourth quarter of 2020.

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Selling, General and Administrative



                                          Fiscal Year
(in millions)                           2020       2019       Change     %

Change

Selling, general and administrative $ 201.3$ 196.4$ 4.9

  2.5 %
Percent of revenue                        22.7 %     23.4 %



The increase in selling, general and administrative expense in fiscal 2020 was
primarily due to an increase of $4.4 million for personnel-related expenses,
including costs associated with increased headcount. We expect that selling,
general and administrative expense will remain relatively stable in absolute
dollars in the first quarter of 2021 compared to the fourth quarter of 2020.

Interest Income and Other, Net

Interest income and other, net in fiscal 2020 was $11.1 million compared to
$13.2 million in fiscal 2019. The decrease in interest income and other, net in
fiscal 2020 was primarily due to lower interest rates on the underlying
instruments, offset by a net gain of $1.8 million recorded in connection an
equity investment.

Interest Expense

Interest expense in fiscal 2020 was $34.1 million compared to $20.2 million in
fiscal 2019. The increase in interest expense in fiscal 2020 was primarily due
to a net increase of $8.0 million in interest resulting from an increase in the
aggregate balance of notes outstanding and a loss of $4.1 million recorded on
the early extinguishment of a portion of the 2022 Notes.

Provision (Benefit) for Income Taxes



                                          Fiscal Year
(in millions)                            2020      2019      Change

Provision (benefit) for income taxes $ 2.8$ 30.4$ (27.6)
Effective tax rate

                        18.1 %    61.2 %




The decrease in the effective tax rate for fiscal 2020 as compared to fiscal
2019 was primarily due to the impact in fiscal 2019 of a change in our position
related to the treatment of stock-based compensation within our intercompany
cost-sharing arrangement offset by the increased impact of fiscal 2020 permanent
tax differences. The incremental, discrete income tax expense recognized in
fiscal 2019 for the cost-sharing change was $27.2 million.

The effective tax rates for each of the periods presented differ from the U.S.
federal statutory tax rates of 21% due to the amount of income earned in foreign
jurisdictions where the tax rate may be higher or lower than the federal
statutory tax rate, and other permanent items including research and development
tax credits, the tax effects of stock-based compensation and global intangible
low-tax income ("GILTI").

Comparison of Fiscal 2019 to Fiscal 2018


A discussion of changes in our results of operations from fiscal 2018 to fiscal
2019 has been omitted from this Form 10-K, but may be found in "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" of our Form 10-K filed with the Securities and Exchange Commission
on January 29, 2020.

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Business Outlook

The following represents our business outlook for the first quarter of fiscal
2021.




Income Statement Item                   Estimate

Revenues                      $237 million to $247 million

Gross margin                             58.1%

Operating expenses                    $126 million

Effective tax rate                        0.0%

Diluted earnings per share           $0.05 to $0.15

Liquidity and Capital Resources


Our principal sources of liquidity as of January 2, 2021 consisted of $724.7
million in cash, cash equivalents and short-term investments, of which
approximately $572.8 million was held by our U.S. entities. The remaining
balance was held by our foreign subsidiaries. Our cash equivalents and
short-term investments consisted of government debt securities, which include
agency bonds, municipal bonds, variable-rate demand notes, U.S.Treasury bills
and U.S. government securities; corporate debt securities, which include
asset-backed securities, corporate bonds, certificates of deposit and commercial
paper; and money market funds. Our long-term investments consisted of
auction-rate securities.

Operating Activities

Net cash provided by operating activities was $135.7 million during fiscal 2020,
compared to net cash provided of $166.5 million during fiscal 2019. Operating
cash flows during fiscal 2020 reflect our net income of $12.5 million,
adjustments of $141.6 million for depreciation, amortization, stock-based
compensation and deferred income taxes, and a net cash outflow of $18.4 million
due to changes in our operating assets and liabilities.

Net cash provided by operating activities was $166.5 million during fiscal 2019,
compared to net cash provided of $173.5 million during fiscal 2018. Operating
cash flows during fiscal 2019 reflect our net income of $19.3 million,
adjustments of $147.8 million for depreciation, amortization, stock-based
compensation and deferred income taxes, and a net cash outflow of $0.6 million
due to changes in our operating assets and liabilities.

Accounts receivable increased to $95.2 million at January 2, 2021 from $75.6
million at December 28, 2019. The increase in accounts receivable resulted
primarily from normal variations in the timing of collections and billings. Our
average DSO was 35 days at January 2, 2021 and 31 days at December 28, 2019.

Inventory decreased to $66.7 million at January 2, 2021 from $73.1 million at
December 28, 2019. Our inventory level is primarily impacted by our need to make
purchase commitments to support forecasted demand and variations between
forecasted and actual demand. Our DOI was 59 days at January 2, 2021 and 76 days
at December 28, 2019. The decline in DOI was primarily due to lower inventory
levels at January 2, 2021 resulting from supplier capacity constraints and
higher demand for our products.

Investing Activities


Net cash used in investing activities was $361.0 million during fiscal 2020,
compared to net cash used of $106.8 million during fiscal 2019. The increase in
cash outflows was principally due to a payment of $316.8 million for the
acquisition of the Wi-Fi and Bluetooth business of Redpine Signals, offset by a
decrease in cash outflows of $57.4 million from net purchases and sales of
marketable securities in fiscal 2020.

Net cash used in investing activities was $106.8 million during fiscal 2019,
compared to net cash used of $197.0 million during fiscal 2018. The decrease in
cash outflows was principally due to a decrease of $237.2 million in net
payments for the acquisition of businesses, offset by an increase in cash
outflows of $157.8 million in net purchases and sales of marketable securities
in fiscal 2019.

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Financing Activities
Net cash provided by financing activities was $200.9 million during fiscal 2020,
compared to cash used of $29.6 million during fiscal 2019. The increase in cash
inflows was principally due to $845.0 million in proceeds from the issuance of
debt and a decrease of $10.4 million for repurchases of our common stock, offset
by $623.6 million in payments on debt in fiscal 2020.

Net cash used in financing activities was $29.6 million during fiscal 2019,
compared to cash used of $48.8 million during fiscal 2018. The decrease in cash
outflows was principally due to a decrease of $12.6 million for repurchases of
our common stock during fiscal 2019.

As of January 2, 2021, our debt included $535 million principal amount
convertible senior notes (the "2025 Notes") and $140.6 million principal amount
convertible senior notes (the "2022 Notes") and we had an undrawn $400 million
revolving credit facility. We have an option to increase the size of the
borrowing capacity of the revolving credit facility by up to the greater of an
aggregate of $250 million and 100% of EBITDA, plus an amount that would not
cause a secured leverage ratio to exceed 3.25 to 1.00, subject to certain
conditions. On March 27, 2020, we borrowed $310 million under the revolving
credit facility. On June 1, 2020, we used $310.0 million of the 2025 Notes
proceeds to repay the revolving credit facility in full. We used the remainder
of the proceeds, along with cash on hand, to repurchase approximately $236.8
million aggregate principal amount of its outstanding 2022 Notes. We had
increased our borrowings as a precautionary measure in order to increase our
cash position and preserve financial flexibility in light of current uncertainty
in the global markets resulting from the COVID-19 pandemic. On January 6, 2021,
we issued a notice of redemption for the remaining 2022 Notes. The redemption
will occur on March 22, 2021, unless earlier converted. See Note 10, Debt, to
the Consolidated Financial Statements for additional information.

Our future capital requirements will depend on many factors, including the rate
of sales growth, market acceptance of our products, the timing and extent of
research and development projects, potential acquisitions of companies or
technologies and the expansion of our sales and marketing activities. We believe
our existing cash, cash equivalents, investments and credit under our Credit
Facility are sufficient to meet our capital requirements through at least the
next 12 months, although we could be required, or could elect, to seek
additional funding prior to that time. We may enter into acquisitions or
strategic arrangements in the future which also could require us to seek
additional equity or debt financing.

Contractual Obligations


The following table summarizes our contractual obligations as of January 2, 2021
(in thousands):




                                                              Payments due by period
                                Total        2021         2022        2023       2024        2025        Thereafter
Long­term debt obligations
(1)                           $ 675,567$ 140,567    $      -    $      -    $     -    $ 535,000    $          -
Interest on long­term debt
obligations (2)               $  19,532$   5,399$  4,332$  4,332$ 3,928$   1,541    $          -
Operating lease
obligations (3)               $  34,901$   6,787$  6,174$  5,367$ 4,874$   3,278$      8,421
Purchase obligations (4)      $ 148,595$ 148,595    $      -    $     
-    $     -    $       -    $          -
Other long­term
obligations (5)               $  39,667    $       -    $ 14,888$ 10,406$ 6,346$   8,027    $          -

Long-term debt obligations represent the principal portion of the 2022 Notes
(1) and 2025 Notes. The remaining principal balance of the 2022 Notes will be

redeemed in 2021, and, therefore, has been reclassified to short-term debt.

Interest on our long-term debt obligations primarily represents contractual
(2) interest on the 2022 Notes and 2025 Notes. Interest excludes non-cash

amortization of the debt discount and debt issuance costs.

(3) Operating lease obligations include amounts for leased facilities.

Purchase obligations include contractual arrangements in the form of purchase
(4) orders with suppliers where there is a fixed non-cancelable payment schedule

or minimum payments due with a reduced delivery schedule.

(5) Other long-term obligations primarily represent non-current income taxes and

    software license obligations.


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We are unable to make a reasonably reliable estimate as to when or if cash
settlement with taxing authorities will occur for our unrecognized tax benefits.
Therefore, our liability of $3.0 million for unrecognized tax benefits is not
included in the table above. See Note 17, Income Taxes, to the Consolidated
Financial Statements for additional information.

Off-Balance Sheet Arrangements

As of January 2, 2021, we had no significant off-balance sheet arrangements.

Critical Accounting Policies and Estimates


The preparation of financial statements and accompanying notes in conformity
with U.S. generally accepted accounting principles requires that we make
estimates and assumptions that affect the amounts reported. Changes in facts and
circumstances could have a significant impact on the resulting estimated amounts
included in the financial statements. We believe the following critical
accounting policies affect our more complex judgments and estimates.

Inventory valuation - We assess the recoverability of inventories through the
application of a set of methods, assumptions and estimates. In determining net
realizable value, we write down inventory that may be slow moving or have some
form of obsolescence, including inventory that has aged more than 12 months. We
also adjust the valuation of inventory when its manufacturing cost exceeds the
estimated selling price less costs of completion, disposal and transportation.
We assess the potential for any unusual customer returns based on known quality
or business issues and write-off inventory losses for scrap or non-saleable
material. Inventory not otherwise identified to be written down is compared to
an assessment of our 12-month forecasted demand. The result of this methodology
is compared against the product life cycle and competitive situations in the
marketplace to determine the appropriateness of the resulting inventory levels.
Demand for our products may fluctuate significantly over time, and actual demand
and market conditions may be more or less favorable than those that we project.
In the event that actual demand is lower or market conditions are worse than
originally projected, additional inventory write-downs may be required.

Impairment of goodwill and other long-lived assets - We review long-lived assets
which are held and used, including fixed assets and purchased intangible assets,
for impairment whenever changes in circumstances indicate that the carrying
amount of the assets may not be recoverable. Such evaluations compare the
carrying amount of an asset to future undiscounted net cash flows expected to be
generated by the asset over its expected useful life and are significantly
impacted by estimates of future prices and volumes for our products, capital
needs, economic trends and other factors which are inherently difficult to
forecast. If the asset is considered to be impaired, we record an impairment
charge equal to the amount by which the carrying value of the asset exceeds its
fair value determined by either a quoted market price, if any, or a value
determined by utilizing a discounted cash flow technique.

We test our goodwill for impairment annually as of the first day of our fourth
fiscal quarter and in interim periods if certain events occur indicating that
the carrying value of goodwill may be impaired. We assess goodwill for
impairment by comparing the fair value of a reporting unit to its carrying
amount. In determining fair value, several valuation methodologies are allowed,
although quoted market prices are the best evidence of fair value. If the fair
value of the reporting unit is less than its carrying amount, we recognize an
impairment loss equal to that excess amount.

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Acquired intangible assets - When we acquire a business, a portion of the
purchase price is typically allocated to identifiable intangible assets, such as
acquired technology and customer relationships. Fair value of these assets is
determined primarily using the income approach, which requires us to project
future cash flows and apply an appropriate discount rate. We amortize intangible
assets with finite lives over their expected useful lives. Our estimates are
based upon assumptions believed to be reasonable but which are inherently
uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and
unanticipated events and circumstances may occur. Incorrect estimates could
result in future impairment charges, and those charges could be material to our
results of operations.

Revenue recognition - We recognize revenue when control of the promised goods or
services is transferred to customers, in an amount that reflects the
consideration we expect to be entitled to in exchange for those goods or
services. In order to achieve this core principle, we apply a five-step process.
As part of this process, we analyze the performance obligations in a customer
contract and estimate the consideration we expect to receive. The evaluation of
performance obligations requires that we identify the promised goods and
services in the contract. For contracts that contain more than one promised good
and service, we then must determine whether the promises are capable of being
distinct and if they are separately identifiable from other promises in the
contract. Additionally, for our sales to distributors, we must estimate the
impact that price adjustments and rights of return will have on consideration.
We make these estimates based on available information, including recent sales
activity and pricing data. If our evaluation of performance obligations is
incorrect, we may recognize revenue sooner or later than is appropriate. If our
estimates of consideration are inaccurate, we may recognize too much or too
little revenue in a period. We may adjust assumptions used to estimate
consideration periodically based on analysis of prior estimates. See Note 14,
Revenues, to the Consolidated Financial Statements for additional information.

Stock-based compensation - We recognize the fair-value of stock-based
compensation transactions in the Consolidated Statements of Income. The fair
value of our full-value stock awards (with the exception of market-based
performance awards) equals the fair market value of our stock on the date of
grant. The fair value of our market-based performance awards is estimated at the
date of grant using a Monte-Carlo simulation. The fair value of our stock option
and employee stock purchase plan grants is estimated at the date of grant using
the Black-Scholes option pricing model. In addition, we are required to estimate
the expected forfeiture rate of our stock grants and only recognize the expense
for those shares expected to vest. If our actual experience differs
significantly from the assumptions used to compute our stock-based compensation
cost, or if different assumptions had been used, we may have recorded too much
or too little stock-based compensation cost. See Note 15, Stock-Based
Compensation, to the Consolidated Financial Statements for additional
information.

Income taxes - We are required to calculate income taxes in each of the
jurisdictions in which we operate. This process involves calculating the actual
current tax liability together with assessing temporary differences in
recognition of income (loss) for tax and accounting purposes. These differences
result in deferred tax assets and liabilities, which are included in our
Consolidated Balance Sheet. We record a valuation allowance when it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. In assessing the need for a valuation allowance, we are required to
estimate the amount of expected future taxable income. Judgment is inherent in
this process and differences between the estimated and actual taxable income
could result in a material impact on our Consolidated Financial Statements.

We recognize liabilities for uncertain tax positions based on a two-step
process. The first step requires us to determine whether the weight of available
evidence indicates that the tax position has met the threshold for recognition.
Therefore, we must evaluate whether it is more likely than not that the position
will be sustained on audit, including resolution of any related appeals or
litigation processes. The second step requires us to measure the tax benefit of
the tax position taken, or expected to be taken, in an income tax return as the
largest amount that is more than 50% likely of being realized upon ultimate
settlement. This measurement step is inherently complex and requires subjective
estimations of such amounts to determine the probability of various possible
outcomes. We re-evaluate the uncertain tax positions each quarter based on
factors including, but not limited to, changes in facts or circumstances,
changes in tax law, expirations of statutes of limitation, effectively settled
issues under audit, and new audit activity. Such a change in recognition or
measurement would result in the recognition of a tax benefit or an additional
charge to the tax provision in the period.

Although we believe the measurement of our liabilities for uncertain tax
positions is reasonable, no assurance can be given that the final outcome of
these matters will not be different than what is reflected in the historical
income tax provisions and accruals. If additional taxes are assessed as a result
of an audit or litigation, they could have a material effect on our income tax
provision and net income in the period or periods for which that determination
is made. We operate within multiple taxing jurisdictions and are subject to
audit in these jurisdictions. These audits can involve complex issues which may
require an extended period of time to resolve and could result in additional
assessments of income tax. We believe adequate provisions for income taxes
have
been made for all periods.

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  Table of Contents

Recent Accounting Pronouncements

Information regarding recent accounting pronouncements is provided in Note 2,
Significant Accounting Policies, to the Consolidated Financial Statements. Such
information is incorporated by reference herein.

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