TRIQUINT SEMICONDUCTOR INC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION
PERIOD FROM TO

TRIQUINT SEMICONDUCTOR, INC.
(Exact Name of Registrant as Specified in Its Charter)

2300 NE Brookwood Parkway
Hillsboro, OR 97124
(Address of Principal Executive Offices) (Zip Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

As of July 31, 2002, there were 132,072,010 shares of the registrant's common stock outstanding.

		Page No.
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Condensed Consolidated Statements of Operations—Three and six months ended June 30, 2002 and 2001	3
	Condensed Consolidated Balance Sheets—June 30, 2002 and December 31, 2001	4
	Condensed Consolidated Statements of Cash Flows—Six months ended June 30, 2002 and 2001	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Qualitative and Quantitative Disclosures about Market and Interest Rate Risk	32
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	33
Item 4.	Submission of Matters to a Vote of Security Holders	33
Item 6.	Exhibits and Reports on Form 8-K	34
SIGNATURES	35

TRIQUINT SEMICONDUCTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)

TRIQUINT SEMICONDUCTOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

TRIQUINT SEMICONDUCTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

TRIQUINT SEMICONDUCTOR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. However, certain information or footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed, or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). In the opinion of management, the statements include all adjustments necessary (which are of a normal and recurring nature) for the fair presentation of the results of the interim periods presented. These condensed consolidated financial statements should be read in conjunction with the audited financial statements of TriQuint Semiconductor, Inc. (the "Company") for the fiscal year ended December 31, 2001, as included in the Company's 2001 Annual Report on Form 10-K as filed with the SEC on March 27, 2002.

The Company's fiscal quarters end on the Saturday nearest the end of the calendar quarter. For convenience, the Company has indicated that its second quarter ended on June 30. The Company's fiscal year ends on December 31.

Certain prior period amounts have been reclassified to conform to the current period presentation.

On July 19, 2001, Sawtek became a wholly owned subsidiary of the Company. The Company issued approximately 48.8 million shares of common stock in exchange for all the outstanding common stock of Sawtek. Additionally, outstanding options to purchase Sawtek common stock were exchanged for approximately 2.6 million options to purchase the Company's common stock. The transaction was accounted for as a pooling-of-interests transaction and qualified as a tax-free exchange of shares.

All financial information set forth in this document has been restated to include the historical information of Sawtek.

Earnings per share is presented as basic and diluted net income per share. Basic net income per share is net income available to common stockholders divided by the weighted-average number of common shares outstanding. Diluted net income per share is similar to basic except that the denominator includes potential common shares that, had they been issued, would have had a dilutive effect.

The following is a reconciliation of the basic and diluted earnings per share (in thousands, except per share amounts):

Stock options and other exercisable convertible securities totaling approximately 15,757 and 14,888 shares for the three and six months ended June 30, 2002 and 10,816 and 8,943 shares for the three and six months ended June 30, 2001 were not included in the diluted net income per share calculations, because to do so would have been antidilutive.

Deferred tax assets and liabilities are determined based on the temporary differences between the financial reporting and tax basis of assets and liabilities, applying enacted statutory tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized.

The provision for income taxes has been recorded based on the current estimate of the Company's annual effective tax rate. For periods of income reported, this rate differs from the federal statutory rate primarily because of tax exempt income earned by the Costa Rican facility, which currently operates in a free trade zone, tax exempt interest income earned on certain cash and investment items within the Company's portfolio and tax credits, which are offset by state taxes and other items.

The Company classifies its investments in marketable securities as available-for-sale in accordance with Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"). Investments in marketable securities are comprised of U.S. treasury securities and obligations of U.S. government agencies, municipal notes and bonds, corporate debt securities and other investments. Investments are recorded at fair value. Unrealized gains and losses, net of tax, on investments are reported as a separate component of stockholders' equity.

The Company has made several investments in small, privately held technology companies in which the Company holds less than 20% of the capital stock and does not influence control. The Company accounts for these investments using the cost method. The Company monitors these investments for impairment and makes appropriate reductions in carrying value when a permanent decline is evident. During the three months ended June 30, 2002, the Company recorded an impairment of the value of one of these investments of $3.3 million based on a subsequent round of financing.

Inventories, net of reserves of $19.0 million and $20.2 million as of June 30, 2002 and December 31, 2001, respectively, are stated at the lower of cost or market and consist of (in thousands):

During the second quarter of 2002, the Company repurchased $12.0 million principal amount of its convertible subordinated notes at the then current market prices. This resulted in a gain of $2.3 million, net of deferred financing fees.

		June 30, 2002		December 31, 2001
Common stock, $.001 par value, 600,000 shares authorized, 132,044 and 131,141 outstanding at June 30, 2002 and December 31, 2001, respectively		$	132		$	131
Additional paid-in capital		$	457,363		$	451,703

The components of comprehensive income, net of tax, are as follows (in thousands):

In connection with the Company's commitment to acquire Infineon Technologies AG's ("Infineon") gallium arsenide semiconductor business ("Infineon's GaAs Business"), the Company entered into a forward currency exchange contract on April 30, 2002 for delivery of EUR 50.0 million on July 1, 2002 at an exchange rate of $.90 to EUR 1.0.

On June 30, 2002, the Company recorded an unrealized gain on the forward currency transaction of $4.6 million.

In August 2000, the Company acquired a 420,000 square foot wafer fabrication facility located in Richardson, Texas for $87 million. The acquisition was financed by a special purpose entity ("SPE") sponsored by a financial institution in which the Company contributed $73 million and a lender contributed $14 million. The portion contributed by the lender is 97% collateralized by the Company through pledged investment securities and appears on the Company's balance sheet as "Restricted Long-Term Assets". The portion contributed by the Company appears on the Company's balance sheet as "Other Investment". The SPE is not consolidated in the Company's financial statements and the Company has accounted for the arrangement as an operating lease. The Company is required to make lease payments through August 2005 or purchase the property. If the Company elects to purchase the property, the Company will assign the pledged securities to the lender and incur some incidental cash expenditures to obtain title to the property. The Company may also renew the lease for an additional four-year period in August 2005. The lease is secured by the value of the property as well as the pledged investment securities. Restrictive covenants are also included in this financing arrangement which require the Company to maintain (a) a quick ratio of not less that 1.25 to 1.00, (b) tangible net worth not less than the sum of $425 million and (c) a maximum leverage ratio not greater than 0.50. As of June 30, 2002, the Company was in compliance with these restrictive covenants.

In August 2001, the Financial Accounting Standards Board ("FASB") issued FASB Statement No. 143 ("SFAS 143"), "Accounting for Asset Retirement Obligations", which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS 143 is required to be adopted for fiscal years beginning after June 15, 2002. The Company will adopt SFAS 143 on January 1, 2003.

In April 2002, the FASB issued Statement No. 145 ("SFAS 145"), "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections". SFAS 145 rescinds Statement No. 4, which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. Upon adoption of SFAS 145, companies will be required to apply the criteria in APB Opinion No. 30, "Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions", in determining the classification of gains and losses resulting from the extinguishment of debt. Additionally, SFAS 145 amends Statement No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. SFAS 145 will be effective for fiscal years beginning after May 15, 2002 with early adoption of the provisions related to the rescission of Statement No. 4 encouraged. The Company has adopted SFAS 145 as of January 1, 2002.

In July 2002, the FASB issued FASB Statement No. 146 ("SFAS 146"), "Accounting for Costs Associated with Exit or Disposal Activities", which changes the way a company will report the expenses related to restructuring. SFAS 146 is required to be adopted for exit or disposal activities initiated after December 31, 2002.

On July 1, 2002, the Company closed the acquisition of Infineon's GaAs Business. The Company added approximately 60 employees as part of the acquisition. The acquisition will be accounted for as a purchase transaction. At the closing date, the Company paid Infineon EUR 50.0 million ($45.0 million at forward contract rate of $.9000/EUR1.00), of which EUR 5.0 million ($4.5 million at forward contract rate of $.9000/EUR1.00) is held in a one year warranty escrow. Pursuant to the purchase agreement, Infineon may earn up to an additional EUR 74.0 million over a 24-month period based upon revenues generated by the acquired business, for an aggregate purchase price of EUR 124.0 million. Subsequent to the close of the acquisition, certain fixed assets were also purchased for EUR5.5 million less EUR1.5 million in funded liabilities acquired ($4.0 million at various spot rates). There are also various other guarantees and contingencies which could affect the amount of the final purchase price.

On July 1, 2002, the Company closed the acquisition of a portion of the assets of IBM's wireless phone chipset business. The Company added 9 employees as part of the acquisition. The acquisition will be accounted for as a purchase transaction. At the closing date, the Company made an initial payment of approximately $21.8 million to IBM for the related assets. Subsequent adjustments contingent upon business volumes measured over the next 18 months could increase the final aggregate purchase price up to $40.0 million.

On July 12, 2002, the Company invested $11 million in a private technology company in the wireless communications business. In addition, the Company sold certain assets valued at $3 million to this company. The Company received a secured convertible promissory note in the amount of $14 million bearing interest at a rate of 8% and stock warrants.

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis in conjunction with our condensed consolidated financial statements and the related notes thereto included in this Report on Form 10-Q. The discussion in this Report contains both historical information and forward-looking statements. A number of factors affect our operating results and could cause our actual future results to differ materially from any forward-looking results discussed below, including, but not limited to, those related to operating results; demand for integrated circuits and the electronic products into which they are manufactured, including wireless phones; investments in new facilities; sales to a limited number of customers; new competitive technologies; growth and diversification of our markets; startup of new facilities; transition of manufacturing processes from four-inch to six-inch wafers; integration of our acquisitions of Sawtek Inc. (Sawtek), Infineon's GaAs business, IBM's wireless phone chipset business, investments in other closely held companies and integration of any future acquisitions. In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expects", "anticipates", "intends", "plans", "thinks", "believes", "estimates", "predicts", "potential", "continue", "our future success depends", "seek to continue" or the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. In addition, historical information should not be considered an indicator of future performance. Factors that could cause or contribute to these differences include, but are not limited to, the risks discussed in the section of this report titled "Factors Affecting Future Operating Results". These factors may cause our actual results to differ materially from any forward-looking statement.

We are a leading supplier of high-performance components and modules for communications applications. We design, develop, manufacture and market a broad range of high-performance integrated circuits, bandpass filters, resonators, oscillators and other products for communications markets. The specific applications served by our products in these communication markets include wireless phones, base stations, optical networks and broadband and microwave with a specific focus on radio frequency (RF), analog and mixed-signal applications. Our components and modules are incorporated into a variety of communications products, including wireless phones and pagers, base stations for wireless communications, digital microwave communication systems, fiber optic telecommunications equipment, satellite communications systems, data and wireless local area networking products, broadband access systems and aerospace applications. We provide customers with standard and custom products as well as foundry services.

Our products are designed on various wafer substrates such as gallium arsenide (GaAs), silicon germanium (SiGe) and quartz, using a variety of devices including Pseudomorphic High Electron Mobility Transistor (pHEMT), Heterojunction Bipolar Transistor (HBT), Heterostructure Field Effect Transistor (HFET), Metal Semiconductor Field Effect Transistor (MESFET) and Surface Acoustic Wave (SAW). Using these materials, devices and our proprietary technology, our products can overcome the performance barriers of competing devices in a variety of applications and offer other key advantages such as steeper selectivity, lower distortion, reduced size and weight and more precise frequency control. For example, GaAs has inherent physical properties that allow its electrons to move up to five times faster than those of silicon. This higher electron mobility permits the manufacture of GaAs integrated circuits that operate at much higher speeds than silicon devices, or operate at the same speeds with reduced power consumption. We sell our products worldwide to end-user customers, including Agere Systems Inc., The Boeing Company, Ericsson Inc., Kyocera, LG Group, Motorola, Inc., Nokia Corporation, Northrop Grumman Corporation, Nortel Networks Corporation, Raytheon Company and Samsung Microelectronics.

In the United States, we have design and manufacturing facilities in Oregon, Texas and Florida and a design facility in New England. We also have an assembly facility in Costa Rica and design centers in Taiwan and Germany. We own and operate our own wafer fabrication and product test facilities and use

our proprietary processes to produce RF, analog and mixed-signal components and modules cost-effectively in high volumes. We believe that control of these manufacturing processes provides us with a reliable source of supply, greater opportunities to enhance quality, reliability and manufacturing efficiency. In addition, control of our manufacturing process and our combined research and design capabilities assist us to develop new processes and products and to be more responsive to customer requirements. We have also established a strategic foundry business serving leading communications companies.

We are incorporated under the laws of the State of Delaware. Our principal executive offices are located at 2300 N.E. Brookwood Parkway, Hillsboro, Oregon 97124 and our telephone number at that location is (503) 615-9000.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We review our estimates, including, but not limited to, allowance for doubtful accounts, sales returns reserves, inventory reserves, income tax valuation and warranty reserves on a regular basis and make adjustments based on historical experiences and existing and expected future conditions. These evaluations are performed regularly and adjustments are made as information is available. We believe that these estimates are reasonable; however, actual results could differ from these estimates.

We recognize revenues on standard products upon shipment of product with provisions established for estimated customer and distributor product returns. Generally, we ship products FOB shipping point. We recognize revenues on certain foundry and customer-specific products based on certain design, manufacturing and other milestones. We recognize revenues on cost-plus contracts as work is performed. Revenues from customers who have acceptance criteria are not recognized until all acceptance criteria are satisfied.

We state our inventories at the lower of cost or market. We use a standard cost methodology to determine our cost basis for our inventories. This methodology approximates actual cost on a first-in, first-out basis. Our accounts receivables represent those amounts which have been billed to our customers but not yet collected. We establish an allowance for doubtful accounts for the portion of those accounts which we determine may become uncollectible.

We record a valuation allowance to reduce deferred tax assets when it is more likely than not that some portion of the amount may not be realized. During 2001, we determined it to be more likely than not that a portion of our deferred tax asset would not be realized, and therefore, recorded a valuation allowance for that amount. We evaluate the need for valuation allowance on a regular basis and adjust as needed. These adjustments will have an impact on our financial statements in the periods in which they are recorded.

We have made several investments in small, privately held technology companies in which we hold less than 20% of the capital stock. We account for these investments using the cost method. We monitor these investments for impairment and make appropriate reductions in carrying value when a permanent decline is evident.

Our cash investment portfolio, both restricted and unrestricted portions, are classified as available-for-sale securities and are comprised of highly-rated, short and medium-term investments, such as U.S. treasury securities and obligations of U.S. government agencies, corporate debt securities and similar low risk investments. Although we manage investments under an investment policy, economic, market and other events may affect our investees, which we cannot control. We do not hold or issue derivatives, derivative commodity instruments or other financial instruments for trading purposes.

On July 19, 2001, Sawtek became a wholly owned subsidiary of TriQuint. We issued approximately 48.8 million shares of common stock in exchange for all the outstanding common stock of Sawtek. Additionally, outstanding options to purchase Sawtek common stock were exchanged for approximately 2.6 million options to purchase our common stock. The transaction was accounted for as a pooling-of-interests transaction and qualified as a tax-free exchange of shares.

All financial information set forth in this document has been restated to include the historical information of Sawtek.

On July 1, 2002, we closed the acquisition of Infineon's GaAs Business. We added approximately 60 employees as part of the acquisition. The acquisition will be accounted for as a purchase transaction. At the closing date, we paid Infineon EUR 50.0 million ($45.0 million at forward contract rate of $.9000/EUR1.00), of which EUR 5.0 million ($4.5 million at forward contract rate of $.9000/EUR1.00) is held in a one year warranty escrow. Pursuant to the purchase agreement, Infineon may earn up to an additional EUR 74.0 million over a 24-month period based upon revenues generated by the acquired business, for an aggregate purchase price of EUR 124.0 million. Subsequent to the close of the acquisition, certain fixed assets were also purchased for EUR5.5 million less EUR1.5 million in funded liabilities acquired ($4.0 million at various spot rates). There are also various other guarantees and contingencies which could affect the amount of the final purchase price.

Acquisition of a portion of the assets of IBM's wireless phone chipset business

On July 1, 2002, we closed the acquisition of a portion of the assets of IBM's wireless phone chipset business. We added 9 employees as part of the acquisition. The acquisition will be accounted for as a purchase transaction. At the closing date, we paid $21.8 million to IBM for the related assets. Subsequent adjustments contingent upon business volumes could increase the final aggregate purchase price up to $40.0 million.

The following table sets forth the results of our operations expressed as a percentage of revenues. Our historical operating results are not necessarily indicative of the results for any future period.

We derive revenues from the sale of standard and customer-specific products and services. Our revenues also include non-recurring engineering revenues relating to the development of customer-specific products. For the three months ended June 30, 2002, revenues were $61.2 million, a decrease of 23.0% from the $79.5 million reported for the three months ended June 30, 2001. For the six months ended June 30, 2002, revenues were $123.6 million, a decrease of 34.5% from the $188.7 million reported for the three months ended June 30, 2001. The decrease in revenues for the three months and six months ended June 30, 2002 reflected decreased revenues from our optical networking components and semiconductor products for wireless phones, offset in part by increases in our filter business, particularly duplexers, RF filters and IF filters for GSM and CDMA phones and increases in our broadband and microwave business, particularly in defense related products. We expect revenues for the three months ended September 30, 2002 to be higher than the three months ended June 30, 2002, primarily from revenue to be generated from the Infineon and IBM businesses we acquired in July 2002.

Domestic revenues for the three and six months ended June 30, 2002 decreased to $28.9 million and $57.3 million, respectively, from $46.3 million and $109.7 million for the three and six months ended June 30, 2001, respectively. International revenues for the three and six months ended June 30, 2002 decreased to $32.3 million and $66.3 million, respectively, from $33.2 million and $79.1 million for the three and six months ended June 30, 2001.

Gross profit is equal to revenues less cost of goods sold. Cost of goods sold includes all direct material, labor and overhead expenses and certain production costs related to nonrecurring engineering revenues. In general, gross profit generated from the sale of customer-specific products and from non-recurring engineering revenues is typically higher than gross profit generated from the sale of standard products. For the three months ended June 30, 2002, gross profit was $22.3 million, a decrease of 20.9% from the $28.2 million reported for the three months ended June 30, 2001. For the six months ended June 30, 2002, gross profit was $43.4 million, a decrease of 45.2% from the $79.2 million reported for the six months

ended June 30, 2001. The decrease in gross profit was attributable to the decreased demand for our products and underutiliziation of our fabrication facilities.

The operation of our own wafer fabrication facilities entails a high degree of fixed costs and requires an adequate volume of production and sales to be profitable. During periods of decreased demand, as we have experienced recently, high fixed wafer fabrication costs have a materially adverse effect on our operating results. We expect gross profit to continue to be affected by decreased absorption of fixed overhead costs associated with decreased demand and production volume, which will continue to affect our results of operations for as long as demand continues at existing, or lower levels.

Additionally, we have at various times in the past experienced lower than expected production yields, which have delayed shipments of a given product and adversely affected gross profits. There can be no assurance that we will be able to maintain acceptable production yields in the future and, to the extent that we do not achieve acceptable production yields, our operating results would be materially adversely affected.

Research, development and engineering expenses include the costs incurred in the design of new products, as well as ongoing product research and development expenses. Research, development and engineering expenses for the three months ended June 30, 2002 decreased to $12.2 million from $12.4 million for the three months ended June 30, 2001. As a percentage of revenues for the three months ended June 30, 2002, research, development and engineering expenses increased to 19.9% from 15.6% for the three months ended June 30, 2001. For the six months ended June 30, 2002, research, development and engineering expenses increased to $25.4 million from $23.8 million for the six months ended June 30, 2001. As a percentage of revenues for the six months ended June 30, 2002, research, development and engineering expenses increased to 20.6% from 12.6% for the six months ended June 30, 2001. The decrease in research, development and engineering expenses for the three month period ended June 30, 2002 was primarily due to a reduction of our engineering costs and capacity associated with our optical networking products. The increase in research, development and engineering expenses for the six month period ended June 30, 2002 was primarily due to the engineering and requalification costs associated with the start up and move from our Dallas facility to our Richardson facility and other costs associated with the increased investment in wireless, broadband and microwave products and technologies. We are committed to substantial investments in research, development and engineering and expect these expenses will continue to increase in the future. In addition, we expect these expenses will increase in the three months ended September 30, 2002 compared to the three months ended June 30, 2002 due to added costs associated with the acquisition of the Infineon and IBM businesses in July 2002. We also expect to record a charge estimated in the range of $5 million to $10 million during the three months ended September 30, 2002 for the write-off of acquired in-process research and development from these businesses

Selling, general and administrative expenses include commissions, labor expenses for marketing and administrative personnel, start-up costs for our recent move to our Richardson facility and other corporate administrative expenses. Selling, general and administrative expenses for the three and six months ended June 30, 2002 decreased to $10.7 million and $21.4 million, respectively, from $11.2 million and $23.9 for the three and six months ended June 30, 2001, respectively. This decrease was predominantly due to the reduced selling expense associated with reduced revenues offset by start-up costs for our move to our Richardson facility. Selling, general and administrative expenses as a percentage of revenues for the three and six months ended June 30, 2002 increased to 17.4% and 17.3%, respectively, from 14.0% and 12.7% for the three and six months ended June 30, 2001, respectively. In addition, we expect these expenses will increase in the three months ended September 30, 2002 compared to the three months ended June 30, 2002 due to added costs associated with the acquisition of the Infineon and IBM businesses in July 2002.

Other income, net includes interest income, interest expense and other expenses. Other income, net for the three months ended June 30, 2002 increased to $3.9 million from $3.0 million for the three months ended June 30, 2001. Other income, net for the six months ended June 30, 2002 decreased to $4.0 million from $8.3 million for the six months ended June 30, 2001. The decrease in other income, net for the comparative three month and six month periods ended June 30, 2002 and June 30, 2001, respectively, resulted primarily from decreased interest income on investments, which was attributable to lower interest rates, a lower level of investments due to our recent capital expenditures, our investment in our Richardson facility and the repurchase of a portion of our convertible subordinated notes. This decrease was offset in the three months ended June 30, 2002 by a $4.6 million unrealized gain on a forward currency contract, a $2.3 million gain on the repurchase of a portion of our convertible subordinated notes, offset by a $3.3 million impairment of one of our equity investments.

We recorded an income tax expense of $899,000 and $351,000 for the three and six months ended June 30, 2002, respectively, compared to the income tax expense of $2.9 million and $13.1 million recorded in the three and six months ended June 30, 2001, respectively. The decrease in income tax expense was attributable to our decreased income before income tax.

We recorded our provision for income taxes based on the current estimate of our annual effective tax rate of 60.0%. Our estimated effective tax rate differs from the federal statutory rate primarily because of tax exempt income of our Costa Rican facility, which currently operates in a free trade zone, tax exempt interest income earned on certain cash and investment items within our portfolio and tax credits, which were offset by state taxes and other items.

As of June 30, 2002, we had cash, cash equivalents and short-term investments of $457.6 million. In addition, we had $105.0 million of investments in long-term marketable securities, which are investments in high-grade securities whose initial maturity is one year to 18 months. As of June 30, 2002, working capital declined to $509.8 million from $560.6 million as of December 31, 2001. The decrease in working capital was attributable to the repurchase of convertible debt, purchases of equipment and investments in long-term marketable securities.

For the six months ended June 30, 2002 and June 30, 2001, cash provided by operating activities was $21.3 million and $111.6 million, respectively. Cash provided by operating activities for the three months ended June 30, 2002 was mainly due to depreciation and amortization, reduction of inventory, loss on investments and reduction of prepaid and other assets, which was offset by a gain on extinguishment of debt, the unrealized gain on a forward contract and the reduction of accounts payable and accrued expenses. For the six months ended June 30, 2001, cash provided by operating activities was primarily due to net income, adjustment to conform year end of pooled entity, increase tax benefit from stock option exercises, decease of accounts receivable and depreciation and amortization, offset by increases in prepaid and other assets and decreases in accounts payable and accrued expenses.

For the six months ended June 30, 2002, cash provided by investing activities was $15.5 million which comprised mainly net sales/maturity of investments, offset by purchases of capital equipment and advances to or investments in other companies. For the six months ended June 30, 2001, cash provided by investing activities was $33.4 million, which was due to the net maturity and sale of investments and a decrease in restricted investments, offset by capital expenditures.

For the six months ended June 30, 2002, cash used in financing activities was $5.9 million. For the six months ended June 30, 2001, cash used in financing activities was $4.8 million. The cash used in financing activities for the six months ended June 30, 2002 was from principal payments on capital leases and the

repurchase of convertible subordinated notes, offset by the proceeds from the issuance of common stock. The cash used in financing activities for the six months ended June 30, 2001 was primarily due to the purchase of treasury stock and principal payments on capital leases, offset by the proceeds from the issuance of common stock.

In August 2000, we acquired our 420,000 square foot wafer fabrication facility located in Richardson, Texas for $87.0 million. The acquisition was completed through a financing arrangement in which we contributed $73.0 million and a lender contributed $14.0 million. The portion contributed by the lender is 97% collateralized by us through pledged investment securities and appears on our balance sheet as "Restricted Long-Term Investments". The portion we contributed appears on our balance sheet as "Other Investment". The financing qualifies for accounting treatment as an operating lease. We are required to either make lease payments through August 2005 or purchase the property. If we elect to purchase the property, we will assign the pledged securities to the lender and incur some incidental cash expenditures to obtain title to the property. We may also renew the lease for an additional four-year period in August 2005. The lease is secured by the value of the property as well as the pledged investment securities. Restrictive covenants are also included in this financing arrangement which requires us to maintain (a) a quick ratio of not less than 1.25 to 1.00, (b) tangible net worth not less than the sum of $425.0 million and (c) a maximum leverage ratio not greater than .50. As of June 30, 2002, we were in compliance with these restrictive covenants.

In February and March 2000, we completed a private placement of $345.0 million (net proceeds of $333.9 million) of 4% convertible subordinated notes due 2007. The notes are unsecured obligations, are initially convertible into our common stock at a conversion price of $67.80 per share and are subordinated to all of our present and future senior indebtedness. To date, we have repurchased approximately $60.5 million of the 4% convertible subordinated notes due 2007. We are currently evaluating opportunities to repurchase additional portions of the debt and may from time to time repurchase portions of the debt. We have, in prior periods, completed public offerings of our common stock in order to fund our operating and capital needs. In addition, we have funded our operations to date through other private sales of equity, borrowings, equipment leases and cash flow from operations.

On July 1, 2002, we closed the acquisition of Infineon's GaAs Business. We added approximately 60 employees as part of the acquisition. The acquisition will be accounted for as a purchase transaction. At the closing date, we paid Infineon EUR 50.0 million ($45.0 million at forward contract rate of $.9000/EUR1.00), of which EUR 5.0 million ($4.5 million at forward contract rate of $.9000/EUR1.00) is held in a one year warranty escrow. Pursuant to the purchase agreement, Infineon may earn up to an additional EUR 74.0 million over a 24-month period based upon revenues generated by the acquired business, for an aggregate purchase price of EUR 124.0 million. Subsequent to the close of the acquisition, certain fixed assets were also purchased for EUR 4.0 million ($4.0 million at various spot rates). There are also various other guarantees and contingencies which could affect the amount of the final purchase price.

We believe that our current cash, cash equivalent and short-term investments balances, together with cash anticipated to be generated from operations and any financing arrangements we may enter into, will satisfy our projected working capital and capital expenditure requirements and possible future acquisitions, at a minimum, through the next 12 months. However, we may be required to finance any additional requirements through additional equity, debt financings or credit facilities. We may not be able to obtain additional financings or credit facilities, or if these funds are available, they may not be available on satisfactory terms.

See Note 1 of the Notes to Condensed Consolidated Financial Statements for a discussion of recent accounting pronouncements.

An investment in our common stock is extremely risky. You should carefully consider the following risk factors and other information in this Quarterly Report on Form 10-Q and the Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 27, 2002 before investing in our common stock. Our business and the results of operations could be seriously harmed by any of the following risks. The trading price of our common stock could decline due to any of these risks and you may lose part or all of your investment.

Our operating results may fluctuate substantially, which may cause our stock price to fall.

Our quarterly and annual results of operations have varied in the past and may vary significantly in the future due to a number of factors including, but not limited to, the following:

We expect that our operating results will continue to fluctuate in the future as a result of these and other factors. Any unfavorable changes in these or other factors could cause our results of operations to suffer as they have in the past. Due to potential fluctuations, we believe that period-to-period comparisons of our results of operations are not necessarily meaningful and should not be relied upon as indicators of our future performance.

Additionally, if our operating results are not within the market's expectations, then our stock price may fall. The public stock markets have experienced, and are currently experiencing, extreme price and trading volume volatility, particularly in high technology sectors of the market. This volatility has significantly affected the market prices of securities of many technology companies for reasons frequently unrelated to or disproportionately impacted by the operating performance of these companies. These broad market fluctuations may adversely affect the market price of our common stock.

We may face challenges with our integration of Infineon's GaAs business and the acquired assets of IBM's wireless phone chipset business and, as a result, may not realize the expected benefits of those acquisitions.

On July 1, 2002, we completed the acquisition of Infineon's GaAs semiconductor business and a portion of the assets of IBM's wireless phone chipset business.

We face continuing challenges in integrating Sawtek and, as a result, may not realize the expected benefits of the acquisition of Sawtek.

Integrating the operations, systems and personnel of TriQuint and Sawtek, as with all mergers of companies, is a complex process and we are uncertain that the integration will be completed in a timely manner or will achieve the anticipated benefits of the merger. The continuing challenges involved in this integration include:

We may not succeed in addressing these risks or any other problems encountered in connection with the merger. The diversion of the attention of our management and any difficulties encountered in the process of combining the companies could cause the disruption of, or a loss of momentum in, the activities of our business. We cannot assure you that TriQuint and Sawtek can be successfully integrated in a timely manner or at all or that any of the anticipated benefits will be realized. Further, we cannot assure you that our growth rate will equal the historical growth rates of either company.

If investors or financial or industry analysts do not think our integration of our acquisitions are proceeding as anticipated or that the benefits of the acquisitions are not going to be realized, the market price of our common stock may decline.

We recently announced the appointment of Ralph Quinsey as our President and Chief Executive Officer. Steven J. Sharp, our former President and Chief Executive Officer who announced his intent to reduce his involvement in the day-to-day management of our company in October 2001, remains our working Chairman of the Board and will focus on new technologies and strategic growth opportunities. In addition, we recently announced a corporate reorganization of our company into four business units, each of which is managed by an Office of the President. Our success will depend, in part, on our ability to manage this management transition and reorganization and on the ability of our executive officers to operate effectively, both independently and as a group. The manner in which the new management team conducts the business of our company, and the direction in which the new management team moves the business, may differ from the manner and direction in which the former management has directed our company in the past. If we fail to manage this management transition effectively, our operating results could be negatively affected.

Our operating results may suffer due to fluctuations in demand for semiconductors and electronic communications components.

From time to time, the wireless phone, base station, optical network, broadband and microwave markets have experienced significant downturns and wide fluctuations in product supply and demand, often in connection with, or in anticipation of, maturing product cycles, capital spending cycles and declines in general economic conditions. The cyclical nature of these markets has led to significant imbalances in demand, inventory levels and production capacity. It has also accelerated the decrease of average selling prices per unit. We have experienced, and may experience again, periodic fluctuations in our financial results because of these or other industry-wide conditions. We expect that the current decline in demand for wireless, base station, optical network and broadband and microwave components, including

ours, could last throughout 2002, if not longer. For example, if demand for communications applications were to decrease substantially, demand for the integrated circuits and SAW filter components in these applications would also decline, which would negatively affect our operating results.

We derive all of our product revenues from sales of products for electronic communication applications. These markets are characterized by the following:

Recently, the electronic communications markets have reversed their previous pattern of growth. These markets may not resume historical growth rates. Additionally, if these markets do not recover and demand for electronic communications applications continues to decline, our operating results could suffer.

Products for electronic communications applications are often based on industry standards, which are continually evolving. Our future success will depend, in part, upon our ability to successfully develop and introduce new products based on emerging industry standards, which could render our existing products unmarketable or obsolete. If communications markets evolve to new standards, we may be unable to successfully design and manufacture new products that address the needs of our customers or that will meet with substantial market acceptance.

We face risks from the failures in our manufacturing processes, the maintenance of our fabrication facilities and the processes of our vendors.

The fabrication of integrated circuits, particularly those made of GaAs, is a highly complex and precise process. Our integrated circuits are currently manufactured on wafers made of GaAs and SiGe. Our SiGe products are currently manufactured externally by Atmel, our strategic partner in the development of these products and by IBM. Our SAW filters are currently manufactured primarily on quartz wafers. During manufacturing, each wafer is processed to contain numerous integrated circuits or SAW filters. We may reject or be unable to sell a substantial percentage of wafers or the components on a given wafer because of:

We refer to the proportion of final components that have been processed, assembled and tested relative to the gross number of components that could be constructed from the raw materials as our manufacturing yield. Compared to the manufacture of silicon integrated circuits, GaAs technology is less mature and more difficult to design and manufacture within specifications in large volume. In addition, the more brittle nature of GaAs wafers can result in lower manufacturing yields than with silicon wafers. We have in the past experienced lower than expected manufacturing yields, which have delayed product

shipments and negatively impacted our results of operations. We may experience difficulty maintaining acceptable manufacturing yields in the future.

In addition, the maintenance of our fabrication facilities and our assembly facility are subject to risks, including:

We depend on certain vendors for components, equipment and services. We maintain stringent policies regarding qualification of these vendors. However, if these vendors' processes vary in reliability or quality, they could negatively affect our products, and thereby, our results of operations.

Some of our manufacturing facilities are located in areas prone to natural disasters.

We have a SAW manufacturing and assembly facility located in Apopka, Florida. We also have an assembly facility for SAW products in San Jose, Costa Rica. Hurricanes, tropical storms, flooding, tornadoes and other natural disasters are common events for the southeastern part of the United States and in Central America. Additionally, mud slides, earthquakes and volcanic eruptions could also affect our Costa Rican facility. Any disruptions from these or other events would have a material adverse impact on our operations and financial results.

Although we have manufacturing and assembly capabilities for our Sawtek products in both Apopka and San Jose, we are only capable of fabricating wafers for those products in our Apopka facility. As a result, any disruption to our Apopka facility would have a material adverse impact on our operations and financial results.

A disruption in our Costa Rican operations would have an adverse impact on our operating results.

Operating a facility in Costa Rica presents risks of disruption such as government intervention, currency fluctuations, labor disputes, limited supplies of labor, power interruption or war. Any such disruptions could have a material adverse effect on our business, results of operations and financial condition.

We expect our Costa Rican operations to continue to account for a significant proportion of our SAW operations in the future.

We are subject to taxation in many different countries and localities worldwide. In some jurisdictions, we have employed specific business strategies to minimize our tax exposure. To the extent the tax laws and regulations in these various countries and localities could change, our tax liability in general could increase or our tax saving strategies could be threatened. Such changes could have a material adverse effect on our operations and financial results.

For example, our subsidiary in Costa Rica operates in a free trade zone. We expect to receive a 100% exemption from Costa Rican income taxes through 2003 and a 50% exemption through 2007. The Costa Rican government continues to review its policy on granting tax exemptions to companies located in free trade zones and it may change our tax status or minimize our benefit at any time. Any adverse change in the tax structure for our Costa Rican subsidiary made by the Costa Rican government would have a negative impact on our net income.

A change in our Costa Rican subsidiary's favorable tax status would have an adverse impact on our operating results.

Our subsidiary in Costa Rica operates in a free trade zone. We expect to receive a 100% exemption from Costa Rican income taxes through 2003 and a 50% exemption through 2007. The Costa Rican government continues to review its policy on granting tax exemptions to companies located in free trade zones and it may change our tax status or minimize our benefit at any time. Any adverse change in the tax structure for our Costa Rican subsidiary made by the Costa Rican government would have a negative impact on our net income.

Acts of terrorism could interrupt or restrict our business in several ways. We rely extensively on the use of air transportation to move our inventory to and from our vendors and to ship finished products to our customers. If terrorist acts cause air transportation to be grounded or interrupted, our business would be similarly adversely impacted.

In addition, acts of terrorism could cause existing export regulations to be changed, which could limit the extent to which we are allowed to export our products. To the extent that acts of terrorism also reduce customer confidence and create general economic weakness, our business would also be adversely affected.

If we fail to sell a high volume of products, our operating results will be harmed.

Because large portions of our manufacturing costs are relatively fixed, our manufacturing volumes are critical to our operating results. If we fail to achieve acceptable manufacturing volumes or experience product shipment delays, our results of operations could be harmed. During periods of decreased demand, as we are currently experiencing, our high fixed manufacturing costs negatively effect our results of operations. We base our expense levels in part on our expectations of future orders and these expense levels are predominantly fixed in the short-term. However, if the rate of growth of demand decreases from past levels, as we are currently experiencing, we will not be able to grow our revenue. If we receive fewer customer orders than expected or if our customers delay or cancel orders, we may not be able to reduce our manufacturing costs in the short-term and our operating results would be harmed.

If we do not sell our customer-specific products in large volumes, our operating results may be harmed.

We manufacture a substantial portion of our products to address the needs of individual customers. Frequent product introductions by systems manufacturers make our future success dependent on our ability to select development projects, which will result in sufficient volumes to enable us to achieve manufacturing efficiencies. Because customer-specific products are developed for unique applications, we expect that some of our current and future customer-specific products may never be produced in volume and may impair our ability to cover our fixed manufacturing costs. Furthermore, if customers cancel or delay orders for these customer-specific products, our inventory of these products may become unmarketable or obsolete, which would negatively affect our operating results.

In addition, if we experience delays in completing designs, if we fail to obtain development contracts from customers whose products are successful or if we fail to have our product designed into the next generation product of existing volume production customers, our revenues could be harmed.

Our operating results could be harmed if we lose access to sole or limited sources of materials, equipment or services.

We currently obtain some components, equipment and services for our products from limited or single sources, such as certain ceramic and plastic packages and chemicals. We purchase these components,

equipment and services on a purchase order basis, do not carry significant inventories of components and do not have any long-term supply contracts with these vendors. Our requirements are relatively small compared to silicon semiconductor manufacturers. Because we often do not account for a significant part of our vendors' business, we may not have access to sufficient capacity from these vendors in periods of high demand. If we were to change any of our sole or limited source vendors, we would be required to requalify each new vendor. Requalification could prevent or delay product shipments that could negatively affect our results of operations. In addition, our reliance on these vendors may negatively affect our production if the components, equipment or services vary in reliability or quality. If we are unable to obtain timely deliveries of sufficient quantities of acceptable quality or if the prices increase, our results of operations could be harmed.

Our operating results could be harmed if our subcontractors and partners are unable to fulfill our requirements.

We currently utilize subcontractors for the majority of our integrated circuit assemblies. IBM and Atmel manufacture all of our SiGe products. Infineon continues to manufacture our products acquired from them while we transfer the manufacturing processes to our Oregon facility. Infineon will also continue to provide assembly and test services for an indeterminant period of time after the transfer of manufacturing processes. There are certain risks associated with dependence on third party providers, such as minimal control over delivery scheduling, adequate capacity during demand peaks, warranty issues and protection of intellectual property. Additionally, if these subcontractors are unable to meet our needs, it could prevent or delay production shipments that could negatively affect our results of operations. If we were to change any of our subcontractors, we would be required to requalify each new subcontractor, which could also prevent or delay product shipments that could negatively affect our results of operations. In addition, our reliance on these subcontractors may negatively affect our production if the services vary in reliability or quality. If we are unable to obtain timely service of acceptable quality or if the prices increase, our results of operations could be harmed.

If our products fail to perform or meet customer requirements, we could incur significant additional costs.

The fabrication of GaAs and SiGe integrated circuits, SAW filters and the modules containing these components is a highly complex and precise process. Our customers specify quality, performance and reliability standards that we must meet. If our products do not meet these standards, we may be required to rework or replace the products. GaAs and SiGe integrated circuits and SAW filters may contain undetected defects or failures that only become evident after we commence volume shipments. We have experienced product quality, performance or reliability problems from time to time. Defects or failures may occur in the future. If failures or defects occur, we could:

Our operating results may suffer as a result of the conversion of our manufacturing processes from four-inch wafer production to six-inch wafer production.

We have converted a portion of our existing Hillsboro facility to accommodate equipment that uses six-inch (150-millimeter) wafer production. Some of our production has been converted to six-inch wafers and some has yet to be converted from four-inch wafers. We have very limited experience processing six-inch wafers in our fabrication facilities. Our inexperience may result in lower yields and higher unit

production costs. We may be required to redesign our processes and procedures substantially to accommodate the larger wafers. As a result, converting to six-inch wafer production may take longer than planned, could interrupt production of integrated circuits from four-inch wafers and could harm our results of operations. If we fail to successfully transition the remaining products on four-inch wafers to six-inch wafers or our manufacturing yields decline, our relationships with our customers may be harmed.

Increases in our manufacturing capacity may adversely affect our operating results if the current economic downturn continues for an extended period of time.

We are currently in the process of converting our existing Hillsboro facility from four-inch wafer production to six-inch wafer production and have recently expanded the capacity of our Texas operations with the transition to the Richardson facility.

These increases in capacity will directly relate to significant increases in fixed costs and operating expenses. These increased costs could have an adverse effect on our results of operations during the current economic downturn. If this economic downturn were to continue for an extended period of time, the decreased levels of demand and production in conjunction with these increased expense levels will have an adverse effect on our business, financial condition and results of operations.

We may face fines or our facilities could be closed if we fail to comply with environmental regulations.

Federal, state and local regulations impose various environmental controls on the storage, handling, discharge and disposal of chemicals and gases used in our manufacturing process. For our manufacturing facilities located in Hillsboro, Richardson, Apopka and San Jose, Costa Rica, we provide our own manufacturing waste treatment and contract for disposal of some materials. We are required to report usage of environmentally hazardous materials.

The failure to comply with present or future regulations could result in fines being imposed on us and we could be required to suspend production or cease our operations. These regulations could require us to acquire significant equipment or to incur substantial other expenses to comply with environmental regulations. Any failure by us to control the use of, or to adequately restrict the discharge of, hazardous substances could subject us to future liabilities and harm our results of operations.

Our business will be impacted if systems manufacturers do not use components made of GaAs, or other alternative materials we utilize.

Silicon semiconductor technologies are the dominant process technologies for integrated circuits and the performance of silicon integrated circuits continues to improve. Recently, we introduced SiGe components jointly developed and manufactured with Atmel Corporation and acquired the SiGe wireless chipset business of IBM. Although we have designed and manufactured GaAs products, have begun production of SiGe products developed jointly and manufactured by Atmel, and have acquired SiGe products manufactured by IBM, system designers may be reluctant to adopt our products because of:

Systems manufacturers may not use GaAs components because the production of GaAs integrated circuits has been, and continues to be, more costly than the production of silicon devices. Systems manufacturers may not use our SiGe components because this is a newly introduced process. Systems manufacturers may be reluctant to rely on a technology that is new to us and not widely understood.

Systems manufacturers may also be reluctant to rely on a jointly produced product because future supplies may depend on our continued good relationships with Atmel and IBM. As a result, we must offer devices that provide superior performance to that of traditional silicon-based devices.

In addition, customers may be reluctant to rely on a smaller company like us for critical components. We cannot be certain that additional systems manufacturers will design our products into their systems or that the companies that have utilized our products will continue to do so in the future. If our products fail to achieve market acceptance, our results of operations would suffer.

New competitive products and technologies have been announced which could reduce demand for our SAW filter products.

Recently, products have been introduced that may have some application in certain GSM phones, which, if proven successful, could impact sales of GSM IF filters for wireless phones. Several companies recently announced a new product based on a direct conversion concept that could potentially eliminate a SAW IF filter in certain CDMA phones. If these products are successful in the market, it could reduce or eliminate demand for our IF filters for CDMA phones and our revenues would be harmed if we do not introduce competitive or alternative products. SAW IF filters accounted for approximately 8% of our revenues in 2001. Any development of a cost-effective and reliable technology that replaces SAW filtering technology or reduces the need for SAW filtering technology could have a material adverse effect on our business, financial condition and results of operations.

A decline either in the growth of wireless communications or in the continued acceptance of CDMA technology would have an adverse impact on us.

Our products for CDMA-based systems, including filters for base stations and receivers and power amplifiers for wireless phones, accounted for approximately 22% of our revenues for 2001. CDMA technology is relatively new to the marketplace and there can be no assurance that emerging markets will adopt this technology. Our business and financial results would be adversely impacted if CDMA technology does not continue to gain acceptance.

Our business may be adversely impacted if we fail to successfully introduce new products or to gain our customers' acceptance of those new products.

The markets for electronic communications applications in which we participate are subject to intense competition, rapid technological change and short product life cycles. It is critical for companies such as ours to continually and quickly develop new products to meet the changing needs of these markets. If we fail to develop new products to meet our customers' needs on a timely basis, we will not be able to effectively compete in these markets.

For example, we announced our intention to develop and market RF front-end modules for wireless phones at cost-effective prices. We will also need to continue to expand our wireless applications into CDMA and GSM applications. If we fail to design and produce these products in a manner acceptable to our customers or have incorrectly anticipated our customers' demand for these types of products, our operating results could be harmed.

In February and March 2000, we sold $345.0 million of convertible subordinated notes in a private placement to qualified institutional buyers due in 2007. Although we repurchased $48.5 million and $12.0 million of these notes in 2001 and 2002, respectively, we have $284.5 million of indebtedness

remaining. Our other indebtedness is for operating and capital leases. We may incur substantial additional indebtedness in the future. The level of our indebtedness, among other things, could:

There can be no assurance that we will be able to meet our debt service obligations, including our obligation under the notes.

If our cash flow is inadequate to meet our obligations, we could face substantial liquidity problems. If we are unable to generate sufficient cash flow or otherwise obtain funds necessary to make required payments on the notes or our other obligations, we would be in default under the terms thereof. Default under the indenture would permit the holders of the notes to accelerate the maturity of the notes and could cause defaults under future indebtedness we may incur. Any such default could have a material adverse effect on our business, prospects, financial condition and operating results. In addition, we can not assure you that we would be able to repay amounts due in respect of the notes if payment of the notes were to be accelerated following the occurrence of an event of default as defined in the indenture.

The increasing significance of electronic communications has increased pressure on regulatory bodies worldwide to adopt new standards for electronic communications, generally following extensive investigation of and deliberation over competing technologies. The delays inherent in the regulatory approval process may in the future cause the cancellation, postponement or rescheduling of the installation of communications systems by our customers. These delays have in the past had, and may in the future have, a negative effect on our sales and our results of operations.

Our revenues are at risk if we do not introduce new products and/or decrease costs.

Historically, the average selling prices of some of our products have decreased over the products' lives and we expect them to continue to do so. To offset these decreases, we rely primarily on achieving yield improvements and other cost reductions for existing products and on introducing new products that can often be sold at higher average selling prices. Selling prices for our SAW products have declined due to competitive pricing pressures and to the use of newer surface mount package devices that are smaller and less expensive than previous generation filters. For example, we have experienced declines in average selling prices for filters for base stations due to the use of surface mount packages. We believe our future success depends, in part, on our timely development and introduction of new products that compete effectively on the basis of price and performance and adequately address customer requirements. The success of new product and process introductions depends on several factors, including:

Our product and process development efforts may not be successful and our new products or processes may not achieve market acceptance. To the extent that our cost reductions and new product introductions do not occur in a timely manner, our results of operations could suffer.

If technologies or standards supported by our or our customers' products become obsolete or fail to gain widespread commercial acceptance, our results of operations may be materially impacted. Because of continual improvements in semiconductor technology, including those in high-performance silicon technologies such as complementary metal oxide semiconductor (CMOS), where substantially more resources are invested than in GaAs, SiGe or SAW products, we believe that our future success will depend, in part, on our ability to continue to improve our product and process technologies. We must also develop new technologies in a timely manner. In addition, we must adapt our products and processes to technological changes and to support emerging and established industry standards. We have and must continue to perform significant research and development into advanced material development such as indium phosphide (InP), gallium nitride (GaN), silicon carbide (SiC) and SiGe to compete with future technologies of our competitors. For example, we recently announced that we have entered into agreements with Atmel and IBM to fabricate portions of our proposed SiGe products. These research and development efforts may not be accepted by our customers, and therefore may not go into full production in the future. We may not be able to improve our existing products and process technologies, develop new technologies in a timely manner or effectively support industry standards. If we fail to do so, our customers may select another GaAs, SiGe or SAW product or move to an alternative technology.

The markets for our products are characterized by price competition, rapid technological change, short product life cycles and heightened global competition. Many of our competitors have significantly greater financial technical, manufacturing and marketing resources. Due to the increasing requirements for high-speed, high-frequency components, we expect intensified competition from existing integrated circuit and SAW device suppliers, as well as from the entry of new competitors to our target markets and from their internal operations of some companies producing products similar to ours for the internal requirements.

For our integrated circuit devices, we compete primarily with both manufacturers of high-performance silicon integrated circuits as well as manufacturers of GaAs integrated circuits. Our silicon-based competitors include companies such as Applied Micro Circuits Corporation, Maxim Integrated Products Inc., Motorola, Philips and STMicroelectronics N.V. Our GaAs-based competitors include companies such as Anadigics Inc., Fujitsu Microelectronics, Inc., Infineon Technologies AG, Raytheon, RF Micro Devices, Skyworks Solutions, Inc. and Vitesse Semiconductor Corp. For our SAW devices, our competitors include companies such as CTS Wireless Components, Micro Networks, Phonon, RF Monolithics, Vectron, EPCOS AG, Shales, Fujitsu, Murata and Toyocom. Competition could also come from companies ahead of us in developing alternative technologies such as SiGe and InP integrated circuits and digital filtering and direct conversion devices.

Competition from existing or potential competitors may increase due to a number of factors including, but not limited to, the following:

Additionally, manufacturers of high-performance silicon integrated circuits have achieved greater market acceptance of their existing products and technologies in some applications.

We compete with both GaAs and silicon suppliers in all of our target markets. In microwave and millimeter wave applications, our competition is primarily from a limited number of GaAs suppliers, which are in the process of expanding their product offerings to address commercial applications other than aerospace.

Our prospective customers are typically systems designers and manufacturers that are considering the use of GaAs or SiGe integrated circuits or SAW filters, as the case may be, for their high-performance systems. Competition is primarily based on performance elements such as speed, complexity and power dissipation, as well as price, product quality and ability to deliver products in a timely fashion. Due to the proprietary nature of our products, competition occurs almost exclusively at the system design stage. As a result, a design win by our competitors or by us typically limits further competition with respect to manufacturing a given design.

If we fail to integrate any future acquisitions or successfully invest in privately held companies, our business will be harmed.

We may not successfully address these risks or any other problems that arise in connection with future acquisitions or equity investments in privately held companies.

We will continue to evaluate strategic opportunities available to us and we may pursue product, technology or business acquisitions or investments in strategic partners. In addition, in connection with any future acquisitions, we may issue equity securities that could dilute the percentage ownership of our existing stockholders, we may incur additional debt and we may be required to amortize expenses related

to other intangible assets or record impairment of goodwill that may negatively affect our results of operations.

Our future success depends in large part on the continued service of our key technical, marketing and management personnel. We also depend on our ability to continue to identify, attract and retain qualified technical employees, particularly highly skilled design, process and test engineers involved in the manufacture and development of our products and processes. We must also recruit and train employees to manufacture our products without a substantial reduction in manufacturing yields. There are many other semiconductor companies located in the communities near our facilities and it may become increasingly difficult for us to attract and retain those employees. The competition for these employees is intense, and the loss of key employees could negatively affect us.

Our business may be harmed if we fail to protect our proprietary technology.

We rely on a combination of patents, trademarks, copyrights, trade secret laws, confidentiality procedures and licensing arrangements to protect our intellectual property rights. We currently have patents granted and pending in the United States and elsewhere and intend to seek further international and United States patents on our technology. We cannot be certain that patents will be issued from any of our pending applications or that patents will be issued in all countries where our products can be sold or that any claims allowed from pending applications or will be of sufficient scope or strength to provide meaningful protection or any commercial advantage. Our competitors may also be able to design around our patents. The laws of some countries in which our products are, or may be developed, manufactured or sold, may not protect our products or intellectual property rights to the same extent as do the laws of the United States, increasing the possibility of piracy of our technology and products. Although we intend to vigorously defend our intellectual property rights, we may not be able to prevent misappropriation of our technology. Our competitors may also independently develop technologies that are substantially equivalent or superior to our technology.

Our ability to produce our products may suffer if someone claims we infringe on their intellectual property.

The integrated circuit and SAW device industries are characterized by vigorous protection and pursuit of intellectual property rights or positions, which have resulted in significant and often protracted and expensive litigation. If it is necessary or desirable, we may seek licenses under such patents or other intellectual property rights. However, we cannot be certain that licenses will be offered or that we would find the terms of licenses that are offered acceptable or commercially reasonable. Our failure to obtain a license from a third party for technology used by us could cause us to incur substantial liabilities and to suspend the manufacture of products. Furthermore, we may initiate claims or litigation against third parties for infringement of our proprietary rights or to establish the validity of our proprietary rights. Litigation by or against us could result in significant expense and divert the efforts of our technical personnel and management, whether or not the litigation results in a favorable determination. In the event of an adverse result in any litigation, we could be required to:

We may be unsuccessful in developing non-infringing products or negotiating licenses upon reasonable terms, or at all. These problems might not be resolved in time to avoid harming our results of operations. If any third party makes a successful claim against our customers or us and a license is not made available to us on commercially reasonable terms, our business could be harmed.

Our sales outside of the United States were 53% and 43% of revenues for the three and six months ended June 30, 2002 and 44% of revenues in 2001. We face inherent risks from these sales, including:

In addition, due to the technological advantages provided by GaAs integrated circuits in many military applications, the Office of Export Administration of the U.S. Department of Commerce must license all of our sales outside of North America. We are also required to obtain licenses from that agency for sales of our SAW products to customers in certain countries. If we fail to obtain these licenses or experience delays in obtaining these licenses in the future, our results of operations could be harmed. Also, because all of our foreign sales are denominated in U.S. dollars, increases in the value of the dollar would increase the price in local currencies of our products and make our products less price competitive.

We may be subject to a securities class action suit if our stock price falls.

Following periods of volatility in the market price of a company's stock, some stockholders may file securities class action litigation. For example, in 1994, a stockholder class action lawsuit was filed against us, our underwriters and some of our officers, directors and investors, which alleged that we, our underwriters and certain of our officers, directors and investors intentionally misled the investing public regarding our financial prospects. We settled the action and recorded a special charge of $1.4 million associated with the settlement of this lawsuit and related legal expenses, net of accruals, in 1998. Any future securities class action litigation could be expensive and divert our management's attention and harm our business, regardless of its merits.

Our stock will likely be subject to substantial price and volume fluctuations due to a number of factors, many of which are beyond our control and may prevent our stockholders from reselling our common stock at a profit.

The securities markets have experienced significant price and volume fluctuations and the market prices of the securities of semiconductor companies have been especially volatile. The market price of our common stock may experience significant fluctuations in the future. For example, our common stock price has fluctuated from a high of approximately $25.01 to a low of approximately $6.05 during the 52 weeks ended June 30, 2002. This market volatility, as well as general economic, market or political conditions could reduce the market price of our common stock in spite of our operating performance. In addition, our operating results could be below the expectations of public market analysts and investors, and in response, the market price of our common stock could decrease significantly.

Our certificate of incorporation and bylaws include anti-takeover provisions, which may deter or prevent a takeover attempt.

Some provisions of our certificate of incorporation and bylaws and provisions of Delaware law may deter or prevent a takeover attempt, including a takeover that might result in a premium over the market price for our common stock. These provisions include:

Cumulative voting. Our stockholders are entitled to cumulate their votes for directors. This may limit the ability of the stockholders to remove a director other than for cause.

Stockholder proposals and nominations. Our stockholders must give advance notice, generally 120 days prior to the relevant meeting, to nominate a candidate for director or present a proposal to our stockholders at a meeting. These notice requirements could inhibit a takeover by delaying stockholder action.

Stockholder rights plan. We may trigger our stockholder rights plan in the event our board of directors does not agree to an acquisition proposal. The rights plan may make it more difficult and costly to acquire our company.

Preferred stock. Our certificate of incorporation authorizes our board of directors to issue up to five million shares of preferred stock and to determine what rights, preferences and privileges such shares have. No action by our stockholders is necessary before our board of directors can issue the preferred stock. Our board of directors could use the preferred stock to make it more difficult and costly to acquire our company.

Delaware anti-takeover statute. The Delaware anti-takeover law restricts business combinations with some stockholders once the stockholder acquires 15% or more of our common stock. The Delaware statute makes it harder for our company to be acquired without the consent of our board of directors and management.

ITEM 3: QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT
MARKET AND INTEREST RATE RISK

We are exposed to minimal market risks. We manage the sensitivity of our results of operations to these risks by maintaining an investment policy which allows only highly-rated securities. Our investments, both restricted and unrestricted, are classified as available-for-sale securities and are comprised of highly-rated, short and medium-term investments, such as U.S. government agencies, corporate debt securities and other such low risk investments. Although we manage investments under an investment policy, economic, market and other events may occur to our investees, which we cannot control. We do not hold or issue derivatives, derivative commodity instruments or other financial instruments for trading purposes. We are exposed to currency exchange fluctuations, as we sell our products internationally and have an operation in Costa Rica. We manage the sensitivity of our international sales, purchases of raw materials and equipment and our Costa Rican operation by denominating most transactions in U.S. dollars. We have engaged in limited foreign currency hedging transactions, principally to lock in the cost of purchase commitments that are not denominated in U.S. dollars. At June 30, 2002, we had an open commitment to purchase EUR 50.0 million at a fixed exchange rate of $.90 per EUR 1.00. We settled this commitment on July 1, 2002.

Our convertible subordinated notes due 2007 have a fixed interest rate of 4%. Consequently, we do not have significant cash flow exposure on our long-term debt. However, the fair value of the convertible subordinated notes is subject to significant fluctuations due to their convertibility into shares of our stock and other market conditions.

We are exposed to interest rate risk if we use additional financing to fund capital expenditures. The interest rate that we may be able to obtain on financings will depend on market conditions at that time and may differ from the rates we have secured in the past.

From time to time we are involved in judicial and administrative proceedings incidental to our business. Although occasional adverse decisions (or settlements) may occur, we believe that the final disposition of such matters will not have a material adverse effect on our financial position or results of operations.

On May 22, 2002, we held our Annual Meeting of Stockholders in Apopka, Florida. We solicited votes by proxy pursuant to proxy solicitation materials first distributed to our stockholders on or about April 17, 2002. The following is a brief description of the matters voted on at the meeting and a statement of the number of votes cast for and against and the number of abstentions:

Nominee	In Favor	Withheld
Francisco Alvarez	115,321,067	1,328,302
Dr. Paul A. Gary	115,135,889	1,513,480
Charles Scott Gibson	115,168,595	1,480,774
Nicolas Kauser	115,151,954	1,497,415
Steven P. Miller	115,003,832	1,645,537
Dr. Walden C. Rhines	115,128,325	1,521,044
Steven J. Sharp	114,750,997	1,898,372
Edward F. Tuck	115,250,403	1,398,966
Willis C. Young	115,282,265	1,367,104

For		Against		Abstain
111,389,368		5,117,382		142,619

For		Against		Abstain
79,326,688		36,910,525		412,156

10.22		1998 Nonstatutory Stock Option Plan and form of agreement thereunder
10.33		Sawtek Inc. Employee Stock Ownership and 401(k) Plan
10.40		Amended Sale and Transfer Agreement between Infineon Technologies AG, Infineon Technologies North America Corp., TriQuint Semiconductor, Inc. and TriQuint GmbH dated as of April 29, 2002(1)
10.40.1		Interim Supply Agreement by and between and Infineon Technologies AG dated July 1, 2002(1)
10.40.2		Side Letter to the Interim Supply Agreement dated July 1, 2002(1)
10.40.3		Cooperation Agreement by and between TriQuint Semiconductor, Inc. and Infineon Technologies AG dated July 1, 2002(1)
10.40.4		Transition Services Agreement by and between TriQuint Semiconductor, Inc. and Infineon Technologies AG dated July 1, 2002(1)
10.40.5		Basic Supply Agreement Relating to the Supply of Highly Reliable Semiconductor Products and Assignment of Customer Contracts by and between TriQuint Semiconductor, Inc. and Infineon Technologies AG dated July 1, 2002(1)
10.40.6		Backend Foundry Agreement by and between TriQuint Semiconductor, Inc. and Infineon Technologies AG dated July 1, 2002(1)
10.40.7		Side Letter to Backend Foundry Agreement dated July 1, 2002(1)
10.40.8		Interim Lease Agreement by and between Registrant and Infineon Technologies AG dated July 1, 2002(1)
10.41		Letter Agreement dated June 28, 2002 between Registrant and Ralph Quinsey
99.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Exhibit No.		Description
10.22		1998 Nonstatutory Stock Option Plan and form of agreement thereunder
10.33		Sawteck Inc. Employee Stock Ownership and 401(k) Plan
10.41		Amended Sale and Transfer Agreement between Infineon Technologies AG, Infineon Technologies North America Corp., TriQuint Semiconductor, Inc. and TriQuint GmbH dated as of April 29, 2002(1)
10.40.1		Interim Supply Agreement by and between and Infineon Technologies AG dated July 1, 2002(1)
10.40.2		Side Letter to the Interim Supply Agreement dated July 1, 2002(1)
10.40.3		Cooperation Agreement by and between TriQuint Semiconductor, Inc. and Infineon Technologies AG dated July 1, 2002(1)
10.40.4		Transition Services Agreement by and between TriQuint Semiconductor, Inc. and Infineon Technologies AG dated July 1, 2002(1)
10.40.5		Basic Supply Agreement Relating to the Supply of Highly Reliable Semiconductor Products and Assignment of Customer Contracts by and between TriQuint Seminconductor, Inc. and Infineon Technologies AG dated July 1, 2002(1)
10.40.6		Backend Foundry Agreement by and between TriQuint Semiconductor, Inc. and Infineon Technologies AG dated July 1, 2002(1)
10.40.7		Side Letter to Backend Foundry Agreement dated July 1, 2002(1)
10.40.8		Interim Lease Agreement by and between Registrant and Infineon Technologies AG dated July 1, 2002(1)
10.41		Letter Agreement dated June 28, 2002 between Registrant and Ralph Quinsey
99.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Delaware		95-3654013
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

			Three Months Ended						Six Months Ended
			June 30, 2002			June 30, 2001			June 30, 2002			June 30, 2001
Revenues			$	61,232		$	79,481		$	123,583		$	188,711
Cost of goods sold				38,916			51,321			80,210			109,492

		Gross profit		22,316			28,160			43,373			79,219
Operating expenses:
	Research, development and engineering			12,201			12,393			25,441			23,830
	Selling, general and administrative			10,671			11,161			21,358			23,903

		Total operating expenses		22,872			23,554			46,799			47,733

		Income (loss) from operations		(556	)		4,606			(3,426	)		31,486

Other income (expense):
	Interest income			3,007			7,790			6,073			16,973
	Interest expense			(3,259	)		(3,801	)		(6,598	)		(7,628	)
	Other, net			4,130			(1,025	)		4,537			(1,026	)

		Total other income, net		3,878			2,964			4,012			8,319

		Income before income tax		3,322			7,570			586			39,805
Income tax expense				899			2,865			351			13,056

		Net income	$	2,423		$	4,705		$	235		$	26,749

Per share data:
		Basic	$	0.02		$	0.04		$	0.00		$	0.21

		Weighted-average common shares		131,656,161			129,414,101			131,470,021			129,247,214

		Diluted	$	0.02		$	0.03		$	0.00		$	0.20

		Weighted-average common and common equivalent shares		134,843,992			135,723,492			134,891,614			135,950,876

			June 30, 2002			December 31, 2001(1)
Assets
Current assets:
	Cash and cash equivalents		$	292,603		$	261,728
	Investments in marketable securities			165,008			246,775
	Accounts receivable, net			33,028			34,532
	Inventories, net			29,851			34,836
	Deferred income taxes			11,359			11,359
	Other current assets			58,201			12,623

		Total current assets		590,050			601,853

Long-term investments in marketable securities				104,954			73,028
Property, plant and equipment, net				225,092			214,402
Deferred income taxes				23,761			23,761
Other investment				73,617			73,617
Restricted long-term assets				14,547			14,547
Other non-current assets, net				21,191			19,665

		Total assets	$	1,053,212		$	1,020,873

Liabilities and Stockholders' Equity
Current liabilities:
	Current installments of capital lease and installment note obligations		$	754		$	1,580
	Accounts payable and accrued expenses			79,501			39,660

		Total current liabilities		80,255			41,240
Long-term debt, less current installments				284,500			296,859

		Total liabilities		364,755			338,099

Stockholders' equity:
	Common stock			457,495			451,834
	Accumulated other comprehensive income			245			458
	Unearned ESOP compensation			(390	)		(390	)
	Retained earnings			231,107			230,872

		Total stockholders' equity		688,457			682,774

		Total liabilities and stockholders' equity	$	1,053,212		$	1,020,873

				Six Months Ended						Three Months Ended
				June 30, 2002			June 30, 2001			June 30, 2002			March 31, 2002
Cash flows from operating activities:
	Net income			$	235		$	26,749		$	2,423		$	(2,188	)
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization			17,374			13,702			9,022			8,352
		Deferred income taxes			—			3,690			—			—
		Income tax benefit of stock option exercises			980			6,062			638			342
		Adjustment to conform year end of pooled entity			—			39,099			—			—
		Loss (gain) on disposal of assets			391			(758	)		6			385
		Gain on extinguishment of debt			(2,298	)		—			(2,298	)		—
		Loss on investments			3,242			1,308			3,242			—
		Unrealized gain on forward contract			(4,570	)		—			(4,570	)		—
		Changes in assets and liabilities:
		Decrease in:
			Accounts receivable		1,504			31,609			1,155			349
			Inventories		4,985			3,463			(1,425	)		6,410
			Prepaid expenses and other assets		4,618			(3,759	)		4,058			560
		Decrease in:
			Accounts payable and accrued expenses		(5,159	)		(9,557	)		3,933			(9,092	)

		Net cash provided by operating activities			21,302			111,608			16,184			5,118
Cash flows from investing activities:
	Purchase of available-for-sale investments				(233,681	)		(304,586	)		(78,171	)		(155,510	)
	Maturity/sale of available-for-sale investments				283,314			408,306			121,126			162,188
	Decrease in restricted long-term assets				—			38,250			—			—
	Advances to or investment in other companies				(5,996	)		(1,000	)		(827	)		(5,169	)
	Acquisition costs				(427	)		—			(427	)		—
	Capital expenditures				(27,699	)		(108,938	)		(12,859	)		(14,840	)
	Proceeds from sale of assets				—			1,377			—			—

		Net cash provided by investing activities			15,511			33,409			28,842			(13,331	)
Cash flows from financing activities:
	Principal payments under capital lease obligations				(1,185	)		(1,349	)		(315	)		(870	)
	Purchase of common stock for treasury				—			(9,778	)		—			—
	Repurchase of convertible subordinated notes				(9,435	)		—			(9,435	)		—
	Issuance of common stock, net				4,682			6,342			3,924			758

		Net cash used in financing activities			(5,938	)		(4,785	)		(5,826	)		(112	)
		Net increase in cash and cash equivalents			30,875			140,232			39,200			(8,325	)
Cash and cash equivalents at the beginning of the period					261,728			163,747			253,403			261,728

Cash and cash equivalents at the end of the period				$	292,603		$	303,979		$	292,603		$	253,403

		Three Months Ended June 30,
		Three Months Ended June 30,				Six Months Ended June 30,
						Six Months Ended June 30,
								2001
		2002		2001		2002		2001
Income available to stockholders		$	2,423	$	4,705	$	235	$	26,749

Shares for basic earnings per share:
	Weighted-average common shares		131,656		129,414		131,470		129,247
Effect of dilutive securities:
	Stock options		3,188		6,310		3,422		6,704

Shares for dilutive earnings per share:			134,844		135,724		134,892		135,951

Per share data:
	Basic	$	0.02	$	0.04	$	0.00	$	0.21

	Diluted	$	0.02	$	0.03	$	0.00	$	0.20

		June 30, 2002		December 31, 2001
Raw material		$	12,141	$	18,824
Work in progress			8,742		8,729
Finished goods			8,968		7,283

	Total inventories, net	$	29,851	$	34,836

		Six Months Ended
		June 30, 2002		June 30, 2001
		(in thousands)
Cash transactions:
	Cash paid for interest	$	6,057	$	7,077
	Cash paid for income taxes	$	785	$	11,523

		TriQuint Semiconductor, Inc.

Dated: August 13, 2002		/s/ Ralph Quinsey
		RALPH QUINSEY
		President and Chief Executive Officer (Principal Executive Officer)
Dated: August 13, 2002		/s/ Raymond A. Link
		RAYMOND A. LINK
		Vice President, Finance and Administration, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer)