RF Micro Devices (RFMD) 10-Q 2008 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 2007
Or
[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_______ to_________
Commission file number 0-22511
RF Micro Devices, Inc. (Exact name of registrant as specified in its charter)
North Carolina (State or other jurisdiction of incorporation or organization)	56-1733461 (I.R.S. Employer    Identification No.)
7628 Thorndike Road Greensboro, North Carolina (Address of principal executive offices)	27409-9421 (Zip Code)
(336) 664-1233 (Registrant's telephone number, including area 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 [X] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer [X]                                      Accelerated filer [  ]                                      Non-accelerated filer [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
Yes [  ]    No [X]

As of October 26, 2007, there were 195,527,563 shares of the registrant's common stock outstanding. 

RF MICRO DEVICES, INC. AND SUBSIDIARIES

INDEX

PART I-	FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements.	Page
	Condensed Consolidated Balance Sheets as of September 29, 2007 and     March 31, 2007	3
	Condensed Consolidated Statements of Operations for the three months     ended September 29, 2007 and September 30, 2006	4
	Condensed Consolidated Statements of Operations for the six months     ended September 29, 2007 and September 30, 2006	5
	Condensed Consolidated Statements of Cash Flows for the six months     ended September 29, 2007 and September 30, 2006	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	21
Item 4.	Controls and Procedures.	22
PART II -	OTHER INFORMATION
Item 1A.	Risk Factors.	22
Item 4.	Submission of Matters to a Vote of Security Holders.	22
Item 6.	Exhibits.	23
SIGNATURES.		24
EXHIBIT INDEX.		25

2

PART I - FINANCIAL INFORMATION

ITEM 1.     

RF MICRO DEVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

	September 29, 2007				March 31, 2007
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$			329,192	$			229,034
Short-term investments	372,255				89,678
Accounts receivable, less allowance of $391 and $366             as of September 29, 2007 and March 31, 2007,             respectively	104,235				102,307
Inventories (Note 3)	121,473				112,975
Prepaid expenses	9,084				9,546
Other receivables	35,473				29,860
Current deferred tax	7,039				7,039
Total current assets	978,751				580,439
Property and equipment, net of accumulated depreciation    of $380,407 at September 29, 2007 and $344,433    at March 31, 2007	380,615				373,455
Goodwill (Note 7)	109,727				114,897
Intangible assets	6,211				8,486
Long-term investments	1,145				617
Other non-current assets (Note 6)	39,562				11,740
Total assets	$		1,516,011		$		1,089,634
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	69,558			$	61,203
Accrued liabilities	32,943				47,726
Other current liabilities	4,363				4,287
Total current liabilities	106,864				113,216
Long-term debt, net of unamortized discount of $9,799 at September 29, 2007 and $2,579 at March 31, 2007 (Note 5)	617,419				245,709
Other long-term liabilities	11,144				11,042
Total liabilities	735,427				369,967
Shareholders' equity:
Preferred stock, no par value; 5,000 shares authorized; no shares issued and outstanding	-				-
Common stock, no par value; 500,000 shares authorized;  195,354 and 194,151 shares issued and outstanding at  September 29, 2007 and March 31, 2007, respectively	483,621				480,135
Additional paid-in capital	129,821				114,270
Accumulated other comprehensive income, net of tax (Note 4)	1,122				379
Retained earnings	166,020				124,883
Total shareholders' equity	780,584				719,667
Total liabilities and shareholders' equity	$	1,516,011			$	1,089,634

See accompanying Notes to Condensed Consolidated Financial Statements.

3

RF MICRO DEVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 (In thousands, except per share data)
(Unaudited)

	Three Months Ended
	September 29, 2007					September 30, 2006
Revenue	$				255,845	$				246,919
Operating costs and expenses:
Cost of goods sold	173,580					160,778
Research and development	48,812					46,473
Marketing and selling	12,912					14,480
General and administrative	10,829					12,141
Other operating expense	1,610					32
Total operating costs and expenses	247,743					233,904
Income from operations	8,102					13,015
Interest expense	(2,610)					(1,145)
Interest income	9,250					2,079
Gain (loss) on investment	160					(33,865)
Other income	572					478
Income (loss) before income taxes	15,474					(19,438)
Income tax expense (Note 6)	(1,012)					(539)
Net income (loss)	$			14,462		$			(19,977)
Net income (loss) per share (Note 2):
Basic	$		0.07			$		(0.10)
Diluted	$	0.07				$	(0.10)
Shares used in per share calculation:
Basic	194,666					191,670
Diluted	227,431					191,670

See accompanying Notes to Condensed Consolidated Financial Statements.

4

RF MICRO DEVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 (In thousands, except per share data)
(Unaudited)

	Six Months Ended
	September 29, 2007					September 30, 2006
Revenue	$				467,444	$				485,254
Operating costs and expenses:
Cost of goods sold	318,481					319,457
Research and development	96,500					90,359
Marketing and selling	25,142					27,890
General and administrative	18,605					20,403
Other operating expense	2,369					98
Total operating costs and expenses	461,097					458,207
Income from operations	6,347					27,047
Interest expense	(4,986)					(2,193)
Interest income	17,799					3,898
Impairment of investment	(511)					(33,865)
Other income	1,140					659
Income (loss) before income taxes	19,789					(4,454)
Income tax benefit (expense)   (Note 6)	18,275					(1,588)
Net income (loss)	$			38,064		$			(6,042)
Net income (loss) per share (Note 2):
Basic	$		0.20			$		(0.03)
Diluted	$	0.17				$	(0.03)
Shares used in per share calculation:
Basic	194,443					191,345
Diluted	227,466					191,345

See accompanying Notes to Condensed Consolidated Financial Statements.

5

RF MICRO DEVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

	Six Months Ended
	September 29, 2007		September 30, 2006
Cash flows from operating activities:
Net income (loss)	$	38,064	$	(6,042)
Adjustments to reconcile net income (loss) to net cash           provided by operating activities:
Depreciation	38,616		34,312
Amortization	1,881		1,370
Investment (discount) premium amortization, net	(4,848)		28
Excess tax benefit from exercises of stock options	(5,229)		-
Deferred income taxes	(23,368)		797
Foreign currency adjustments	(1,224)		(487)
Loss on investment	511		33,865
Loss on disposal of assets, net	137		80
Share-based compensation expense	9,958		14,754
Changes in operating assets and liabilities:
Accounts receivable, net	(1,362)		(17,528)
Inventories	(8,134)		(5,665)
Prepaid expense and other current and non-current assets	1,914		(9,404)
Accounts payable and accrued liabilities	(5,052)		9,270
Other liabilities	2,174		74
Net cash provided by operating activities	44,038		55,424
Investing activities:
Purchase of property and equipment	(45,906)		(70,267)
Proceeds from sale of property and equipment	144		146
Proceeds from maturities of securities available-for-sale	137,126		29,795
Purchase of securities available-for-sale	(414,481)		(49,566)
Net cash used in investing activities	(323,117)		(89,892)
Financing activities:
Proceeds from convertible subordinated debt offering,                   net of discount of $8,250 and debt issuance costs                   of $587	366,163		-
Proceeds from bank loans	5,954		24,750
Payment of debt	(2,036)		(927)
Excess tax benefit from exercises of stock options	5,229		-
Proceeds from exercise of stock options, warrants and                   employee stock purchases	3,486		8,794
Net cash provided by financing activities	378,796		32,617
Net increase (decrease) in cash and cash equivalents	99,717		(1,851)
Effect of exchange rate changes on cash	441		146
Cash and cash equivalents at the beginning of the period	229,034		81,588
Cash and cash equivalents at the end of the period	$	329,192	$	79,883

       See accompanying Notes to Condensed Consolidated Financial Statements.

6

RF MICRO DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.          BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The accompanying condensed consolidated financial statements of RF Micro Devices, Inc. and Subsidiaries (together, the Company) have been prepared in conformity with accounting principles generally accepted in the United States.  The preparation of these financial statements requires management to make estimates and assumptions, which could differ materially from actual results.  In addition, certain information or footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed, or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).  In the opinion of management, the financial statements include all adjustments (which are of a normal and recurring nature) necessary for the fair presentation of the results of the interim periods presented.  These condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2007.

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.  All significant intercompany accounts and transactions have been eliminated in consolidation.  The Company reports information as one operating segment.   

The Company uses a 52- or 53-week fiscal year ending on the Saturday closest to March 31 of each year.  The first fiscal quarter of each year ends on the Saturday closest to June 30, the second fiscal quarter of each year ends on the Saturday closest to September 30 and the third fiscal quarter of each year ends on the Saturday closest to December 31.

Share-Based Compensation

The fair value of each option award is estimated on the date of grant using a Black-Scholes option-pricing model that uses the assumptions noted in the following table:

	Three Months Ended
	September 29, 2007		September 30, 2006
Expected volatility	50.55%		53.51%
Expected dividend yield	0.00%		0.00%
Expected term (in years)	5.17		5.02
Risk-free interest rate	4.64%		4.90%
Weighted-average grant-date fair value of      options granted during the period	$	2.94	$	2.98

7

RF MICRO DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

2.          NET INCOME (LOSS) PER SHARE

The following table sets forth a reconciliation of the numerators and denominators in the computation of basic and diluted net income (loss) per share (in thousands, except per share data):
 

	Three Months Ended				Six Months Ended
	September 29, 2007		September 30, 2006		September 29, 2007		September 30, 2006
Numerator for basic and diluted net      income (loss) per share:
Net income (loss) available to common         shareholders	$	14,462	$	(19,977)	$	38,064	$	(6,042)
Plus:  Income impact of assumed conversions             for interest on 1.50% convertible notes	669		-		1,338		-
Net income (loss) plus assumed conversion of        notes - Numerator for diluted net income        (loss) per share	$	15,131	$	(19,977)	$	39,402	$	(6,042)
Denominator:
Denominator for basic net income (loss) per        share - weighted average shares	194,666		191,670		194,443		191,345
Effect of dilutive securities:
Employee stock options	2,621		-		2,879		-
Assumed conversion 1.50% convertible notes	30,144		-		30,144		-
Denominator for diluted net income (loss) per        share - adjusted weighted average shares        and assumed conversions	227,431		191,670		227,466		191,345
Basic net income (loss) per share	$	0.07	$	(0.10)	$	0.20	$		(0.03)
Diluted net income (loss) per share	$	0.07	$	(0.10)	$	0.17	$		(0.03)

In the computation of diluted net income per share for the three and six months ended September 29, 2007, outstanding stock options to purchase approximately 5.6 million were excluded because the exercise price of the options was greater than the average market price of the underlying common stock and the effect of their inclusion would have been anti-dilutive.  In the computation of diluted net loss per share for the three and six months ended September 30, 2006, all outstanding stock options were excluded because the effect of their inclusion would have been anti-dilutive.

The computation of diluted net income per share assumed the conversion of the Company's 1.50% convertible subordinated notes due 2010 for both the three and six months ended September 29, 2007.  The computation of diluted net loss per share did not assume the conversion of the Company's 1.50% convertible subordinated notes due 2010 for the three and six months ended September 30, 2006 because the inclusion would have been anti-dilutive.  The 1.50% notes are convertible at a price of $7.63 per share, and the closing price of the Company's common stock on the assumed date that it committed to sell the notes was $5.78.

The computation of diluted net income per share does not assume the conversion of the Company's 0.75% or 1.00% convertible subordinated notes due 2012 and 2014, respectively.  Upon conversion of each $1,000 principal amount of the two series of notes, a holder will receive in lieu of common stock, an amount in cash equal to the lesser of (1) $1,000 or (2) the conversion value.  If the conversion value exceeds $1,000 on the conversion date, the Company, at its election, will settle the value in excess of $1,000 in cash or common stock.  In accordance with Emerging Issues Task Force No. 90-19 (EITF 90- 19), "Convertible Bonds with Issuer Option to Settle for Cash upon Conversion," the Company will  use the treasury stock method to account for the conversion value in excess of the $1,000 principal amount as the conversion becomes applicable.  Pursuant to the applicable indentures governing the two series of notes, the conversion value generally is determined by multiplying (i) the applicable conversion rate, which is currently 124.2969, by (ii) the average market price of the Company's common stock for the ten consecutive

8

RF MICRO DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

2.          NET INCOME (LOSS) PER SHARE (continued)

trading days preceding the date of determination.  The two series of notes generally would become dilutive to earnings if the average market price of the Company's common stock exceeds approximately $8.05 per share.

3.        INVENTORIES

Inventories are stated at the lower of cost or market determined using the average cost method.  The components of inventories are as follows (in thousands):

	September  29,  2007		March 31, 2007
Raw materials	$	39,587	$	24,996
Work in process	53,603		44,429
Finished goods	43,108		58,942
	136,298		128,367
Inventory reserve	(14,825)		(15,392)
Total inventories	$	121,473	$	112,975

 
4.        OTHER COMPREHENSIVE INCOME (LOSS)

Accumulated other comprehensive income (loss) for the Company consists of accumulated unrealized gains (losses) on marketable securities and foreign currency translation adjustments.  This amount is included as a separate component of shareholders' equity.  The components of comprehensive income (loss), net of tax, are as follows for the periods presented (in thousands):

	Three Months Ended				Six Months Ended
	September 29, 2007		September 30, 2006		September 29, 2007		September 30, 2006
Net income (loss)	$	14,462	$	(19,977)	$	38,064	$	(6,042)
Unrealized gain (loss) on      marketable securities	536		(124)		578		167
Foreign currency translation      gain (loss)	79		(41)		165		100
Comprehensive income (loss)	$	15,077	$	(20,142)	$	38,807	$	(5,775)

5.        DEBT

Debt at September 29, 2007 and March 31, 2007 is as follows (in thousands):

	September 29, 2007			March 31, 2007
Convertible subordinated notes due 2010,           net of discount	$	227,961		$	227,596
Convertible subordinated notes due 2012,           net of discount	196,013			-
Convertible subordinated notes due 2014,           net of discount	171,366			-
Bank loan	6,128			-
Equipment term loan, net of discount	20,264			22,264
Subtotal	621,732			249,860
Less current portion of equipment term loan	4,313			4,151
Total long-term debt	$		617,419	$		245,709

9

RF MICRO DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

5.        DEBT (continued)

In April 2007, the Company issued $200 million aggregate principal amount of 0.75% Convertible Subordinated Notes due 2012 and $175 million aggregate principal amount of 1.00% Convertible Subordinated Notes due 2014.  The two series of notes were issued in a private placement to Merrill Lynch, Pierce, Fenner & Smith Incorporated for resale to qualified institutional buyers.  To date, offering expenses in connection with the issuance of the notes, including discounts and commissions, are approximately $8.8 million, which are being amortized as interest expense over the term of the two series of notes based on the effective interest method. 

Interest on both series of the notes is payable in cash semiannually in arrears on April 15 and October 15 of each year, beginning October 15, 2007.  The 2012 notes mature on April 15, 2012, and the 2014 notes mature on April 15, 2014.  Both series of the notes are subordinated unsecured obligations of the Company and rank junior in right of payment to all of the Company's existing and future senior debt.  The notes effectively are subordinated to the indebtedness and other liabilities of the Company's subsidiaries. 

Holders may convert either series of notes based on the applicable conversion rate, which is currently 124.2969 shares of the Company's common stock per $1,000 principal amount of the notes (which is equal to an initial conversion price of approximately $8.05 per share), subject to adjustment, only under the following circumstances: (1) during any calendar quarter after June 30, 2007, if, as of the last day of the immediately preceding calendar quarter, the closing price of the Company's common stock for at least 20 trading days in the 30 consecutive trading day period ending on the last trading day of such preceding calendar quarter is more than 120% of the applicable conversion rate per share; (2) if during any five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of notes for each day of that period is less than 98% of the product of the closing price of the Company's common stock for each day in the period and the applicable conversion rate per $1,000 principal amount of notes; (3) if certain specified distributions to all holders of the Company's common stock occur; (4) if a fundamental change occurs; or (5) at any time during the 30-day period immediately preceding the final maturity date of the applicable notes. Upon conversion, in lieu of shares of the Company's common stock, for each $1,000 principal amount of notes, a holder will receive an amount in cash equal to the lesser of (i) $1,000 or (ii) the conversion value, as determined under the applicable indentures governing the notes.  If the conversion value exceeds $1,000, the Company also will deliver, at its election, cash or common stock or a combination of cash and common stock equivalent to the amount of the conversion value in excess of $1,000.  The maximum number of shares issuable upon conversion of these notes is approximately 36.2 million shares, which may be adjusted as a result of stock splits, stock dividends and antidilution provisions.

Holders of the notes who convert their notes in connection with a fundamental change, as defined in the indentures, may be entitled to a make whole premium in the form of an increase in the conversion rate applicable to their notes. In addition, in the event of a fundamental change, holders of the notes may require the Company to purchase for cash all or a portion of their notes, subject to specified exceptions, at a price equal to 100% of the principal amount of the notes plus accrued and unpaid interest, if any, up to, but not including, the fundamental change purchase date.

Holders of the notes are entitled to the benefits of a Registration Rights Agreement, dated as of April 4, 2007, between the Company and Merrill Lynch.  Pursuant to the Registration Rights Agreement, the Company filed a shelf registration statement with the Securities and Exchange Commission on July 3, 2007, covering resales of the notes and the common stock issuable upon conversion of the notes.  The shelf registration statement was automatically effective upon filing.  The Company has agreed to keep the shelf registration statement effective until the earlier of (1) the sale pursuant to the shelf registration statement of the notes and all of the shares of common stock issuable upon conversion of the notes; (2) the date when the holders are able to sell all such securities immediately pursuant to Rule 144(k) promulgated under the Act; and (3) the date that is two years from the original issuance of the notes.

During the first quarter of fiscal 2008, the Company entered into a $6.0 million loan with a bank in Beijing, China, which is payable in April 2012.  The proceeds are being used for the expansion of the Company's internal assembly facility.  Interest is calculated at 95% of the People's Bank of China benchmark interest rate at the end of each month and is payable on the twentieth day of the last month of each quarter (effective as of September 15, 2007, the People's Bank of China benchmark interest rate for a three to five year loan was 7.65%).  The Company has received a cash incentive from the Beijing Municipal

10

RF MICRO DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


5.        DEBT (continued)

Bureau of Industrial Development in support of the expansion of its China facility.  This incentive will offset the amount of monthly interest expense for the first two years of the loan.

The Company's 1.50% convertible subordinated notes had a fair value of $237.8 million as of September 28, 2007 (which was the last day of trading activity during the second quarter of fiscal 2008) on the Private Offerings, Resale and Trading Through Automated Linkages (PORTAL) Market.  The Company's 0.75% and the 1.00% convertible subordinated notes had a fair value of $204.0 million and $172.5 million, respectively, as of September 28, 2007.

6.        INCOME TAXES

Income Tax Expense
Income tax expense for the three months ended September 29, 2007 was $1.0 million, which is comprised primarily of a tax benefit of $2.3 million related to an increase resulting from the revaluation of the China deferred tax assets due to enacted tax law changes in China and a $3.3 million tax expense related to income taxes on international and domestic operations.  Income tax expense for the three months ended September 30, 2006 was $0.5 million, primarily representing foreign income taxes on international operations and the recognition of certain acquired tax benefits.  Income tax benefit for the six months ended September 29, 2007 was $18.3 million, which is comprised primarily of a tax benefit of $20.7 million related to a reduction in the federal and state deferred tax asset valuation reserve, a $2.3 million benefit from the revaluation of China related deferred tax assets, a $0.7 million tax expense related to an Internal Revenue Service examination, and a $4.0 million tax expense related to income taxes on international and domestic operations.  The income tax expense for the six months ended September 30, 2006 was $1.6 million, primarily representing foreign income taxes on international operations and the recognition of certain acquired tax benefits.  The Company's overall tax rate for the second quarter of fiscal 2008 differed from the statutory rate due to tax credits, tax rate differences on foreign transactions, the domestic production activity deduction, adjustments to the valuation allowance primarily related to limiting the recognition of the tax benefit for domestic state tax credits generated during the fiscal year, and other differences between book and tax treatment of certain expenditures.  The Company's overall tax rate for the second quarter of fiscal 2007 differed from the statutory rate due to adjustments to the valuation allowance, which consisted primarily of the non-recognition of the U.S. tax benefits on the domestic net operating losses, tax credits, tax rate differences on foreign transactions, and other differences between book and tax treatment of certain expenditures.

The annual effective tax rate is currently estimated to be 19.6% for fiscal year 2008, compared to 3.5% for fiscal year 2007.  The increase in the annual effective tax rate between fiscal years 2007 and 2008 is primarily due to a decrease in federal and state tax credits generated, the expiration of the extraterritorial income exclusion benefit, an increase in the China income tax rate effective January 1, 2008, and a reduction in the realization of tax credit and net operating loss carryforwards.  The Company's annual effective tax rate for fiscal 2008 differs from the statutory rate primarily due to research and development tax credits, state tax credits, the domestic production activity deduction and the tax impact of foreign operations.  The Company's overall tax rate for the first quarter of fiscal 2007 differed from the statutory rate due to adjustments to the valuation allowance, which consisted primarily of the partial recognition of the U.S. tax benefits on the domestic net operating losses, tax credits, rate differences on foreign transactions, the extraterritorial income exclusion benefit and other differences between book and tax treatment of certain expenditures.  The estimated annual effective tax rate of 19.6% is higher than the annual effective tax rate of 15.4% estimated in the first quarter.  The higher expected rate in the second quarter of fiscal year 2008 is primarily due to an increase in the expected income tax expense on international operations.

Deferred Taxes

In accordance with the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes" (SFAS 109), a valuation allowance of $8.2 million against deferred tax assets has been established as of the end of the second quarter of fiscal 2008 because it is management's opinion that it is more likely than not that a portion of the deferred tax assets will not be realized.  The increase from the $7.8 million valuation allowance as of the end of the first quarter of fiscal year 2008 is primarily related to state income tax credits generated during the current year.  The valuation allowance against the deferred tax assets of the Company was reduced by $43.6 million during the first quarter of fiscal year 2008.  Based on the Company's evaluation of the realizability in future years of its deferred tax assets,

11

RF MICRO DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

6.          INCOME TAXES (continued)

$31.6 million of the valuation allowance was reversed.  The amount reversed consisted of $20.7 million recognized as an income tax benefit, $4.8 million reversed against equity related to the tax benefit of employee stock options, and $6.1 million reversed against goodwill and intangible assets related to the tax benefit of net operating losses, credits and deductions  acquired through prior business acquisitions.  In addition, $0.9 million was recorded in connection with state credit deferred tax assets recognized in connection with a prior acquisition and $12.9 million was reversed in connection with the adoption of FASB Interpretation No. 48 (FIN 48), "Accounting for Uncertainty in Income Taxes-an Interpretation of FASB statement No. 109."

During the first quarter of fiscal 2008, the Company agreed to proposed adjustments of $1.8 million related to the examination of its fiscal year 2005 U.S. federal income tax return.  These proposed adjustments reduced existing net operating loss carryovers and the related deferred tax assets. 

At September 29, 2007, the Company had outstanding net operating loss carryforwards (NOLs) for federal domestic tax purposes of approximately $16.0 million, which will begin to expire in 2013, if unused.  Included in these amounts are certain NOLs and other tax attribute assets acquired in conjunction with the Company's acquisitions of Resonext Communications, Inc. and Silicon Wave, Inc.  The utilization of acquired assets may be subject to certain annual limitations as required under Code Section 382. 

Uncertain Tax Positions

The Company adopted the provisions of FIN 48 on April 1, 2007.  As a result of adoption, the Company recognized a cumulative effect adjustment of approximately $3.1 million as an increase to retained earnings as of April 1, 2007.  As of the date of adoption, the Company's gross unrecognized tax benefits totaled $15.3 million.  Included in this amount is $10.9 million (net of federal benefit of state taxes), which represents the amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate.  Included in the balance of unrecognized tax benefits at April 1, 2007 is $0.6 million related to tax positions for which it is reasonably possible that the total amounts could significantly change in the next twelve months.  This amount represents a decrease in unrecognized tax benefits related to the expiration of a statute of limitations period.  There were no significant changes to the unrecognized tax benefit during the fiscal quarter ended September 29, 2007.

The Company's policy is to recognize accrued interest and penalties, if incurred, on any unrecognized tax benefits as a component of income tax expense.  As of the date of adoption of FIN 48, the Company had $0.1 million of accrued interest and no accrued penalties associated with any unrecognized tax benefits.  There was less than $0.1 million of interest accrued on unrecognized tax benefits during the fiscal quarter ended September 29, 2007 and approximately $0.1 of interest accrued for the six month period ended September 29, 2007.

Fiscal year 2004 and subsequent tax years remain open for examination by the U.S federal taxing authorities.  Other material jurisdictions that are subject to examination by tax authorities are North Carolina (fiscal year 2004 through fiscal year 2007), California (fiscal year 2003 through fiscal year 2007) and China (calendar year 2001 through calendar year 2006).

7.          GOODWILL AND INTANGIBLE ASSETS

The change in the carrying amount of goodwill for the six months ended September 29, 2007 is as follows (in thousands):

Balance as of March 31, 2007	$	114,897
Adjustments during the period	(5,170)
Balance as of September 29, 2007	$	109,727

The reduction to goodwill for the six months ended September 29, 2007 is related to the recognition of a portion of the deferred tax assets for which no benefit was previously recognized for businesses acquired.  As of September 29, 2007, there is no remaining portion of the valuation allowance for these pre-acquisition deferred tax assets for which subsequently recognized tax benefits may be applied to reduce goodwill.

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RF MICRO DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

7.          GOODWILL AND INTANGIBLE ASSETS (continued)

The components of identifiable intangible assets are as follows (in thousands):

	September 29, 2007				March 31, 2007
	Gross Carrying		Accumulated		Gross Carrying		Accumulated
	Amount		Amortization		Amount		Amortization
Technology licenses	$	12,625	$	7,193	$	12,625	$	6,697
Acquired product technology and other	5,654		4,875		7,142		4,584
Total	$	18,279	$	12,068	$	19,767	$	11,281

The reduction to acquired product technology for the six months ended September 29, 2007 is related to the recognition of a portion of the deferred tax assets for which no benefit was previously recognized in connection with deferred tax liabilities from prior business acquisitions.

8.          NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" (SFAS 157).  SFAS 157 establishes a common definition for fair value to be applied to U.S. GAAP guidance requiring use of fair value, establishes a framework for measuring fair value and expands disclosure about such fair value measurements.  SFAS 157 is effective for fiscal years beginning after November 15, 2007.  The Company is currently assessing the impact of SFAS 157 on its consolidated financial position and results of operations.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" (SFAS 159).  SFAS 159 permits companies to choose to measure certain financial instruments and certain other items at fair value.  The standard requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings.  SFAS 159 will become effective for the Company beginning in the first quarter of fiscal year 2009.  The Company is currently evaluating the impact that SFAS 159 will have on its consolidated financial statements.

In August 2007, the FASB issued for comment proposed FASB Staff Position ("FSP") No. APB 14-a, "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)" ("FSP APB 14-a").  The proposed FSP would require the issuer of convertible debt instruments with cash settlement features to separately account for the liability and equity components of the instrument.  The debt would be recognized at the present value of its cash flows discounted using the issuer's nonconvertible debt borrowing rate.  The equity component would be recognized as the difference between the proceeds from the issuance of the note and the fair value of the liability.  The proposed FSP would also require an accretion of the resultant debt discount over the expected life of the debt.  The proposed transition guidance requires retrospective application to all periods presented, and does not grandfather existing instruments.  The comment deadline for the proposed FSP was October 15, 2007 and if issued, the proposed FSP would be effective for us on the first day of fiscal 2009.  If the FSP is issued as proposed, our non-cash interest expense recognized in our consolidated financial statements could increase.

9.          ACCOUNTING CHANGES

In June 2006, the FASB issued FIN 48, "Accounting for Uncertainty in Income Taxes", which is an interpretation of SFAS 109, "Accounting for Income Taxes."  This interpretation prescribes a minimum recognition threshold that an income tax position is required to meet before being recognized in the financial statements.  FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition.  During the first quarter of fiscal 2008, the Company adopted FIN 48 by recording a cumulative effect increase of $3.1 million to retained earnings at the beginning of fiscal 2008 in accordance with the provisions of FIN 48.  See "Note 6 - Income Taxes" for further discussion.

13

RF MICRO DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

10.        PENDING ACQUISITION

On August 12, 2007, the board of directors of each of the Company and Sirenza Mircrodevices, Inc. ("Sirenza") unanimously approved an Agreement and Plan of Merger and Reorganization dated as of August 12, 2007 among the Company, Iceman Acquisition Sub, Inc., a Delaware corporation and a wholly owned subsidiary of the Company ("Iceman"), and Sirenza, which contemplates the acquisition by the Company of Sirenza through (a) a merger of Iceman with and into Sirenza, and (b) the subsequent merger of Sirenza with and into the Company.  If the mergers are completed, holders of Sirenza common stock will receive, in exchange for each share of Sirenza common stock they own, a combination of cash in the amount of $5.56 and 1.7848 shares of the Company's common stock (with cash substituted for any fractional shares).  The stock component of the merger consideration is a fixed exchange ratio that will not be adjusted for changes in the stock price of either the Company or Sirenza before the mergers are completed.  On October 1, 2007, the last trading day before the date of the filing of the joint proxy statement/prospectus included in the Company's Registration Statement on Form S-4, the closing price of the Company's common stock was $6.82 per share, and the closing price of Sirenza common stock was $17.51 per share.  

On October 29, 2007, at the Company's special meeting of shareholders, (a) the issuance of shares of the Company's common stock to the stockholders of Sirenza was approved, and (b) an increase in the maximum size of the Company's board of directors from nine members to 11 members (so as to permit the appointment to the Company's board of directors of two existing members of the Sirenza board of directors) was approved by the Company's shareholders.  At Sirenza's special meeting of stockholders, also held on October 29, 2007, Sirenza's stockholders approved the adoption of the merger agreement.

The acquisition is expected to close during the Company's third fiscal quarter.  The acquisition would be accounted for in accordance with Statement of Financial Accounting Standards No. 141, "Business Combinations."  The discussions in this report relate to the Company as a stand-alone entity and do not reflect the impact of the pending acquisition of Sirenza.

11.        OTHER

During fiscal 2007, the Company received notification from a customer with respect to the failure in the field of one of the Company's infrastructure products due to an alleged defect in the product.  The Company is currently in the process of conducting standard failure analysis procedures to determine the root cause of the field failures and is working with the customer to determine the extent of any potential costs associated with these field failures.  Accordingly, the Company cannot reasonably estimate the amount of its potential exposure for this matter.

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

SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that relate to our plans, objectives, estimates and goals.  Statements expressing expectations regarding our future and projections relating to products, sales, revenues and earnings are typical of such statements and are made under the Private Securities Litigation Reform Act of 1995.  Words such as "expect," "anticipate," "intend," "plan," "believe," and "estimate," and variations of such words and similar expressions, identify such forward-looking statements.  Our business is subject to numerous risks and uncertainties, including the following:

•         The rate of growth and development of wireless markets;

•         The risks associated with the operation of our molecular beam epitaxy (MBE) facility, our wafer fabrication
     facilities, our assembly facility and our test and tape and reel facilities;

•         Our ability to attract and retain skilled personnel and develop leaders for key business units and functions;

•         Dependence on third parties, including wafer foundries, passive component manufacturers, assembly and
     packaging suppliers and test and tape and reel suppliers;

•         Our reliance on inclusion in third party reference designs for a portion of our revenue;

•         Variability in operating results;

•         Variability in production yields, raw material costs and availability;

•         Dependence on a limited number of customers for a substantial portion of our revenues;

•         Dependence on gallium arsenide (GaAs) heterojunction bipolar transistor (HBT) for the majority of
     our products;

•         Our ability to reduce costs and improve margins by implementing innovative technologies in response
     to declining average selling prices;

•         Our ability to adjust production capacity in a timely fashion in response to changes in demand for
     our products;

•         Our ability to bring new products to market in response to market shifts and to use technological innovation
     to shorten time-to-market for our products;

•         Currency fluctuations, tariffs, trade barriers, taxes and export license requirements and health and security
     issues associated with our foreign operations;

•         Our ability to complete acquisitions and integrate acquired companies, including the risk that we may not
     realize expected synergies from our business combinations;

•         Our ability to obtain patents, trademarks and copyrights, maintain trade secret protection and operate our
     business without infringing on the proprietary rights of other parties; and

•         Our ability to comply with changes in environmental laws.

These and other risks and uncertainties, which are described in more detail in our most recent Annual Report on Form 10‑K and other reports filed with the Securities and Exchange Commission, including our Registration Statement on Form S-4/A filed with the SEC on October 2, 2007, could cause the actual results and developments to be materially different from those expressed or implied by any of these forward-looking statements.  Forward-looking statements speak only as of the date they were made and we undertake no obligation to update or revise such statements, except as required by the federal securities laws.

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OVERVIEW

The following Management's Discussion and Analysis (MD&A) is intended to help the reader understand the results of operations and financial condition of RF Micro Devices, Inc.  MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and accompanying notes.

We are a global leader in the design and manufacture of high-performance radio systems and solutions for applications that drive mobile communications.  Our PAs, transmit modules, cellular transceivers, transceiver modules and various other system-in-package (SiP) and system-on-chip (SoC) solutions enable worldwide mobility, provide enhanced connectivity and support advanced functionality in current- and next-generation mobile handsets, cellular base stations, wireless local area networks (WLANs) and global positioning systems (GPS).  Our diverse portfolio of state-of-the-art semiconductor technologies and vast radio frequency (RF) systems expertise position us as a preferred supplier to the world's leading mobile device manufacturers, facilitating their delivery of advanced wireless capabilities that satisfy current and future market demands.

We design and manufacture products using all the major applicable semiconductor process technologies available today.  We have access to these technologies through internal and external resources.  Our approach to using multiple semiconductor process technologies allows us to offer customers products that optimize trade-offs between performance and cost while fulfilling their performance, cost and time-to-market requirements.  We call this approach Optimum Technology Matching®. 

Critical Accounting Policies and Estimates

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2007.

SECOND QUARTER FISCAL 2008 FINANCIAL AND OPERATIONAL HIGHLIGHTS:

• Quarterly revenue increased by 3.6% as compared to the corresponding quarter of fiscal 2007, primarily due to increased sales of our transmit modules.  In addition, in WLAN we increased shipments of 802.11 b/g front ends for handsets and consumer electronics and commenced shipments of 802.11n front ends for laptops and access points.

• Gross margin for the quarter was 32.2% as compared to 34.9% in the corresponding quarter of fiscal 2007.  This decrease primarily resulted from average selling price ("ASP") erosion, a shift in product mix and continued reliance on outsourced pHEMT.

• Inventory totaled $121.5 million at September 29, 2007, reflecting 5.7 turns as compared to $121.4 million and 5.3 turns at September 30, 2006.  The improvement in inventory turns is primarily due to cycle time improvements.

• Our days sales outstanding (DSO) improved to 36.7 days at September 29, 2007 from 48.6 days at September 30, 2006.

• Cash flow from operations was $39.4 million for the quarter as compared to $30.3 million in the corresponding quarter of fiscal 2007.

• We signed a definitive merger agreement with Sirenza Microdevices, Inc. in August 2007.  This transaction is expected to be completed in our third fiscal quarter of 2008.

• We announced plans to build a third fabrication facility, which will enable us to capture a greater percentage of the anticipated growth in the cellular handset market while also reducing manufacturing costs and driving continued improvement in operating profitability.

• In GPS, we achieved a technology milestone by demonstrating interoperability with a customer's handset system platform.

We are expecting continued growth in shipments of WCDMA, EDGE and WLAN front ends.  We also recently commenced volume shipments of our POLARIS™ 3 RF system solution to a leading handset manufacturer.

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During the second quarter of fiscal 2008, we announced the expansion of our Beijing, China facility, which is expected to approximately double our assembly capabilities related to our module capacity by the end of calendar year 2007.  Our test capabilities will also be expanded.  In addition, new advanced capabilities added in our Beijing facility will include flip chip packaging technology and our internal RF shielding technology. 

We plan to continue to increase our total addressable market by expanding our product portfolio for handsets and selectively developing and selling products for additional RF markets that leverage our competitive strengths and core RF expertise.

PENDING ACQUISITION

On August 12, 2007, our board of directors and Sirenza's board of directors unanimously approved an Agreement and Plan of Merger and Reorganization, dated as of August 12, 2007, among RFMD, Iceman Acquisition Sub, Inc., and Sirenza, which contemplates the acquisition by us of Sirenza through (a) a merger of Iceman with and into Sirenza, and (b) the subsequent merger of Sirenza with and into RFMD.  If the mergers are completed, holders of Sirenza common stock will receive, in exchange for each share of Sirenza common stock they own, a combination of cash in the amount of $5.56 and 1.7848 shares of our common stock (with cash substituted for any fractional shares).  The stock component of the merger consideration is a fixed exchange ratio that will not be adjusted for changes in the stock price of either RFMD or Sirenza before the mergers are completed.  On October 1, 2007, the last trading day before the date of the filing of the joint proxy statement/prospectus included in our Registration Statement on Form S-4, the closing price of our common stock was $6.82 per share, and the closing price of Sirenza common stock was $17.51 per share.  

On October 29, 2007, at our special meeting of shareholders, (a) the issuance of shares of our common stock to the stockholders of Sirenza was approved, and (b) an increase in the maximum size of our board of directors from nine members to 11 members (so as to permit the appointment to our board of directors of two existing members of the Sirenza board of directors) was approved by our shareholders.  At Sirenza's special meeting of stockholders, also held on October 29, 2007, Sirenza's stockholders approved the adoption of the merger agreement.

The acquisition is expected to close during our third fiscal quarter.  The acquisition would be accounted for in accordance with Statement of Financial Accounting Standards No. 141, "Business Combinations."  The discussions in this report relate to RFMD as a stand-alone entity and do not reflect the impact of the pending acquisition of Sirenza.

REVENUE 

	Three Months Ended					Six Months Ended
(In thousands, except percentages)	September 29, 2007		September 30, 2006		Percentage Change	September 29, 2007		September 30, 2006		Percentage Change
Revenue	$	255,845	$	246,919	3.6%	$	467,444	$	485,254	(3.7)%

Our revenue for the three months ended September 29, 2007 increased primarily due to increased sales of our transmit modules.  In addition, in WLAN we increased shipments of 802.11 b/g front ends for handsets and consumer electronics and commenced shipments of 802.11n front ends for laptops and access points.  Our revenue for the six months ended September 29, 2007 decreased primarily due to lower demand from a significant customer during the first quarter of fiscal 2008.

International shipments (based on the "bill to" address of the customer) were $232.1 million and accounted for 90.7% of revenue for the three months ended September 29, 2007, compared to $225.9 million, or 91.5% of revenue, for the three months ended September 30, 2006.  For the six months ended September 29, 2007, international shipments were $421.2 million, or 90.1% of revenue, compared to $449.7 million, or 92.7% of revenue, for the six months ended September 30, 2006.

GROSS PROFIT

	Three Months Ended					Six Months Ended
(In thousands, except percentages)	September 29, 2007		September 30, 2006		Percentage Change	September 29, 2007		September 30, 2006		Percentage Change
Gross profit	$	82,265	$	86,141	(4.5)%	$	148,963	$	165,797	(10.2)%
As a percent of revenue		32.2%		34.9%	(2.7)ppt		31.9%		34.2%	(2.3)ppt

Our decrease in gross profit as a percent of revenue (gross margin) for the three and six months ended September 29, 2007 primarily resulted from ASP erosion, a shift in product mix and continued reliance on outsourced pHEMT.

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We expect to reduce our manufacturing costs during the remainder of fiscal 2008 by expanding our internal assembly, by expanding production of internally manufactured pHEMT switches, by improving our total yield across the supply chain and by the reduction in costs of externally sourced materials and services.

Our corporate ASP has decreased as selling prices for our products have decreased on a per function basis.  In addition, the following factors are expected to continue to impact our gross margins: (1) capacity utilization; (2) product test yields; (3) costs and quality of externally sourced materials and services; and (4) cost efficiencies of internally-sourced materials and services, including our assembly operation in Beijing, China.

RESEARCH AND DEVELOPMENT

	Three Months Ended					Six Months Ended
(In thousands, except percentages)	September 29, 2007		September 30, 2006		Percentage Change	September 29, 2007		September 30, 2006		Percentage Change
Research and    development	$	48,812	$	46,473	5.0%	$	96,500	$	90,359	6.8%
As a percent of revenue	19.1%		18.8%		0.3ppt	20.6%		18.6%		2.0ppt

The increase in research and development expenses for the three and six months ended September 29, 2007 was primarily attributable to our increase in headcount and related personnel expenses related to the continued growth in the development activities associated with our cellular solutions products.  These increases were partially offset by the decrease in expenses resulting from the sale of substantially all of our Bluetooth® assets during the third quarter of fiscal 2007.  In addition, our development of flip chip assembly, integrated RF shielding and micro-electro-mechanical systems (MEMS) contributed to increased expenses during the first six months of fiscal 2008.  We expect that research and development expenses will continue to increase in absolute dollars in future periods.

MARKETING AND SELLING  

	Three Months Ended					Six Months Ended
(In thousands, except percentages)	September 29, 2007		September 30, 2006		Percentage Change	September 29, 2007		September 30, 2006		Percentage Change
Marketing and selling	$	12,912	$	14,480	(10.8)%	$	25,142	$	27,890	(9.9)%
As a percent of revenue	5.0%		5.9%		(0.9)ppt	5.4%		5.7%		(0.3)ppt

The decrease in marketing and selling expenses for the three and six months ended September 29, 2007 was primarily due to a decrease in headcount and related personnel expenses resulting from the sale of substantially all of our Bluetooth® assets during the third quarter of fiscal 2007. 

GENERAL AND ADMINISTRATIVE

	Three Months Ended					Six Months Ended
(In thousands, except percentages)	September 29, 2007		September 30, 2006		Percentage Change	September 29, 2007		September 30, 2006		Percentage Change
General and administrative	$	10,829	$	12,141	(10.8)%	$	18,605	$	20,403	(8.8)%
As a percent of revenue	4.2%		4.9%		(0.7)ppt	4.0%		4.2%		(0.2)ppt

The decrease in general and administrative expenses for the three and six months ended September 29, 2007 was primarily due to a decrease in personnel expenses and share-based compensation expense.

OTHER OPERATING EXPENSE

	Three Months Ended					Six Months Ended
(In thousands, except percentages)	September 29, 2007		September 30, 2006		Percentage Change	September 29, 2007		September 30, 2006		Percentage Change
Other operating      expense (income)	$	1,610	$	32	4,992 %	$	2,369	$	98	2,311 %
As a percent of revenue	0.5%		0.0%		0.5ppt	0.5%		0.0%		0.5ppt

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In the third quarter of fiscal 2007, we sold substantially all of our assets related to our Bluetooth® product line.  As a result of this asset sale, we recognized restructuring expenses of $1.1 million and $1.4 million during the three and six months ended September 29, 2007, respectively, which are included in other operating expense in our consolidated financial statements.  The majority of the restructuring expenses incurred during the second quarter of fiscal 2008 related to recording the costs to terminate an operating lease in accordance with SFAS 146, "Accounting for Costs Associated with Exit or Disposal Activities."  In addition, we recorded start-up costs in accordance with SOP 98-5 of $0.5 million and $0.9 million during the three and six months ended September 29, 2007, respectively, related to the transition costs between research and development and commercial operations for the flip chip assembly and integrated RF shield manufacturing technologies.

OTHER (EXPENSE) INCOME AND INCOME TAXES

	Three Months Ended				Six Months Ended
	September 29, 2007		September 30, 2006		September 29, 2007		September 30, 2006
Interest expense	$	(2,610)	$	(1,145)	$	(4,986)	$	(2,193)
Interest income		9,250		2,079		17,799		3,898
Gain (loss) on investment		160		(33,865)		(511)		(33,865)
Other income		572		478		1,140		659
Income tax (expense) benefit		(1,012)		(539)		18,275		(1,588)

Interest Expense
Interest expenses for the three and six months ended September 29, 2007 increased as compared to the three and six months ended September 30, 2006.  During April 2007, we issued $200 million aggregate principal amount of 0.75% Convertible Subordinated Notes due 2012 and $175 million aggregate principal amount of 1.00% Convertible Subordinated Notes due 2014, and as a result, we recorded a total of $1.2 million and $2.2 million of interest expense for the three and six months ended September 29, 2007, respectively.  In addition, we recorded interest expense of $0.4 million and $0.9 million during the three and six months ended September 29, 2007, respectively, related to the $25.0 million equipment term loan on assets that we entered into on July 1, 2006.  In accordance with SFAS 34, "Capitalization of Interest Cost," we are required to capitalize a portion of our interest expense related to our $25.0 million equipment term loan on assets that are not ready for their intended use.  During the six months ended September 29, 2007, we capitalized interest of $0.2 million for these qualifying assets. 

Interest Income
The increase in interest income for the three and six months ended September 29, 2007 is due to the increase in cash, cash equivalents and investment balances that resulted from the April 2007 issuance of the two series of convertible subordinated notes.

Income Taxes
The income tax expense for the three months ended September 29, 2007 was $1.0 million, which is comprised primarily of a tax benefit of $2.3 million related to an increase resulting from the revaluation of the China deferred tax assets due to enacted tax law changes in China and a $3.3 million tax expense related to income taxes on international and domestic operations.  Income tax benefit for the six months ended September 29, 2007 was $18.3 million which is comprised primarily of a tax benefit of $20.7 million related to a reduction in the deferred tax asset valuation reserve, a $2.3 million benefit from the revaluation of China related deferred tax assets, a $0.7 million tax expense related to an Internal Revenue Service examination, and a $4.0 million tax expense related to income taxes on international and domestic operations.  Income tax expense for the three months ended September 30, 2006 was $0.5 million and for the six months ended September 30, 2006 was $1.6 million which for both periods primarily represented foreign income taxes on international operations and the recognition of certain acquired tax benefits. 

The annual effective tax rate is currently estimated to be 19.6% for fiscal year 2008, compared to 3.5% for fiscal year 2007.  The increase in the annual effective tax rate between fiscal years 2007 and 2008 is primarily due to a decrease in the amount of federal and state tax credits generated, an increase in the China income tax rate effective January 1, 2008, the expiration of the extraterritorial income exclusion benefit, and a reduction in the realization of tax credit and net operating loss carryforwards.  The reversal of the deferred tax asset valuation reserve is explained in Note 6 to the Condensed Consolidated Financial Statements.

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In July 2006, the FASB issued FIN 48.  FIN 48 clarifies the accounting for uncertainty in income taxes by prescribing a comprehensive model for recognizing, measuring, presenting and disclosing uncertain income tax positions taken or expected to be taken by us on our tax returns.  We adopted FIN 48 effective April 1, 2007. The approximately $3.1 million cumulative effects of applying FIN 48 have been recorded in accumulated retained earnings and are explained in Note 6 to the Condensed Consolidated Financial Statements.

SHARE-BASED COMPENSATION

On April 2, 2006 (the first day of our 2007 fiscal year), we adopted the provisions of the Financial Accounting Standards Board (FASB) revised Statement of Financial Accounting Standards No. 123 (SFAS 123(R)), "Share-Based Payment," using a modified prospective application.  Under SFAS 123(R), share-based compensation cost is measured at the grant date, based on the estimated fair value of the award using an option pricing model (Black-Scholes), and is recognized as expense over the employee's requisite service period. 

LIQUIDITY AND CAPITAL RESOURCES  

We have funded our operations to date through sales of equity and debt securities, bank borrowings, capital equipment leases and revenue from product sales.  Through public and Rule 144A securities offerings, we have raised approximately $1,053.4 million, net of offering expenses.  As of September 29, 2007, we had working capital of approximately $871.9 million, including $329.2 million in cash and cash equivalents, compared to working capital at September 30, 2006 of $335.6 million, including $79.9 million in cash and cash equivalents. 

Cash Flows from Operating Activities

Operating activities for the six months ended September 29, 2007 generated cash of $44.0 million, compared to generating cash of $55.4 million for the six months ended September 30, 2006. This decrease in cash provided by operating activities was primarily the result of a decrease in income from continuing operations. 

Cash Flows from Investing Activities

Net cash used in investing activities for the six months ended September 29, 2007 was $323.1 million compared to net cash used in investing activities of $89.9 million for the six months ended September 30, 2006, due primarily to higher investing activities related to the proceeds received from our convertible debt offering in April 2007.

Our capital expenditures totaled approximately $106.6 million during fiscal 2007.  During the first six months of fiscal 2008, capital expenditures totaled approximately $45.9 million.  During the second quarter of fiscal 2008, we announced our plans for the addition of a third fabrication facility, which we expect will be on line by the second half of fiscal 2009.  We currently expect to fund our remaining fiscal 2008 capital expenditures with cash on hand and cash flow from operations.

Cash Flows from Financing Activities

Net cash provided by financing activities was $378.8 million for the six months ended September 29, 2007, compared to $32.6 million for the six months ended September 30, 2006.  The increase in cash provided was primarily due to the private placement of convertible subordinated notes in April 2007.  We issued $200 million aggregate principal amount of 0.75% Convertible Subordinated Notes due 2012 and $175 million aggregate principal amount of 1.00% Convertible Subordinated Notes due 2014.  The two series of notes were issued in a private placement to Merrill Lynch, Pierce, Fenner & Smith Incorporated for resale to qualified institutional buyers.  The net proceeds of the offering were approximately $366.2 million after payment of the underwriting discount and expenses of the offering totaling approximately $8.8 million.

COMMITMENTS AND CONTINGENCIES

Equipment Term Loan  During the first quarter of fiscal 2007, we entered into a $25.0 million equipment term loan at an interest rate of 7.87%.  We used the proceeds primarily for wafer fabrication and assembly expansions.  As of September 29, 2007, the outstanding balance of this loan totaled approximately $20.3 million.

In connection with our equipment term loan, we must maintain, on a quarterly basis, a ratio of senior funded debt to EBITDA of not greater than 3.5 to 1.0, and unencumbered cash or cash-equivalent holdings of not less than $50.0 million.  Senior funded debt is defined as current- and long-term debt plus capital leases, and EBITDA is defined as (i) operating income under GAAP, plus (ii) depreciation and amortization expense, plus (iii) all non-cash expenses and losses, minus all non-cash income and gains. 

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Convertible Debt  During April 2007, we completed the private placement of $200 million aggregate principal amount of 0.75% Convertible Subordinated Notes due 2012 and $175 million aggregate principal amount of 1.00% Convertible Subordinated Notes due 2014.  The net proceeds of the offering were approximately $366.2 million after payment of the underwriting discount and expenses of the offering totaling approximately $8.8 million.  As of September 28, 2007, the 0.75% convertible notes and the 1.00% convertible notes had a fair value of $204.0 million and $172.5 million, respectively.

During fiscal 2004, we completed the private placement of $230.0 million aggregate principal amount of 1.50% convertible subordinated notes due 2010.  The net proceeds of the offering were approximately $224.7 million after payment of the underwriting discount and expenses of the offering totaling $5.3 million.  The net proceeds from the 1.50% offering were offset by the repurchase of $200.0 million of the $300.0 million aggregate principal amount of our 3.75% convertible subordinated notes due 2005.  On August 15, 2004, we redeemed the remainder of the outstanding principal amount of the 3.75% convertible subordinated notes for $100.0 million plus accrued interest with cash flow from operations and cash on hand.  As of September 28, 2007, the 1.50% convertible subordinated notes had a fair value of $237.8 million.

Capital Commitments  At September 29, 2007, we had short-term capital commitments of approximately $26.7 million, consisting of approximately $16.8 million for the expansion of our manufacturing capacity and the remainder for general corporate requirements. 

Future Sources of Funding  Our future capital requirements may differ materially from those currently anticipated and will depend on many factors, including, but not limited to, volume pricing concessions, capital improvements, demand for our products, technological advances and our relationships with suppliers and customers.  Based on current and projected levels of cash flow from operations, coupled with our April 2007 convertible note offering, our fiscal 2004 note offering and our $25.0 million equipment term loan, we believe that we have sufficient liquidity to meet both our short-term and long-term cash requirements.  However, if there is a significant decrease in demand for our products, or in the event that growth is faster than we had anticipated, operating cash flows may be insufficient to meet our needs.  If existing resources and cash from operations are not sufficient to meet our future requirements or if we perceive conditions to be favorable, we may seek additional debt or equity financing, additional credit facilities, enter into sale-leaseback transactions or obtain asset-based financing.  We maintain a $500.0 million shelf registration statement providing for the offering from time to time of debt securities, common stock, preferred stock, depositary shares, warrants and subscription rights.  We do not, however, currently have any plans to issue any securities under this registration statement.  We cannot be sure that any additional equity or debt financing will not be dilutive to holders of our common stock.  Further, we cannot be sure that additional equity or debt financing, if required, will be available on favorable terms, if at all. 

Legal  We are involved in various legal proceedings and claims that have arisen in the ordinary course of our business that have not been fully adjudicated.  These actions, when finally concluded and determined, will not, in the opinion of management, have a material adverse effect upon our consolidated financial position or results of operations. 

During fiscal 2007, we received notification from a customer with respect to the failure in the field of one of our infrastructure products due to an alleged defect in the product.  We are currently in the process of conducting standard failure analysis procedures to determine the root cause of the field failures and are working with the customer to determine the extent of any potential costs associated with these field failures.  Accordingly, we cannot reasonably estimate the amount of our potential exposure for this matter. 

Taxes  We are subject to income and other taxes in the U.S. and in numerous foreign jurisdictions.  Our domestic and foreign tax liabilities are subject to the allocation of revenues and expenses in different jurisdictions.  Additionally, the amount of taxes paid is subject to our interpretation of applicable tax laws in the jurisdictions in which we operate.  We are subject to audits by tax authorities.  While we endeavor to comply with all applicable tax laws, there can be no assurance that a governing tax authority will not have a different interpretation of the law than we do or that we will comply in all respects with applicable tax laws, which could result in additional taxes.  There can be no assurance that the outcomes from these audits will not have an adverse effect on our results of operations in the period during which the review is conducted.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk
Our interest rate risk relating to our short-term and long-term investments as well as our convertible debt has not changed significantly from the disclosure in Item 7A of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2007.

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Foreign Currency Risk
We have limited exposure to currency exchange fluctuations, as we manage the sensitivity of our international sales, purchases of raw materials and equipment by denominating most transactions in U.S. dollars.  In fiscal 2003, we completed the establishment of an operation in Beijing, China, where domestic sales and purchases are denominated in Renminbi.  During the second quarter of fiscal 2006, the China government ended the direct link between the Renminbi to the U.S. dollar and changed to a more flexible exchange rate system based on a group of world currencies.  This change in currency exchange rate pegging to a more flexible system increases our foreign currency risk fluctuations.  The currency exchange rate fluctuations in Renminbi are currently immaterial to our financial position, results of operations and cash flows.  We do not currently engage in foreign currency hedging transactions.

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, the Company's management, with the participation of the Company's Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the Company's disclosure controls and procedures in accordance with Rule 13a-15 under the Exchange Act.  Based on their evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective to enable the Company to record, process, summarize and report in a timely manner the information that the Company is required to disclose in its Exchange Act reports.

There were no changes in the Company's internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1A.   RISK FACTORS.

In addition to the other information set forth in this report, you should carefully consider the factors discussed under the section entitled "Risk Factors" in our Annual Report on Form 10-K for the year ended March 31, 2007 (the "Form 10-K") and in other filings that we make with the Securities and Exchange Commission (the "SEC"), which could materially affect our business, financial condition or future results.  The risks described in the Company's filings, including those described in the Company's Registration Statement on Form S-4/A filed with the SEC on October 2, 2007 with respect to the pending acquisition of Sirenza Microdevices, Inc. (the "Registration Statement"), are not the only risks facing the Company.  Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.  You should carefully consider the risk factors included in the Company's Form 10-K, Registration Statement and other filings made with the SEC. 

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 

At the Company's Annual Meeting of Shareholders on August 9, 2007, shareholders elected each of the nine director nominees and ratified the appointment of Ernst & Young LLP as the Company's independent registered public accounting firm for the fiscal year ending March 29, 2008.

Votes cast by our shareholders at the meeting were as follows:

1.  Election of Directors

	Number of Shares
	Voted For	Withheld
Robert A. Bruggeworth	167,257,837	4,448,599
David A. Norbury	100,797,148	70,909,288
William J. Pratt	167,193,019	4,513,417
Daniel A. DiLeo	169,195,319	2,511,117
Albert E. Paladino	167,028,932	4,677,504
Erik H. van der Kaay	167,172,024	4,534,412
Walter H. Wilkinson, Jr.	167,191,159	4,515,277
Jeffery R. Gardner	169,430,453	2,275,983
John R. Harding	169,436,575	2,269,861

 

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2.  Ratification of appointment of Ernst & Young LLP:

Shares Voted in Favor	Shares Voted Against	Shares Abstaining
168,649,097	2,916,505	140,834

ITEM 6.  EXHIBITS

2.1	Agreement and Plan of Merger and Reorganization, dated as of August 12, 2007, by and among RF Micro Devices, Inc., a North Carolina corporation, Iceman Acquisition Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of RF Micro Devices, Inc., and Sirenza Microdevices, Inc., a Delaware corporation, incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 16, 2007
10.1	Form of Voting Agreement, dated as of August 12, 2007, by and between RF Micro Devices, Inc. and certain stockholders of Sirenza Microdevices, Inc., incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 16, 2007
31.1	Certification of Periodic Report by Robert A. Bruggeworth, as Chief Executive Officer, pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Periodic Report by William A. Priddy, Jr., as Chief Financial Officer, pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Periodic Report by Robert A. Bruggeworth, as Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Periodic Report by William A. Priddy, Jr., as Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

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

	RF Micro Devices, Inc.
Date:  November 2, 2007
	/s/ William A. Priddy, Jr.
	William A. Priddy, Jr.
	Chief Financial Officer, Corporate
	Vice President of Administration and Secretary (Principal Financial Officer)

Date:  November 2, 2007
	/s/ Barry D. Church
	Barry D. Church
	Vice President and Corporate Controller
	(Principal Accounting Officer)

 

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EXHIBIT INDEX

2.1	Agreement and Plan of Merger and Reorganization, dated as of August 12, 2007, by and among RF Micro Devices, Inc., a North Carolina corporation, Iceman Acquisition Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of RF Micro Devices, Inc., and Sirenza Microdevices, Inc., a Delaware corporation, incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 16, 2007
10.1	Form of Voting Agreement, dated as of August 12, 2007, by and between RF Micro Devices, Inc. and certain stockholders of Sirenza Microdevices, Inc., incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 16, 2007
31.1	Certification of Periodic Report by Robert A. Bruggeworth, as Chief Executive Officer, pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Periodic Report by William A. Priddy, Jr., as Chief Financial Officer, pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Periodic Report by Robert A. Bruggeworth, as Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Periodic Report by William A. Priddy, Jr., as Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

     Our SEC file number for documents filed with the SEC pursuant to the Securities Exchange Act of 1934,
     as amended is 000-22511.

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