UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2006

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

For the transition period from                                          to                                         

SKYWORKS SOLUTIONS, INC.

Delaware		04-2302115
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
20 Sylvan Road, Woburn, Massachusetts		01801
(Address of principal executive offices)		(Zip Code)
Registrant’s telephone number, including area code: (781) 376-3000

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.      þ Yes o 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 þ		Accelerated filer o		Non-accelerated filer o

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding at May 5, 2006
Common Stock, par value $.25 per share		160,395,565

 

 

SKYWORKS SOLUTIONS, INC.

QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2006

TABLE OF CONTENTS

						PAGE NO.
PART I				FINANCIAL INFORMATION
		ITEM 1:		FINANCIAL STATEMENTS
				CONSOLIDATED STATEMENTS OF OPERATIONS – THREE AND SIX MONTHS ENDED MARCH 31, 2006 AND APRIL 1, 2005 (UNAUDITED)			3
				CONSOLIDATED BALANCE SHEETS – MARCH 31, 2006 AND SEPTEMBER 30, 2005 (UNAUDITED)			4
				CONSOLIDATED STATEMENTS OF CASH FLOWS – SIX MONTHS ENDED MARCH 31, 2006 AND APRIL 1, 2005 (UNAUDITED)			5
				NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)			6
		ITEM 2:		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			21
		ITEM 3:		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			43
		ITEM 4:		CONTROLS AND PROCEDURES			43
PART II				OTHER INFORMATION			44
		ITEM 4:		SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS			44
		ITEM 6:		EXHIBITS			44
				SIGNATURES			45
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share amounts)

		Three Months Ended								Six Months Ended
		March 31,				April 1,				March 31,				April 1,
		2006				2005				2006				2005
Net revenues		$	185,234			$	190,505			$	383,559			$	410,665
Cost of goods sold (includes share-based compensation expense of $560 and $910 for the three and six months ended March 31, 2006, respectively)			115,884				117,906				239,486				250,047
Gross profit			69,350				72,599				144,073				160,618
Operating expenses:
Research and development (includes share-based compensation expense of $1,531 and $2,949 for the three and six months ended March 31, 2006, respectively)			40,557				38,676				82,987				75,789
Selling, general and administrative (includes share-based compensation expense of $1,497 and $2,759 for the three and six months ended March 31, 2006, respectively)			25,710				25,058				48,963				52,282
Amortization of intangible assets			536				545				1,072				1,282
Total operating expenses			66,803				64,279				133,022				129,353
Operating income			2,547				8,320				11,051				31,265
Interest expense			(4,446	)			(3,635	)			(8,258	)			(7,168	)
Other income, net			2,430				1,067				4,749				2,188
Income before income taxes			531				5,752				7,542				26,285
(Benefit) Provision for income taxes			(395	)			4,508				2,329				11,124
Net income		$	926			$	1,244			$	5,213			$	15,161
Per share information:
Net income, basic and diluted		$	0.01			$	0.01			$	0.03			$	0.10
Number of weighted-average shares used in per share computations, basic			159,084				157,235				158,828				156,837
Number of weighted-average shares used in per share computations, diluted			159,629				158,435				159,212				158,426

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except per share amounts)

		March 31,				September 30,
		2006				2005
ASSETS
Current assets:
Cash and cash equivalents		$	116,754			$	116,522
Short-term investments			60,255				113,325
Restricted cash			6,013				6,013
Receivables, net of allowance for doubtful accounts of $5,976 and $5,815, respectively			172,792				171,454
Inventories			92,840				77,400
Other current assets			12,469				11,268
Total current assets			461,123				495,982
Property, plant and equipment, less accumulated depreciation and amortization of $266,800 and $260,731, respectively			151,840				144,208
Property held for sale			7,146				6,630
Goodwill			491,972				493,389
Intangible assets, less accumulated amortization of $9,983 and $8,911, respectively			16,658				17,730
Deferred tax assets			14,262				16,052
Other assets			15,395				13,852
Total assets		$	1,158,396			$	1,187,843
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term debt		$	50,000			$	50,000
Accounts payable			74,732				72,276
Accrued compensation and benefits			22,648				19,679
Other current liabilities			14,036				16,280
Total current liabilities			161,416				158,235
Long-term debt, less current maturities			179,335				230,000
Other long-term liabilities			7,279				7,044
Total liabilities			348,030				395,279
Contingencies (Note 9)
Stockholders’ equity:
Preferred stock, no par value: 25,000 authorized, no shares issued			—				—
Common stock, $0.25 par value: 525,000 shares authorized; 160,246 and 158,625 shares issued and outstanding, respectively			40,062				39,656
Additional paid-in capital			1,339,814				1,327,631
Accumulated deficit			(568,373	)			(573,586	)
Accumulated other comprehensive loss			(1,137	)			(1,137	)
Total stockholders’ equity			810,366				792,564
Total liabilities and stockholders’ equity		$	1,158,396			$	1,187,843

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

		Six Months Ended
		March 31,				April 1,
		2006				2005
Cash flows from operating activities:
Net income		$	5,213			$	15,161
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation expense			6,618				—
Depreciation			18,429				18,909
Charge in lieu of income tax expense			—				7,213
Amortization			1,072				1,282
Amortization of deferred financing costs			1,370				798
Contribution of common shares to Savings and Retirement Plans			4,521				4,790
Gain on sale of assets			(760	)			(84	)
Property held for sale			(517	)			—
Deferred income taxes			1,801				2,586
Provision for losses on accounts receivable			161				668
Changes in assets and liabilities:
Receivables			(1,125	)			(9,254	)
Inventories			(14,644	)			(1,023	)
Other assets			(2,706	)			(1,450	)
Accounts payable			2,457				(6,865	)
Other liabilities			959				(14,422	)
Net cash provided by operating activities			22,849				18,309
Cash flows from investing activities:
Capital expenditures			(26,060	)			(17,020	)
Sale of short-term investments			729,905				573,100
Purchase of short-term investments			(676,836	)			(595,821	)
Net cash provided by (used in) investing activities			27,009				(39,741	)
Cash flows from financing activities:
Payments on short-term borrowings			—				(782	)
Payments on long-term borrowings			(50,665	)			—
Exercise of stock options			1,039				4,294
Net cash (used in) provided by financing activities			(49,626	)			3,512
Net increase (decrease) in cash and cash equivalents			232				(17,920	)
Cash and cash equivalents at beginning of period			116,522				123,505
Cash and cash equivalents at end of period		$	116,754			$	105,585
Supplemental cash flow disclosures:
Taxes paid		$	1,356			$	1,363
Interest paid		$	7,862			$	6,400
Supplemental disclosure of non-cash activities:
Non-cash proceeds received from non-monetary exchange		$	760			$	—

The accompanying notes are an integral part of these consolidated financial statements.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Skyworks Solutions, Inc. (“Skyworks” or the “Company”) is an industry leader in radio solutions and precision analog semiconductors servicing a diversified set of mobile communications customers. The Company’s front-end modules, radio solutions and multimode transceivers are at the heart of many of today’s leading-edge multimedia handsets and wireless networking platforms. Skyworks also offers a portfolio of highly innovative linear products, supporting a wide range of applications including automotive, broadband, consumer, industrial, infrastructure, medical, military, Radio Frequency Identification, satellite and wireless data.

Skyworks was formed through the merger (“Merger”) of the wireless business of Conexant Systems, Inc. (“Conexant”) and Alpha Industries, Inc. (“Alpha”) on June 25, 2002, pursuant to an Agreement and Plan of Reorganization, dated as of December 16, 2001, and amended as of April 12, 2002, by and among Alpha, Conexant and Washington Sub, Inc. (“Washington”), a wholly-owned subsidiary of Conexant to which Conexant spun off its wireless communications business. Pursuant to the Merger, Washington merged with and into Alpha, with Alpha as the surviving corporation. Immediately following the Merger, Alpha purchased Conexant’s semiconductor assembly and test facility located in Mexicali, Mexico and certain related operations (the “Mexicali Operations”). For purposes of this Quarterly Report on Form 10-Q, the Washington business and the Mexicali Operations are collectively referred to as “Washington/Mexicali.” Shortly thereafter, Alpha changed its corporate name to Skyworks Solutions, Inc.

The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, normally included in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to those rules and regulations. However, in the opinion of management, the financial information reflects all adjustments, consisting of adjustments of a normal recurring nature necessary to present fairly the financial position, results of operations, and cash flows of the Company. The results of operations for the three and six months ended March 31, 2006 are not necessarily indicative of the results to be expected for the full year. This information should be read in conjunction with the Company’s financial statements and notes thereto contained in the Company’s Form 10-K for the fiscal year ended September 30, 2005 as filed with the SEC.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION

Revenues from product sales are recognized upon shipment and transfer of title, in accordance with the shipping terms specified in the arrangement with the customer. Revenue from license fees and intellectual property is recognized when these fees are due and payable, and all other criteria of Staff Accounting Bulletin No. 104 (“SAB 104”) have been met. Revenue recognition is deferred in all instances where the earnings process is incomplete. Certain product sales are made to electronic component distributors under agreements allowing for price protection and/or a right of return on unsold products. A reserve for sales returns and allowances for customers is recorded based on historical experience or specific identification of an event necessitating a reserve.

FISCAL YEAR

The Company’s fiscal year ends on the Friday closest to September 30. Fiscal year 2005 ended on September 30, 2005, and the second quarters of fiscal 2006 and fiscal 2005 ended on March 31, 2006 and April 1, 2005, respectively.

RECLASSIFICATION

Certain reclassifications have been made to the prior year’s consolidated financial statements to conform to the current year’s presentation.

PROPERTY HELD FOR SALE

Property held for sale at March 31, 2006 and September 30, 2005, respectively, relates to land and buildings no longer in use and is recorded at estimated fair value less estimated selling costs. In March 2004, we entered into a contractual arrangement for the sale of the property, contingent upon obtaining specific regulatory approvals. As of March 31, 2006, the prospective buyer had received a portion of these regulatory approvals. In February 2006, the Company and the prospective buyer entered into an amendment to the Purchase and Sale Agreement allowing the potential purchaser to extend the permitting period upon making payments to the Company. The potential purchaser can extend the permitting period until June 30, 2007 at their sole discretion.

DEFERRED FINANCING COSTS

Financing costs are capitalized as an asset on the Company’s balance sheet. The Company calculates amortization based on the effective interest rate method. The Company amortized additional deferred financing costs during the quarter ended March 31, 2006 due to the early extinguishment of $50.7 million of its long-term debt as more fully described in Note 7 to the Consolidated Financial Statements.

INCOME TAXES

The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. This method also requires the recognition of future tax benefits such as net operating loss carryforwards, to the extent that realization of such benefits is more likely than not. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The carrying value of the Company’s net deferred tax assets assumes that the Company will be able to generate sufficient future taxable income in certain tax jurisdictions, based on estimates and assumptions. If these estimates and related assumptions change in the future, the Company may be required to record additional valuation allowances against its deferred tax assets resulting in additional income tax expense in the Company’s consolidated statement of operations. Management evaluates the realizability of the deferred tax assets and assesses the adequacy of the valuation allowance quarterly. Likewise, in the event that the Company was to determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax assets would increase income or decrease the carrying value of goodwill in the period such determination was made.

It was the Company’s intention to permanently reinvest the undistributed earnings of all its foreign subsidiaries in accordance with Accounting Principles Board (“APB”) Opinion No. 23. During the fiscal year ended September 30, 2005, the Company reversed its policy of permanently reinvesting the earnings of its Mexican business. This policy reversal increased the 2005 tax provision by $9.0 million. For the six months ended March 31, 2006, U.S. income tax was provided on current earnings attributable to our operations in Mexico. No provision has been made for U.S. federal, state, or additional foreign income taxes that would be due upon the actual or deemed distribution of undistributed earnings of our other foreign subsidiaries, which have been, or are intended to be, permanently reinvested.

FOREIGN CURRENCY ACCOUNTING

The foreign operations of the Company are subject to exchange rate fluctuations and foreign currency transaction costs. The functional currency for the Company’s foreign operations is the U.S. dollar. Exchange gains and losses resulting from transactions denominated in currencies other than the functional currency are included in the results of operations for the year. Inventories, property, plant and equipment, goodwill and intangible assets, costs of goods sold, and depreciation and amortization are remeasured from the foreign currency into U.S. dollars at historical exchange rates; other accounts are translated at current exchange rates. Gains and losses resulting from the remeasurement of the Company’s long-term deferred tax assets are included in the provision for income taxes and increased tax expense by $0.4 million and $0.2 million for the three and six months ended March 31, 2006,

respectively. In addition, gains and losses resulting from the remeasurement of the Company’s long-term deferred tax assets reduced tax expense by $0.1 million and $0.5 million for the three and six months ended April 1, 2005, respectively. Gains and losses resulting from the remeasurement of all other accounts are included in other income, net. The Company recognized a loss of $0.1 million and $0.0 million related to remeasurements of these other accounts for the three months and six months ended March 31, 2006 , respectively, and a gain of $0.0 million and $0.3 million for the three and six months ended April 1, 2005, respectively.

SHARE-BASED COMPENSATION

On October 1, 2005, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123(R)”) which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options, employee stock purchases related to the 2002 Employee Stock Purchase Plan (“ESPP”), restricted stock and other special equity awards based on estimated fair values. SFAS 123(R) supersedes the Company’s previous accounting under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) for periods beginning in fiscal 2006. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to SFAS 123(R). The Company has applied the provisions of SAB 107 in its adoption of SFAS 123(R).

The Company adopted SFAS 123(R) using the modified prospective transition method, which requires the application of the accounting standard as of October 1, 2005, the first day of the Company’s fiscal year 2006. The Company’s Consolidated Financial Statements as of and for the three and six months ended March 31, 2006, reflect the impact of SFAS 123(R). In accordance with the modified prospective transition method, the Company’s Consolidated Financial Statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123(R). Share-based compensation expense recognized under SFAS 123(R) for the three and six months ended March 31, 2006 was $3.6 million and $6.6 million, respectively, or $0.02 and $0.04 per share, which consisted of share-based compensation expense related to employee stock options, ESPP purchases, non-vested (“restricted”) stock grants with attached service conditions, and restricted stock grants with both a service condition and market condition attached. No share-based compensation expense related to employee stock options, ESPP purchases or restricted stock grants was recognized during the three or six month periods ended April 1, 2005, because the Company had not adopted the recognition provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”) and did not make any restricted stock grants during the periods. For further information, please see Note 13 to the Consolidated Financial Statements.

SFAS 123(R) requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s Consolidated Statement of Operations. Prior to the adoption of SFAS 123(R), the Company accounted for stock-based awards to employees and directors using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) as allowed under SFAS 123. Under the intrinsic value method, no share-based compensation expense had been recognized in the Company’s Consolidated Statement of Operations, when the exercise price of the Company’s stock options granted to employees and directors equaled the fair market value of the underlying stock at the date of grant. Share-based compensation expense was recognized in fiscal year 2005 for restricted stock awards made in May 2005.

Share-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. Share-based compensation expense recognized in the Company’s Consolidated Statement of Operations for the first and second quarter of fiscal 2006 included compensation expense for share-based payment awards granted on or before, but not yet vested as of, September 30, 2005, based on the grant date fair value estimated in accordance with the pro forma provisions of SFAS 123, and compensation expense for the share-based payment awards granted subsequent to September 30, 2005 based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R). As share-based compensation expense recognized in the Consolidated Statement of Operations for the first and second quarter of fiscal 2006 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Upon adoption of SFAS 123(R), the Company elected to retain its method of valuation for share-based awards granted beginning in fiscal 2006 using the Black-Scholes option-pricing model (“Black-Scholes model”) which was also previously used for the Company’s pro forma information required under SFAS 123. The Company’s determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.

COMPREHENSIVE LOSS

The Company accounts for comprehensive loss in accordance with the provisions of SFAS No. 130, “Reporting Comprehensive Income.” SFAS No. 130 is a financial statement presentation standard that requires the Company to disclose non-owner changes included in equity but not included in net income or loss. Comprehensive loss presented in the financial statements consists of adjustments to the Company’s minimum pension liability.

An analysis of accumulated other comprehensive loss follows (in thousands):

						Accumulated
						Other
		Pension				Comprehensive
		Adjustments				Loss
Balance as of September 30, 2005		$	(1,137	)		$	(1,137	)
Change in period			—				—
Balance as of March 31, 2006		$	(1,137	)		$	(1,137	)

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In November 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 151. The amendments made by SFAS No. 151 clarify that abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) should be recognized as current-period charges and require the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. The guidance is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company adopted SFAS No. 151 on October 1, 2005 and it did not have a material impact on its financial statements.

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets—an amendment of APB Opinion No. 29.” The guidance in APB Opinion No. 29, “Accounting for Nonmonetary Transactions,” is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in APB Opinion No. 29, however, included certain exceptions to that principle. SFAS No. 153 amends APB Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS No. 153 is effective for such exchange transactions occurring in fiscal periods beginning after June 15, 2005. The Company adopted SFAS No. 153 on October 1, 2005 and it did not have a material impact on its financial statements.

In March 2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations—an interpretation of FASB Statement No. 143.” This interpretation provides additional guidance as to when companies should record the fair value of a liability for a conditional asset retirement obligation when there is uncertainty about the timing and/or method of settlement of the obligation. The Company adopted FASB Interpretation No. 47 on October 1, 2005 and it did not have a material impact on its financial statements.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3.” This Statement replaces APB Opinion No. 20, “Accounting Changes” and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements—an amendment of

APB Opinion No. 28,” and changes the requirements for the accounting for and reporting of a change in accounting principle. SFAS No. 154 applies to all voluntary changes in an accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed. SFAS No. 154 is effective for accounting changes and error corrections occurring in fiscal years beginning after December 15, 2005. The adoption of this statement is not expected to have a material effect on the Company’s Consolidated Financial Statements.

On November 10, 2005, the FASB issued FASB Staff Position No. FAS 123(R)-3 “Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards.” The Company is currently evaluating whether it will adopt the alternative transition method provided in the FASB Staff Position for calculating the tax effects of share-based compensation pursuant to SFAS 123(R). The alternative transition method includes simplified methods to establish the beginning balance of the additional paid-in capital pool (“APIC pool”) related to the tax effects of employee share-based compensation, and to determine the subsequent impact on the APIC pool and Consolidated Statements of Cash Flows of the tax effects of employee share-based compensation awards that are outstanding upon adoption of SFAS 123(R).

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and 140,” to permit fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation in accordance with the provisions of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” The Company will adopt SFAS No. 155 in fiscal year 2007. The adoption of this Statement is not expected to have a material effect on the Company’s Consolidated Financial Statements.

In April 2006, the FASB issued FASB Staff Position (FSP) FIN 46(R)-6, “Determining the Variability to Be Considered in Applying FASB Interpretation No. 46(R),” that will become effective July 1, 2006. FSP FIN No. 46(R)-6 clarifies that the variability to be considered in applying Interpretation 46(R) shall be based on an analysis of the design of the variable interest entity. The adoption of this FSP is not expected to have a material effect on the Company’s’s Consolidated Financial Statements.

NOTE 3. MARKETABLE SECURITIES

Marketable securities are categorized as available for sale and are summarized as follows as of March 31, 2006 (in thousands):

						Gross				Gross
		Amortized				Unrealized				Unrealized				Market
Short term available for sale securities:		Cost				Gains				Losses				Value
Auction rate securities		$	60,255			$	—			$	—			$	60,255
Total marketable securities		$	60,255			$	—			$	—			$	60,255

Marketable securities are categorized as available for sale and are summarized as follows as of September 30, 2005 (in thousands):

						Gross				Gross
		Amortized				Unrealized				Unrealized				Market
Short term available for sale securities:		Cost				Gains				Losses				Value
Auction rate securities		$	113,325			$	—			$	—			$	113,325
Total marketable securities		$	113,325			$	—			$	—			$	113,325

NOTE 4. INVENTORY

Inventories consist of the following (in thousands):

		March 31,				September 30,
		2006				2005
Raw materials		$	10,021			$	8,080
Work-in-process			55,071				49,329
Finished goods			27,748				19,991
		$	92,840			$	77,400

NOTE 5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following (in thousands):

		March 31,				September 30,
		2006				2005
Land		$	9,423			$	9,423
Land and leasehold improvements			4,397				4,284
Buildings			64,021				59,586
Machinery and equipment			319,877				317,334
Construction in progress			20,922				14,312
			418,640				404,939
Accumulated depreciation and amortization			(266,800	)			(260,731	)
		$	151,840			$	144,208

NOTE 6. GOODWILL AND INTANGIBLE ASSETS

Goodwill and intangible assets are principally the result of the Merger with Washington/Mexicali completed on June 25, 2002. The Company tests its goodwill for impairment annually as of the first day of its fourth fiscal quarter and in interim periods if certain events occur indicating that the carrying value of goodwill may be impaired.

Goodwill and intangible assets consist of the following (in thousands):

		Weighted				March 31, 2006												September 30, 2005
		Average				Gross								Net				Gross								Net
		Amortization				Carrying				Accumulated				Carrying				Carrying				Accumulated				Carrying
		Period (Years)				Amount				Amortization				Amount				Amount				Amortization				Amount
Goodwill						$	491,972			$	—			$	491,972			$	493,389			$	—			$	493,389
Amortized intangible assets:
Developed technology			10				10,550				(5,088	)			5,462				10,550				(4,651	)			5,899
Customer relationships			10				12,700				(4,773	)			7,927				12,700				(4,138	)			8,562
Other			3				122				(122	)			—				122				(122	)			—
							23,372				(9,983	)			13,389				23,372				(8,911	)			14,461
Unamortized intangible assets:
Trademarks							3,269				—				3,269				3,269				—				3,269
						$	26,641			$	(9,983	)		$	16,658			$	26,641			$	(8,911	)		$	17,730

Amortization expense related to intangible assets are as follows (in thousands):

		Three Months Ended								Six Months Ended
		March 31,				April 1,				March 31,				April 1,
		2006				2005				2006				2005
Amortization expense		$	536			$	545			$	1,072			$	1,092

The changes in the gross carrying amount of goodwill and intangible assets are as follows (in thousands):

		Goodwill and Intangible Assets
						Developed				Customer
		Goodwill				Technology				Relationships				Trademarks				Other				Total
Balance as of September 30, 2005		$	493,389			$	10,550			$	12,700			$	3,269			$	122			$	520,030
Deductions during period			(1,417	)			—				—				—				—				(1,417	)
Balance as of March 31, 2006		$	491,972			$	10,550			$	12,700			$	3,269			$	122			$	518,613

The deduction to goodwill during the six months ended March 31, 2006 reflects the recognition of a portion of the deferred tax assets for which no benefit was previously recognized as of the date of the Merger. The future realization of certain pre-Merger deferred tax assets will be applied to reduce the carrying value of goodwill. The remaining pre-Merger deferred tax assets that could reduce goodwill in future periods are $30.5 million as of March 31, 2006.

Annual amortization expense related to intangible assets for the next five years is expected to be as follows (in thousands):

		2006				2007				2008				2009				2010
Amortization expense		$	2,144			$	2,144			$	2,144			$	2,144			$	2,144

NOTE 7. BORROWING ARRANGEMENTS

LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

		March 31,				September 30,
		2006				2005
Junior notes		$	179,335			$	230,000
Less-current maturities			—				—
		$	179,335			$	230,000

Junior notes represent the Company’s 4.75% convertible subordinated notes due November 2007. These Junior notes can be converted into 110.4911 shares of common stock per $1,000 principal balance, which is the equivalent of a conversion price of approximately $9.05 per share. The Company may redeem the Junior notes at any time after November 20, 2005. The redemption price of the Junior notes between the period November 20, 2005 through November 14, 2006, will be $1,011.875 per $1,000 principal amount of notes to be redeemed, plus accrued and unpaid interest, if any, to the redemption date. The redemption price of the notes beginning on November 15, 2006 and thereafter will be $1,000 per $1,000 principal amount of notes to be redeemed, plus accrued and unpaid interest, if any, to the redemption date. Holders may require the Company to repurchase the Junior notes upon a change in control of the Company. The Company pays interest in cash semi-annually in arrears on May 15 and November 15 of each year. The fair value of the Company’s long-term debt approximated $179.6 million at March 31, 2006. The Company retired $50.7 million of its 4.75% convertible subordinated notes through an open market repurchase transaction during the quarter ended March 31, 2006. The Company recorded a gain of approximately $50,000 and expensed approximately $572,000 in previously capitalized deferred financing costs.

Aggregate annual maturities of long-term debt are as follows (in thousands):

Fiscal Year
2006			—
2007			—
2008			179,335
		$	179,335

SHORT-TERM DEBT

On July 15, 2003, the Company entered into a receivables purchase agreement under which it has agreed to sell from time to time certain of its accounts receivable to Skyworks USA, Inc. (“Skyworks USA”), a wholly-owned special purpose entity that is fully consolidated for accounting purposes. Concurrently, Skyworks USA entered into an agreement with Wachovia Bank, N.A. providing for a $50.0 million credit facility (“Facility Agreement’’) secured by the purchased accounts receivable. As a part of the consolidation, any interest incurred by Skyworks USA related to monies it borrows under the Facility Agreement is recorded as interest expense in the Company’s results of operations. The Company performs collections and administrative functions on behalf of Skyworks USA. Interest related to the Facility Agreement is at LIBOR plus 0.4%. As of March 31, 2006, Skyworks USA had borrowed $50.0 million under this agreement.

NOTE 8. EMPLOYEE BENEFIT PLAN, PENSIONS AND OTHER RETIREE BENEFITS

The Company maintains a 401(k) plan covering substantially all of its employees. All of the Company’s employees who are at least 21 years old are eligible to receive a Company contribution. Discretionary Company contributions are determined by the Board of Directors and may be in the form of cash or the Company’s stock. The Company generally contributes a match of up to 4.0% of an employee’s annual eligible compensation. For those employees employed by Alpha for five (5) years or more prior to the Merger, the Company contributes an additional match of up to 0.75% of the employee’s annual eligible compensation. For the three and six months ended March 31, 2006, the Company contributed and recognized expense for approximately 270,632 and 386,934 shares, respectively, of the Company’s common stock valued at $1.6 million, and $2.2 million, respectively, to fund the Company’s obligation under the 401(k) plan. For the three and six months ended April 1, 2005, the Company contributed and recognized expense for approximately 116,072 and 242,258 shares, respectively, of the Company’s common stock valued at $0.9 million, and $2.2 million, respectively, to fund the Company’s obligation under the 401(k) plan.

In connection with Conexant’s spin-off of its Washington/Mexicali business, Conexant transferred obligations to Washington/Mexicali for its pension plan and retiree benefits. The amounts that were transferred relate to approximately twenty Washington/Mexicali employees that had enrolled in Conexant’s Voluntary Early Retirement Plan (“VERP”) in 1998. The VERP also provides health care benefits to members of the plan. The Company currently does not offer defined benefit pension plans or retiree health benefits to its employees.

The Company incurred net periodic benefit costs of $22,000 and $28,000 for pension benefits for the three months ended March 31, 2006 and April 1, 2005, respectively, and $44,000 and $56,000 for pension benefits for the six months ended March 31, 2006 and April 1, 2005. The Company incurred net periodic benefits costs of $29,000 and $31,000 for retiree medical benefits for the three months ended March 31, 2006 and April 1, 2005, respectively, and $58,000 and $62,000 for pension benefits for the six months ended March 31, 2006 and April 1, 2005.

The Company contributed $0.1 million to the pension benefit plan during each three-month period ended March 31, 2006 and December 31, 2005. The Company expects to contribute approximately $0.1 million to the benefit pension plan in each of the remaining quarters of fiscal 2006.

NOTE 9. CONTINGENCIES

From time to time, various lawsuits, claims and proceedings have been, and may in the future be, instituted or asserted against the Company, including those pertaining to patent infringement, intellectual property, environmental, product liability, safety and health, employment and contractual matters.

Additionally, the semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights. From time to time, third parties have asserted and may in the future assert patent, copyright, trademark and other intellectual property rights to technologies that are important to our business and have demanded and may in the future demand that we license their technology. The outcome of litigation cannot be predicted with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably to the Company. Intellectual property disputes often have a risk of injunctive relief, which, if imposed against the Company, could materially and adversely affect the Company’s financial condition, or results of operations.

From time to time we are involved in legal proceedings in the ordinary course of business. We believe that there is no such ordinary course litigation pending that could have, individually or in the aggregate, a material adverse effect on our business, financial condition, results of operations or cash flows.

NOTE 10. GUARANTEES AND INDEMNITIES

The Company does not currently have any guarantees. The Company generally indemnifies its customers from third-party intellectual property infringement litigation claims related to its products. In connection with certain facility leases, the Company has indemnified its lessors for certain claims arising from the facility or the lease.

The Company indemnifies its directors and officers to the maximum extent permitted under the laws of the state of Delaware. The duration of the indemnities varies, and in many cases is indefinite. The indemnities to customers in connection with product sales generally are subject to limits based upon the amount of the related product sales and in many cases are subject to geographic and other restrictions. In certain instances, the Company’s indemnities do not provide for any limitation of the maximum potential future payments the Company could be obligated to make. The Company has not recorded any liability for these indemnities in the accompanying consolidated balance sheets.

NOTE 11. RESTRUCTURING

2004 Corporate Restructuring Plan

During fiscal 2004, the Company consolidated cellular systems software design centers in an effort to improve the Company’s overall time to market for next-generation multimedia systems development. These actions aligned the Company’s structure with its current business environment. The Company implemented reductions in force at three remote facilities and recorded restructuring charges of approximately $4.2 million for costs related to severance benefits for affected employees and lease obligations. All amounts accrued for have been paid as of March 31, 2006.

Activity and liability balances related to the fiscal 2004 restructuring actions are as follows (in thousands):

		Workforce				Facility
		Reductions				Closings				Total
Charged to costs and expenses		$	3,685			$	498			$	4,183
Cash payments			(3,530	)			(287	)			(3,817	)
Restructuring balance, September 30, 2004			155				211				366
Cash payments			(155	)			(198	)			(353	)
Restructuring balance, September 30, 2005		$	—			$	13			$	13
Cash payments			—				(13	)			(13	)
Restructuring balance, March 31, 2006		$	—			$	—			$	—

Pre-Merger Alpha Restructuring Plan

In addition, the Company assumed approximately $7.8 million of restructuring reserves from Alpha in connection with the Merger. During the second quarters of fiscal 2006 and fiscal 2005, payments related to the restructuring reserves assumed from Alpha were $0.1 million and $0.1 million, respectively. For the six month period ended March 31, 2006 and April 1, 2005, payments related to the restructuring reserves assumed from Alpha were $0.2 million and $0.3 million, respectively. As of March 31, 2006 the restructuring reserve balance related to Alpha was $0.8 million and primarily related to estimated future payments on a lease that expires in 2008.

NOTE 12. SEGMENT INFORMATION

The Company follows SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.” SFAS No. 131 establishes standards for the way public business enterprises report information about operating segments in annual financial statements and in interim reports to shareholders. The method for determining what information to report is based on the way that management organizes the segments within the Company for making operating decisions and assessing financial performance. In evaluating financial performance, management uses sales

and operating profit as the measure of the segments’ profit or loss. Based on the guidance in SFAS No. 131, the Company has one operating segment for financial reporting purposes.

The Company operates in one business segment, which designs, develops, manufactures and markets proprietary semiconductor products and system solutions, including intellectual property, for manufacturers of wireless communication products.

NOTE 13. EMPLOYEE STOCK BENEFIT PLANS

Net income for the three and six months ended March 31, 2006 included share-based compensation expense under SFAS 123(R) of $3.6 million and $6.6 million, respectively. Share-based compensation expense for the quarter ended March 31, 2006 included $2.9 million on employee stock options, $0.2 million on non-vested restricted stock with service and market conditions, $0.1 million on non-vested restricted stock with service conditions and $0.4 million on the Company’s ESPP. Share-based compensation expense for the six month period ended March 31, 2006 included $5.3 million on employee stock options, $0.3 million on non-vested restricted stock with service and market conditions, $0.1 million on non-vested restricted stock with service conditions and $0.9 million on the Company’s ESPP. Net income for the three and six month periods ended April 1, 2005 did not reflect any share-based compensation expense because the Company had not adopted the recognition provisions of SFAS 123 and made no restricted stock awards during the periods.

Employee Stock Purchase Plan

The Company maintains a domestic and an international employee stock purchase plan. Under these plans, eligible employees may purchase common stock through payroll deductions of up to 10% of compensation. The price per share is the lower of 85% of the market price at the beginning or end of each offering period (generally six months). The plans provide for purchases by employees of up to an aggregate of 4,600,000 shares through December 31, 2012. During the three month periods ended March 31, 2006 and April 1, 2005, the Company issued 406,765 shares and 407,691 shares, respectively, under the plan. At March 31, 2006, 2,155,968 shares were available for purchase under these plans.

Employee Stock Option Plans

The Company has share-based compensation plans under which employees and directors may be granted options to purchase common stock. Options are generally granted with exercise prices at not less than the fair market value on the grant date, generally vest over 4 years and expire 7 or 10 years after the grant date. As of March 31, 2006, a total of 46.5 million shares are authorized for grant under the Company’s share-based compensation plans. The number of common shares reserved for granting of future awards to employees and directors under these plans was 15.3 million at March 31, 2006. In addition, options outstanding as of March 31, 2006 include 10.4 million options issued in connection with the Merger to non-employees. The remaining unrecognized compensation expense on stock options at March 31, 2006 was $23.4 million. The weighted average period over which the cost is expected to be recognized is approximately 2.1 years.

As of March 31, 2006, the Company had 10 equity compensation plans under which our equity securities are authorized for issuance to our employees and/or directors:

-		the 1986 Long-Term Incentive Plan,
-		the 1994 Non-Qualified Stock Option Plan
-		the 1996 Long-Term Incentive Plan
-		the Directors’ 1997 Non-Qualified Stock Option Plan
-		the 1999 Employee Long-Term Incentive Plan
-		the Directors’ 2001 Stock Option Plan
-		the Non-Qualified Employee Stock Purchase Plan
-		the 2002 Employee Stock Purchase Plan
-		the Washington Sub, Inc. 2002 Stock Option Plan and
-		the 2005 Long-Term Incentive Plan.

Except for the 1999 Employee Long-Term Incentive Plan, the Washington Sub, Inc. 2002 Stock Option Plan and the Non-Qualified Employee Stock Purchase Plan, each of the foregoing equity compensation plans was approved by our stockholders.

Non-Vested (“Restricted”) Stock Awards With Service Conditions

The Company’s share-based compensation plans provide for awards of restricted shares of common stock and other stock-based incentive awards to officers, other employees and certain non-employees. Restricted stock awards are subject to forfeiture if employment terminates during the prescribed retention period (generally within four years of the date of award). The Company granted 106,000 restricted shares in the second quarter of 2006 and 160,500 restricted shares in fiscal 2005 with a four year graded vesting. The remaining unrecognized compensation expense on restricted stock with service conditions outstanding at March 31, 2006 was $1.1 million, and the weighted average period over which the cost is expected to be recognized is approximately 3.7 years.

Non-Vested (“Restricted”) Stock Awards With Market Conditions and Service Conditions

The Company granted 493,125 shares of restricted common stock with market conditions and service conditions during the first quarter of fiscal 2006. The market condition allows for accelerated vesting of the award as of the first, second, and, if not previously accelerated, the third anniversary of the grant date. Specifically, if the Company’s stock performance meets or exceeds the 60^th percentile of its selected peer group for the years ended on each of the first three anniversaries of the grant date, then 50% of the award vests upon each anniversary (up to 100%). If the restricted stock recipient meets the service condition but not the market condition in years 1, 2 and 3, then the restricted stock vests 50% at the end of year 3 and 50% at the end of year 4. The Company calculated a derived service period of approximately 2.5 years using a Monte-Carlo simulation to simulate a range of possible future stock prices for the Company and the members of the Company’s selected peer group. The remaining unrecognized compensation expense on restricted stock with market and service condition vesting at March 31, 2006 was $1.7 million. The weighted average period over which the cost is expected to be recognized is approximately 2.0 years.

Performance Units With Milestone-Based Performance Conditions

The Company granted 207,000 performance units to non-executives with milestone-based performance conditions during the second quarter of fiscal 2006. The units will convert to common stock at such time that the performance conditions are deemed to be achieved. The performance units will be expensed over implicit performance periods ranging from 11-23 months. The Company will utilize both quantitative and qualitative criteria to judge whether the milestones are probable of achievement. If the milestones are deemed to be not probable of achievement no expense will be recognized until such time as they become probable of achievement. If a milestone is initially deemed probable of achievement and subsequent to that date it is deemed to be not probable of achievement the Company will discontinue recording expense on the units. If the milestone is deemed to be improbable of achievement any expense recorded on those units will be reversed. The fair value of the performance units at March 31, 2006 was $5.44 or $1.1 million in the aggregate. Upon the grant date and at March 31, 2006, the Company determined that achievement of the milestones was not probable, thus no compensation expense was recorded in the second fiscal quarter of 2006.

Share-Based Compensation Plans for Directors

The Company has three share-based compensation plans for non-employee directors — the 1994 Non-Qualified Stock Option Plan, the 1997 Non-Qualified Stock Option Plan and the Directors’ 2001 Stock Option Plan. Under the three plans, a total of 1.2 million shares have been authorized for option grants. As of March 31, 2006, under the three plans, a total of 0.3 million shares are available for new grants. The three plans have substantially similar terms and conditions and are structured to provide options to non-employee directors as follows: a new director receives a total of 45,000 options upon becoming a member of the Board; and continuing directors receive 15,000 options after each Annual Meeting of Stockholders. The maximum contractual term of the Director stock options is 10 years. Under these plans, the option price is the fair market value at the time the option is granted. Beginning in fiscal 2001, all options granted became exercisable 25% per year beginning one year from the date of grant. Options granted prior to fiscal 2001 became exercisable at a rate of 20% per year beginning one year from the date of grant. During the quarter and six months ended March 31, 2006, and April 1, 2005, there were 120,000 and 45,000 options granted under these plans, respectively. At March 31, 2006, a total of 892,500 options at a weighted average exercise price of $10.05 per share are outstanding under these three plans, and 487,500 shares were exercisable at a weighted

average exercise price of $12.40 per share. The remaining unrecognized compensation expense on stock options at March 31, 2006 was $1.4 million. The weighted average period over which the cost is expected to be recognized is approximately 2.2 years. Non-employee directors of the Company are also eligible to receive option grants under the Company’s 1996 Long-Term Incentive Plan. The above-mentioned activity for the share-based compensation plans for directors is included in the option tables below.

Distribution and Dilutive Effect of Options

The following table illustrates the grant dilution and exercise dilution:

		Three Months Ended								Six Months Ended
		March 31,				April 1,				March 31,				April 1,
(In thousands)		2006				2005				2006				2005
Shares of common stock outstanding			160,246				157,390				160,246				157,390
Granted			453				249				3,431				3,995
Cancelled/forfeited			(1,506	)			(758	)			(2,427	)			(1,739	)
Expired			—				—				—				—
Net options granted			(1,053	)			(509	)			1,004				2,256
Grant dilution (1)			(0.7	%)			(0.3	%)			0.6	%			1.4	%
Exercised			174				71				230				728
Exercise dilution (2)			0.1	%			0.0	%			0.1	%			0.5	%

During the six months ended March 31, 2006, the dilutive effect of in-the-money employee stock options was approximately 0.4 million shares or 0.2% of the basic shares outstanding based on the Company’s average share price of $5.51.

General Option Information

A summary of stock option transactions follows (shares in thousands):

						Options Outstanding
		Options								Weighted average
		Available for								exercise price of
		Grant				Shares				shares under plan
Balance outstanding at September 30, 2004			5,710				31,763			$	13.63
Granted (1)			(4,908	)			4,668				8.47
Exercised			—				(935	)			5.57
Cancelled/forfeited (2)			2,113				(3,918	)			13.66
Expired			—				—				—
Additional shares reserved			5,500				—				—
Balance outstanding at September 30, 2005			8,415				31,578			$	12.99
Granted (1)			(4,330	)			3,431				5.12
Exercised			—				(230	)			4.52
Cancelled/forfeited (2)			1,167				(2,427	)			12.71
Expired			—				—				—
Additional shares reserved			10,000				—				—
Balance outstanding at March 31, 2006			15,252				32,352			$	12.24

The following table summarizes information concerning currently outstanding and exercisable options as of March 31, 2006 (shares and Aggregate Intrinsic Value in thousands):

		Options Outstanding																Options Exercisable
						Weighted																Weighted
						average				Weighted												average				Weighted
						remaining				average				Aggregate								remaining				average				Aggregate
Range of exercise		Number				contractual				exercise				Intrinsic				Options				contractual				exercise				Intrinsic
prices		outstanding				life (years)				price per share				Value				exercisable				life (years)				price per share				Value
$0.45 - $4.99			6,304				7.3			$	4.73			$	12,948				2,635				5.9			$	4.48			$	6,051
$5.01 - $8.93			6,040				8.4			$	7.74				1,907				1,783				7.7			$	7.81				380
$8.96 - $9.60			6,970				7.8			$	9.32				—				6,702				7.8			$	9.33				—
$9.67 - $17.12			7,108				3.7			$	15.14				—				6,980				3.6			$	15.21				—
$17.20 - $39.80			5,742				4.5			$	23.80				—				5,701				4.5			$	23.83				—
$40.13 - $170.44			188				3.5			$	54.22				—				188				3.5			$	54.22				—
			32,352				6.3			$	12.24			$	14,855				23,989				5.5			$	14.19			$	6,431

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the Company’s’s closing stock price of $6.78 as of March 31, 2006, which would have been received by the option holders had all option holders exercised their options as of that date. The aggregate intrinsic value of options exercised for the three and six months ended March 31, 2006 was $389,776 and $519,628, respectively. The aggregate intrinsic value of options exercised for the three and six months ended April 1, 2005 was $156,671 and $269,416, respectively. The fair value of stock options vested at March 31, 2006 and April 1, 2005 was $66.0 million and $32.4 million, respectively. The total number of in-the-money options exercisable as of March 31, 2006 was 3.2 million. As of September 30, 2005, 24.1 million outstanding options were exercisable, and the weighted average exercise price was $14.68.

General Nonvested (“Restricted”) Shares Information

A summary of the restricted share transactions follows (shares in thousands):

						Weighted average
						Grant-date
		Shares				fair value
Balance outstanding at September 30, 2004			—			$	—
Granted			161				5.20
Vested			(—	)			—
Forfeited			(—	)			—
Balance Outstanding at September 30, 2005			161			$	5.20
Granted			599				5.06
Vested			(—	)			—
Forfeited			(2	)			—
Balance Outstanding at March 31, 2006			758			$	5.09

No restricted shares are vested at March 31, 2006.

Valuation and Expense Information under SFAS 123(R)

The following table summarizes share-based compensation expense related to employee stock options, employee stock purchases, and restricted stock grants under SFAS 123(R) for the three and six months ended March 31, 2006 which was allocated as follows:

		Three Months				Six Months
		Ended				Ended
		March 31,				March 31,
(In thousands)		2006				2006
Cost of sales			560				910
Research and development			1,531				2,949
Selling, general and administrative			1,497				2,759
Share-based compensation expense included in operating expenses		$	3,588			$	6,618

As of March 31, 2006 the Company had capitalized share-based compensation expense of $0.4 in inventory. The Company did not recognize any tax benefit on the share-based compensation recorded in the three and six months ended March 31, 2006 because we have established a valuation allowance against our net deferred tax assets.

The table below reflects net income per share, basic and diluted, for the three and six months ended March 31, 2006 compared with the pro forma information for the three and six months ended April 1, 2005.

		Three Months Ended								Six Months Ended
		March 31,				April 1,				March 31,				April 1,
(In thousands, except per share amounts)		2006				2005				2006				2005
Net income–as reported for prior periods (1)			N/A			$	1,244				N/A			$	15,161
Share-based compensation expense related to employee stock options, employee stock purchases, and restricted stock grants (2)			(3,588	)			(7,623	)			(6,618	)			(13,660	)
Net income (loss), including the effect of share-based compensation expense (3)		$	926			$	(6,379	)		$	5,213			$	1,501
Per share information, basic and diluted:
Net income, as reported for the prior period (1)			N/A			$	0.01				N/A			$	0.10
Net income (loss), including the effect of share-based compensation expense (3)		$	0.01			$	(0.04	)		$	0.03			$	0.01

The weighted-average estimated fair value of employee stock options granted during the three and six months ended March 31, 2006 was $3.66 per share and $3.14 per share, respectively, using the Black Scholes option-pricing model with the following weighted-average assumptions:

		Six Months Ended
		March 31, 2006
Expected volatility			66.02	%
Risk free interest rate			4.86	%
Dividend yield			0.00
Expected option life (7 year contractual life options)			4.42
Expected option life (10 year contractual life options)			5.84

The Company used an arithmetic average of historical volatility and implied volatility to calculate its expected volatility at March 31, 2006. Historical volatility was determined by calculating the mean reversion of the daily-

adjusted closing stock price over the past 3.37 years of the Company’s existence (post-Merger). The implied volatility was calculated by analyzing the 52-week minimum and maximum prices of publicly traded call options on the Company’s common stock. The Company concluded that an arithmetic average of these two calculations provided for the most reasonable estimate of expected volatility under the guidance of SFAS 123(R).

The risk-free interest rate assumption is based upon observed Treasury bill interest rates (risk free) appropriate for the term of the Company’s employee stock options.

The expected life of employee stock options represents a calculation based upon the historical exercise, cancellation and forfeiture experience for the Company over the past 3.37 years (post-Merger). The Company determined that it had two populations with unique exercise behavior. These populations included stock options with a contractual life of 7 years and 10 years, respectively.

As share-based compensation expense recognized in the Consolidated Statement of Operations for the first six months of fiscal 2006 is actually based on awards ultimately expected to vest, it has been reduced for annualized estimated forfeitures of 8.59%. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical experience.

Pro Forma Information Under SFAS 123 for Periods Prior to Fiscal 2006

The weighted-average estimated fair value of employee stock options granted during the three and six months ended April 1, 2005 was $3.66 per share and $4.35 per share, respectively, using the Black Scholes option-pricing model with the following weighted-average assumptions:

		Six Months Ended
		April 1, 2005
Expected volatility			75.00	%
Risk free interest rate			3.60	%
Dividend yield			0.00
Expected option life (years)			4.0

For purposes of pro forma disclosures under SFAS 123, the estimated fair value of the options is assumed to be amortized to expense over the options’ vesting period.

NOTE 14. EARNINGS PER SHARE

		Three Months Ended								Six Months Ended
		March 31,				April 1,				March 31,				April 1,
(In thousands, except per share amounts)		2006				2005				2006				2005
Net income		$	926			$	1,244			$	5,213			$	15,161
Weighted average shares outstanding – basic			159,084				157,235				158,828				156,837
Effect of dilutive stock options and restricted stock			545				1,200				384				1,589
Weighted average shares outstanding – diluted			159,629				158,435				159,212				158,426
Net income per share — basic		$	0.01			$	0.01			$	0.03			$	0.10
Effect of dilutive stock options			—				—				—				—
Net income per share — diluted		$	0.01			$	0.01			$	0.03			$	0.10

Debt securities convertible into approximately 19.8 million shares and stock options exercisable into approximately 25.0 million shares were outstanding but not included in the computation of earnings per share for the three months ended March 31, 2006 as their effect would have been anti-dilutive. Debt securities convertible into approximately 19.8 million shares and stock options exercisable into approximately 25.1 million shares were outstanding but not included in the computation of earnings per share for the six months ended March 31, 2006 as their effect would have been anti-dilutive. If the Company had earned at least $19.8 million and $39.3 million in net income for the

three and six months ended March 31, 2006, respectively, the debt securities would have been dilutive to earnings per share. Debt securities convertible into approximately 25.4 million shares and stock options exercisable into approximately 27.7 million shares were outstanding but not included in the computation of earnings per share for the three months ended April 1, 2005 as their effect would have been anti-dilutive. Debt securities convertible into approximately 25.4 million shares and stock options exercisable into approximately 26.7 million shares were outstanding but not included in the computation of earnings per share for the six months ended April 1, 2005 as their effect would have been anti-dilutive.

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

This report and other documents we have filed with the Securities and Exchange Commission (“SEC”) contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, and are subject to the “safe harbor” created by those sections. Words such as “believes,” “expects,” “may,” “will,” “would,” “should,” “could,” “seek,” “intends,” “plans,” “potential,” “continue,” “estimates,” “anticipates,” “predicts,” and similar expressions or variations or negatives of such words are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this report. Additionally, statements concerning future matters such as the development of new products, enhancements or technologies, sales levels, expense levels and other statements regarding matters that are not historical are forward-looking statements. Although forward-looking statements in this report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements involve inherent risks and uncertainties and actual results and outcomes may differ materially and adversely from the results and outcomes discussed in or anticipated by the forward-looking statements. A number of important factors could cause actual results to differ materially and adversely from those in the forward-looking statements. We urge you to consider the risks and uncertainties discussed in this report under the heading “Certain Business Risks” and in the other documents filed with the SEC in evaluating our forward-looking statements. We have no plans, and undertake no obligation, to revise or update our forward-looking statements to reflect any event or circumstance that may arise after the date of this report. We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made.

In this document, the words “we,” “our,” “ours” and “us” refer only to Skyworks Solutions, Inc. and not any other person or entity.

RESULTS OF OPERATIONS

THREE AND SIX MONTHS ENDED MARCH 31, 2006 AND APRIL 1, 2005

The following table sets forth the results of our operations expressed as a percentage of net revenues for the three and six months ended March 31, 2006 and April 1, 2005:

		Three Months Ended								Six Months Ended
		March 31,				April 1,				March 31,				April 1,
		2006				2005				2006				2005
Net revenues			100.0	%			100.0	%			100.0	%			100.0	%
Cost of goods sold			62.6				61.9				62.4				60.9
Gross margin			37.4				38.1				37.6				39.1
Operating expenses:
Research and development			21.9				20.3				21.6				18.5
Selling, general and administrative			13.8				13.2				12.8				12.7
Amortization			0.3				0.3				0.3				0.3
Total operating expenses			36.0				33.8				34.7				31.5
Operating income			1.4				4.3				2.9				7.6
Interest expense			(2.4	)			(1.9	)			(2.2	)			(1.7	)
Other income, net			1.3				0.6				1.2				0.5
Income before income taxes			0.3				3.0				1.9				6.4
Provision for income taxes			(0.2	)			2.4				0.6				2.7
Net income			0.5	%			0.6	%			1.3	%			3.7	%

GENERAL

During the three and six months ended March 31, 2006, certain key factors contributed to our overall results of operations and cash flows from operations. More specifically, we:

	§		Generated $22.8 million in cash flows from operations for the six month period ended March 31, 2006;
	§		Retired $50.7 million in long-term debt in an accretive transaction and invested $26.1 million in capital equipment during the six month period ended March 31, 2006 thereby expanding our capacity to efficiently manage future growth in operations;
	§		Increased revenues in the Radio Frequency (“RF”) Solutions and Linear Products areas to $172.3 million from $154.9 million for the quarter ended March 31, 2006 as compared to the corresponding period in 2005, an 11.2% increase, and an increase of $23.6 million or 7.2% for the six month period ended March 31, 2006 as compared to the corresponding period in 2005. These increases were offset by a decrease in revenues from our baseband product area of $18.0 million or 58.0% for the three month period ended March 31, 2006 as compared to 2005. Baseband product revenues decreased $41.5 million or 57.4% for the six month period ended March 31, 2006 as compared to 2005. Assembly and test services revenue also declined by $9.1 million for the six months ended March 31, 2006 as compared to 2005 due to the completion of the test and assembly services arrangement with Conexant in the third quarter of fiscal 2005;
	§		Experienced a decrease of 155 basis points in our gross margin as a percent of revenue from 39.1% in the first six months of fiscal 2005 to 37.6% in the six month period ended March 31, 2006 principally as a result of higher start up costs incurred related to multiple new ramping products. Supply constraints also resulted in operating inefficiencies and increased off-shore assembly and test expenses at higher costs, and higher production costs due to increasing commodity, utility and freight costs. The impact of these adverse factors was partially offset by higher contribution margins received from intellectual property revenue during the six month period as compared to the same period in 2005;
	§		Recorded $3.6 million and $6.6 million in share-based compensation expense upon the adoption of Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123(R)”) during the three month and six month period ended March 31, 2006, respectively. Approximately $0.9 million, $2.9 million and $2.8 million were included in cost of goods sold, research and development expense and selling, general and administrative expense, respectively, for the six month period ended March 31, 2006.

SHARED-BASED PAYMENTS

We grant stock options to purchase our common stock to our employees and directors under our stock option plans. We also grant restricted stock to certain key employees, which may have service, market or performance based conditions attached, and we also granted performance shares to certain of our employees during the quarter ended March 31, 2006. Eligible employees can also purchase shares of our common stock at 85% of the lower of the fair market value on the first or the last day of the offering period under our employee stock purchase plan. The benefits provided under these plans are share-based payments subject to the provisions of revised Statement of Financial Accounting Standards No. 123 (FAS 123R), “Share-Based Payment.” Effective October 1, 2005, we use the fair value method to apply the provisions of FAS 123R with a modified prospective application which provides for certain changes to the method for valuing share-based compensation. The valuation provisions of FAS 123R apply to

new awards and to awards that are outstanding on the effective date and subsequently modified or cancelled. Under the modified prospective application, prior periods are not revised for comparative purposes. Share-based compensation expense recognized under FAS 123R for the first six months of fiscal 2006 was $6.6 million. At March 31, 2006, total unrecognized estimated compensation expense related to non-vested stock options granted prior to that date was $ 24.8 million. The weighted average period over which the unrecognized estimated compensation expense related to non-vested stock options will be recognized is 2.1 years. Stock options, before forfeitures and cancellations, granted during the six months ended March 31, 2006 represented 2.1% of outstanding shares as of March 31, 2006.

At March 31, 2006, total unrecognized compensation for restricted stock (nonvested awards) is $2.8 million.

Upon adoption of SFAS 123(R), the Company elected to retain its method of valuation for share-based awards granted beginning in fiscal 2006 using the Black-Scholes option-pricing model (“Black-Scholes model”) which was also previously used for the Company’s pro forma information required under SFAS 123. The Company’s determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.

If factors change and we employ different assumptions in the application of FAS 123R in future periods, the compensation expense that we record under FAS 123R may differ significantly from what we have recorded in the current period. Therefore, we believe it is important for investors to be aware of the high degree of subjectivity involved when using option-pricing models to estimate share-based compensation under FAS 123R. Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions, are fully transferable and do not cause dilution. Certain share-based payments, such as employee stock options, may expire worthless or otherwise result in zero intrinsic value as compared to the fair values originally estimated on the grant date and reported in our financial statements. Alternatively, value may be realized from these instruments that is significantly in excess of the fair values originally estimated on the grant date and reported in our financial statements. There is currently no market-based mechanism or other practical application to verify the reliability and accuracy of the estimates stemming from these valuation models, nor is there a means to compare and adjust the estimates to actual values. Although the fair value of employee share-based awards is determined in accordance with FAS 123R and the Securities and Exchange Commission’s Staff Accounting Bulletin No. 107 (SAB 107) using an option-pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

Estimates of share-based compensation expenses are significant to our financial statements, but these expenses are based on option valuation models and will never result in the payment of cash by us. For this reason, and because we do not view share-based compensation as related to our operational performance, we exclude estimated share-based compensation expense when evaluating the business performance of our operations.

The guidance in FAS 123R and SAB 107 is relatively new, and best practices are not well established. The application of these principles may be subject to further interpretation and refinement over time. There are significant differences among valuation models, and there is a possibility that we will adopt different valuation models in the future. This may result in a lack of consistency in future periods and materially affect the fair value estimate of share-based payments. It may also result in a lack of comparability with other companies that use different models, methods and assumptions.

Theoretical valuation models and market-based methods are evolving and may result in lower or higher fair value estimates for share-based compensation. The timing, readiness, adoption, general acceptance, reliability and testing of these methods is uncertain. Sophisticated mathematical models may require voluminous historical information, modeling expertise, financial analyses, correlation analyses, integrated software and databases, consulting fees, customization and testing for adequacy of internal controls. Market-based methods are emerging that, if employed by us, may dilute our earnings per share and involve significant transaction fees and ongoing administrative expenses. The uncertainties and costs of these extensive valuation efforts may outweigh the benefits to investors.

We did not modify any of our outstanding share options prior to the adoption of FAS 123R with the exception of the acceleration of certain of our unvested “out of the money” stock options on September 2, 2005. Specifically, we

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accelerated the vesting of options previously awarded to employees and officers that had an exercise price per share over $9.00 and were granted prior to November 10, 2004 were fully vested and accounted for under SFAS 123. As a result of this action, options to purchase approximately 3.8 million shares of Skyworks stock became immediately exercisable. The decision to accelerate vesting of these options was accounted for under SFAS 123 and made to avoid recognizing compensation cost associated with certain “out-of-the-money” options in the statement of operations in future financial statements upon the effectiveness of SFAS 123(R).

During fiscal 2005 and fiscal 2006, we elected to gradually transition more of our share-based compensation awards to restricted stock (with service, market or performance based conditions) from traditional stock options.

We granted 207,000 performance units during the quarter ended March 31, 2006, pursuant to which recipients would receive common stock if certain milestones are achieved. We determined that as of the grant date and March 31, 2006, achievement of the milestones was not probable, thus we did not recognize any compensation expense for the period ending March 31, 2006.

We used an arithmetic average of historical volatility and implied volatility to calculate our expected volatility at March 31, 2006. Historical volatility was determined by calculating the mean reversion of the daily-adjusted closing stock price over the past 3.37 years of our existence (post-Merger). The implied volatility was calculated by analyzing the 52-week minimum and maximum prices of publicly traded call options on our common stock. We concluded that an arithmetic average of these two calculations provided for the most reasonable estimate of expected volatility under the guidance of SFAS 123(R). Utilizing this methodology results in a volatility of 66.02% for the six month period ended March 31, 2006.

The expected life of employee stock options represents a calculation based upon the historical exercise experience of our stock options over the past 3.37 years (post-Merger). We determined that we had two populations with unique exercise behavior. These populations included stock options with a contractual life of 7 years and 10 years, respectively. This methodology results in an expected term calculation of 4.42 and 5.84 years, respectively.

The risk-free interest rate is based on the yield curve of U.S. Treasury strip securities for a period consistent with the contractual life of the option in effect at the time of grant (weighted-average of 4.85% at March 31, 2006).

The post-vesting forfeiture rate is estimated using historical option cancellation information (weighted-average of 8.59% for the six months ended March 31, 2006).

NET REVENUES

		Three Months Ended												Six Months Ended March 31,
		March 31,								April 1,				March 31,								April 1,
		2006				Change				2005				2006				Change				2005
(dollars in thousands)
Net revenues		$	185,234				(2.8	)%		$	190,505			$	383,559				(6.6	)%		$	410,665

We market and sell our semiconductor products and system solutions to leading Original Equipment Manufacturers (“OEMs”) of communication electronics products, third-party original design manufacturers (“ODMs”) and contract manufacturers, and indirectly through electronic components distributors.

Net revenues decreased 2.8% or $5.3 million and 6.6% or $27.1 million for the three and six month periods ended March 31, 2006, respectively, as compared to the corresponding periods in 2005. Revenues from our RF Solutions and Linear Product areas increased 11.2% ($17.4 million) from $154.9 million to $172.3 million in the second fiscal quarter of 2006 as compared to the corresponding period in 2005. Revenues from these product areas increased 7.2% ($23.6 million) from $329.2 million to $352.8 million in the six month period ended March 31, 2006, as compared to the corresponding period in 2005. These increases were offset by 58.0% ($18.0 million) and 57.4% ($41.5 million) decreases in revenues in our baseband product area for the three and six month periods ended March 31, 2006 as compared to the corresponding periods in the prior year, reflecting a market share consolidation from

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