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You should read the following discussion of our financial condition and results of operations together with the condensed financial statements and the notes to condensed financial statements included elsewhere in this Form 10-Q. This discussion contains forward-looking statements based on our current expectations, assumptions, estimates and projections about us and our industry. These forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements, due to factors including, but not limited to, those set forth in the “Risk Factors and Forward Looking Statements” and “Quantitative and Qualitative Disclosure About Market Risk” sections of this Form 10-Q and the “Risk Factors” section of the our annual report on Form 10-K for the year ended January 26, 2003. We undertake no obligation to update any forward-looking statements after the date of this Form 10-Q.

Overview

We design, produce and market a broad range of products that are sold principally to customers in the computer, communications and industrial markets. Our products are designed into a wide variety of end applications, including notebook and desktop computers, computer gaming systems, personal digital assistants (PDAs), cellular phones, wireline networks, wireless base stations and automated test equipment (ATE). Products within the communications market include products for local area networks, metro and wide area networks, cellular phones and base stations. Industrial applications include ATE, medical devices and factory automation systems. Our end customers are primarily original equipment manufacturers and their suppliers, including Agilent, Cisco, Compal Electronics, Dell, Hewlett Packard, IBM, Intel, Lucky Goldstar, Microsoft, Motorola, Quanta Computer, Samsung, Sony and Unisys.

We recognize product revenue when persuasive evidence of an arrangement exists, delivery has occurred, receipt by the customer has been confirmed, the fee is fixed or determinable and collectibility is probable. Product design and engineering revenue is recognized during the period in which services are performed. We defer revenue recognition on shipment of certain products to distributors where return privileges exist until the products are sold through to end users. Gross profit is equal to our net sales less our cost of sales. Our cost of sales includes materials, direct labor and overhead. We determine the cost of inventory by the first-in, first-out method. Our operating costs and expenses generally consist of selling, general and administrative (SG&A), product development and engineering costs (R&D), costs associated with acquisitions, and other operating related charges.

Most of our sales to customers are made on the basis of individual customer purchase orders. Many large commercial customers include terms in their purchase orders, which provide liberal cancellation provisions. Trends within the industry toward shorter lead-times and “just-in-time” deliveries have resulted in our reduced ability to predict future shipments. As a result, we rely on orders received and shipped within the same quarter for a significant portion of our sales. Sales made directly to original equipment manufacturers during the third quarter of fiscal year 2004 were 50% of net sales. The remaining 50% of net sales were made through independent distributors.

We divide and operate our business based on two reportable segments: Standard Semiconductor Products and Rectifier, Assembly and Other Products. In previous years, we had a segment entitled Other Products. The Other Product Category was combined with the Rectifier and Assembly Products segment, and is now referred to as the Rectifier, Assembly and Other Products segment. The Rectifier, Assembly and Other Products segment has represented less than 10% of net sales for the last three fiscal years. Certain balances from the prior year’s corresponding quarter have been reclassified to be consistent with the current quarter’s presentation.

We evaluate segment performance based on net sales and operating income of each segment. We do not track segment data or evaluate segment performance on additional financial information. We do not track balance sheet items by individual reportable segments. As such, there are no separately identifiable segment assets nor are there any separately identifiable statements of income data (below operating income). The Standard Semiconductor Products segment makes up the vast majority of overall sales and includes our power management, protection, test and measurement, advanced communications and human input device product lines. The Rectifier, Assembly and Other Products segment includes our line of assembly and rectifier devices, which are the remaining products from our founding as a supplier into the military, aerospace and industrial equipment markets. It also includes other products made up of custom integrated circuits and foundry sales.

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Our business involves significant reliance on foreign-based entities. Most of our outside subcontractors and suppliers, including third-party foundries that supply silicon wafers, are located in foreign countries, including China, Malaysia, the Philippines and Germany. For the third quarter ended October 26, 2003, approximately 50% (calculated based on acquisition cost) of our silicon was manufactured in China. Foreign sales for the third quarter of fiscal year 2004 constituted approximately 68% of our net sales. Approximately 88% of foreign sales were to customers located in the Asia-Pacific region. The remaining foreign sales were primarily to customers in Europe.

In the past, we have made several small acquisitions in order to increase our pool of skilled technical personnel and penetrate new market segments, such as test and measurement, advanced communications and system management devices. These acquisitions include: USAR Systems Incorporated; Practical Sciences, Inc.; Acapella Limited; and Edge Semiconductor. The acquisitions of USAR, Acapella and Edge were accounted for as poolings of interests.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

On an ongoing basis, we evaluate and discuss with our audit committee our estimates, including those related to our allowance for doubtful accounts and sales returns, inventory reserves, asset impairments and income taxes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Our critical accounting policies and estimates do not vary between our two reportable segments. Actual results may differ from these estimates.

We believe the following critical accounting policies, among others, affect the significant judgments and estimates we use in the preparation of our consolidated financial statements:

Accounting for Temporary and Long-Term Investments

Our temporary and long-term investments consist of government, bank and corporate obligations. Temporary investments have original maturities in excess of three months, but mature within twelve months of the balance sheet date. Long-term investments have maturities in excess of one year from the date of the balance sheet. In fiscal year 2002, we changed our investment classification from “hold to maturity” to “available for sale” because we expected to sell some securities prior to maturity. There is a loss, net of tax, for the unrealized decline in the market value of our temporary and long-term investments of $463,000 and $796,000 included in comprehensive income for the third quarters of fiscal years 2004 and 2003, respectively.

Allowance for Doubtful Accounts

We evaluate the collectibility of our accounts receivable based on a combination of factors. If we are aware of a customer’s inability to meet its financial obligations to us, we record an allowance to reduce the net receivable to the amount we reasonably believe we will be able to collect from the customer. For all other customers, we recognize allowances for doubtful accounts based on the length of time the receivables are past due, the current business environment and our historical experience. If the financial condition of our customers were to deteriorate or if economic conditions worsen, additional allowances may be required in the future.

Revenue Recognition

We recognize product revenue when persuasive evidence of an arrangement exists, delivery has occurred, receipt by the customer has been confirmed, the fee is fixed or determinable and collectibility is probable. Product design and engineering revenue is recognized during the period in which services are performed. We defer revenue recognition on shipment of certain products to distributors where return privileges exist until the products are sold through to

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end-users. In addition, we record a provision for estimated sales returns in the same period as the related revenues are recorded. We base these estimates on historical sales returns and other known factors. Actual returns could be different from our estimates and current provisions for sales returns and allowances, resulting in future charges to earnings.

Inventory Valuation

Our inventories are stated at lower of cost or market and consist of materials, labor and overhead. We determine the cost of inventory by the first-in, first-out method. At each balance sheet date, we evaluate our ending inventories for excess quantities and obsolescence. This evaluation includes analyses of sales levels by product and projections of future demand. In order to state our inventory at lower of cost or market, we maintain reserves against our inventory. If future demand or market conditions are less favorable than our projections, a write-down of inventory may be required, and would be reflected in cost of goods sold in the period the revision is made.

Contingencies and Litigation

We are involved in various disputes and litigation matters as a claimant and as defendant. We record any amounts recovered in these matters when collection is certain. We record liabilities for claims against us when the losses are probable and estimable. Any amounts recorded are based on reviews by outside counsel, in-house counsel and management. Actual results may differ from estimates.

Accounting for Income Taxes

As part of the process of preparing our consolidated financial statements, we must estimate our income tax liability in each of the jurisdictions in which we operate. This process involves management judgment in assessing our current tax liabilities and determining the recoverability of certain of the deferred tax assets, which arise from temporary differences between the tax and financial statement recognition of revenue and expense.

We must assess the likelihood that our deferred tax assets will be recovered from future taxable income. If recovery is not likely, we must increase our provision for taxes by recording a reserve, in the form of a valuation allowance, for the deferred tax assets that we estimate will not ultimately be recoverable. Management continually evaluates whether it is likely that our deferred tax assets will be recovered from future taxable income. Should there be a change in our ability to recover our deferred tax assets, our tax provision would increase in the period in which we determine that the recovery is not probable.

RESULTS OF OPERATIONS

Comparison Of The Three Months Ended October 26, 2003 and October 27, 2002

Net Sales . Net sales for the third quarter of fiscal year 2004 were $48.1 million, an increase of 2% compared to $47.2 million for the third quarter of fiscal year 2003. Overall macro-economic and semiconductor industry conditions improved in the third quarter of fiscal year 2004 compared to the prior year period. Demand for our products in the third quarter of fiscal year 2004 was strongest from portable applications, such as notebook computers and cellular phones. The weakest demand was from the desktop computer and ATE end-markets as compared to the prior year. In the third quarter of fiscal year 2003, demand for our products was stable across most end-markets, and was strongest out of the ATE and desktop computer end-market segments.

Standard Semiconductor Products represented 95% of net sales in the third quarter of fiscal year 2004, while 5% were represented by the Rectifier, Assembly and Other Products segment. Sales of our Standard Semiconductor Products segment were 96% of net sales in the third quarter of fiscal year 2003 and Rectifier, Assembly and Other Products’ sales were 4%. Sales of Standard Semiconductor Products increased 2% in the third quarter of fiscal year

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2004 as compared to the prior year period. Sales of Rectifier, Assembly and Other Products increased 13% in the third quarter of fiscal year 2004 as compared to the prior year period.

The small increase in sales of Standard Semiconductor Products in the third quarter of fiscal year 2004 reflected general strength in the notebook and cellular phone end-markets, that were partially offset by declines in desktop computer, computer gaming and the ATE markets compared to the prior year. Our power management product line benefited from strength in portable applications, while power management products used in desktop computers and computer gaming systems were negatively impacted by weakness in those end-markets. Weakness in the ATE market negatively impacted our test and measurement product line. These two product lines had the most impact on the Standard Semiconductor Products’ sales for the period.

Sales of our Rectifier, Assembly and Other Products grew by $255,000 in the third quarter of fiscal year 2004 compared to the prior year period. While sales in this segment did increase, the products are older technology products and other non-strategic product offerings which we have de-emphasized due to their lower revenue and margin opportunities.

In the third quarter of fiscal year 2003, sales of Standard Semiconductor Products were higher than the prior year period due in part to improved demand for products used in portable applications and the ATE end-market. Sales of our Rectifier, Assembly and Other Products segment declined in the third quarter of fiscal year 2003 compared to the prior year due to weak industry conditions, a strategic focus on proprietary products and the de-emphasis of custom and foundry services.

Gross Profit. Gross profit for the third quarter of fiscal year 2004 was $27.9 million, compared to $26.4 million for the prior year period. The increase was due to higher sales and a higher gross margin. Our gross margin was 58% for the third quarter of fiscal year 2004 and 56% in the third quarter of fiscal year 2003.

In the third quarter of fiscal year 2004, we sold $157,000 of previously written-off inventory and $218,000 of previously written-off inventory was sold in the third quarter of fiscal year 2003.

Operating Costs and Expenses. Operating costs and expenses were $16.8 million, or 35% of net sales in the third quarter of fiscal year 2004. Operating costs and expenses for the third quarter of fiscal year 2003 were $17.9 million, or 38% of net sales. Operating costs and expenses for the third quarter of fiscal year 2003 include $852,000 of one-time costs for an expected loss on the sub-lease of our New York office and $350,000 of one-time costs for asset impairment at the Corpus Christi, Texas wafer fabrication facility.

Operating Income . Operating income was $11.1 million in the third quarter of fiscal year 2004, up from operating income of $8.5 million in the third quarter of fiscal year 2003. Operating income was impacted by an increase in net sales, higher gross margin and lower operating expenses.

We evaluate segment performance based on net sales and operating income of each segment. Operating income for the Standard Semiconductor Products segment improved 10% in the third quarter of fiscal year 2004 as compared to the third quarter of fiscal year 2003, reflecting higher sales and gross margin. Standard Semiconductor Products segment operating income was benefited by higher returns on power management products used in portable applications, but was partially offset by lower returns on power management products sold in the desktop computer market and lower sales levels of test and measurement products used in the ATE market that have above corporate average operating margins. These three product lines had the most impact on the Standard Semiconductor Products’ operating income for the period.

Operating income for the Rectifier, Assembly and Other Products segment improved 194% or $368,000 in the third quarter of fiscal year 2004 as compared to the third quarter of fiscal year 2003. The Rectifier, Assembly and Other Products’ operating income was most impacted by higher sales and reduced operating expenses.

Operating income in the third quarter of fiscal year 2003 for the Standard Products segment was $9.5 million, up from $7.9 million in the third quarter of fiscal year 2002. Operating income in the Standard Products segment was benefited by increased sales and high margins, but partially offset by higher operating expenses. Operating income

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for the Rectifier, Assembly and Other Products segment declined in the third quarter of fiscal year 2003 compared to the prior year, reflecting the impact of poor efficiencies associated with a lower sales level.

Interest and Other Income (Expense), Net . Net interest and other income (expense) was an income of $1.1 million in the third quarter of fiscal year 2004. Net interest and other income (expense) in the third quarter of fiscal year 2003 was income of $10.6 million. In the third quarter of fiscal year 2003 there was $10.7 million of pre-tax gain on the repurchase of our convertible subordinated notes that was partially offset by interest expense and other items.

Other income and expenses includes interest income from investments, interest expense associated with our previously outstanding convertible subordinated notes, gain on the extinguishment of debt and other items. The decline in net interest and other income (expense) in the third quarter of fiscal year 2004 was mostly due to an absence of one-time gains on the extinguishment of debt.

Provision for Taxes . Provision for income taxes was $2.9 million for the third quarter of fiscal year 2004, compared to $6.1 million in the third quarter of fiscal year 2003. The effective tax rate for the third quarters of fiscal years 2004 and 2003 were 24% and 32%, respectively. The decline is due to increased sales by our foreign-based subsidiaries that are in lower tax jurisdictions and declines in one-time gains that are taxed at a rate higher than the corporate average.

Comparison Of The Nine months Ended October 26, 2003 and October 27, 2002

Net Sales . Net sales for the first nine months of fiscal year 2004 were $136.7 million, down from $148.4 million for the first nine months of fiscal year 2003. Demand for our products in the first nine months of fiscal year 2004 was weak out of the desktop computer, computer gaming and ATE end-markets, only partially offset by strength in portable applications, such as notebook computers and cellular phones.

Standard Semiconductor Products represented 95% of net sales in the first nine months of fiscal year 2004, while 5% were represented by the Rectifier, Assembly and Other Products segment. Sales of our Standard Semiconductor Products segment were 95% of net sales in the first nine months of fiscal year 2003 and Rectifier, Assembly and Other Products’ sales were 5%. Sales of Standard Semiconductor Products declined 8% in the first nine months of fiscal year 2004 as compared to the prior year period. Sales of Rectifier, Assembly and Other Products declined 5% over the prior year period.

The decline in sales of Standard Semiconductor Products in the first nine months of fiscal year 2004 reflected general declines in most end-markets, with the desktop computer, computer gaming and ATE segments being the weakest. Standard Semiconductor Products sales for portable applications, such as notebook computers and cellular phones, were up over the prior year period. Our power management and protection product line benefited from strength in portable applications, while power management products used in desktop computers and computer gaming systems were negatively impacted by weakness in those end-markets. Weakness in the ATE market negatively impacted our test and measurement product line. These three product lines had the most impact on the Standard Semiconductor Products’ sales for the period.

Sales of our Rectifier, Assembly and Other Products declined in the first nine months of fiscal year 2004 compared to the prior year period due to declining demand for these older technology products and other non-strategic product offerings which we have de-emphasized due to their lower revenue and margin opportunities.

In the first nine months of fiscal year 2003, Standard Semiconductor Products were higher than the prior year period due in part to a year-over-year modest improvement in the overall semiconductor industry. Sales of our Rectifier, Assembly and Other Products segment declined in the first nine months of fiscal year 2003 due to weak industry conditions, a strategic focus on proprietary products and the de-emphasis of custom and foundry services.

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Gross Profit. Gross profit for the first nine months of fiscal year 2004 was $78.3 million, compared to $84.8 million for the prior year period. The decline was due to lower sales. Our gross margin was 57% for the first nine months of fiscal years 2004 and 2003.

In the first nine months of fiscal year 2004, we sold $949,000 of previously written-off inventory and $862,000 of previously written-off inventory was sold in the first nine months of fiscal year 2003.

Operating Costs and Expenses. Operating costs and expenses were $50.3 million, or 37% of net sales in the first nine months of fiscal year 2004. Operating costs and expenses for the first nine months of fiscal year 2003 were $50.9 million, or 34% of net sales. The slight decline in operating costs and expenses was the result of modest increases in spending in the areas of sales, general and administration, and a decline in research and development and one-time costs.

Operating Income . Operating income was $28.0 million in the first nine months of fiscal year 2004, down from operating income of $33.9 million in the first nine months of fiscal year 2003. Operating income was most impacted by a decline in net sales.

We evaluate segment performance based on net sales and operating income of each segment. Operating income for the Standard Semiconductor Products segment declined 22% in the first nine months of fiscal year 2004 as compared to the first nine months of fiscal year 2003, reflecting a drop in sales. Standard Semiconductor Products segment operating income was benefited by higher returns on power management and protection products used in portable applications, but was more than offset by lower returns on power management products sold into the desktop computer market segment and test and measurement products used in the ATE market. These three product lines had the most impact on the Standard Semiconductor Products’ operating income for the period.

Operating income for the Rectifier, Assembly and Other Products segment increased 16% in the first nine months of fiscal year 2004 as compared to the first nine months of fiscal year 2003. The Rectifier, Assembly and Other Products’ operating income was impacted by better manufacturing efficiencies and lower spending.

In the first nine months of fiscal year 2003, operating income for the Standard Semiconductor Products segment increased compared to the prior year period. Operating income in the Standard Semiconductor Products segment was benefited by increased sales, a higher gross margin and the absence of large one-time costs for the write-down of inventory and discontinuation of certain products compared to the prior year period. Operating income for the

Rectifier, Assembly and Other Products segment decreased due to a decline in sales and lower operating efficiencies.

Interest and Other Income (Expense), Net . Net interest and other income (expense) in the first nine months of fiscal year 2004 was an expense of $1.8 million, down from income of $13.4 million in the first nine months of fiscal year 2003.

Other income and expenses includes interest income from investments, interest expense associated with our previously outstanding convertible subordinated notes, gain on the extinguishment of debt and other items. The decline in net interest and other income (expense) in the first nine months of fiscal year 2004 was mostly due to one-time costs for the retirement of debt, partially offset by $2.9 million of gain on the extinguishment of debt. Net interest and other income (expense) in the first nine months of fiscal year 2003 included $11.2 million of gain on the extinguishment of debt.

Provision for Taxes . Provision for income taxes was $6.3 million for the first nine months of fiscal year 2004, compared to $13.2 million in the first nine months of fiscal year 2003. The effective tax rate for the first nine months of fiscal years 2004 and 2003 were 24% and 28%, respectively. The decline is due to increased sales by our foreign-based subsidiaries that are in lower tax jurisdictions and declines in one-time gains that are taxed at a rate higher than the corporate average.

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Liquidity and Capital Resources

We evaluate segment performance based on net sales and operating income of each segment. We do not track segment data or evaluate segment performance on additional financial information. As such, there are no separately identifiable segment assets and liabilities.

On February 14, 2000, we completed a private offering of $400.0 million principal amount of convertible subordinated notes that bear interest at the rate of 4½% per annum and are convertible into our common stock at a conversion price of $42.23 per share. The notes were due in 2007 and were callable beginning in February of 2003.

Through an ongoing buyback program, we had bought back and retired a portion of the convertible subordinated notes in open market transactions. On July 18, 2003, we called the remaining $165.0 million outstanding balance of the convertible subordinated notes.

As of October 26, 2003, we had working capital of $209.9 million, compared with $420.9 million as of January 26, 2003. The ratio of current assets to current liabilities as of October 26, 2003 was 8.2 to 1, compared to 12.2 to 1 as of January 26, 2003. The decline in working capital as of October 26, 2003 was mostly the result of a decline in cash and cash equivalents, temporary investment and accrued liabilities.

Cash provided in operating activities was $17.6 million for the first nine months of fiscal year 2004, compared to cash provided by operating activities of $44.4 million in the first nine months of fiscal year 2003. Net operating cash flows were impacted by non-cash charges for depreciation and amortization of $6.8 million and $7.1 million in the first three quarters of fiscal years 2004 and 2003, respectively.

Operating cash flow in the first nine months of fiscal year 2004 was positively impacted by net income of $19.9 million and by increases in deferred income taxes, tax benefit of stock option exercises and loss on retirement of long-term debt. These were more than offset by increases in receivables, inventories, other assets, accounts payable, accrued liabilities, deferred revenue and income taxes payable.

Net operating cash flows in the first nine months of fiscal year 2003 were positively impacted by net income of $34.1 million and by a decrease in inventories, tax benefit from stock option exercises, deferred income taxes, income taxes payable and other assets. These were partially offset by increases in receivables, accounts payable and accrued liabilities.

Investing activities provided $176.1 million in the first three quarters of fiscal year 2004 compared to $149.7 million in the prior year period. Investing activities for both periods consist of changes in temporary investments and long-term investments, and cash used for capital expenditures.

Our financing activities used $240.4 million during the first nine months of fiscal year 2004 and $93.2 million in the prior year period. Financing activities reflect the proceeds from stock option exercises and reissuance of treasury stock for stock option exercises, which were more than offset by cash used to retire long-term debt and repurchase treasury stock.

In order to develop, design and manufacture new products, we have incurred significant expenditures in recent years. We expect to continue these investments aimed at developing new products, including the hiring of many design and applications engineers and related purchase of equipment. Our intent is to continue to invest in those areas that have shown potential for viable and profitable market opportunities. Certain of these expenditures, particularly the addition of design engineers, do not generate significant payback in the short-term. We plan to finance these expenditures with cash generated by operations and investments.

Purchases of new capital equipment were made to expand our test capacity and support other engineering functions, including product design and qualification. These purchases were funded from our operating cash flows and cash reserves. We believe that operating cash flows and cash reserves are sufficient to fund operations and capital expenditures for the foreseeable future.

Off Balance Sheet Arrangements

We do not have any transactions, arrangements and other relationships with unconsolidated entities that are reasonably likely to affect our liquidity or capital resources. We have no special purpose or limited purpose entities that provided off-balance sheet financing, liquidity or market or credit risk support, engage in leasing, hedging,

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research and development services, or other relationships that expose us to liability that is not reflected on the face of the financial statements.

Contractual Obligations

As of October 26, 2003, we have approximately $7.5 million in operating lease commitments that extend over an eight-year period. The portion of these operating lease payments due during the remainder of fiscal year 2004 is approximately $400,000. Presented below is a comprehensive summary of contractual obligations.

We have a contract (“Purchase obligations” in the table above) with one of our third-party wafer foundries in which we guarantee that wafer foundry a certain minimum level of quarterly business. Under the contract, which runs from April of 2003 until June of 2004, we have agreed to buy approximately $3.1 million of fabricated silicon wafers on a calendar quarter basis from this foundry. If we do not meet this minimum obligation on a quarterly basis, we are obligated to pay the difference. We can earn back any shortfall in a given quarter by purchasing more wafers in a subsequent quarter.

Inflation

Inflationary factors have not had a significant effect on our performance over the past several years. A significant increase in inflation would affect our future performance.

Recently Issued Accounting Standards

In December 2002, the Financial Accounting Standards (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure, an Amendment of FASB Statement No. 123.” This statement amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirement of SFAS No. 123 to require prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. We adopted this statement as of fiscal year 2003 and included the prominent disclosure. Since we continued to use the intrinsic value method, the adoption did not have a material impact on our financial position, results of operations or cash flows.

Internet Access to Semtech Financial Documents

We maintain a website at http://www.semtech.com. This website address is not an active hyperlink to our website. Information on our website does not form part of this document. We make available free of charge, either by direct access on our website or a link to the SEC website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC. Our reports filed with, or furnished to, the SEC are also available directly at the SEC’s website at http://www.sec.gov.

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RISK FACTORS

You should carefully consider and evaluate all of the information in this Form 10-Q, including the risk factors listed below. The risks described below are not the only ones facing our company. Additional risks not now known to us or that we currently deem immaterial may also impair our business operations.

If any of these risks actually occur, our business could be materially harmed. If our business is harmed, the trading price of our common stock could decline.

This Form 10-Q also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward looking statements as a result of certain factors, including the risks faced by us described below and elsewhere in this Form 10-Q. We undertake no duty to update any of the forward-looking statements after the date of this Form 10-Q.

Economic decline may have adverse consequences for our business

We sell our products into several commercial markets, primarily the computer, communication and industrial end-markets, whose performance is tied to the overall economy. Many of these industries were impacted in calendar years 2001, 2002 and in the first half of 2003 due to an economic slowdown in the United States and globally. If the economic slowdown were to return or a wider global slowdown occurs, the demand for our products may be reduced. In addition, these economic slowdowns may also affect our customers’ ability to pay for our products. Accordingly, economic slowdowns may harm our business.

The cyclical nature of the electronics and semiconductor industries may limit our ability to maintain or increase revenue and profit levels during industry downturns

The semiconductor industry is highly cyclical and has experienced significant downturns, which are characterized by reduced product demand, production overcapacity, increased levels of inventory, industry-wide fluctuations in the demand for semiconductors and an erosion in average prices. The occurrence of these conditions has adversely affected our business in the past. During the calendar years 1999 and 2000, high consumption levels by electronics manufacturers was a major driver of demand for semiconductors, including the products we sell. However, calendar year 2001 was a year of significant decline for the overall semiconductor and electronics industries and, consequently, our business suffered. In calendar year 2002 and in the first half of calendar year 2003, semiconductor and electronic industry conditions were weak, with declines in average selling prices offsetting gains in unit shipment growth. Past downturns in the semiconductor industry have resulted in a sudden impact on the semiconductor and capital equipment markets. Consequently, any future downturns in the semiconductor industry may harm our business. In addition, the semiconductor manufacturing industry recently experienced conditions of manufacturing overcapacity. If these overcapacity conditions were to persist or recur, they could lead to excess production in the industry and result in a decrease in the prices of our products.

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We compete against larger, more established entities and our market share may be reduced if we are unable to respond to our competitors effectively

The semiconductor industry is intensely competitive and is characterized by price erosion, rapid technological change and design and other technological obsolescence. We compete with domestic and international semiconductor companies, many of which have substantially greater financial and other resources with which to pursue engineering, manufacturing, marketing and distribution of their products. Some of these competitors include:

Texas Instruments, National Semiconductor, Linear Technology, Maxim Integrated Products, Fairchild Semiconductor and Intersil Semiconductor, with respect to our power management products; ST Microelectronics N.V. and Protek, with respect to our protection products; Analog Devices, Maxim Integrated Products, ON Semiconductor and Micrel Semiconductor, with respect to our test and measurement products; Zarlink Semiconductor and Silicon Laboratories, with respect to our advanced communications products; and Synaptics Inc. and Alps with respect to our HID products. We expect continued competition from existing competitors as well as competition from new entrants in the semiconductor market. Our ability to compete successfully in the rapidly evolving area of integrated circuit technology depends on several factors, including:

To the extent that our products achieve market success, competitors typically seek to offer competitive products or lower prices, which, if successful, could harm our business.

Fluctuations and seasonality in the personal computer industry and economic downturns in our end-markets may have adverse consequences for our business

Many of our products are used in personal computers and related peripherals. For the third quarter of fiscal year 2004, approximately 41% of our sales were used in computer applications. For the fiscal year ended January 26, 2003, approximately 49% of our sales were used in computer applications. Industry-wide fluctuations in demand for desktop and notebook computers have in the past, and may in the future, harm our business. In addition, our past results have reflected some seasonality, with demand levels being higher in computer segments during the third and fourth quarters of the year in comparison to the first and third quarters.

A decline in any of our end-markets, particularly the computer, cellular phone and automated test equipment (ATE) markets, could also harm our business. For the third quarter of fiscal year 2004, approximately 12% of our sales were to ATE customers. For the fiscal year ended January 26, 2003, shipment of our products to the ATE customers represented approximately 13% of our net sales. Consequently, a downturn in the ATE market may adversely affect our business.

In fiscal year 2003 and so far in fiscal year 2004, we saw demand from cellular phone manufacturers increase significantly. We estimated 28% of our sales in the third quarter of fiscal year 2004 were tied to wireless end-market applications. Any decline in the number of cellular phones made, especially feature-rich phones with color displays, or declines in the number of wireless base stations made, could adversely affect our business.

We obtain many essential components and materials and certain critical manufacturing services from a limited number of suppliers and subcontractors, including foreign-based entities

Our reliance on a limited number of outside subcontractors and suppliers for silicon wafers, packaging, test and certain other processes involves several risks, including potential inability to obtain an adequate supply of required components and reduced control over the price, timely delivery, reliability and quality of components. These risks may be attributable to several factors including limitation on resources, labor problems, equipment failures or the occurrence of natural disasters. There can be no assurance that problems will not occur in the future with suppliers or subcontractors. Disruption or termination of our supply sources or subcontractors could significantly delay our

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shipments and harm our business. Delays could also damage relationships with current and prospective customers. Any prolonged inability to obtain timely deliveries or quality manufacturing or any other circumstances that would require us to seek alternative sources of supply or to manufacture or package certain components internally could limit our growth and harm our business.

Most of our outside subcontractors and suppliers, including third-party foundries that supply silicon wafers, are located in foreign countries, including China, Malaysia, the Philippines and Germany. For fiscal year 2003, approximately 66% of our silicon, in terms of finished wafers, was supplied by a third-party foundry in China and this percentage could be even higher for all of fiscal year 2004. A majority of our package and test operations are performed by third-party contractors that are based in Malaysia, the Philippines and China. Our international business activities, in general, are subject to a variety of potential risks resulting from certain political and economic uncertainties. Any political turmoil or trade restrictions in these countries, particularly China, could limit our ability to obtain goods and services from these suppliers and subcontractors. The effect of an economic crisis or political turmoil on our suppliers located in these countries may impact our ability to meet the demands of our customers. If we find it necessary to transition the goods and services received from our existing suppliers or subcontractors to other firms, we would likely experience an increase in production costs and a delay in production associated with such a transition, either of which could have a significant negative effect on our operating results, as these risks are substantially uninsured.

We may be unsuccessful in developing and selling new products required to maintain or expand our business

We operate in a dynamic environment characterized by price erosion, rapid technological change and design and other technological obsolescence. Our competitiveness and future success depend on our ability to achieve design wins for our products with current and future customers and introduce new or improved products that meet customer needs while achieving favorable margins. A failure to achieve design wins, to introduce new products in a timely manner or to achieve market acceptance for new products, could harm our business.

The introduction of new products presents significant business challenges because product development commitments and expenditures must be made well in advance of product sales. The success of a new product depends on accurate forecasts of long-term market demand and future technological developments, as well as on a variety of specific implementation factors, including:

The failure of our products to achieve market acceptance due to these or other factors could harm our business.

Our products may be found to be defective, product liability claims may be asserted against us and we may not have sufficient liability insurance

One or more of our products may be found to be defective after shipment, requiring a product replacement, recall or a software solution which would cure the defect but impede performance of the product. We may also be subject to product returns which could impose substantial costs and harm our business.

Product liability claims may be asserted with respect to our technology or products. Although we currently have insurance, there can be no assurance that we have obtained a sufficient amount of insurance coverage, that asserted claims will be within the scope of coverage of the insurance, or that we will have sufficient resources to satisfy any asserted claims.

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Our share price could be subject to extreme price fluctuations, and shareholders could have difficulty trading shares

The markets for high technology companies in particular have been volatile, and the market price of our common stock has been and may continue to be subject to significant fluctuations. Fluctuations could be in response to operating results, announcements of technological innovations and market conditions for technology stocks in general. Additionally, the stock market in recent years has experienced extreme price and volume fluctuations that often have been unrelated to the operating performance of individual companies. These market fluctuations, as well as general economic conditions, may adversely affect the price of our common stock.

In the past, securities class action litigation has often been instituted against a company following periods of volatility in the company’s stock price. This type of litigation, if filed against us, could result in substantial costs and divert our management’s attention and resources.

In addition, the future sale of a substantial number of shares of common stock by us or by our existing stockholders may have an adverse impact on the market price of the shares of common stock. There can be no assurance that the trading price of our common stock will remain at or near its current level.

We sell and trade with foreign customers, which subjects our business to increased risks applicable to international sales

Sales to foreign customers accounted for approximately 68% of net sales in the third quarter of fiscal year 2004. Sales to foreign customers accounted for approximately 67% of net sales in fiscal year 2003. Sales to our customers located in Taiwan and Korea constituted 28% and 13%, respectively, of net sales for fiscal year 2003. International sales are subject to certain risks, including unexpected changes in regulatory requirements, tariffs and other barriers, political and economic instability, difficulties in accounts receivable collection, difficulties in managing distributors and representatives, difficulties in staffing and managing foreign subsidiary operations and potentially adverse tax consequences. These factors may harm our business. Our use of the Semtech name may be prohibited or restricted in some countries, which may negatively impact our sales efforts. In addition, substantially all of our foreign sales are denominated in U.S. dollars and currency exchange fluctuations in countries where we do business could harm us by resulting in pricing that is not competitive with prices denominated in local currencies.

The outbreak of severe acute respiratory syndrome or SARS, could impact our customer or supply base, especially in Asia

A large percentage of our sales are to customers located in Asia and a large percentage of our products are manufactured in Asia. Our largest customer base in Asia is located in Taiwan. Our largest wafer source is located in China. SARS or other health related issues could have a negative impact on consumer demand, on travel needed to secure new business, on transportation of our products from our suppliers or to our customers, or on workers needed to manufacture our products or our customers’ products.

Reductions in communications infrastructure investments could adversely affect our business

The overall semiconductor industry, and our business in particular, has benefited from the build-out of voice, data, and mobile networks and the related demand for communications infrastructure equipment that supports higher-speed (higher bandwidth) networks. The electronics needed to support this trend within the communications market rely heavily on companies such as ours to develop the circuits used in these systems.

Much of our sales growth and margin expansion in fiscal year 2001 and 2000 was the result of product sales into wireless, local area networks, wide area networks and long-haul communications applications. This market saw a dramatic decline in total carrier spending throughout calendar years 2001 and 2002. Moreover, carrier spending on telecom equipment could decline further in the future. Although we believe that the communication equipment market has not been characterized by cyclicality to date, this market may in the future exhibit general cyclical characteristics similar to the market for semiconductor capital equipment. Any major reduction in communications

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infrastructure investment will have a negative impact on the overall industry and our sales into these end-market segments.

Our foreign currency exposures may change over time as the level of activity in foreign markets grows and could have an adverse impact upon financial results

As a global enterprise, we face exposure to adverse movements in foreign currency exchange rates. Certain of our assets, including certain bank accounts and accounts receivable, exist in nondollar-denominated currencies, which are sensitive to foreign currency exchange rate fluctuations. The nondollar-denominated currencies are principally the Euro, Swiss Francs, and British Pounds Sterling. Additionally, certain of our current and long-term liabilities are denominated principally in British Pounds Sterling currency, which are also sensitive to foreign currency exchange rate fluctuations. With the growth of our international business, our foreign currency exposures may grow and under certain circumstances could harm our business.

Our future operating results may fluctuate, fail to match past performance or fail to meet expectations

Our operating results may fluctuate in the future, may fail to match our past performance or fail to meet the expectations of analysts and investors. Our operating results may fluctuate as a result of:

As a result of these factors, our past financial results are not necessarily indicative of our future results.

We receive a significant portion of our revenues from a small number of customers and the loss of any one of these customers or failure to collect a receivable from them could adversely affect our operations and financial position

Historically, we have had significant customers that individually accounted for 10% or more of consolidated revenues in certain quarters or represented 10% or more of net accounts receivables at any given date. The identity of our largest customers has varied from year to year. In fiscal year 2002, one of our ATE end customers, including its subcontractors, accounted for approximately 13% of net sales. In the third quarter of fiscal year 2004, one of our Asian distributors accounted for approximately 16% of net sales. In the third quarter of fiscal year 2003, this Asian distributor accounted for approximately 15% of net sales. For the first nine months of fiscal year 2004, this Asian distributor and another distributor also in Asia accounted for approximately 15% and 11%, respectively, of net sales. For the first nine months of fiscal year 2003, this Asian distributor accounted for 14% of net sales.

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As of October 26, 2003, one of the Asian distributors referred to above accounted for approximately 16% of net accounts receivable. Receivables from our customers are not secured by any type of collateral, and likewise are subject to the risk of being uncollectable.

We primarily conduct our sales on a purchase order basis, rather than pursuant to long-term supply contracts. The loss of any significant customer, any material reduction in orders by any of our significant customers, the cancellation of a significant customer order or the cancellation or delay of a customer’s significant program or product could harm our business.

We have acquired and may continue to acquire other companies and may be unable to successfully integrate these companies into our operations

In the past, we have expanded our operations through strategic acquisitions, and we may continue to expand and diversify our operations with additional acquisitions. If we are unsuccessful in integrating these companies into our operations or if integration is more difficult than anticipated, then we may experience disruptions that could harm our business. Some of the risks that may affect our ability to integrate acquired companies include those associated with:

We must commit resources to product production prior to receipt of purchase commitments and could lose some or all of the associated investment

Sales are made primarily on a current delivery basis pursuant to purchase orders that may be revised or cancelled by our customers without penalty, rather than pursuant to long-term supply contracts. Some contracts require that we maintain inventories of certain products at levels above the anticipated needs of our customers. As a result, we must commit resources to the production of products without binding purchase commitments from customers. Our inability to sell products after we devote significant resources to them could harm our business.

The loss of key personnel or the failure to attract or retain the specialized technical and management personnel could impair our ability to grow our business

Our future success depends upon our ability to attract and retain highly qualified technical, marketing and managerial personnel. We are dependent on a relatively small group of key technical personnel with analog and mixed-signal expertise. Personnel with highly skilled managerial capabilities, analog and mixed-signal design expertise are scarce and competition for personnel with these skills is intense. There can be no assurance that we will be able to retain existing key employees or that we will be successful in attracting, integrating or retaining other highly qualified personnel in the future. If we are unable to retain the services of existing key employees or are unsuccessful in attracting new highly qualified employees, our business could be harmed.

We are subject to Government regulations which impose operational requirements

The Company and its suppliers are subject to a variety of United States federal, foreign, state and local governmental laws, rules and regulations, including those related to the use, storage, handling, discharge or disposal of certain toxic, volatile or otherwise hazardous chemicals used in the manufacturing process. If we or our suppliers were to incur substantial additional expenses to acquire equipment or otherwise comply with environmental regulations, product costs could significantly increase, thus harming our business. We are also subject to laws, rules, and

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regulations related to export licensing and customs requirements, including the North American Free Trade Agreement and State Department and Commerce Department rules. Failure to comply with present or future laws, rules and regulations of any kind that govern our business could result in suspension of all or a portion of production, cessation of all or a portion of operations, or the imposition of significant administrative, civil, or criminal penalties, any of which could harm our business.

Major earthquakes may cause us significant losses

Our corporate headquarters, a portion of our assembly and research and development activities and certain other critical business operations are located near major earthquake fault lines. We do not maintain earthquake insurance and could be harmed in the event of a major earthquake.

Terrorist attacks, war and other acts of violence may negatively affect our operations and your investment

Terrorist attacks, such as the attacks that took place on September 11, 2001, wars, such as the current war in Iraq, and other acts of violence, such as those that may result from the increasing tension in the Middle East and the Korean Peninsula, or any other national or international crisis, calamity or emergency, may result in interruption to the business activities of many entities, business losses and overall disruption of the U.S. economy at many levels. These events or armed conflicts may directly impact our physical facilities or those of our customers and suppliers. Additionally, these events or armed conflicts may cause some of our customers or potential customers to reduce the level of expenditures on their services and products that ultimately may reduce our revenue. The consequences of these reductions are unpredictable, and we may not be able to foresee events that could have an adverse effect on our business. For example, as a result of these events, insurance premiums for businesses may increase and the scope of coverage may be decreased. Consequently, we may not be able to obtain adequate insurance coverage for our business and properties. A “high” or “Orange” or “severe” or “Red” threat condition announced by the Homeland Security Advisory System or similar agency and any consequent effect on the transportation industry may adversely affect our ability to timely import materials from our suppliers located outside the United States or impact our ability to deliver our products to our customers without incurring significant delays. To the extent that these disruptions result in delays or cancellations of customer orders, a general decrease in corporate spending, or our inability to effectively market our services and products, our business and results of operations could be harmed.

We may be unable to adequately protect our intellectual property rights

We pursue patents for some of our new products and unique technologies, but we rely primarily on a combination of nondisclosure agreements and other contractual provisions, as well as our employees’ commitment to confidentiality and loyalty, to protect our know-how and processes. We intend to continue protecting our proprietary technology, including through trademark and copyright registrations and patents. Despite this intention, we may not be successful in achieving adequate protection. Our failure to adequately protect our material know-how and processes could harm our business. There can be no assurance that the steps we take will be adequate to protect our proprietary rights, that our patent applications will lead to issued patents, that others will not develop or patent similar or superior products or technologies, or that our patents will not be challenged, invalidated, or circumvented by others. Furthermore, the laws of the countries in which our products are or may be developed, manufactured or sold may not protect our products and intellectual property rights to the same extent as laws in the United States.

The semiconductor industry is characterized by frequent claims of infringement and litigation regarding patent and other intellectual property rights. Due to the number of competitors, patent infringement is an ongoing risk since other companies in our industry could have patent rights that may not be identifiable when we initiate development efforts. Litigation may be necessary to enforce our intellectual property rights and we may have to defend ourselves against infringement claims. Any such litigation could be very costly and may divert our management’s resources. If one of our products is found to infringe, we may have liability for past infringement and may need to seek a license going forward. If a license is not available or if we are unable to obtain a license on terms acceptable to us, we would either have to change our product so that it does not infringe or stop making the product.

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We could be required to register as an investment company and become subject to substantial regulation that would interfere with our ability to conduct our business

The Investment Company Act of 1940 requires the registration of companies which are engaged primarily in the business of investing, reinvesting or trading in securities, or which are engaged in the business of investing, reinvesting, owning, holding or trading in securities and which own or propose to acquire investment securities with a value of more than 40% of the company’s assets on an unconsolidated basis (other than U.S. government securities and cash). We are not engaged primarily in the business of investing, reinvesting or trading in securities, and we intend to invest our cash and cash equivalents in U.S. government securities to the extent necessary to take advantage of the 40% safe harbor. To manage our cash holdings, we invest in short-term instruments consistent with prudent cash management and the preservation of capital and not primarily for the purpose of achieving investment returns. U.S. government securities generally yield lower rates of income than other short-term instruments in which we have invested to date. Accordingly, investing substantially all of our cash and cash equivalents in U.S. government securities could result in lower levels of interest income and net income.

If we were deemed an investment company and were unable to rely upon a safe harbor or exemption under the Investment Company Act, we would among other things be prohibited from engaging in certain businesses or issuing certain securities. Certain of our contracts might be voidable, and we could be subject to civil and criminal penalties for noncompliance.

We are subject to review by taxing authorities, including the Internal Revenue Service

We are subject to review by domestic and foreign taxing authorities, including the Internal Revenue Service (IRS). The IRS is currently performing a routine review of our open-year tax filings. If the IRS were to prevail in securing tax liabilities in excess of those previously provided for, our tax loss carryforwards could be materially reduced, resulting in a tax provision charge in a future period.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the information in this Form 10-Q and in the documents that are incorporated by reference, including the risk factors in this section, contains forward-looking statements that involve risks and uncertainties. These statements relate to future events or our future financial performance. In many cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or continue,” or the negative of these terms and other comparable terminology. These statements are only predictions. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of a number of factors including the risks faced by us described above and elsewhere in this Form 10-Q.