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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2002

OR

For the transition period from                          to                         .

Commission File Number 000-30615

SIRENZA MICRODEVICES, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code:

(408) 616-5400

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.001 Par Value

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

Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing price of the Registrant’s common stock on June 30, 2002, as reported on the Nasdaq National Market, was approximately $29,272,872 (affiliates being defined, for these purposes only, as directors and executive officers of the registrant and holders of 5% or more of the registrant’s outstanding common stock).

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).  Yes  ¨  No  x

There were 30,006,632 shares of the Registrant’s common stock issued and outstanding on February 14, 2003.

DOCUMENTS INCORPORATED BY REFERENCE

CERTAIN PORTIONS OF THE REGISTRANT’S DEFINITIVE PROXY STATEMENT RELATED TO ITS 2003 ANNUAL MEETING OF STOCKHOLDERS, TO BE FILED SUBSEQUENT TO THE DATE HEREOF, ARE INCORPORATED BY REFERENCE INTO PART III OF THIS FORM 10-K TO THE EXTENT STATED THEREIN.

PART I

Item 1.    Business

Overview

Sirenza Microdevices is a leading designer of high performance radio frequency (RF) components for communications equipment manufacturers. Sirenza’s products optimize the transmission and reception of high-frequency voice and data signals in network infrastructure applications. These include mobile wireless applications, such as cellular and mobile data networks; fixed wireless applications, such as local-area and wide-area site-to-site data networks; and broadband wireline applications, such as coaxial cable and fiber optic networks. Sirenza’s products are also used in terminal applications, such as cable television set-top boxes and wireless video transmitters. The performance of the RF section of communications equipment—which is used to convert, process and amplify the high frequency signals that transmit voice or data—has a significant influence on the overall performance of such communications systems.

Sirenza offers a broad line of products that range in complexity from discrete components to integrated circuits and multi-component modules. Sirenza believes its products are well suited for existing and future communications networks which are expected to be increasingly centered on data transmission in addition to voice. Sirenza has adopted a fabless operating model. Sirenza outsources the manufacturing of its semiconductor wafers to several wafer fabrication facilities, or third-party wafer fabs, that use leading-edge process technologies. Sirenza focuses internally on its RF design and development expertise and selects what it believes to be the optimal process technology for any given application without the constraint of a captive wafer fab facility. Sirenza’s fabless operating model, combined with its proven core competencies in RF components design, packaging and test, gives Sirenza the flexibility necessary to deliver a comprehensive line of high quality products at compelling prices to Sirenza’s customers.

On September 11, 2002, Sirenza acquired Xemod Incorporated, a designer and fabless manufacturer of RF power amplifier modules and components based on patented lateral double diffused transistor technology. The purchase price was approximately $4.9 million in cash and accrued transaction costs, with additional cash consideration of up to approximately $3.4 million to be paid upon the execution by April 9, 2003 by Sirenza of a qualified supply, development or licensing agreement with regard to the technology developed by Xemod. To be a qualified agreement, the agreement must provide for revenues to Sirenza or its subsidiary with a net present value (using a discount rate of 4%) of at least $3.5 million, provide for a payment of at least $2.5 million to Sirenza upon execution and otherwise be reasonably acceptable to Sirenza. The additional amount payable of between zero and the maximum noted above is determined by applying a formula to the net present value of the revenue to Sirenza provided for by the qualified agreement. As of March 18, 2003, a qualified agreement had not been executed. The acquisition is intended to strengthen Sirenza’s product portfolio of RF components, in particular, high power amplifier products.

On December 2, 2002, Sirenza entered into an asset purchase agreement with Vari-L, a designer and manufacturer of RF and microwave components and devices for use in wireless communications. The asset purchase is anticipated to close in the second quarter of 2003. The consummation of the transactions contemplated by the asset purchase agreement is subject to the approval of the shareholders of Vari-L, the effectiveness of a registration statement of Sirenza on Form S-4, as declared by the Securities and Exchange Commission and other customary closing conditions.

Industry Background

Demand for Connectivity and Mobility Driving Investment in Communications Infrastructure

Consumers and businesses are increasingly seeking connectivity, mobility, functionality, reliability and bandwidth from telecommunications service providers. Increased deployment and use of wireless communications systems and the rise of wireline and wireless Internet applications offer users the potential for access any time, anywhere to voice and data networks.

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Communications service providers continue to make investments in network infrastructure to enable and enhance connectivity for today’s information-driven economy. Wireless and broadband wireline communications service providers are expanding capacity and offering a broader range of services to support the changing needs of users. Competitive pressures are also requiring service providers to offer increased bandwidth and to reduce operating costs. In the case of wireless networks, communications service providers must support a rapidly growing number of subscribers and the subscribers’ demands for more expanded service. In addition, wireless network operators are adopting and have announced plans to adopt new standards such as second generation overlay standards, or 2.5G, and third generation, or 3G, standards that enable the migration from voice-only to integrated voice and high-speed data services, which are not fully supported by today’s installed infrastructure.

Challenges Facing Communications Equipment Manufacturers

Manufacturers of communications equipment must develop systems to meet the requirements of communications service providers. In meeting these challenges, equipment manufacturers face significant market and product performance pressures. These include, but are not limited to:

Shorter time to market.    The intensity of competition and the resulting need to adopt new technologies is forcing communications equipment manufacturers to develop and launch products in the shortest time possible.

Higher performance and more reliable systems.    Communications equipment manufacturers are facing increased demands from communications service providers for greater bandwidth, which is a measure of a system’s capacity. System reliability is another key performance requirement due to the high costs of equipment downtime and of maintaining communications networks.

Reduced costs.    Communications service providers seek to minimize both the up-front equipment acquisition costs as well as ongoing operating costs as they upgrade their networks. Communications equipment manufacturers must, as a result, offer a better value proposition.

Need for High Performance RF Components from Third-Party Suppliers

Communications equipment manufacturers are adopting new approaches in designing systems to deliver the performance and feature improvements that service providers require. In a typical communications system, the principal functional blocks are the RF subsystem, which receives, amplifies and transmits signals, the signal processor, which encodes and decodes digitized signals, and the antenna. Since the RF subsystem receives the signal, interfaces with the signal processor, and amplifies and transmits the signal, a system’s performance and signal quality are significantly affected by the RF subsystem. Communications equipment manufacturers often do not have the internal expertise or the time to address every aspect of a system’s RF performance. To lower their production costs and shorten product development cycles, equipment manufacturers are seeking innovative RF components from third-party suppliers who offer a broad range of high-performance products.

Many RF component suppliers have made significant investments in their own wafer fabs. These wafer fabs are typically based on a single process technology. A process technology is a method of manufacturing semiconductor devices and circuits using a given wafer material. As a result, RF component suppliers with wafer fabs generally focus most of their attention on developing products using their own process technology even if another process may be more appropriate for a given application. To adopt one of these other process technologies, these component suppliers would have to migrate their current facility to the other technologies, make significant capital investments in new wafer fabs or would have to develop relationships with merchant wafer fabs. Because all of these steps are expensive and time consuming, most RF component suppliers resist changing process technologies. As a result, many of these component suppliers do not offer the broadest range of products or may offer sub-optimal products for certain applications.

Manufacturers of communications infrastructure equipment, such as base stations used by wireless service providers, require components that are optimized for a feature known as linearity. Linearity is a measure of

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signal quality. Many RF component suppliers have optimized their products for power efficiency at the expense of linear performance, making these products well suited for battery-powered, portable applications, but not optimal for infrastructure applications. Sirenza believes these suppliers would require new design techniques, process technologies and testing capabilities to modify their products to address the market for infrastructure equipment.

Sirenza believes that there is a substantial market opportunity for a third-party supplier of high performance RF components who can meet the needs for flexibility, performance and value required by communications equipment manufacturers.

Sirenza’s Solution

Sirenza designs, develops and markets a broad range of RF components using leading process technologies for use in wireless and broadband wireline communications infrastructure equipment. Sirenza’s products are designed to provide the following competitive benefits to communications equipment manufacturers:

Optimal solutions.    The combination of Sirenza’s design expertise and access to several leading process technologies enables Sirenza to deliver products which match the needs of its customers and provide the appropriate characteristics for the intended application. Sirenza’s fabless operating model provides it with the flexibility to use multiple process technologies. Because each process technology has a different impact on characteristics such as linearity, frequency, operating voltage, output power, noise suppression and heat dissipation, the selection of a process technology is critical to the function of a component. Sirenza’s components are designed to optimize functionality by selecting the process technology that provides the appropriate characteristics for the intended application. This approach also enables Sirenza to quickly adapt to changes in product specifications or market requirements.

High performance for infrastructure applications.    Sirenza designs its products specifically for communications infrastructure equipment. Sirenza has made engineering trade-offs in favor of design characteristics that are most important to infrastructure equipment manufacturers. Sirenza’s products are particularly well suited for communications equipment that requires high capacity, clear signals, longer product life and an extended transmit and receive range.

Product and technology breadth.    Sirenza’s product portfolio includes a broad line of products that range in complexity from discrete components to integrated circuits and multi-component modules designed to meet the varied needs of its customers. Sirenza also offers a wide range of products based on different process technologies. The availability and breadth of its product portfolio facilitate efficient customer sourcing and improve time to market for communications equipment manufacturers.

Price performance.    Sirenza believes that its combination of product quality and high performance at competitive prices makes its products a compelling value proposition for its customers.

Sirenza faces competitive factors in each of its markets and refers you to the section below entitled “Competition” for a discussion of those factors.

Sirenza’s Strategy

Sirenza’s objective is to become the leading designer and supplier of RF components for wireless and broadband wireline communications infrastructure equipment. Sirenza intends to achieve this objective by providing a comprehensive portfolio of high performance and high value RF components optimized for their target applications. Sirenza’s strategy consists of the following elements:

Offer a wide range of products for the mobile and fixed wireless, wireline and terminals markets.    From 2000 to 2001, Sirenza operated under two business segments: the Standard Products segment and the Wireless

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Infrastructure Products segment. At the beginning of 2002, in response to the changes in the marketplace, Sirenza reorganized to focus on end markets. As a result of this reorganization, Sirenza operated in three business segments through the date of the acquisition of Xemod. As a result of the Xemod acquisition, Sirenza now operates in four business segments. First is the Wireless Applications business area. This business area is responsible for all wireless infrastructure activity, excluding both standard and specialized high power amplifier products. Second is the Wireline Applications business area. This business area is responsible for the development and marketing of wireline components to both cable television and fiber optics markets. Third is the Terminals business area. This business area focuses on customers who use the Company’s products for applications outside of Sirenza’s core markets of wireless and wireline infrastructure, such as cable television set-top boxes and wireless video transmitters. Last is the Integrated Power Products business area. This business area focuses on high power amplifier module products featuring Xemod’s proprietary LDMOS semiconductor technology for the wireless communication and networking infrastructure markets.

Leverage Sirenza’s fabless operating model.    Sirenza’s fabless model gives Sirenza the flexibility to design products that are tailored for the intended application. By avoiding the administrative and capital-intensive burden of operating a captive wafer manufacturing facility, Sirenza intends to continue to maintain the flexibility to adopt and leverage emerging process technologies. Sirenza believes this approach is unique in the RF components industry and plan to leverage the advantages it provides to offer optimized solutions for Sirenza’s target markets.

Continue to invest in Sirenza’s technology and product quality.    Sirenza will continue to invest in research and development in the areas of semiconductor materials, device modeling, RF circuit design, packaging technology, and test and measurement. Sirenza will also maintain and extend a rigorous quality assurance program to ensure the highest product quality. Sirenza’s quality program includes periodic qualification testing of products, including extended lifetime testing under accelerated temperature and other operating conditions, designed to simulate more extreme operating conditions than would be encountered in most practical applications.

Strengthen strategic technology and supplier relationships.    Sirenza has formed supplier relationships with Atmel, TriQuint Semiconductor, TRW, Global Communication Semiconductors (GCS) and RF Micro Devices and is engaged in joint development efforts with GCS. In addition, in March 2002, Sirenza made a strategic investment of $7.5 million in Series D-1 Preferred Stock of GCS. Although there is no formal supply agreement associated with this investment, it is intended to strengthen Sirenza’s existing supply relationship with GCS. In addition, Sirenza’s President joined GCS’ seven-member board of directors. Sirenza plans to further strengthen these relationships by continuing to engage in co-development projects on new products and adaptations of existing products. Sirenza also has established and will seek to establish strategic technology and supplier relationships with additional third-party wafer fabs as new process technologies emerge and to secure additional fabrication capacity.

Recruit the best talent available.    The market for experienced RF designers and application engineers remains highly competitive. Sirenza’s strategy is to attract the best talent by offering the opportunity to work with leading design and process technologies and the flexibility to work at any of its design centers. Sirenza has design centers in Torrance and Sunnyvale, California, Tempe, Arizona, Ottawa, Canada, and Richardson, Texas. By locating its design centers in areas that have significant numbers of RF-related businesses, Sirenza believes it is better able to recruit experienced engineers locally. Sirenza plans to continue to recruit experienced RF engineers at its existing design centers and will consider opening additional design centers as warranted. If the Vari-L asset sale is consummated, Sirenza intends to relocate its manufacturing and general and administrative functions from Sunnyvale, California to Denver, Colorado.

Maintain Sirenza’s distribution channels and continue to expand Sirenza’s direct marketing and sales force.    Sirenza has long-standing relationships with its two worldwide distributors, Avnet Electronics Marketing and Richardson Electronics Laboratories, and plans to continue marketing its products through them. In 2001 and

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2002, Sirenza invested significant time and effort in upgrading its direct sales and marketing efforts and improving the strength of its external sales representative network. In 2002, Sirenza has leveraged this investment to further penetrate targeted groups of communications equipment manufacturers. Sirenza believes this approach will enable it to work more closely with these customers to gain a better understanding of, and more effectively meet, their needs. In 2003, Sirenza hopes to leverage these investments into significantly better penetration of major customer accounts.

Products

Sirenza sells RF components used in the infrastructure of mobile wireless, broadband wireline and fixed wireless communications networks. RF components include low noise and power amplifier modules and ICs, drivers, pre-drivers, mixers, modulators, demodulators, upconverters and downconverters. They convert, process and amplify the high frequency signals that carry the information to be transmitted or received.

The following is a simplified illustration of the RF subsystems in the transmitter and receiver sections of a typical communication system:

Sirenza’s current product offerings address key functions in the transmit and receive section of a typical communication system and include:

Amplifier Products.    These are components in the receiver section of an RF system that receive signals from an antenna at extremely low levels and amplify these signals. Due to the low noise characteristics of Sirenza’s amplifiers, they can be used to amplify very weak signals. A pre-driver amplifier is a component in the transmitter section that provides the first stage of amplification in a power amplifier chain. These amplifiers take very weak transmitted signals and amplify them. A driver takes the amplified signals from a pre-driver and further amplifies these signals before transmitting them to the last stage of amplification. Sirenza’s pre-drivers and drivers determine the overall ability of an RF subsystem to work with signals of different strengths with minimum distortion.

Power Amplifier Products.    A power amplifier is a key component in the transmitter section that provides the required stages of RF amplification in a power amplifier chain. Sirenza’s power amplifier modules and IC products determine the overall ability of an RF subsystem to transmit signals with minimum signal distortion.

Discrete Device Products.    These are transistors which contain minimal circuitry and are used as building blocks in a variety of component applications such as oscillators, mixers and active circuits. Important attributes

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of Sirenza’s discrete devices are wide frequency range, low noise and low power consumption. Such devices are used throughout an RF subsystem.

RF Signal Processing Products.    These components, such as modulators and demodulators, are used in the transmitter or receiver section to combine digital information with an RF signal by varying its phase and amplitude so that the resulting signal can be better transmitted or received. Also mixers, upconverters and downconverters are frequently combined with amplifiers to accept low or high frequency signals, and mix them with a local oscillator signal to produce a lower or higher frequency signal for processing or transmission.

Fiber Optic Products.    These components perform the optical-to-electrical (O/E) or the electrical-to-optical (E/O) conversion function in a datacomm or telecomm transmit or receive application. These components include transimpedance amplifiers, limiting amplifiers and driver amplifiers for laser-based optical transceivers.

Process Technologies

Sirenza has expertise in designing and manufacturing RF components in multiple process technologies. Currently, Sirenza primarily uses four process technologies for its product designs in order to meet the price and performance requirements of its customers. These process technologies are:

Gallium arsenide heterojunction bipolar transistor (GaAs HBT).    Sirenza uses GaAs HBT technology for applications that require high linearity and low power consumption.

Silicon germanium heterojunction bipolar transistor (SiGe HBT).    Sirenza uses SiGe HBT for processing more integrated and complex components which require increased semiconductor area.

Indium gallium phosphide heterojunction bipolar transistor (InGaP HBT).    Sirenza uses InGaP for products that require higher frequency, improved linearity, enhanced noise performance or greater reliability.

Lateral double diffused metal oxide semiconductors (LDMOS).    Sirenza uses LDMOS silicon technology for applications that require high power, high linearity and high reliability levels.

Customers

Sirenza sells its products worldwide through U.S.-based distributors and through Sirenza’s direct sales force. Sirenza’s products are also sold through a worldwide network of independent sales representatives whose orders are fulfilled either by Sirenza’s distributors or by Sirenza. Sales to customers located in the United States represented approximately 57%, 75% and 93% of net revenues for the years ended December 31, 2002, 2001 and 2000, respectively. Sales to customers located outside of the United States represented 43%, 25%, and 7% of net revenues for the years ended December 31, 2002, 2001 and 2000, respectively. Sales to customers located in Sweden represented 15% of net revenues for the years ended December 31, 2002. Sales to customers located in the United Kingdom represented 10% of net revenues for the years ended December 31, 2001.

Two distributors, Richardson Electronics Laboratories and Avnet Electronics Marketing, accounted for a substantial portion of Sirenza’s net revenues in 2002. Sales to Richardson Electronics Laboratories represented 37% of net revenues in 2002. Sales to Avnet Electronics Marketing represented 16% of net revenues in 2002. In addition, sales to one direct customer, Ericsson, represented 13% of net revenues in 2002. Four of Sirenza’s customers, Richardson Electronics Laboratories, Minicircuits Laboratories, Avnet Electronics Marketing and Pace Micro Technology, PLC, accounted for 39%, 19%, 16% and 10% of net revenues, respectively, for the year ended December 31, 2001. Three of Sirenza’s customers, Richardson Electronics Laboratories, Minicircuits Laboratories and Avnet Electronics Marketing, accounted for 39%, 31% and 20% of net revenues, respectively, for the year ended December 31, 2000.

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For a description of Sirenza’s revenues by business segment and its revenues and long-lived assets by geographic region during the last three fiscal years and other information regarding Sirenza’s business segments, see Note 14 to Sirenza’s Consolidated Financial Statements included elsewhere in this annual report on Form 10-K.

Sales, Marketing and Customer Support

Sirenza sells its products worldwide through Sirenza’s direct sales force and through U.S.-based distributors. In the past, Sirenza also sold its products through a private label reseller who sold Sirenza’s products under its brand name, although there were no sales to this reseller in 2002. Sirenza’s products are also sold through a worldwide network of independent sales representatives whose orders are fulfilled either by Sirenza or Sirenza’s distributors. Each of these channels is supported by Sirenza’s customer service and marketing communication functions. Sirenza’s marketing efforts are designed to create awareness for its products within its target markets and to support its direct and indirect sales efforts. Sirenza uses an integrated mix of marketing activities including trade journal advertisements, and public relations and promotional events such as tradeshows, seminars and technical conferences.

Sirenza believes that sales through its distribution and direct sales channels will continue to account for a significant amount of its revenues in the future. In 2001, Sirenza invested significant time and effort into developing its direct sales and marketing capabilities and in strengthening its external sales representative network. In 2002, Sirenza has leveraged this investment to further penetrate targeted groups of communications equipment manufacturers. Sirenza believes this approach will enable it to work more closely with these customers to gain a better understanding of, and more effectively meet, their needs.

Sirenza’s products are highly technical and Sirenza’s customers frequently consult with Sirenza to select a component for a given application, determine product performance under specified conditions unique to their system, or test a product for new applications. To meet the needs of its customers, Sirenza provides support in all stages of the sales process, from concept definition and product selection to post-sale support. These services are provided by Sirenza’s applications engineering organization, which works closely with Sirenza’s sales organization in all pre- and post-sale activities. Sirenza intends to continue to invest in expanding Sirenza’s applications engineering organization to assist Sirenza’s customers.

As of December 31, 2002, Sirenza had 24 employees in its sales and marketing organization, including four application engineers.

Operations

Sirenza’s products are designed at its five design centers located in North America. Sirenza applies its expertise in packaging during the design phase to ensure that its RF components meet high performance standards. The relationship between a circuit and its package is critical to the reliability and electrical performance of RF components.

Sirenza outsources the fabrication of its semiconductor wafers to several independent wafer fabs generally through supply agreements that provide Sirenza with multi-year supply commitments. To date, Sirenza has relied on three principal third-party wafer fabs as follows:

In addition, Sirenza utilizes TriQuint Semiconductors for certain discrete devices. RF Micro Devices, GCS, and others also manufacture limited quantities of semiconductor wafers for Sirenza. Sirenza expects each of GCS and RF Micro Devices to become a more significant supplier of wafers for Sirenza in the future, assuming that demand increases for Sirenza’s products using their specific manufacturing process.

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With the exception of Nortel Networks, Sirenza’s supply agreements with Sirenza’s principal third-party wafer fabs feature access at fixed prices which are typically re-negotiated annually. These contracts typically feature commitments to provide Sirenza with sufficient wafers at mutually agreeable prices to continue Sirenza’s business in the case that any of Sirenza’s foundries decide to discontinue their fabrication processes. Sirenza has similar arrangements in place with its two newest foundries GCS and RF Micro Devices.

Nortel Networks has notified Sirenza that they are changing their fabrication process. As a result, Nortel Networks will no longer be able to support Sirenza’s products. Sirenza is transferring the fabrication of the products made at Nortel Networks to GCS who has a comparable fabrication process to support Sirenza. These products will require minor design changes as Sirenza transitions to the GCS fabrication process.

Sirenza has unconditional purchase obligations under some of its supply agreements. Because the products Sirenza is purchasing are unique to Sirenza, Sirenza’s agreements with these suppliers prohibit cancellation of its orders subsequent to the production release of the products in Sirenza’s suppliers’ manufacturing facilities, regardless of whether Sirenza’s customers cancel orders. At December 31, 2002, Sirenza had approximately $834,000 of unconditional purchase obligations.

Following production of wafers by Sirenza’s third-party wafer fabs, Sirenza performs wafer inspection at Sirenza’s offices in Sunnyvale, California. As a result, Sirenza is able to ensure that the wafers meet high standards of reliability required for their use in communications equipment. Semiconductor packaging is then outsourced to five offshore subcontractors and packaged components are returned to Sirenza’s offices in Sunnyvale, California for final testing, quality assurance, and tape and reel assembly for final shipment. Sirenza intends to begin outsourcing a portion of its production testing operations once unit volumes increase to a level that makes outsourcing economically attractive to subcontractors.

Research and Development

Sirenza focuses its research activities in the areas of semiconductor materials, device modeling, RF circuit design, packaging technology, and test and measurement. In the area of semiconductor materials, Sirenza is focusing its research efforts on emerging semiconductor materials that offer high linearity and low power consumption critical for digital communications networks. In the area of device modeling, Sirenza is expanding its library of device models which predict the performance of a transistor within a circuit design.

Sirenza’s circuit design efforts are focused on developing products that provide repeatable performance and reliability and that are easy to use in communications equipment design. Sirenza’s products generally incorporate integrated matching structures, eliminating the need for additional external components and providing stable performance over a range of temperatures and varying supply voltages. Sirenza also works closely with its third-party wafer fabs to design test circuits for new process technologies.

In the area of packaging technology, Sirenza is developing specialized packages that offer both high frequency performance and efficient heat dissipation. Sirenza also works closely with its packaging subcontractors to research new package designs and materials.

Sirenza’s proprietary test and measurement techniques coupled with its packaging expertise complete its back-end, or production, competency. Sirenza has a number of high-speed automatic component testers that are capable of recording high frequency data at extremely high throughput rates using Sirenza’s proprietary software. Sirenza intends to continue to increase throughput rates by developing new test software that accelerates data recording while adding the ability to measure additional test parameters.

Sirenza’s principal development work is concentrated on expanding the number of products it can offer to the wireless infrastructure OEM’s and introducing products to the wireline infrastructure OEMs. A key factor in

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this development work is to design products with improved functionality by selecting the process technology that provides the optimal performance and price for its customers. Sirenza’s ability to align its design expertise with leading process technologies enables Sirenza to focus and adapt its research and development efforts to keep pace with changing market requirements.

In 2000 and 2001, Sirenza invested a portion of its research and development dollars into developing three products for the fiber optic infrastructure market and several highly integrated multi-component modules for the wireless infrastructure market. Although Sirenza started marketing several of these products in 2001, the depressed condition of the telecommunication industry in 2001 resulted in low demand for these kinds of products. In 2002, Sirenza continued its research and development efforts and marketing efforts in fiber optics products at a low level, positioning the products for when the market for fiber optic components improves.

At December 31, 2002, Sirenza had 37 employees in its research and development organization. Sirenza incurred research and development expenses of approximately $7.0 million in 2002, $8.8 million in 2001 and $8.0 million in 2000.

Competition

The RF semiconductor industry is intensely competitive in each of the markets Sirenza serves. Competition in each market is driven by the:

In each of the markets that Sirenza serves, it competes primarily with other suppliers of high performance RF components such as Agilent, Anadigics, Infineon, M/A-COM, Minicircuits Laboratories, NEC, RF Micro Devices, Skyworks, TriQuint Semiconductor and WJ Communications. Sirenza does not believe that any one of these competitors has a dominant position in any of the markets that Sirenza serves.

In the market for wireless base stations, in addition to the component suppliers named above, Sirenza also competes with current and potential communications equipment manufacturers who manufacture RF components internally, such as Ericsson, Lucent, Motorola and Nortel Networks.

Sirenza emphasizes the following points in competing with other RF suppliers:

Performance for price paid.    Sirenza focuses on delivering RF components with better technical performance and in particular better linearity than its competitors for the price paid.

Customer support.    RF parts are complicated devices and application support for designing the parts into customer end products is very important. Sirenza has focused on providing technical support to its customers’ design engineers.

Broad array of products.    Sirenza strives to offer its customers a broad array of products using multiple manufacturing processes to meet their technical needs. This allows customers to reduce the number of their suppliers and thereby reduce costs.

In those situations where Sirenza has lost business to a competitor in the past, Sirenza believes that the primary reasons was a specific customer requirement or desire for a particular technical feature of a competitor’s product. Other reasons for losing business to a competitor that Sirenza has encountered include a customer’s desire to maintain a current relationship with a competitor, lower pricing of a competitor’s product, and a customer’s desire to deal with a competitor who may have greater financial, manufacturing and marketing resources than Sirenza.

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Sirenza expects increased competition from existing competitors and from a number of companies that may enter the RF component market, as well as future competition from companies that may offer new or emerging technologies. Sirenza’s failure to successfully compete in its markets would have a material adverse effect on its business, financial condition and results of operations.

Intellectual Property

Although Sirenza has 18 U.S. patents and 4 foreign patents issued, as well as current patent applications pending, Sirenza primarily relies upon a combination of copyright, trade secret and trademark laws to protect its proprietary technology. Sirenza intends to seek patent protection for its future products and technologies where appropriate and to protect its proprietary technology under U.S. and foreign laws affording protection for integrated circuit designs, trademarks and trade secrets. Although Sirenza anticipates that patent protection will become more important for future products and technologies under development, it does not believe that any of its issued or pending patents are material to its current products and technologies. Third-party wafer fabs own the patents for the current process technologies used in the manufacture of Sirenza’s wafers.

With respect to trademarks, Sirenza considers its trademark in its name “Sirenza Microdevices” material to its business. Sirenza has sought registration with the United States Patent and Trademark Office (USPTO) and in the European Union for this trademark and the trademark has been published, although not yet registered, by both the USPTO and the European Union. When registered in the U.S., a trademark is effective for a ten year period, with indefinite renewal periods of ten years, subject to continued use of the mark. Until such trademark becomes registered, Sirenza relies on common law protection for this trademark.

To protect its trade secrets, technical know-how and other proprietary information, Sirenza’s employees are required to enter into agreements providing for the maintenance of confidentiality and assignment of rights to inventions made by them while employed by Sirenza. Sirenza also enters into non-disclosure agreements to protect its confidential information delivered to third parties and control access to and distribution of Sirenza’s proprietary information. Despite Sirenza’s efforts to protect its proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use Sirenza’s products or technology or to develop products with the same functionality as Sirenza’s products. Monitoring unauthorized use of Sirenza’s proprietary information is difficult and Sirenza cannot be certain that the steps it has taken will prevent misappropriation of its technology, particularly in foreign countries where the laws may not protect proprietary rights as fully as do the laws of the United States.

Although Sirenza relies on copyright, trade secrets, patents and trademark law to protect its technology, Sirenza believes that factors such as the technological and creative skills of its personnel, new product developments, frequent product enhancements and reliable product maintenance are more essential to establishing and maintaining a technology leadership position. Sirenza can give no guarantee that others will not develop products or technologies that are similar or superior to Sirenza’s products and technologies.

Backlog

At December 31, 2002, Sirenza’s backlog was approximately $1.7 million, compared to $1.5 million at December 31, 2001. Sirenza includes in its backlog all accepted product purchase orders for which delivery has been specified within one year, including orders from distributors. Of the $1.7 million in total backlog as of December 31, 2002, $1.1 million was attributable to purchase orders by Sirenza’s distributors. Sirenza does not recognize revenue from sales through Sirenza’s distributors until the distributor has sold Sirenza’s product to their customer. Product orders in Sirenza’s backlog are subject to changes in delivery schedules or to cancellation at the option of the purchaser without significant penalty. Sirenza’s backlog may vary significantly from time to time depending upon the level of capacity available to satisfy unfilled orders. Accordingly, although useful for scheduling production, backlog as of any particular date may not be a reliable indicator of sales for any future period.

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Employees

As of December 31, 2002, Sirenza had 121 full time employees, including 24 in sales and marketing, 37 in research and development, 41 in operations and 19 in general and administrative functions. None of Sirenza’s employees are subject to a collective bargaining agreement, and Sirenza believes that its relations with Sirenza’s employees are good.

Web Site Postings

Sirenza makes its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed with or furnished to the U.S. Securities and Exchange Commission available to the public free of charge through its website as soon as reasonably practicable after making such filings. Sirenza’s website can be accessed at the following address: www.sirenza.com. The information found on Sirenza’s website or that may be accessed through Sirenza’s website is not a part of this report and is not incorporated herein by this reference.

Risk Factors

Set forth below and elsewhere in this annual report on Form 10-K and in other documents we file with the SEC are risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this annual report on Form 10-K.

Any acquisitions of companies or technologies by Sirenza, including Sirenza’s proposed acquisition of Vari-L’s assets, may result in distraction of Sirenza’s management and disruptions to Sirenza’s business.

Sirenza may acquire or make investments in complementary businesses, technologies, services or products if appropriate opportunities arise, as was the case in the third quarter of 2002 when Sirenza acquired Xemod Incorporated. From time to time, Sirenza may engage in discussions and negotiations with companies regarding the possibility of its acquiring or investing in their businesses, products, services or technologies, as was the case in the fourth quarter of 2002 when Sirenza announced its entry into the asset purchase agreement with Vari-L. Sirenza may not be able to identify suitable acquisition or investment candidates in the future, or if it does identify suitable candidates, may not be able to make such acquisitions or investments on commercially acceptable terms or at all. If Sirenza acquired or invested in another company, it could have difficulty assimilating that company’s personnel, operations, technology or products and service offerings. In addition, the key personnel of the acquired company may decide not to work for Sirenza. These difficulties could disrupt Sirenza’s ongoing business, distract its management and employees, increase its expenses and adversely affect its results of operations. Furthermore, Sirenza may incur indebtedness or issue equity securities to pay for any future acquisitions. The issuance of equity securities could be dilutive to Sirenza’s existing stockholders. In addition, the accounting treatment for any acquisition transaction may result in significant goodwill, which, if impaired, will negatively affect Sirenza’s consolidated results of operations.

In September 2002, Sirenza completed its acquisition of Xemod, a California corporation and a designer and fabless manufacturer of RF power amplifier modules and components based on patented lateral double-diffused transistor (LDMOS) technology. Sirenza evaluates and may enter into other acquisitions or investment transactions on an ongoing basis. The recent acquisition of Xemod and the proposed acquisition of substantially all of Vari-L’s assets increase both the scope and consequence of ongoing integration risks. Sirenza may not successfully address the integration challenges in a timely manner, or at all, and Sirenza may not realize the anticipated benefits or synergies of either transaction, or of any other transaction to the extent, or in the timeframe, anticipated. Moreover, the timeframe for achieving benefits may be dependent partially upon the actions of employees, suppliers or other third parties. For example, to the extent that the closing of the proposed acquisition of Vari-L’s assets is delayed for any reason, Sirenza and Vari-L will also be delayed or prevented

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from realizing any cost savings they hope to achieve by consolidating their operations. Similarly, to the extent that future demand by OEMs for integration by component suppliers is lower than expected or fails to materialize, Sirenza may not realize many of the strategic advantages it hopes to achieve through the proposed purchase of Vari-L’s assets.

Even if an acquisition or alliance is successfully integrated, Sirenza may not receive the expected benefits of the transaction. Managing acquisitions requires varying levels of management resources, which may divert Sirenza’s attention from other business operations. These transactions also have resulted and may in the future result in significant costs and expenses and charges to earnings. In the case of the Xemod acquisition, these costs and expenses include those related to severance pay, charges from the elimination of duplicative facilities, in-process research and development charges, legal, accounting and financial advisory fees. Moreover, Sirenza has incurred and will incur additional depreciation and amortization expense over the useful lives of certain of the net tangible and intangible assets acquired in connection with the transaction, and, to the extent the value of goodwill acquired in connection with the transaction becomes impaired, Sirenza may be required to incur material charges relating to the impairment of that asset. In addition, any completed, pending or future transactions may contribute to financial results of the combined company that differ from the investment community’s expectations in a given quarter, and may result in Sirenza’s incurring unanticipated expenses or liabilities associated with the acquired assets or businesses.

Failure to hire and retain key employees could diminish the benefits of the Vari-L asset sale to Sirenza.

The successful integration of the Vari-L assets into Sirenza’s current business operations will depend in part on the hiring and retention of personnel critical to the business and operations of Sirenza and the Vari-L business. Although four officers of Vari-L have signed offer letters with Sirenza effective as of the closing of the asset sale, such agreements are terminable at will by either party. Furthermore, the Vari-L employees to be hired by Sirenza in connection with the asset sale have technical and engineering expertise that is in high demand and short supply. Sirenza may be unable to retain such personnel that are critical to the successful integration of the Vari-L assets, which may result in loss of key information, expertise or know-how and unanticipated additional recruiting and training costs and otherwise diminishing anticipated benefits of the asset sale for Sirenza and its stockholders.

If Sirenza is not successful in integrating Vari-L’s business, Sirenza’s operations may be affected.

Sirenza’s ability to realize some of the anticipated benefits of the asset purchase will depend in part on Sirenza’s ability to integrate the assets purchased from Vari-L into Sirenza’s current operations in a timely and efficient manner. This integration may be difficult and unpredictable because Sirenza’s current products are highly complex and have been developed independently from those of Vari-L. Successful integration requires coordination of different development and engineering teams. If Sirenza cannot successfully integrate the Vari-L assets with its operations, Sirenza may not realize some of the expected benefits of the asset purchase. In connection with the asset purchase, Sirenza intends to relocate its manufacturing and general and administrative functions from Sunnyvale, California to Denver, Colorado. This move may disrupt Sirenza’s operations, and Sirenza may encounter difficulty in leasing a new site suitable for its needs. Either of these events could materially and adversely effect Sirenza’s business, financial condition or results of operations.

Sirenza’s stock price may be extremely volatile.

Sirenza’s stock price has been highly volatile since its initial public offering. Sirenza expects that this volatility will continue in the future due to factors such as:

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In addition, in recent years, the stock market in general, and the Nasdaq National Market and the securities of technology companies in particular, have experienced extreme price and volume fluctuations. These fluctuations have often been unrelated or disproportionate to the operating performance of individual companies. These broad market fluctuations have in the past and may in the future materially adversely affect Sirenza’s stock price, regardless of its operating results.

Also, Sirenza’s stock price is currently trading below $5.00, which typically reduces the number of its institutional investors and increases the number of its retail investors. This may have the effect of increased volatility in Sirenza’s stock price.

Sirenza may not meet quarterly financial expectations, which could cause Sirenza’s stock price to decline.

Sirenza’s quarterly operating results have varied significantly in the past and are likely to vary significantly in the future based upon a number of factors related to its industry and the markets for its products, over many of which Sirenza has little or no control. Sirenza operates in a highly dynamic industry and future results could be subject to significant fluctuations, particularly on a quarterly basis. These fluctuations could cause Sirenza to fail to meet quarterly financial expectations, which could cause its stock price to decline rapidly and significantly. For example, on October 9, 2001 and March 12, 2001, Sirenza publicly announced revised lowered expectations of financial results for the quarters ending September 30, 2001 and March 31, 2001, respectively and the fiscal year ending December 31, 2001. Subsequently, the trading price of Sirenza’s common stock declined, which had a substantial negative effect on the value of any investment in such stock. Factors contributing to the volatility of Sirenza’s stock price include:

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Due to the factors discussed above, investors should not rely on quarter-to-quarter comparisons of Sirenza’s results of operations as indicators of future performance.

Sirenza’s growth primarily depends on the growth of the infrastructure for wireless and wireline communications. If this market does not grow, or if it grows at a slow rate, demand for Sirenza’s products will fail to grow or diminish.

Sirenza’s success will depend in large part on the growth of the telecommunications industry in general and, in particular, the market for wireless and wireline infrastructure components. Sirenza cannot assure you that the market for these infrastructure products will grow at all. Sirenza continues to observe softness in the wireless and wireline infrastructure markets related to a general economic slowdown, which has impacted its entire segment. There have been announcements throughout the worldwide telecommunications industry of current and planned reductions in component inventory levels and equipment production volumes, and of delays in the build-out of new wireless and wireline infrastructure. These trends have had an adverse effect on Sirenza’s operations and caused it in the past to lower its previously announced expectations for its financial results, which caused the market price of its common stock to decrease.

These trends contributed to Sirenza’s decision in the fourth quarter of 2001 and 2002 to implement workforce reductions and consolidations of excess facilities resulting in restructuring charges of $2.7 million and $391,000, respectively. These same trends contributed to Sirenza’s decision in the second half of 2001 to record provisions for excess inventories of $4.7 million, charges reducing the value of certain equipment of $1.6 million and recording a valuation allowance of $2.3 million against its net deferred tax assets, and to the impairment of Sirenza’s investment in GCS in the fourth quarter of 2002 requiring a write-down of the investment by $2.9 million.

If the economic trends described above were to worsen it would likely result in lower sales for Sirenza’s products. Significantly lower sales would likely lead to further provisions for excess inventories and further actions by Sirenza to reduce its operating expenses. These actions could include, but would not be limited to, further abandonment or obsolescence of equipment, further consolidation of facilities and a further workforce reduction. Any or all of these actions could have a material adverse effect on the results of Sirenza’s operations and the market price of its common stock.

Fluctuations in supply and demand for semiconductor products could adversely impact Sirenza’s business.

The semiconductor industry has historically been characterized by wide fluctuations in supply and demand for semiconductor products. From time to time, demand for semiconductor products has decreased, often in connection with, or in anticipation of, major additions of wafer fabrication capacity or maturing product cycles or due to general economic conditions, as is the case currently.

These trends contributed to Sirenza’s decision in the fourth quarter of 2001 and 2002 to implement workforce reductions and consolidations of excess facilities resulting in restructuring charges of $2.7 million and $391,000, respectively. These same trends contributed to Sirenza’s decision in the second half of 2001 to record provisions for excess inventories of $4.7 million, charges reducing the value of certain equipment of $1.6 million and recording a valuation allowance of $2.3 million against its net deferred tax assets, and to the impairment of Sirenza’s investment in GCS in the fourth quarter of 2002 requiring a write-down of the investment by $2.9 million.

If the economic trends described above were to worsen it would likely result in lower sales for Sirenza’s products. Significantly lower sales would likely lead to further provisions for excess inventories and further actions by Sirenza to reduce Sirenza’s operating expenses. These actions could include, but would not be limited

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to, further abandonment or obsolescence of equipment, further consolidation of facilities and a further workforce reduction. Any or all of these actions could have a material adverse effect on the results of Sirenza’s operations and the market price of its common stock.

The timing of the adoption of industry standards may negatively impact widespread market acceptance of Sirenza’s products.

The markets in which Sirenza and its customers compete are characterized by rapidly changing technology, evolving industry standards and continuous improvements in products and services. If technologies or standards supported by Sirenza or its customers’ products, such as 2.5G and 3G, fail to gain widespread commercial acceptance, Sirenza’s business will be significantly impacted. For example, in 2001 and 2002 the installation of 2.5G and 3G equipment occurred at a much slower rate than was initially expected. In addition, while historically the demand for wireless and wireline communications has exerted pressure on standards bodies worldwide to adopt new standards for these products, such adoption generally only occurs following extensive investigation of, and deliberation over, competing technologies. The delays inherent in the standards approval process have in the past and may in the future cause the cancellation, postponement or rescheduling of the installation of communications systems by Sirenza’s customers. For example, in 2001 and 2002 the delay in agreement over certain 3G standards contributed to the delay of the installation of 3G equipment worldwide.

These trends contributed to Sirenza’s decision in the fourth quarter of 2001 and 2002 to implement workforce reductions and consolidations of excess facilities resulting in restructuring charges of $2.7 million and $391,000, respectively. These same trends contributed to Sirenza’s decision in the second half of 2001 to record provisions for excess inventories of $4.7 million, charges reducing the value of certain equipment of $1.6 million and recording a valuation allowance of $2.3 million against its net deferred tax assets, and to the impairment of Sirenza’s investment in GCS in the fourth quarter of 2002 requiring a write-down of the investment by $2.9 million.

If the economic trends described above were to continue or worsen it would likely result in lower sales for Sirenza’s products. Significantly lower sales would likely lead to further provisions for excess inventories and further actions by Sirenza to reduce its operating expenses. These actions could include, but would not be limited to, further abandonment or obsolescence of equipment, further consolidation of facilities and a further workforce reduction. Any or all of these actions could have a material adverse effect on the results of Sirenza’s operations and the market price of Sirenza’s common stock.

Sirenza’s reliance on third-party wafer fabs to manufacture Sirenza’s semiconductor wafers may cause a significant delay in its ability to fill orders and limits its ability to assure product quality and to control costs.

Sirenza does not own or operate a semiconductor fabrication facility. Sirenza currently relies on three third-party wafer fabs to manufacture substantially all of its semiconductor wafers. These fabs are TRW for Gallium Arsenide, or GaAs, Atmel for Silicon Germanium, or SiGe, and TriQuint Semiconductors for Sirenza’s discrete devices. A majority of Sirenza’s products sold in 2001 and in 2002 were manufactured in GaAs by TRW and SiGe by Atmel. Atmel is currently Sirenza’s sole source supplier for SiGe wafers and has provided Sirenza with a commitment for a supply of wafers through September of 2004. The supply agreement with TRW provides Sirenza with a commitment for a supply of wafers through December 31, 2003. The loss of one of Sirenza’s third-party wafer fabs, in particular TRW or Atmel, or any delay or reduction in wafer supply, will impact Sirenza’s ability to fulfill customer orders, perhaps materially, and could damage its relationships with its customers, either of which would significantly harm its business and operating results. Because there are limited numbers of third-party wafer fabs that use the particular process technologies Sirenza selects for its products and that have sufficient capacity to meet its needs, using alternative or additional third-party wafer fabs would require an extensive qualification process that could prevent or delay product shipments, adversely effecting its results of operations.

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Nortel Networks has historically supplied Sirenza with the wafers used in the production of Sirenza’s NGA line of products. These products are manufactured using a process technology called Indium Gallium Phosphide Heterojunction Bipolar Transistor, or InGaP HBT. The NGA product line consists of seven products. In 2002, Sirenza sold approximately $2.2 million of these products, which represented approximately 11% of Sirenza’s sales for that period. Nortel Networks has notified Sirenza that they are changing their fabrication process. As a result, Nortel Networks will no longer be able to support Sirenza’s products. Sirenza is transferring the fabrication of the products made at Nortel Networks to Global Communication Semiconductors, Inc., or GCS, who has a comparable fabrication process. When the transfer is complete, GCS will be Sirenza’s sole source for wafers using the InGaP HBT process technology. These products will require minor design changes as Sirenza transitions to the GCS fabrication process and, to date, Sirenza has not purchased significant quantities of production wafers from GCS. The unsuccessful or delayed transfer of Sirenza’s products to GCS could result in its having an insufficient supply of InGaP HBT wafers that meet its specifications in a timely manner. This would impact Sirenza’s ability to fulfill customer orders, perhaps materially, and could damage its relationships with its customers, either of which would significantly harm its business and operating results.

Sirenza has begun introducing products that are fabricated at RF Micro Devices, or RFMD. The unsuccessful fabrication of these products by RFMD, or Sirenza’s inability to obtain a sufficient supply of these products in a timely manner would impact Sirenza’s ability to fulfill customer orders, perhaps materially, and could damage its relationships with its customers, either of which would significantly harm its business and operating results.

Sirenza’s reliance on these third-party wafer fabs involves several additional risks, including reduced control over the manufacturing costs, delivery times, reliability and quality of Sirenza’s components produced from these wafers. The fabrication of semiconductor wafers is a highly complex and precise process. Minute impurities, difficulties in the fabrication process, defects in the masks used to print circuits on a wafer, wafer breakage or other factors can cause a substantial percentage of wafers to be rejected or numerous die on each wafer to be nonfunctional. Sirenza expects that Sirenza’s customers will continue to establish demanding specifications for quality, performance and reliability that must be met by Sirenza’s products. Sirenza’s third-party wafer fabs may not be able to achieve and maintain acceptable production yields in the future. These risks are heightened with respect to Sirenza’s newer third-party wafer fabs, particularly GCS and RFMD, which have not yet produced wafers in volume for Sirenza. To the extent Sirenza’s third-party wafer fabs suffer failures or defects, Sirenza could experience lost revenues, increased costs, and delays in, cancellations or rescheduling of orders or shipments, any of which would harm Sirenza’s business.

In the past, Sirenza has experienced delays in product shipments from Sirenza’s third-party wafer fabs, quality issues and poor manufacturing yields, which in turn delayed product shipments to Sirenza’s customers and resulted in higher costs of production and lower gross margins. Sirenza may in the future experience similar delays or other problems, such as inadequate wafer supply.

Product quality, performance and reliability problems could disrupt Sirenza’s business and harm Sirenza’s financial condition.

Sirenza’s customers demand that Sirenza’s products meet stringent quality, performance and reliability standards. RF components such as those Sirenza produces may contain undetected defects or flaws when first introduced or after commencement of commercial shipments. Sirenza has from time to time experienced product quality, performance or reliability problems. In addition, some of Sirenza’s products are manufactured using process technologies that are relatively new and for which long-term field performance data are not available. As a result, defects or failures have in the past, and may in the future occur relating to Sirenza’s product quality, performance and reliability. If these failures or defects occur or become significant, Sirenza could experience lost revenues, increased costs, including inventory write-offs, warranty expense and costs associated with customer support, delays in or cancellations or rescheduling of orders or shipments and product returns or discounts, any of which would harm Sirenza’s business.

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Sirenza’s $7.5 million strategic investment in GCS, a privately held semiconductor foundry, could ultimately be further impaired or never redeemed, which could have a material adverse impact on Sirenza’s results of operations.

In the first quarter of 2002, Sirenza converted an outstanding loan receivable of approximately $1.4 million and invested cash of approximately $6.1 million in GCS, a privately held semiconductor foundry, in exchange for 12.5 million shares of Series D-1 preferred stock valued at $0.60 per share. Sirenza’s total investment of $7.5 million represented approximately 14% of the outstanding voting shares of GCS at that time.

Sirenza accounted for Sirenza’s investment in GCS under the cost method of accounting in accordance with accounting principles generally accepted in the United States, as Sirenza’s investment represents less than 20% of the voting stock of GCS and Sirenza cannot exercise significant influence over GCS. The investment in GCS has been classified as a non-current asset on Sirenza’s consolidated balance sheet.

On a quarterly basis, Sirenza evaluates its investment in GCS to determine if an other than temporary decline in value has occurred. Factors that may cause an other than temporary decline in the value of Sirenza’s investment in GCS would include, but not be limited to, a degradation of the general business environment in which GCS operates, the failure of GCS to achieve certain milestones or a series of operating losses in excess of GCS’ current business plan, the inability of GCS to continue as a going concern and a reduced valuation as determined by a new financing event. If Sirenza determines that an other than temporary decline in value has occurred, Sirenza will write-down its investment in GCS to fair value. Such a write-down could have a material adverse impact on Sirenza’s consolidated results of operations in the period in which it occurs. For example, as of December 31, 2002, Sirenza wrote down the value of its investment in GCS by $2.9 million after determining that GCS had experienced an other than temporary decline in value.

Sirenza’s investment in GCS is also at risk to the extent that Sirenza cannot ultimately sell its shares of Series D-1 preferred stock, for which there is currently no public market. Even if Sirenza is able to sell its Series D-1 preferred stock, the sale price may be less than the price paid, which could have a material adverse effect on Sirenza’s results of operations.

Sirenza is in the process of outsourcing its RF production testing function. Sirenza may not be able to outsource its RF testing function on favorable terms, or at all.

In late 2001, Sirenza made the decision to outsource a significant portion of its RF testing function. Sirenza intends to begin outsourcing a portion of its production testing operations once unit volumes increase to a level that makes outsourcing economically attractive to subcontractors. However, Sirenza may be unable to successfully outsource this function in the near term, or at all. The selection and ultimate qualification of a subcontractor to test Sirenza’s RF components could be costly and increase its cost of revenues. In the second half of 2001, Sirenza recorded an impairment charge of $315,000 on some of its existing test equipment as a result of a reduction in demand for Sirenza’s products and the decision to outsource its testing operations. As a result of the impairment charge, Sirenza’s existing test equipment was revalued to Sirenza’s estimate of market value as of September 30, 2001. To the extent that the proceeds, if any, from the ultimate disposition of Sirenza’s test equipment are less than the recorded value of such equipment, Sirenza would incur a charge to cost of revenues. Such a charge could have a material adverse effect on Sirenza’s gross margin and results of operations.

Sirenza’s reliance on subcontractors to production test its products could cause a delay in Sirenza’s ability to fulfill orders and adversely affect its results of operations.

Sirenza does not know if it will be able to negotiate a long-term contract with a subcontractor t