In the past, most semiconductor companies were vertically integrated and designed, fabricated, packaged, tested, and marketed their own semiconductors. However, as the cost and skills required for designing and manufacturing complex semiconductors have increased, the semiconductor industry has increasingly become disaggregated. This disaggregation has fueled the growth of foundries providing standard digital CMOS process technologies to manufacture semiconductors for both fabless semiconductor companies and for vertically integrated device manufacturers. According to Gartner Dataquest, CMOS foundry industry revenue was $3.2 billion in 1993 and $10.4 billion in 2002, and is expected to grow to $23.2 billion by 2006, representing a compound annual growth rate of 22% from 2002.

It is believed that many of the factors that have driven growth in the outsourcing of standard digital CMOS manufacturing will also fuel growth in the outsourcing of manufacturing using other process technologies. Other process technologies include analog CMOS, radio frequency CMOS, advanced radio frequency CMOS, bipolar CMOS and silicon germanium bipolar CMOS processes. Specialty processes are used to produce analog-digital, or mixed-signal, semiconductors that combine analog and digital functions on a single integrated circuit, or IC. Integrating analog and digital components on a single, mixed-signal IC enables smaller, more power-efficient, feature-rich and cost-effective semiconductor devices. International Data Corporation estimates that the global market for analog and mixed-signal semiconductors will grow from $26.4 billion in 2003 to $36.6 billion in 2006.

The two basic functional technologies for semiconductor products are digital and analog. Digital semiconductors perform arithmetic functions on data represented by a series of ones and zeroes. Digital semiconductors provide critical processing power and have helped enable many of the computing and communication advances of recent years. As digital systems proliferate, there is a growing need for analog functionality to enable these digital systems to interface with the real world.

Integrating analog and digital components on a single, mixed-signal IC enables smaller, more power-efficient, feature-rich and cost-effective semiconductor devices but presents significant design and manufacturing challenges. Challenges associated with the design and manufacture of mixed-signal ICs increase as the industry moves toward finer, more advanced process geometries. Standard electronic design automation, or EDA, tools used in the design of digital circuits have limited use in predicting the performance of certain mixed-signal designs. As a result, analog and mixed-signal semiconductors can be complex to manufacture and typically require sophisticated design expertise and strong application specific experience and intellectual property.

Analog engineers typically require several years of practical experience and application knowledge to become proficient in the design of, and manufacturers need to make a significant investment in specialty process technologies to manufacture, complex analog and mixed-signal semiconductors. These specialty process technologies include advanced analog CMOS, radio frequency CMOS, or RF CMOS, advanced RF CMOS, bipolar CMOS, or BiCMOS, and silicon germanium BiCMOS, or SiGe BiCMOS, processes. Specialty process technologies can, in many cases, reduce the final die cost and increase the performance of analog and mixed-signal semiconductors as well as provide superior noise and power efficiency characteristics compared to traditional standard CMOS processes. Certain applications in the wireless and wireline communications, consumer electronics, storage and computing markets utilize specialty process technologies and provide significant growth opportunities for these process technologies.

Gross profit as a percentage of revenues, or gross margin, decreased to 14.5% for the year ended December 31, 2003, compared to 16.5% for the period from March 12, 2002 (inception) to December 31, 2002.

Selling, general and administrative expenses increased to $13.2 million, or 7.1% of revenues, for the year ended December 31, 2003, from $9.5 million, or 7.7% of revenues, for the period from March 12, 2002 (inception) to December 31, 2002.