10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended December 27, 2003

or

o	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the Transition Period from _________ to _________

COMMISSION FILE NO. 0-16538

MAXIM INTEGRATED PRODUCTS, INC.
(Exact name of Registrant as specified in its charter)

DELAWARE	94-2896096
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer I.D. No.)
120 SAN GABRIEL DRIVE,
SUNNYVALE, CALIFORNIA	94086
(Address of Principal Executive Offices)	(Zip Code)
Registrant’s telephone number, including area code:
(408) 737-7600

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Sections 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 o

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

Class: Common Stock,	Outstanding at January 28, 2004
$.001 par value	328,013,661 shares

MAXIM INTEGRATED PRODUCTS, INC.

INDEX

			Page
PART I. FINANCIAL INFORMATION
	ITEM 1.	Financial Statements
			3
		Condensed Consolidated Balance Sheets as of December 27, 2003 and June 28, 2003
		Condensed Consolidated Statements of Income for the three and six months ended December 27, 2003 and December 28, 2002	4
		Condensed Consolidated Statements of Cash Flows for the six months ended December 27, 2003 and December 28, 2002	5
		Notes to Condensed Consolidated Financial Statements	6-13
	ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14-21
	ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	21
	ITEM 4.	Controls and Procedures	21
PART II. OTHER INFORMATION
	ITEM 4.	Submission of Matters to a Vote of Security Holders	22
	ITEM 6.	Exhibits and Reports on Form 8-K	22
SIGNATURES			23

2

CONDENSED CONSOLIDATED BALANCE SHEETS

MAXIM INTEGRATED PRODUCTS, INC.

	Dec. 27, 2003			Jun. 28, 2003
(Amounts in thousands)	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	159,789		$	210,841
Short-term investments		1,169,760			953,166
Total cash, cash equivalents and short-term investments		1,329,549			1,164,007
Accounts receivable, net		133,437			126,760
Inventories		108,275			121,192
Deferred tax assets		139,491			136,180
Income tax refund receivable		6,864			11,246
Other current assets		10,478			5,257
Total current assets		1,728,094			1,564,642
Property, plant and equipment, at cost, less accumulated depreciation		833,561			769,885
Other assets		34,170			33,435
TOTAL ASSETS	$	2,595,825		$	2,367,962
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	57,211		$	42,041
Income taxes payable		6,607			10,900
Accrued salary and related expenses		82,847			70,468
Accrued expenses		71,679			70,926
Deferred income on shipments to distributors		21,665			21,582
Total current liabilities		240,009			215,917
Other liabilities		4,000			4,000
Deferred tax liabilities		88,133			77,633
Total liabilities		332,142			297,550
Commitments and contingencies
Stockholders’ equity:
Common stock		329			325
Additional paid-in capital		174,088			112,172
Retained earnings		2,089,864			1,956,491
Accumulated other comprehensive income (loss)		(598	)		1,424
Total stockholders’ equity		2,263,683			2,070,412
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY	$	2,595,825		$	2,367,962

See accompanying Notes to Condensed Consolidated Financial Statements.

3

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

MAXIM INTEGRATED PRODUCTS, INC.

	Three Months Ended				Six Months Ended
	Dec. 27, 2003		Dec 28, 2002		Dec. 27, 2003		Dec. 28, 2002
	(Unaudited)				(Unaudited)
(Amounts in thousands, except per share data)
Net revenues	$	338,108	$	286,077	$	648,277	$	571,958
Cost of goods sold		103,029		86,541		196,057		173,664
Gross margin		235,079		199,536		452,220		398,294
Operating expenses:
Research and development		71,211		67,196		141,307		138,307
Selling, general and administrative		22,193		21,245		43,582		43,541
Total operating expenses		93,404		88,441		184,889		181,848
Operating income		141,675		111,095		267,331		216,446
Interest income, net		5,369		3,945		10,120		7,813
Income before provision for income taxes		147,044		115,040		277,451		224,259
Provision for income taxes		48,525		37,963		91,559		74,005
Net income	$	98,519	$	77,077	$	185,892	$	150,254
Earnings per share:
Basic	$	0.30	$	0.24	$	0.57	$	0.47
Diluted	$	0.28	$	0.23	$	0.53	$	0.44
Shares used in the calculation of earnings per share:
Basic		329,188		321,199		327,718		320,349
Diluted		353,888		340,322		350,611		339,134
Dividends declared per share	$	0.08	$	0.02	$	0.16	$	0.02

See accompanying Notes to Condensed Consolidated Financial Statements.

4

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

MAXIM INTEGRATED PRODUCTS, INC.

	Six Months Ended
	Dec. 27, 2003			Dec. 28, 2002
(Amounts in thousands)	(Unaudited)
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net income	$	185,892		$	150,254
Adjustments to reconcile net income to net cash   provided by operating activities:
Depreciation and amortization		29,274			30,836
Changes in assets and liabilities:
Accounts receivable		(6,677	)		7,235
Inventories		12,917			11,277
Deferred taxes		8,300			(2,930	)
Income tax refund receivable		4,382			(12,342	)
Other current assets		(6,489	)		58,138
Accounts payable		15,170			13,352
Income taxes payable		71,944			31,765
Deferred income on shipments to distributors		83			(4,371	)
All other accrued liabilities		13,132			1,989
Net cash provided by operating activities		327,928			285,203
Cash flows from investing activities:
Additions to property, plant and equipment		(92,950	)		(47,035	)
Other non-current assets		(735	)		(4,579	)
Purchases of available-for-sale securities		(880,714	)		(629,553	)
Proceeds from sales/maturities of available-for-sale securities		662,255			455,994
Net cash used in investing activities		(312,144	)		(255,173	)
Cash flows from financing activities:
Issuance of common stock		101,717			40,004
Repurchase of common stock		(116,034	)		(87,273	)
Dividends paid		(52,519	)		(6,415	)
Net cash used in financing activities		(66,836	)		(53,684	)
Net increase (decrease) in cash and cash equivalents		(51,052	)		6,346
Cash and cash equivalents:
Beginning of period		210,841			173,807
End of period	$	159,789		$	180,153

See accompanying Notes to Condensed Consolidated Financial Statements.

5

MAXIM INTEGRATED PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: BASIS OF PRESENTATION

The accompanying unaudited condensed interim consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations.  In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included. The results of operations for the three and six months ended December 27, 2003 are not necessarily indicative of the results to be expected for the entire year.  These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Annual Report on Form 10-K for the fiscal year ended June 28, 2003.

The Company has a 52-to-53-week fiscal year that ends on the last Saturday in June.  Accordingly, every sixth or seventh fiscal year will be a 53-week fiscal year.  Fiscal years 2004 and 2003 are 52-week fiscal years.

NOTE 2: STOCK-BASED COMPENSATION

Under Statement of Financial Accounting Standards 148 (SFAS 148), the Company may elect to continue to account for the grant of stock options under Accounting Principal Board (APB) Opinion 25, in which options granted with an exercise price equal to the fair market value on the date of grant do not require recognition of expense in the Company’s financial statements. Under SFAS 148, the Company is, however, required to provide pro forma disclosure regarding net income and earnings per share as if the Company had accounted for its employee stock options (including shares issued under the 1996 Stock Incentive Plan, 1993 Officer and Director Stock Option Plan, 1987 Stock Option Plan, 1987 Supplemental Stock Option Plan, 1988 Nonemployee Director Stock Option Plan, and Supplemental Nonemployee Stock Option Plan, collectively called “options”) granted subsequent to June 30, 1995, under the methodology prescribed by that statement. Since the Company has elected to account for the grant of options under APB Opinion No. 25, the following information is for disclosure purposes only.

As required under SFAS 148, the reported net income and earnings per share have been presented to reflect the impact had the Company been required to include the amortization of the Black-Scholes option value as an expense. The pro forma amounts are as follows: 

	Three Months Ended						Six Months Ended
	Dec. 27, 2003			Dec. 28, 2002			Dec. 27, 2003			Dec. 28, 2002
(Amounts in thousands, except per share data)	(Unaudited)						(Unaudited)
Net income - as reported	$	98,519		$	77,077		$	185,892		$	150,254
Deduction: total stock-based employee compensation    expense determined under the fair value method,    net of tax		(38,391	)		(27,584	)		(54,532	)		(63,596	)
Net income - pro forma		60,128			49,493			131,360			86,658
Basic earnings per share -pro forma	$	0.18		$	0.15		$	0.40		$	0.27
Diluted earnings per share -pro forma	$	0.17		$	0.15		$	0.37		$	0.26

6

MAXIM INTEGRATED PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3: INVENTORIES

Inventories consist of the following:

	Dec. 27, 2003		Jun. 28, 2003
(Amounts in thousands)	(Unaudited)
Raw materials	$	10,027	$	10,249
Work-in-process		70,137		79,687
Finished goods		28,111		31,256
	$	108,275	$	121,192

NOTE 4: OTHER ASSETS

Included in Other Assets in the Condensed Consolidated Balance Sheets at December 27, 2003 is $11.4 million of intellectual property.  During the six months ended December 27, 2003, the Company converted $13.4 million of  4% senior secured convertible notes resulting from amounts loaned to a privately held semiconductor company to a long-term intangible asset.  The notes were secured by a first priority lien on, or security interest in, substantially all the assets, including intellectual property, of this company.  This privately held semiconductor company ceased operations due to insolvency during fiscal year 2003.  Per the terms of the 4% senior secured convertible notes, the Company accelerated the maturity of said notes and foreclosed on its first priority lien and security interest. During the six months ended December 27, 2003, the Company acquired substantially all the assets, including intellectual property, and, as noted above, converted the $13.4 million of 4% senior secured convertible notes to a long-term intangible asset which is being amortized over the remaining estimated useful life of the associated intellectual property.  The Company also acquired approximately $1.3 million of cash and accounts receivable, which was offset against the 4% senior secured convertible notes.

It is the Company’s intention to use the intellectual property acquired in designing and developing new products.  As required by Statement of Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS 144), the Company assessed the recoverability of the intellectual property.  Based on this assessment, as of December 27, 2003, the intellectual property is fully recoverable based on the projected discounted cash flows attributable to products designed and developed with this intellectual property.  Should it be determined in a future period that the projected remaining discounted cash flows attributable to products designed and developed with the acquired intellectual property are less than the net book value represented by the intellectual property, the Company’s results of operations could be materially adversely impacted in the period such determination is made. 

Also included in Other Assets in the Condensed Consolidated Balance Sheets at December 27, 2003 are loans to employees of approximately $7.2 million. These loans are collateralized primarily by employee stock options held by the respective employees. To the extent such collateral is not sufficient to cover the amounts owed, there is risk of loss to the Company. To date, the Company has not experienced any material losses related to these employee loans.

7

MAXIM INTEGRATED PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5: EARNINGS PER SHARE

Basic earnings per share are computed using the weighted average number of common shares outstanding during the period.  Diluted earnings per share incorporates the incremental shares issuable upon the assumed exercise of stock options.  The number of incremental shares from the assumed issuance of stock options is calculated applying the treasury stock method.  The following table sets forth the computation of basic and diluted earnings per share.

	Three Months Ended				Six Months Ended
	Dec. 27, 2003		Dec. 28, 2002		Dec. 27, 2003		Dec. 28, 2002
(Amounts in thousands, except per share data)	(Unaudited)				(Unaudited)
Numerator for basic earnings per share and   diluted earnings per share
Net income	$	98,519	$	77,077	$	185,892	$	150,254
Denominator for basic earning per share		329,188		321,199		327,718		320,349
Effect of dilutive securities:
Stock options		24,700		19,123		22,893		18,785
Denominator for diluted earnings per share		353,888		340,322		350,611		339,134
Earnings per share:
Basic	$	0.30	$	0.24	$	0.57	$	0.47
Diluted	$	0.28	$	0.23	$	0.53	$	0.44

Approximately 9.6 million and 44.4 million of the Company’s stock options were excluded from the calculation of diluted earnings per share for the three months ending December 27, 2003 and December 28, 2002, respectively.  Approximately 17.3 million and 45.3 million of the Company’s stock options were excluded from the calculation of diluted earnings per share for the six months ending December 27, 2003 and December 28, 2002, respectively.  These options were excluded, as they were antidilutive; however, such options could be dilutive in the future.

NOTE 6: SHORT-TERM INVESTMENTS

All short-term investments at December 27, 2003 are classified as available-for-sale and consist primarily of U.S. Treasury and Federal Agency debt securities with original maturities beyond three months.  Unrealized gains and losses, net of tax, on securities in this category are included in accumulated other comprehensive income (loss) which is a separate component of stockholders’ equity. The cost of securities sold is based on the specific identification method.  Interest earned on securities is included in “Interest income, net” in the Condensed Consolidated Statements of Income.

8

MAXIM INTEGRATED PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7: SEGMENT INFORMATION

The Company operates and tracks its results in one operating segment.  The Company designs, develops, manufactures and markets a broad range of linear and mixed-signal integrated circuits.  The Chief Executive Officer has been identified as the Chief Operating Decision Maker as defined by Statement of Financial Accounting Standard No. 131 (SFAS 131), “Disclosures about Segments of an Enterprise and Related Information.”

Enterprise-wide information is provided in accordance with SFAS 131.  Geographical revenue information is based on the customer’s bill-to location.  Long-lived assets consist of property, plant and equipment.  Property, plant and equipment information is based on the physical location of the assets at the end of each fiscal period.

Net revenues from unaffiliated customers by geographic region were as follows:

	Three Months Ended				Six Months Ended
	Dec. 27, 2003		Dec. 28, 2002		Dec. 27, 2003		Dec. 28, 2002
(Amounts in thousands)	(Unaudited)				(Unaudited)
United States	$	99,711	$	94,252	$	193,446	$	192,507
Europe		63,518		55,158		125,913		106,363
Pacific Rim		170,748		135,001		321,450		267,158
Rest of World		4,131		1,666		7,468		5,930
	$	338,108	$	286,077	$	648,277	$	571,958

Net long-lived fixed assets by geographic region were as follows:

	Dec. 27, 2003		June 28, 2003
(Amounts in thousands)	(Unaudited)
United States	$	745,755	$	694,454
Rest of World		87,806		75,431
	$	833,561	$	769,885

NOTE 8: COMPREHENSIVE INCOME (LOSS)

Comprehensive income consists of net income and net unrealized gains (losses) on available-for-sale investments and forward exchange contracts.  The components of other comprehensive income (loss) and related tax effects were as follows:

	Three Months Ended						Six Months Ended
	Dec. 27, 2003			Dec. 28, 2002			Dec. 27, 2003			Dec. 28, 2002
(Amounts in thousands)	(Unaudited)						(Unaudited)
Change in unrealized gains (losses) on investments,    net of tax of $(257), $446, $(692) and $89,    respectively	$	(520	)	$	808		$	(1,173	)	$	187
Change in unrealized gains (losses) on forward    exchange contracts, net of tax of $(267), $(114),    $(419) and $729, respectively		(541	)		(227	)		(849	)		1,408
Other comprehensive income (loss)	$	(1,061	)	$	581		$	(2,022	)	$	1,595

9

MAXIM INTEGRATED PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Accumulated other comprehensive income (loss) presented in the condensed consolidated balance sheet at December 27, 2003 and June 28, 2003 consists of net unrealized gains on available-for-sale investments of $1.9 million and $3.0 million, respectively, net unrealized losses on forward exchange contracts of $(1.0) million and $(0.1) million, respectively, and foreign currency translation adjustments of $(1.5) million and $(1.5) million, respectively.  Foreign currency translation adjustments are not tax affected.

NOTE 9: MERGER AND SPECIAL CHARGES

In the fourth quarter of fiscal year 2001, the Company acquired Dallas Semiconductor, a leading supplier of specialty semiconductors. The Company issued approximately 41.0 million shares of its common stock in exchange for all the outstanding common stock of Dallas Semiconductor. In addition, the Company exchanged all options to purchase Dallas Semiconductor common stock for options to purchase approximately 5.9 million shares of the Company’s common stock. The transaction was accounted for as a pooling-of-interests and qualifies as a tax-free reorganization.  All financial data of the Company presented in these condensed consolidated financial statements was restated to include the historical financial data of Dallas Semiconductor in accordance with accounting principles generally accepted in the United States and pursuant to Regulation S-X of the Securities and Exchange Commission.

As a result of the merger with Dallas Semiconductor, during the fourth quarter of fiscal year 2001, the Company recorded merger costs of approximately $26.4 million. These costs consist of approximately $14.1 million intended to satisfy the change in control payments under previously existing employment contracts and other non-employee director arrangements for which there was no future economic benefit; a $5.8 million payment to be made under a change in control provision in a previously existing life insurance arrangement for which there was no future economic benefit; and $6.5 million for fees related to investment banking, legal, accounting, filings with regulatory agencies, financial printing, and other related costs.  Approximately $0.1 million of the direct transaction costs were paid out of existing cash reserves in fiscal year 2003.  The remaining unpaid direct transaction costs of approximately $1.6 million as of December 27, 2003 are related to change in control payments under previously existing employment contracts and other non-employee director arrangements that will be paid out in future periods according to the terms of the related agreement.

During the fourth quarter of fiscal year 2001, the Company recorded a special charge of $124.4 million to reduce the net book value of Dallas Semiconductor’s long-lived assets to fair value.  This impairment charge resulted from the significant decrease in demand that occurred during the fourth quarter of fiscal 2001 in combination with the Company’s intention to close Dallas Semiconductor’s 6-inch wafer manufacturing facility and dispose of the related equipment.  The Company’s intention was to complete construction of a 8-inch wafer manufacturing facility located in Dallas, Texas that was under construction when the merger was consummated between the Company and Dallas Semiconductor.  Once complete, the 8-inch wafer manufacturing facility will serve as Dallas Semiconductor’s primary wafer manufacturing facility.  In addition, in fiscal year 2001, the Company planned to concentrate a significant portion of its test operations of the combined company at the Company’s test facilities located in the Philippines and Thailand.  The Company concluded that the above facts indicated that Dallas Semiconductor’s long-lived assets might be impaired, and as required by accounting principles generally accepted in the United States, performed a cash flow analysis of the related assets.  Based on the cash flows analysis, an impairment charge was recorded as noted above.  The Company continued construction of the 8-inch wafer manufacturing facility located in Dallas, Texas during fiscal year 2002 although at a slower pace than originally anticipated due to unforeseen complexities and resource constraints related to converting existing 6-inch processes to 8-inch processes. Construction was completed in fiscal year 2003 and the Company began manufacturing 8-inch wafers. Conversion from 6-inch wafer production to 8-inch wafer production at Dallas Semiconductor’s wafer manufacturing facilities will continue throughout fiscal year 2004. The concentration of test operations of the combined company noted above was completed in fiscal year 2002 as planned.

10

MAXIM INTEGRATED PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In addition to the above, during the fourth quarter of fiscal year 2001, the Company recorded special charges of $12.6 million to reflect the reorganization of the Company’s sales organization, purchase order cancellation fees, and the reduction in the Company’s manufacturing workforce.  The above actions directly impacted employees in the Company’s sales, marketing, and manufacturing organizations. The Company terminated 137 employees and 93 employees in fiscal years 2002 and 2001, respectively, and paid $0.5 million and $2.0 million in termination benefits in fiscal years 2002 and 2001, respectively, related to the above actions. 

During fiscal year 2002, the Company recorded additional special charges of $4.1 million related to additional reductions in the Company’s manufacturing workforce.  These additional reductions were required to better match capacity with demand for the Company’s product.  In fiscal year 2002, the Company terminated an additional 350 employees and paid an additional $4.0 million of termination benefits related to these actions, bringing the total number of employees terminated to 487 and the total termination benefits paid to $4.5 million in fiscal year 2002.  In fiscal year 2003, the Company paid $0.1 million of termination benefits related to the above actions. 

Based on developments that occurred during fiscal year 2002 related to the special charges recorded during the fourth quarter of fiscal year 2001, the Company revised its estimate of the reserve balance needed for purchase order cancellation fees.  Based on the status of negotiations, the amount that will ultimately be paid will be approximately $4.3 million less than the amount recorded for such charges at June 30, 2001.  Accordingly, the Company decreased the amount recorded for purchase order cancellation fees by $4.3 million to reflect this change in estimate.  During fiscal year 2003, the Company paid $0.2 million against amounts reserved for purchase order cancellation fees leaving a remaining reserve balance for purchase order cancellation fees of $3.0 million at December 27, 2003.  In addition to the above, at December 27, 2003, the Company has a reserve balance of $1.4 million remaining related primarily to unresolved claims that resulted from the termination of certain sales representatives.

The following table summarizes the activity related to the above actions.

	Merger Costs			Impairment Charges			Severance			Purchase Order Cancellation Fees			Other			Total
	(Amounts in thousands)
Merger and special    charges	$	26,434		$	124,432		$	2,542		$	7,797		$	2,244		$	163,449
Non-cash charges		(2,622	)		(124,432	)		—			—			—			(127,054	)
Cash payments		(15,671	)		—			(1,989	)		(284	)		—			(17,944	)
Reserve balance at   June 30, 2001		8,141			—			553			7,513			2,244			18,451
Special charges		—			—			4,097			—			—			4,097
Adjustment		141			—			—			(4,285	)		47			(4,097	)
Cash payments		(6,559	)		—			(4,548	)		—			(572	)		(11,679	)
Reserve balance at   June 29, 2002		1,723			—			102			3,228			1,719			6,772
Cash payments		(117	)		—			(102	)		(189	)		—			(408	)
Reserve balance at   June 28, 2003		1,606			—			—			3,039			1,719			6,364
Cash payments		(61	)		—			—			—			(277	)		(338	)
Reserve balance at   December 27, 2003	$	1,545		$	—		$	—		$	3,039		$	1,442		$	6,026

11

MAXIM INTEGRATED PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10: CONTINGENCIES

On June 26, 1997, a complaint was filed by Linear Technology Corporation (“LTC”) naming the Company and certain other unrelated parties as defendants.  The complaint alleges that each of the defendants, including the Company, has willfully infringed, induced infringement and contributorily infringed LTC’s United States Patent 5,481,178 relating to control circuits and methods for maintaining high efficiencies over broad current ranges in a switching regulator circuit, all of which has allegedly damaged LTC in an unspecified amount.  The complaint further alleges that the Company’s actions have been, and continue to be, willful and deliberate and seeks a permanent injunction against the Company as well as unspecified actual and treble damages including costs, expenses, and attorneys’ fees.  The Company answered the complaint on October 20, 1997, denying all of LTC’s substantive allegations and counterclaiming for a declaration that LTC’s patent is invalid and not infringed.

On September 21, 2001, the Federal District Court for the Northern District of California issued an order dismissing the patent litigation action by LTC.  The court found that the Company did not infringe any of the claims of the asserted patent. The Company had moved for summary judgment on a number of subjects, including noninfringement, invalidity and unenforceability of the patent.  The court found that the Company’s remaining summary judgment motions were rendered moot by its noninfringement ruling. LTC has appealed the decision. Maxim filed a cross-appeal in response to LTC’s appeal. Appellate briefs have been filed by both Maxim and LTC. The Company filed its reply brief on April 2, 2003 and its response brief on June 20, 2003.  Oral arguments were heard in December 2003.   The Company does not believe that the ultimate outcome of these matters will have a material adverse effect on the financial position or liquidity of the Company.  If, however, the appellate court in the action brought by LTC were to reverse the trial court’s dismissal of the patent litigation claims brought by LTC against the Company, and were LTC to prevail in its claims against the Company, the Company’s operating results could be materiallyadversely affected.

On December 12, 2002, Qualcomm Inc. filed and on February 4, 2003, Qualcomm Inc. served the Company with a complaint for patent infringement claiming that certain of the Company’s products infringe one or all of three Qualcomm Inc. patents.  Qualcomm seeks a preliminary and permanent injunction as well as unspecified actual and treble damages including costs, expenses and attorneys fees. Qualcomm withdrew one of its patents from the claim in June 2003. Qualcomm recently amended the complaint to add three new transmission related patents. The Company is presently reviewing these claims.  While no assurance can be given in this regard, the Company does not believe that the ultimate outcome of the action will have a material adverse effect on the Company’s financial condition, liquidity, or results of operation.

In addition to the above, the Company is subject to other legal proceedings and claims that arise in the normal course of its business. The Company does not believe that the ultimate outcome of these matters will have a material adverse effect on the financial position of the Company.

NOTE 11: INDEMNIFICATIONS AND PRODUCT WARRANTY

The Company indemnifies certain customers, distributors, suppliers, and subcontractors for attorney fees and damages and costs awarded against these parties in certain circumstances in which the Company’s products are alleged to infringe third party intellectual property rights, including patents, registered trademarks, or copyrights. The terms of the Company’s indemnification obligations are in effect from the date of sale of the product. In certain cases, there are limits on and exceptions to the Company’s potential liability for indemnification relating to intellectual property infringement claims. The Company cannot estimate the amount of potential future payments, if any, that the Company might be required to make as a result of these agreements. To date, the Company has not paid or been required to defend any indemnification claims, and accordingly, the Company has not accrued any amounts for our indemnification obligations. However, there can be no assurances that the Company will not have any future financial exposure under those indemnification obligations.

12

MAXIM INTEGRATED PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company enters into contracts with certain customers whereby the Company commits to supply quantities of specified parts at a predetermined scheduled delivery date.  Should the Company be unable to supply the customer with the specified part at the quantity and product quality desired at the scheduled delivery date, the customer may incur additional production costs.  In addition, the customer may incur lost revenues due to delay in receiving the parts necessary to have the end product ready for sale to its customers or due to product quality issues which may arise.  Under the customer supply agreements, the Company may be liable for direct additional production costs or lost revenues.  The Company tries to limit such liabilities.  However, if products were not shipped on time, the Company may be liable for damages. Such liability, should it arise, may have a material adverse impact on the Company’s results of operations and financial condition.

The Company’s standard terms and conditions of sale warrant products to be free from defects in warranty and labor for a period of 12 months from date of sale, with the Company’s liability being limited to repair or replacement of defective product.  In some cases, the Company has negotiated special liability terms or is subject to laws of other jurisdictions which increase the warranty period and/or the liability for defective product to include direct and consequential damages.  In many of these cases, the Company has negotiated a cap on the liability exposure of the Company. 

As noted above, the Company generally warrants its products against defects in materials and workmanship for a period of 12 months with longer periods for certain customers.  If there is a material increase in the rate of customer claims or our estimates of probable losses relating to specifically identified warranty exposure are inaccurate, the Company may record a charge against future cost of sales.  Warranty expense has historically been immaterial to our financial statements.

NOTE 12: COMMON STOCK REPURCHASES

In the third and the fourth quarters of fiscal year 2002, the Board of Directors authorized the Company to repurchase up to 20 million shares of the Company’s common stock from time to time at the discretion of the Company’s management.  Between the dates of such authorization and the end of the Company’s fiscal year 2003, the Company purchased 13.9 million shares for $633.9 million under this authorization. On May 22, 2003, the Board of Directors extended the share repurchase authorization noted above to the end of the Company’s fiscal year 2004.

During the six months ended December 27, 2003, the Company repurchased approximately 2.4 million shares of its common stock for $116.0 million.  As of December 27, 2003, approximately 4.0 million shares remained available under the repurchase authorization. The number of shares to be repurchased and the timing of such repurchases will be based on several factors, including the price of the Company’s common stock, general market and business conditions, and other factors.

NOTE 13: NEW ACCOUNTING PRONOUNCEMENT

In December 2003, the Financial Accounting Standard Board (FASB) issued Statement of Financial Accounting Standard No. 132 (SFAS 132) (Revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits — an amendment of FASB Statements No. 87, 88, and 106”. SFAS 132 revises employers’ disclosures about pension plans and other postretirement benefit plans. It does not change the measurement or recognition of those plans required by FASB Statements No. 87, “Employers’ Accounting for Pensions,” No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,” and No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions.” SFAS 132 retains the disclosure requirements contained in the original FASB Statement No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits,” which it replaces. It requires additional disclosures to those in the original Statement 132 about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The required information needs to be provided separately for pension plans and for other postretirement benefit plans. SFAS 132 is effective for financial statements with fiscal years ending after December 15, 2003. The interim-period disclosures are effective for interim periods beginning after December 15, 2003. Disclosure of information about foreign plans is effective for fiscal years ending after June 15, 2004. Disclosure of estimated future benefit payments is effective for fiscal years ending after June 15, 2004. Disclosure of information for nonpublic entities is effective for fiscal years ending after June 15, 2004. The Company believes the adoption of SFAS 132 will not have a material impact on the Company’s financial condition, results of operations or liquidity.

NOTE 14: SUBSEQUENT EVENT

On January 26, 2004, the Board of Directors declared a cash dividend of $0.08 per share on the Company’s common stock payable on March 1, 2004 to stockholders of record on February 16, 2004.

13

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

CRITICAL ACCOUNTING POLICIES

The methods, estimates and judgments the Company uses in applying its most critical accounting policies have a significant impact on the results the Company reports in its financial statements.  The Securities and Exchange Commission has defined the most critical accounting policies as the ones that are most important to the portrayal of the Company’s financial condition and results of operations, and require the Company to make its most difficult and subjective accounting judgments, often as a result of the need to make estimates of matters that are inherently uncertain.  Based on this definition, the Company’s most critical accounting policies include revenue recognition and accounts receivable allowances, which impacts the recording of revenues; valuation of inventories, which impacts costs of goods sold and gross margins; the assessment of recoverability of long-lived assets, which impacts write-offs of fixed assets; accounting for income taxes, which impacts the income tax provision; and assessment of contingencies, which impacts charges recorded in cost of goods sold and selling, general and administrative expenses.  These policies and the estimates and judgments involved are discussed further below.  The Company has other key accounting policies that either do not generally require estimates and judgments that are as difficult or subjective, or it is less likely that such accounting policies would have a material impact on the Company’s reported results of operations for a given period.

Revenue Recognition and Accounts Receivable Allowances

Revenue from product sales to the Company’s direct customers is recognized upon shipment, provided that persuasive evidence of a sales arrangement exists, the price is fixed and determinable, title has transferred, collection of resulting receivables is reasonably assured, there are no customer acceptance requirements, and there are no remaining significant obligations.

A portion of the Company’s sales is made to domestic distributors under agreements that provide the possibility of certain sales price rebates and limited product return privileges.  Given the uncertainties associated with the levels of returns and other credits that will be issued to these distributors, the Company defers recognition of such sales until the product is sold by the domestic distributors to their end customers.  The Company estimates the provision for returns and price rebates based on historical experience and known future returns and price rebates.  Revenue on all shipments to international distributors is recognized upon shipment to the distributor, when the above criteria are met, with appropriate provision of reserves for returns and allowances, as these distributors generally do not have price rebate or product return privileges.  Accounts receivable from both domestic and international distributors are recognized and inventory is relieved upon shipment as title to inventories generally transfers upon shipment at which point the Company has a legally enforceable right to collection under normal terms.

The Company must make estimates of potential future product returns and sales allowances related to current period product revenue.  Management analyzes historical returns, changes in customer demand, and acceptance of products when evaluating the adequacy of sales returns and allowances.  Estimates made by the Company may differ from actual product returns and sales allowances.  These differences may materially impact reported revenue and amounts ultimately collected on accounts receivable. In addition, the Company monitors collectibility of accounts receivable primarily through review of the accounts receivable aging. When facts and circumstances indicate the collection of specific amounts or from specific customers is at risk, the Company assesses the impact on amounts recorded for bad debts and, if necessary, will record a charge in the period such determination is made.  To date, the Company has not experienced material write-offs of accounts receivable due to uncollectibility.

14

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT’D)

Inventories

Inventories are stated at the lower of cost, which approximates actual cost on a first-in-first-out basis, or market value.  Because of the cyclicality of the market, inventory levels, obsolescence of technology, and product life cycles, the Company writes down inventories to net realizable value based on backlog, forecasted product demand, and historical sales levels.  Backlog is subject to revisions, cancellations, and rescheduling.  Actual demand and market conditions may be lower than those projected by the Company.  This difference could have a material adverse effect on the Company’s gross margin should inventory write downs beyond those initially recorded become necessary.   Alternatively, should actual demand and market conditions be more favorable than those estimated by the Company, gross margin could be favorably impacted.  During fiscal year 2003, the Company had inventory write downs of $11.9 million due primarily to work in process and finished goods inventory manufactured in excess of forecasted demand.

The Company’s standard cost revision policy is to continuously monitor manufacturing variances and revise standard costs when necessary.  The Company’s policy for recording a write down of inventory is generally to write down, at standard cost, finished goods inventory in excess of estimated demand based on backlog, historical sales levels and forecasted demand and work in process that is greater than 90 days old, which has no forecasted product demand.

Long-Lived Assets

The Company evaluates the recoverability of long-lived assets in accordance with Statement of Financial Accounting Standards No. 144 (SFAS 144), “Accounting for the Impairment or Disposal of Long-Lived Assets.”  The Company performs periodic reviews to determine whether facts and circumstances exist that would indicate that the carrying amounts of long-lived assets might not be fully recoverable.  If facts and circumstances indicate that the carrying amount of long-lived assets might not be fully recoverable, the Company compares projected undiscounted net cash flows associated with the related asset or group of assets over their estimated remaining useful life against their respective carrying amounts.  In the event that the projected undiscounted cash flows are not sufficient to recover the carrying value of the assets, the assets are written down to their estimated fair values based on the expected discounted future cash flows attributable to the assets.   Evaluation of impairment of long-lived assets requires estimates in the forecast of future operating results that are used in the preparation of the expected future undiscounted cash flows.  Actual future operating results and the remaining economic lives of the Company’s long-lived assets could differ from the Company’s estimates used in assessing the recoverability of these assets.  These differences could result in additional impairment charges, which could have a material adverse impact on the Company’s results of operations. 

Accounting for Income Taxes

The Company records a valuation allowance to reduce the net deferred tax assets to the amount that is more likely than not to be realized.  In assessing the need for a valuation allowance, historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and practicable tax planning strategies are considered.  In the event it is determined that the deferred tax assets to be realized in the future would be in excess of the net recorded amount, an adjustment to the deferred tax asset valuation allowance would be recorded.  This adjustment would increase income in the period such determination was made.  Likewise, should it be determined that all or part of the net deferred tax asset would not be realized in the future, an adjustment to increase the deferred tax asset valuation allowance would be charged to income in the period such determination would be made. 

On a periodic basis the Company evaluates its deferred tax asset balance for realizability.  To the extent the Company believes it is more likely than not that some portion of its deferred tax assets will not be realized, the Company will increase the valuation allowance against the deferred tax assets.  Realization of the Company’s deferred tax assets is dependent primarily upon future U.S. taxable income.  The Company’s judgments regarding future profitability may change due to future market conditions, changes in U.S. or international tax laws and other factors.  These changes, if any, may require possible material adjustments to these deferred tax assets, resulting in a reduction in net income or an increase in net loss in the period when such determinations are made.

15

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT’D)

Contingencies

From time to time, the Company receives notices that its products or manufacturing processes may be infringing the patent or intellectual property rights of others. The Company periodically assesses each matter in order to determine if a contingent liability in accordance with Statement of Financial Accounting Standards No. 5 (SFAS 5), “Accounting for Contingencies,” should be recorded.  In making this determination, management may, depending on the nature of the matter, consult with internal and external legal counsel and technical experts.  Based on the information obtained, combined with management’s judgment regarding all the facts and circumstances of each matter, the Company determines whether it is probable that a contingent loss may be incurred and whether the amount of such loss can be estimated.  Should a loss be probable and estimable, the Company records a contingent loss in accordance with SFAS 5.  In determining the amount of a contingent loss, the Company takes into consideration advice received from experts in the specific matter, current status of legal proceedings, settlement negotiations which may be ongoing, prior case history and other factors.   Should the judgments and estimates made by management be incorrect, the Company may need to record additional contingent losses that could materially adversely impact the Company’s results of operations.  Alternatively, if the judgments and estimates made by management are incorrect and a particular contingent loss does not occur, the contingent loss recorded would be reversed thus favorably impacting the Company’s results of operations. See Note 10 of Notes to Condensed Consolidated Financial Statements.

RESULTS OF OPERATIONS

Net Revenues

Net revenues were $338.1 million and $286.1 million for the three months ended December 27, 2003 and December 28, 2002, respectively, an increase of 18.2%.  Net revenues were $648.3 million and $572.0 million for the six months ended December 27, 2003 and December 28, 2002, respectively, an increase of 13.3%. The increase in net revenues for both the three and six months ended December 27, 2003 as compared to the three and six months ended December 28, 2002 is primarily due to higher unit shipments resulting from the introduction of new proprietary products and increased order rates on the Company’s already existing proprietary and second-source products.

During the three months ended December 27, 2003 and December 28, 2002, approximately 71% and 67%, respectively, of net revenues were derived from customers outside of the United States.  During the six months ended December 27, 2003 and December 28, 2002, approximately 70% and 66%, respectively, of net revenues were derived from customers outside of the United States.  While the majority of these sales are denominated in U.S. dollars, the Company enters into foreign currency forward contracts to mitigate its risks on firm commitments and net monetary assets denominated in foreign currencies.  The impact of changes in foreign exchange rates on revenue and the Company’s results of operations for the three and six months ended December 27, 2003 and December 28, 2002 was immaterial.

Gross Margin

Gross margin as a percentage of net revenues was 69.5% and 69.7% for the three months ended December 27, 2003 and December 28, 2002, respectively.  The gross margin percentage for the three months ended December 27, 2003 as compared to the three months ended December 28, 2002 decreased primarily due to start up costs at the Company’s newly acquired wafer fabrication facility in San Antonio, Texas. Gross margins for the three months ended December 28, 2002 was negatively impacted due to $3.0 million of inventory write downs.

16

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT’D)

Gross margin as a percentage of net revenues was 69.8% and 69.6% for the six months ended December 27, 2003 and December 28, 2002, respectively.  The gross margin percentage for the six months ended December 27, 2003 as compared to the six months ended December 28, 2002 increased primarily due to cost saving measures implemented by the Company. These cost saving measures included, but were not limited to, salary and wage reductions, reduced headcount and reductions in certain salary related expenses.  These reductions were slightly offset by start up costs at the Company’s newly acquired wafer fabrication facility in San Antonio, Texas. Gross margins for the six months ended December 27, 2003 and December 28, 2002 were negatively impacted due to $2.2 million and $6.0 million of inventory write downs, respectively.

Research and Development

Research and development expenses were $71.2 million and $67.2 million for the three months ended December 27, 2003, and December 28, 2002, respectively, which represented 21.1% and 23.5% of net revenues, respectively.  The increase in research and development expenses in absolute dollars is due to the result of hiring additional engineers and increased salary related expenses.

Research and development expenses were $141.3 million and $138.3 million for the six months ended December 27, 2003, and December 28, 2002, respectively, which represented 21.8% and 24.2% of net revenues, respectively.  The increase in research and development expenses in absolute dollars is due to the result of hiring additional engineers and increased salary related expenses.

The level of research and development expenditures as a percentage of net revenues will vary from period to period, depending, in part, on the level of net revenues and, in part, on the Company’s success in recruiting the technical personnel needed for its new product introductions and process development.  The Company continuously attempts to control and, if possible, reduce expense levels in all areas including research and development.  However, the Company views research and development expenditures as critical to maintaining a high level of new product introductions, which in turn are critical to the Company’s plan for future growth.

Selling, General and Administrative

Selling, general and administrative expenses were $22.2 million and $21.2 million for the three months ended December 27, 2003, and December 28, 2002, respectively, which represented 6.6% and 7.4% of net revenues, respectively.  The increase in selling, general, and administrative expenses in absolute dollars for the three months ended December 27, 2003 as compared to the three months ended December 28, 2002 is primarily due to increased headcount related expenses. This increase is slightly offset by lower advertising and marketing costs.

Selling, general and administrative expenses were $43.6 million and $43.5 million for the six months ended December 27, 2003, and December 28, 2002, respectively, which represented 6.7% and 7.6% of net revenues, respectively.  The selling, general, and administrative expenses in absolute dollars remain relatively unchanged for the six months ended December 27, 2003 as compared to the six months ended December 28, 2002.

Interest Income, Net

Interest income, net was $5.4 million and $10.1 million for the three and six months ended December 27, 2003, respectively, compared to $3.9 million and $7.8 million for the three and six months ended December 28, 2002, respectively.  The increase in interest income, net for three and six months ended December 27, 2003 as compared to the three and six months ended December 28, 2002 is due to higher average interest rates combined with higher average levels of invested cash, cash equivalents, and short-term investments.

17

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT’D)

Income Taxes

The effective income tax rate for the three and six months ended December 27, 2003 and December 28, 2002 was 33.0%, respectively. The effective rates were lower than the U.S. federal and state combined statutory rate primarily due to tax benefits on export sales.

Realization of the net deferred tax asset of $51.4 million at December 27, 2003 is dependent primarily upon achieving future U.S. taxable income of $147 million.  The Company believes it is more likely than not that the net deferred tax assets will be realized based on historical earnings and expected levels of future taxable income.  Levels of future taxable income are subject to the various risks and uncertainties as described in the Company’s Annual Report on Form 10-K for the fiscal year ended June 28, 2003.  An increase in the valuation allowance against net deferred tax assets may be necessary if it is more likely than not that all or a portion of the net deferred tax assets will not be realized.  The Company periodically assesses the need for increases to the deferred tax asset valuation allowance.

Inventory

In prior fiscal periods, the Company has experienced the theft of inventory at its test facility in Cavite, the Philippines. The Company has implemented control procedures to prevent and detect such theft. There can be no assurance, however, that these control procedures will be effective in preventing or detecting, in a timely manner, future theft and that such theft, when detected, will not have a material adverse impact on the Company’s results of operations. The Company’s control procedures did not detect any material theft of inventory during the six months ended December 27, 2003.

Recently Issued Accounting Pronouncement

In December 2003, the Financial Accounting Standard Board (FASB) issued Statement of Financial Accounting Standard No. 132 (SFAS 132) (Revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits — an amendment of FASB Statements No. 87, 88, and 106”. SFAS 132 revises employers’ disclosures about pension plans and other postretirement benefit plans. It does not change the measurement or recognition of those plans required by FASB Statements No. 87, “Employers’ Accounting for Pensions,” No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,” and No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions.” SFAS 132 retains the disclosure requirements contained in the original FASB Statement No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits,” which it replaces. It requires additional disclosures to those in the original Statement 132 about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The required information needs to be provided separately for pension plans and for other postretirement benefit plans. SFAS 132 is effective for financial statements with fiscal years ending after December 15, 2003. The interim-period disclosures are effective for interim periods beginning after December 15, 2003. Disclosure of information about foreign plans is effective for fiscal years ending after June 15, 2004. Disclosure of estimated future benefit payments is effective for fiscal years ending after June 15, 2004. Disclosure of information for nonpublic entities is effective for fiscal years ending after June 15, 2004. The Company believes the adoption of SFAS 132 will not have a material impact on the Company’s financial condition, results of operations or liquidity.

18

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT’D)

OUTLOOK

Second quarter net bookings were approximately $417 million, a 19% increase over the previous quarter’s level of $349 million. Turns orders received in the quarter were $192 million, a 7% increase over the $180 million received in the prior quarter (turns orders are customer orders that are for delivery within the same quarter and may result in revenue within the same quarter if the Company has available inventory that matches those orders). Bookings increased by more than 10% in all geographic regions, and eleven of the Company’s fourteen business units had a significant increase in bookings over the first quarter’s level. Bookings exceeded the Company’s expectation for the second quarter of fiscal 2004, with both Maxim and Dallas Semiconductor bookings up approximately 19% over the first quarter of fiscal 2004’s level. Bookings growth was particularly strong for the Company’s integrated circuits that have industrial applications and for the Company’s traditional analog and mixed signal products that serve a very broad market. Bookings from Automatic Test Equipment (ATE) customers picked up significantly after so many quarters of sluggish performance. The Company believes that the ATE market will continue to improve during calendar 2004, as semiconductor companies increase their capacity and add equipment. 

Second quarter ending backlog shippable within the next 12 months was approximately $327 million, including approximately $293 million requested for shipment in the third quarter of fiscal year 2004. The Company’s first quarter ending backlog shippable within the next 12 months was approximately $252 million, including approximately $233 million that was requested for shipment in the second quarter of fiscal year 2004.

The Company believes that there could be a shortage of foundry capacity for high-frequency chip production in the next six months. With the Company’s installed in-house capacity plus the newly acquired capacity in San Antonio, Texas, Maxim has the capacity to meet its customers’ revised and increased product and schedule requirements in most areas. Based on the current estimates for demand over the next two quarters, the Company has accelerated its schedule for production in San Antonio to the first quarter of fiscal 2005, which is approximately nine months earlier than the Company had originally planned.  

LIQUIDITY AND CAPITAL RESOURCES

The Company’s primary sources of funds for the six months ended December 27, 2003 were from net cash generated from operating activities of $327.9 million and proceeds from the exercises of stock options and purchases of common stock under the Employee Stock Participation Plan in the amount of $101.7 million.  Another source of cash from the Company’s stock option programs is the tax deductions that arise from exercise of options.  These tax benefits amounted to $76.3 million in the six months ended December 27, 2003. 

The principal uses of funds were the repurchase of 2.4 million shares of the Company’s common stock for $116.0 million, the payment of $52.5 million for dividends and the purchase of $93.0 million in property, plant and equipment.  Included in the purchase of property, plant and equipment, $40.5 million was for the payment of the Company’s newly acquired fabrication facility in San Antonio, Texas.  The Company believes that it possesses sufficient liquidity and capital resources to fund its property, plant and equipment purchases, common stock repurchases, dividend payments, and operations for at least the next twelve months.  The Company plans to continue to repurchase its common stock in fiscal year 2004.  The number of shares to be repurchased and the timing of such repurchases will be based on several factors, including the price of the Company’s common stock, general market conditions, and other factors.  See Note 12 of Notes to Condensed Consolidated Financial Statements regarding the status of the Company’s common stock repurchases.

The Company is subject to pending legal proceedings.  For example, see Note 10 of Notes to Condensed Consolidated Financial Statements for information regarding pending patent litigation.  Although the results of such legal proceedings are unpredictable, the Company does not believe that any pending legal proceedings will have a material adverse impact on its liquidity or financial position.  If, however, the appellate court in the action brought by Linear Technology Corporation were to reverse the trial court’s dismissal of the patent litigation claims brought by Linear Technology Corporation against the Company, and were Linear Technology Corporation to prevail in its claims against the Company, the Company’s operating results could be materially adversely affected.

19

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT’D)

The following table provides a summary of the effect on liquidity and cash flows from the Company’s contractual obligations as of December 27, 2003:

(Amounts in thousands) (Unaudited)	Fiscal Year: 2004			2005		2006		2007		2008		2009 and thereafter			Total
Contractual obligations:
Noncancellable operating leases		$	1,270	$	2,093	$	1,430	$	1,071	$	685		$	286	$	6,835

On January 26, 2004, the Board of Directors declared a cash dividend of $0.08 per share on the Company’s common stock payable on March 1, 2004 to stockholders of record on February 16, 2004.  This will result in a cash payment of approximately $26.5 million.  See Note 14 of Notes to Condensed Consolidated Financial Statements.

FORWARD-LOOKING INFORMATION AND RISK FACTORS

This Report on Form 10-Q contains forward-looking statements that fall within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.  All statements included or incorporated by reference in this Report, other than statements that are purely historical, are forward-looking statements, including statements regarding or implicating the Company’s expectations, intentions, plans, goals and hopes regarding the future.  Words such as “anticipates,” “expects,” “intends,” “plans,” believes,” “seeks,” “estimates,” variations of such words and similar expressions identify forward-looking statements.  Forward-looking statements in this Report, including this Management’s Discussion and Analysis section, involve risk and uncertainty.

Forward-looking statements include, without limitation, the Company’s intention to use the intellectual property acquired from a privately-held semiconductor company, the Company’s intention to convert 6-inch to 8-inch wafer production at Dallas Semiconductor’s manufacturing facilities throughout fiscal 2004, the Company’s belief that the ultimate outcome of the LTC litigation and any pending legal proceedings will not have a material adverse effect on the financial position or liquidity of the Company, the Company’s belief that it is more likely than not that net deferred tax assets will be realized, the Company’s belief that it possesses sufficient liquidity and capital resources to fund operations for at least the next twelve months, the Company’s assessment of its customers’ current ordering activities and demand for products, the Company’s expectation that it will continue to purchase its common stock in fiscal year 2004, the Company’s continuous attempts to control and reduce expenses, the Company’s belief that the ATE market will continue to improve during calendar 2004 and that there could be a shortage of foundry capacity for high-frequency chip production and the Company’s plan to have its San Antonio facility in production in the first quarter of fiscal 2005

Actual results could differ materially from those forecasted based upon, among other things, the Company’s inability to use the intellectual property from a privately-held company, delays in conversion from 6-inch to 8-inch wafer production at Dallas Semiconductor’s manufacturing facilities, the inability to supply high frequency wafer requirements if the Company is not able to convert from 6-inch to 8-inch wafer production, unexpected outcomes in the Company’s pending litigation and legal proceedings, unexpected changes in earnings and taxable income that adversely affect the realizability of net deferred tax assets, the Company incorrectly assessing liquidity and capital resources, customer demand, customer willingness to commit to inventories and orders, and higher than expected order cancellation levels, the Company’s ability to repurchase its common stock at favorable prices, the Company’s effectiveness in controlling and reducing expenses, the Company incorrectly assessing that the ATE market will continue to improve during calendar 2004, the Company’s incorrectly assessing that there could be a shortage of foundry capacity for high-frequency chip production, and unexpected delays in preparing its San Antonio facility for production.

20

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT’D)

In addition, future business could be adversely affected by technical difficulties in bringing new products and processes to market in a timely manner; market developments that could adversely affect the growth of the mixed-signal analog market; the Company being unable to sustain its success in recruiting and retaining high-quality personnel; the Company’s success in the markets its products are introduced in; whether, and the extent to which, demand for the Company’s products increases and reflects real end-user demand; customer cancellations and delays of outstanding orders; whether the Company is able to manufacture in a correct mix to respond to orders on hand and new orders received in the future; whether the Company is able to achieve its new product development and introduction goals; whether the Company is able to effectively and successfully manage manufacturing operations; whether the Company is able to successfully commercialize its new technologies; overall worldwide economic conditions; demand for electronic products and semiconductors generally; demand for the end-user products for which the Company’s semiconductors are suited; timely availability of raw materials, equipment, supplies and services; unanticipated manufacturing problems; technological and product development risks; competitors that may outperform the Company; and other risk factors described in the Company’s filings with the Securities and Exchange Commission and in particular its report on Form 10-K for the fiscal year ended June 28, 2003.

All forward-looking statements are based on the Company’s current outlook, expectations, estimates, projections, beliefs and plans or objectives about its business and its industry.  These statements are not guarantees of future performance and are subject to risk and uncertainty.  Actual results could differ materially from those predicted or implied in any such forward-looking statements.

The Company disclaims any duty to and undertakes no obligation to update any forward-looking statement, whether as a result of new information relating to existing conditions, future events or otherwise or to release publicly the results of any future revisions it may make to forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.  Readers are cautioned not to place undue reliance on such statements, which speak only as of the date of this Quarterly Report on Form 10-Q.  Readers should carefully review future reports and documents that the Company files from time to time with the Securities and Exchange Commission, such as its quarterly reports on Form 10-Q (particularly Management’s Discussion and Analysis of Financial Condition and Results of Operations) and any current reports on Form 8-K.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company’s market risk has not changed significantly from the interest rate and foreign currency risks disclosed in Item 7A of the Company’s Annual Report on Form 10-K for the fiscal year ended June 28, 2003.

ITEM 4: CONTROLS AND PROCEDURES

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of our disclosure controls and procedures.  The Company’s disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in the Company’s reports filed under the Securities Exchange Act of 1934 is properly and timely recorded, processed, summarized and reported.  Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in this report at the reasonable assurance level.

It should be noted that any control system, no matter how well designed and operated, can provide only reasonable assurance to the tested objectives.  The design of any control systems is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

There has been no change in the Company’s internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

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

The Company held its Annual Meeting of Stockholders on November 13, 2003.  The following proposals were voted on by the Company’s Stockholders and results obtained thereon:

Proposal 1: Election of Directors

The following directors were elected as directors by the votes indicated:

Nominee	Votes in Favor		Votes Withheld
James R. Bergman		276,239,112		23,776,918
John F. Gifford		216,573,506		83,442,524
B. Kipling Hagopian		276,278,994		23,737,036
M.D. Sampels		289,511,815		10,504,215
A.R. Frank Wazzan		276,261,326		23,754,704

Proposal 2: Ratification and approval of amendment to the Company’s 1996 Stock Incentive Plan, as amended, increasing the number of shares available for issuance.

The proposal was ratified and approved with 134,817,650 votes in favor, 131,055,387 against, and 1,968,277 abstentions.

Proposal 3: Ratification and approval of amendment to the Company’s 1987 Employee Stock Participation Plan, as amended, increasing the number of shares available for issuance.

The proposal was ratified and approved with 256,812,452 votes in favor, 9,652,503 against, and 1,339,474 abstentions.

Proposal 4: Ratification of Selection of Independent Auditors

The selection of Ernst & Young LLP as the Company’s independent auditors for fiscal year 2004 was ratified with 246,858,265 votes in favor, 51,871,841 votes against, and 1,285,934 abstentions.

ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

(a)       Exhibits

31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b)       Reports on Form 8-K

On October 28, 2003, Maxim Integrated Products, Inc. furnished a report on Form 8-K announcing the Company’s earnings for the first quarter ended September 27, 2003, as presented in a press release dated October 28, 2003.

ITEMS 1, 2, 3 AND 5 HAVE BEEN OMITTED AS THEY ARE NOT APPLICABLE.

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SIGNATURES

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

February 5, 2004	MAXIM INTEGRATED PRODUCTS, INC.
(Date)	(Registrant)
	/s/ Carl W. Jasper
	CARL W. JASPER
	Vice President, Chief Financial Officer (For the Registrant and as Principal Financial Officer and as Chief Accounting Officer)

23

EX-31.1

Exhibit 31.1

CERTIFICATE

I, John F. Gifford, certify that:
1.	I have reviewed the quarterly report on Form 10-Q of Maxim Integrated Products, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  February 5, 2004

  /s/ John F. Gifford

John F. Gifford

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATE

I, Carl W. Jasper, certify that:
1.	I have reviewed this quarterly report on Form 10-Q of Maxim Integrated Products, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  February 5, 2004

  /s/ Carl W. Jasper

Carl W. Jasper

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATE OF CHIEF EXECUTIVE OFFICER

In connection with the periodic report of Maxim Integrated Products, Inc. (the “Company”) on Form 10-Q for the period ended December 27, 2003 as filed with the Securities and Exchange Commission (the “Report”), I, John F. Gifford, Chief Executive Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

(1)	the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and
(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Maxim Integrated Products, Inc. and will be retained by Maxim Integrated Products, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.

Date:  February 5, 2004
	By:	/s/ John F. Gifford
		John F. Gifford
		Chief Executive Officer

This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended or the Exchange Act.

EX-32.2

Exhibit 32.2

CERTIFICATE OF CHIEF FINANCIAL OFFICER

In connection with the periodic report of Maxim Integrated Products, Inc. (the “Company”) on Form 10-Q for the period ended December 27, 2003 as filed with the Securities and Exchange Commission (the “Report”), I, Carl W. Jasper, Chief Financial Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

(1)	the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and
(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Maxim Integrated Products, Inc. and will be retained by Maxim Integrated Products, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.

Date:  February 5, 2004
	By:	/s/ Carl W. Jasper
		Carl W. Jasper
		Chief Financial Officer

This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended or the Exchange Act.