UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(MARK ONE)

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

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

Commission File Number: 001-34428

Avago Technologies Limited

(Exact Name of Registrant as Specified in Its Charter)

Singapore		N/A
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)
1 Yishun Avenue 7
Singapore 768923		N/A
(Address of Principal Executive Offices)		(Zip Code)

(65) 6755-7888

     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 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 þ NO o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES þ NO o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

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

     As of June 3, 2011 there were 246,742,106 shares of our ordinary shares, no par value per share, outstanding.

 

 

AVAGO TECHNOLOGIES LIMITED
Quarterly Report on Form 10-Q
For the Quarterly Period Ended May 1, 2011

TABLE OF CONTENTS

		Page
PART I — FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements — Unaudited			3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
Item 3. Quantitative and Qualitative Disclosures About Market Risk			28
Item 4. Controls and Procedures			28
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			29
Item 1A. Risk Factors			30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			47
Item 3. Defaults Upon Senior Securities			47
Item 5. Other Information			47
Item 6. Exhibits			47
SIGNATURES			50
EX-10.2
EX-10.3
EX-10.4
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-99.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

PART I — FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements — Unaudited

AVAGO TECHNOLOGIES LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS — UNAUDITED
(in millions, except share amounts)

		October 31,				May 1,
		2010 (1)				2011
ASSETS
Current assets:
Cash and cash equivalents		$	561			$	596
Trade accounts receivable, net			285				289
Inventory			189				194
Other current assets			52				49
Total current assets			1,087				1,128
Property, plant and equipment, net			281				285
Goodwill			172				177
Intangible assets, net			573				538
Other long-term assets			44				49
Total assets		$	2,157			$	2,177
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	198			$	206
Employee compensation and benefits			82				62
Accrued interest			12				—
Capital lease obligations — current			2				2
Other current liabilities			41				26
Current portion of long-term debt			230				—
Total current liabilities			565				296
Long-term liabilities:
Capital lease obligations — non-current			4				4
Other long-term liabilities			83				86
Total liabilities			652				386
Commitments and contingencies (Note 11)
Shareholders’ equity:
Ordinary shares, no par value; 239,888,231 shares and 246,186,797 shares issued and outstanding on October 31, 2010 and May 1, 2011, respectively			1,450				1,518
Retained earnings			59				276
Accumulated other comprehensive loss			(4	)			(3	)
Total shareholders’ equity			1,505				1,791
Total liabilities and shareholders’ equity		$	2,157			$	2,177

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

AVAGO TECHNOLOGIES LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS — UNAUDITED
(in millions, except per share data)

		Quarter Ended								Six Months Ended
		May 2,				May 1,				May 2,				May 1,
		2010				2011				2010				2011
Net revenue		$	515			$	560			$	971			$	1,110
Cost of products sold:
Cost of products sold			268				271				515				536
Amortization of intangible assets			14				14				29				28
Total cost of products sold			282				285				544				564
Gross margin			233				275				427				546
Research and development			70				76				134				149
Selling, general and administrative			48				55				94				105
Amortization of intangible assets			6				5				11				11
Restructuring charges			1				1				2				1
Total operating expenses			125				137				241				266
Income from operations			108				138				186				280
Interest expense			(8	)			(1	)			(19	)			(4	)
Loss on extinguishment of debt			—				(1	)			(24	)			(20	)
Other income (expense), net			(1	)			1				(2	)			1
Income before income taxes			99				137				141				257
Provision for income taxes			9				2				13				3
Net income		$	90			$	135			$	128			$	254
Net income per share:
Basic:
Net income per share		$	0.38			$	0.55			$	0.54			$	1.04
Diluted:
Net income per share		$	0.37			$	0.54			$	0.52			$	1.01
Weighted average shares :
Basic			238				245				237				245
Diluted			246				252				244				252
Dividends declared and paid per share		$	—			$	0.08			$	—			$	0.15

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

AVAGO TECHNOLOGIES LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED
(in millions)

		Six Months Ended
		May 2,				May 1,
		2010				2011
Cash flows from operating activities:
Net income		$	128			$	254
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			79				79
Amortization of debt issuance costs			1				—
Loss on extinguishment of debt			8				6
Loss on disposal of property, plant and equipment			1				1
Share-based compensation			11				16
Tax benefits from share-based compensation			—				8
Excess tax benefits from share-based compensation			(1	)			(2	)
Changes in assets and liabilities, net of acquisition:
Trade accounts receivable, net			(63	)			(3	)
Inventory			(16	)			(5	)
Accounts payable			7				15
Employee compensation and benefits			4				(20	)
Other current assets and current liabilities			(14	)			(30	)
Other long-term assets and long-term liabilities			11				(1	)
Net cash provided by operating activities			156				318
Cash flows from investing activities:
Purchase of property, plant and equipment			(27	)			(51	)
Acquisition and investments, net of cash acquired			(1	)			(9	)
Proceeds from disposal of property, plant and equipment			1				—
Net cash used in investing activities			(27	)			(60	)
Cash flows from financing activities:
Debt repayments			(364	)			(230	)
Payment on capital lease obligation			(1	)			(2	)
Issuance of ordinary shares			19				44
Excess tax benefits from share-based compensation			1				2
Dividend payments to shareholders			—				(37	)
Net cash used in financing activities			(345	)			(223	)
Net increase (decrease) in cash and cash equivalents			(216	)			35
Cash and cash equivalents at the beginning of period			472				561
Cash and cash equivalents at end of period		$	256			$	596

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

AVAGO TECHNOLOGIES LIMITED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Overview and Basis of Presentation

Overview

     Avago Technologies Limited, or the “Company”, was organized under the laws of the Republic of Singapore in August 2005. We are the successor to the Semiconductor Products Group, or SPG, of Agilent Technologies, Inc., or Agilent. On December 1, 2005, we acquired substantially all of the assets of SPG from Agilent for $2.7 billion, or the SPG Acquisition.

     We are a designer, developer and global supplier of analog semiconductor devices with a focus on III-V based products. We offer products in four primary target markets: wireless communications, wired infrastructure, industrial and automotive electronics, and consumer and computing peripherals. Applications for our products in these target markets include cellular phones, consumer appliances, data networking and telecommunications equipment, enterprise storage and servers, factory automation, displays, optical mice and printers.

     References herein to “we”, “our”, “us” and “Avago” are to Avago Technologies Limited and its consolidated subsidiaries, unless otherwise specified or the context otherwise requires.

Basis of Presentation

     Fiscal Periods. We operate on a 52/53-week fiscal year ending on the Sunday closest to October 31. Our first quarter of fiscal year 2011 ended on January 30, 2011, the second quarter ended on May 1, 2011, the third quarter will end on July 31, 2011 and the fourth quarter will end on October 30, 2011.

     Information. The unaudited condensed consolidated financial statements include the accounts of Avago and all of our wholly-owned subsidiaries, and are prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. Intercompany transactions and balances have been eliminated in consolidation.

     Interim information presented in the unaudited condensed consolidated financial statements has been prepared by management and, in the opinion of management, includes all adjustments of a normal recurring nature that are necessary for the fair statement of the financial position, results of operations and cash flows for the periods shown, and is in accordance with GAAP. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes for the fiscal year ended October 31, 2010, or fiscal year 2010, included in Annual Report on Form 10-K filed with the Securities and Exchange Commission, or the SEC, on December 15, 2010.

     The operating results for the quarter and six months ended May 1, 2011 are not necessarily indicative of the results that may be expected for the year ending October 30, 2011, or fiscal year 2011, or for any other future period. The balance sheet data as of October 31, 2010 presented is derived from the audited financial statements as of that date.

     Use of estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and such differences could affect the results of operations reported in future periods.

     Concentrations of credit risk and significant customers. Our cash, cash equivalents and accounts receivable are potentially subject to concentration of credit risk. Cash and cash equivalents are placed with financial institutions that management believes are of high credit quality. Our accounts receivable are derived from revenue earned from customers located in the U.S. and internationally. Credit risk with respect to accounts receivable is generally diversified due to the large number of entities comprising our customer base and their dispersion across many different industries and geographies. We perform ongoing credit evaluations of our customers’ financial conditions, and require collateral, such as letters of credit and bank guarantees, in certain circumstances.

     We sell our products through our direct sales force and distributors. No customer accounted for 10% or more of our net accounts receivable balance at October 31, 2010 or May 1, 2011. For both the quarter and six months ended May 1, 2011, no single customer represented 10% or more of net revenue. One customer represented 10% of net revenue for both the quarter and six months ended May 2, 2010.

     Concentration of other risks. The semiconductor industry is characterized by rapid technological change, competitive pricing pressures and cyclical market patterns. Our financial results are affected by a wide variety of factors, including general economic conditions worldwide, economic conditions specific to the semiconductor industry, the timely implementation of new manufacturing technologies, the ability to safeguard patents and intellectual property in a rapidly evolving market and reliance on assembly and test

subcontractors, third-party wafer fabricators and independent distributors. In addition, the semiconductor market has historically been cyclical and subject to significant economic downturns at various times. We are exposed to the risk of obsolescence of our inventory depending on the mix of future business.

     Net income (loss) per share. Basic net income (loss) per share is computed by dividing net income (loss)—the numerator—by the weighted-average number of shares outstanding—the denominator—during the period, excluding the dilutive effect of options and other employee plans. Diluted net income (loss) per share gives effect to all potentially dilutive ordinary share equivalents outstanding during the period.

     Diluted net income per share for the quarter and six months ended May 2, 2010 and the quarter and six months May 1, 2011 excluded the potentially dilutive effect of weighted-average options, restricted share units, or RSUs, and employee share purchase plan, or ESPP, rights to purchase 4 million, 3 million, 1 million and less than 1 million ordinary shares, respectively, as their effect was antidilutive.

     The following is a reconciliation of the denominators of the basic and diluted net income per share computations for the periods presented (in millions, except per share data):

		Quarter Ended								Six Months Ended
		May 2,				May 1,				May 2,				May 1,
		2010				2011				2010				2011
Net income (Numerator):
Net income		$	90			$	135				128				254
Shares (Denominator):
Basic weighted average ordinary shares outstanding			238				245				237				245
Add: Incremental shares for:
Dilutive effect of share options			8				7				7				7
Shares used in diluted computation			246				252				244				252
Net income per share:
Basic:
Net income per share		$	0.38			$	0.55			$	0.54			$	1.04
Diluted:
Net income per share		$	0.37			$	0.54			$	0.52			$	1.01

          Warranty. We accrue for the estimated costs of product warranties at the time revenue is recognized. Product warranty costs are estimated based upon our historical experience and specific identification of the products’ requirements, which may fluctuate based on product mix. Additionally, we accrue for warranty costs associated with unanticipated product quality issues if a loss is probable and can be reasonably estimated.

     The following table summarizes the changes in our warranty accrual (in millions):

Balance as of November 1, 2009 — included in other current liabilities		$	7
Charged to cost of products sold			11
Utilized			—
Balance as of May 2, 2010 — included in other current liabilities		$	18
Balance as of October 31, 2010 — included in other current liabilities		$	17
Adjustment to estimate — released to cost of products sold			(4	)
Utilized			(2	)
Balance as of May 1, 2011 — included in other current liabilities		$	11

     During the first six months of fiscal year 2010, we recorded a warranty-related charge of $11 million based on one specific quality issue impacting multiple customers. See Note 11. “Commitments and Contingencies” for further details.

Recently Adopted Accounting Guidance

     In the first quarter of fiscal year 2011, the guidance issued by the Financial Accounting Standards Board, or FASB, on the milestone method of revenue recognition became effective. The new guidance recognizes the milestone method as an acceptable revenue recognition method for substantive milestones in research or development transactions. A milestone is substantive when the consideration earned from achievement of the milestone is commensurate with either (a) the vendor’s performance to achieve the milestone or (b) the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from the vendor’s performance to achieve the milestone and the consideration earned from the achievement of a milestone relates solely to past performance and is reasonable relative to all of the deliverables and payment terms (including other potential milestone considerations) within the arrangement. The guidance may be applied retrospectively to all arrangements or prospectively to milestones achieved after the effective date. The adoption of this guidance did not have a significant impact on our results of operations and financial position.

     In the first quarter of fiscal year 2011, we adopted the FASB’s updated guidance that amends the requirements for evaluating whether a decision maker or service provider has a variable interest to clarify that a quantitative approach should not be the sole consideration in assessing the criteria. It also clarifies that related parties should be considered in applying all of the decision maker and service provider criteria. This is in addition to the authoritative guidance the FASB issued in June 2009 that applies to determining whether an entity is a variable interest entity and requiring an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity. This new guidance eliminates the exceptions to consolidating qualifying special-purpose entities, contains new criteria for determining the primary beneficiary, and increases the frequency of required reassessments to determine whether a company is the primary beneficiary of a variable interest entity. The guidance also contains a new requirement that any term, transaction, or arrangement that does not have a substantive effect on an entity’s status as a variable interest entity, a company’s power over a variable interest entity, or a company’s obligation to absorb losses or its right to receive benefits of an entity must be disregarded in applying the existing provisions. The elimination of the qualifying special-purpose entity concept and its consolidation exceptions means more entities will be subject to consolidation assessments and reassessments. The adoption of this guidance did not have a significant impact on our results of operations and financial position.

     In the first quarter of fiscal year 2011, we adopted the guidance the FASB issued on revenue recognition that addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how the arrangement consideration should be allocated among the separate units of accounting. The guidance may be applied retrospectively or prospectively for new or materially modified arrangements. The adoption of this guidance did not have a significant impact on our results of operations and financial position.

     In the first quarter of fiscal year 2011, we adopted the FASB guidance that modifies the scope of the software revenue recognition guidance to exclude (a) non-software components of tangible products and (b) software components of tangible products that are sold, licensed or leased with tangible products when the software components and non-software components of the tangible product function together to deliver the tangible product’s essential functionality. The guidance may be applied retrospectively or prospectively for new or materially modified arrangements. The adoption of this new guidance did not have a significant impact on our results of operations and financial position.

Recent Accounting Guidance Not Yet Adopted

     In May 2011, the FASB issued Accounting Standard Update No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, and the International Accounting Standards Board, or IASB, issued International Financial Reporting Standard, or IFRS, 13, Fair Value Measurement (together, the new guidance). The new guidance amends U.S. GAAP and is a new standard under IFRS. The new guidance results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and IFRS. While many of the amendments to U.S. GAAP are not expected to have a significant effect on practice, the new guidance changes some fair value measurement principles and disclosure requirements. The new guidance will be effective for our second quarter of fiscal year 2012, with early adoption prohibited. We are currently assessing the impact that this guidance will have on our results of operations and financial position.

     In January 2010, the FASB issued updated guidance related to fair value measurements and disclosures, which requires separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 fair value measurements (see Note 6. “Fair Value” for further discussion of fair value measurements). This guidance will be effective for our fiscal year ending October 28, 2012, and its interim periods. Other than requiring additional disclosures in our financial statements, we believe the adoption of this guidance will not have a significant impact on our results of operations and financial position.

2. Inventory

     Inventory consists of the following (in millions):

		October 31,				May 1,
		2010				2011
Finished goods		$	61			$	45
Work-in-process			96				112
Raw materials			32				37
Total inventory		$	189			$	194

3. Acquisition

     During the first quarter of fiscal year 2011, we acquired a U.S.-based company engaged in the manufacturing of integrated circuits for approximately $8 million in cash. The purchase price was allocated to the acquired net assets based on preliminary estimates of fair values as follows: total assets of $8 million, including intangible assets of $4 million and goodwill of $5 million. The intangible assets are being amortized over their useful lives ranging from 5 to 15 years. The unaudited condensed consolidated financial statements include the results of operations of the acquired business commencing as of the acquisition date. Pro forma results of operations for the acquisition have not been presented because the effects of the acquisition were not material to our prior financial statements.

4. Goodwill and Intangible Assets

Goodwill

     The following summarizes the changes in goodwill (in millions):

Balance as of October 31, 2010		$	172
Goodwill acquired during the period (Note 3. “Acquisition”)			5
Balance as of May 1, 2011		$	177

Intangible Assets

          Amortizable purchased intangibles consist of the following (in millions):

		Gross Carrying				Accumulated
		Amount				Amortization				Net Book Value
As of October 31, 2010:
Purchased technology		$	727			$	(290	)		$	437
Customer and distributor relationships			254				(120	)			134
Other			4				(2	)			2
Total		$	985			$	(412	)		$	573
As of May 1, 2011:
Purchased technology		$	728			$	(318	)		$	410
Customer and distributor relationships			257				(131	)			126
Other			4				(2	)			2
Total		$	989			$	(451	)		$	538

     The following table presents the amortization of purchased intangible assets (in millions):

		Quarter Ended								Six Months Ended
		May 2,				May 1,				May 2,				May 1,
		2010				2011				2010				2011
Cost of products sold		$	14			$	14			$	29			$	28
Operating expenses			6				5				11				11
Total		$	20			$	19			$	40			$	39

     During the quarter ended January 30, 2011, we recorded $4 million in intangible assets with a weighted-average amortization period of 14 years in conjunction with an acquisition. See Note 3. “Acquisition.”

     Based on the amount of intangible assets subject to amortization at May 1, 2011, the expected amortization expense for each of the next five fiscal years and thereafter is as follows (in millions):

Fiscal Year		Amount
2011 (remainder)		$	39
2012			77
2013			77
2014			77
2015			76
2016			59
Thereafter			133
		$	538

     The weighted-average amortization periods remaining by intangible asset category at May 1, 2011 were as follows (in years):

Amortizable intangible assets:
Purchased technology			8
Customer and distributor relationships			7
Other			23

5. Borrowings

     Our borrowings as of October 31, 2010 and May 1, 2011 consist of the following (in millions):

		October 31,				May 1,
		2010				2011
117/8% Senior Subordinated Notes due 2015		$	230			$	—
			230				—
Less: Current portion of long-term debt			230				—
Long-term debt		$	—			$	—

Debt Repayments

     During the quarter ended January 31, 2010, we redeemed the remaining $318 million aggregate principal amount of our 10¹/₈% Senior Notes due December 1, 2013, or senior fixed rate notes, and the remaining $46 million aggregate principal amount of our Senior Floating Rate Notes due June 1, 2013, or senior floating rate notes. We redeemed the senior fixed rate notes and senior floating

rate notes at a 5.063% premium of the principal amount and no premium, respectively, plus accrued interest, resulting in a loss on extinguishment of debt of $24 million, which consisted of a $16 million premium and an $8 million write-off of debt issuance costs and other related expenses.

     During the quarter ended January 30, 2011, we redeemed the remaining $230 million aggregate principal amount outstanding of our 11 ⁷/₈% Senior Subordinated Notes due December 1, 2015, or senior subordinated notes. We redeemed the senior subordinated notes at a 5.938% premium of the principal amount plus accrued interest, resulting in a loss on extinguishment of debt of $19 million, which consisted of a $14 million premium and a $5 million write-off of debt issuance costs and other related expenses.

Revolving Credit Facility

     During the quarter ended May 1, 2011, we terminated our existing revolving credit facility. There were no outstanding loan borrowings under the existing revolving credit facility at the time of termination. This termination resulted in a loss on extinguishment of debt of $1 million, related to the write-off of debt amortization costs and other related expenses.

     In connection with the termination of our revolving credit facility, on March 31, 2011, Avago Technologies Finance Pte. Ltd., or, Avago Finance, and certain other subsidiaries of the Company entered into a new credit agreement with a syndicate of financial institutions. The credit agreement provides for a $200 million unsecured, revolving credit facility. The credit agreement has a term of four years. The credit agreement includes (i) financial covenants requiring Avago Finance to maintain a maximum leverage ratio and a minimum interest coverage ratio; (ii) customary restrictive covenants (subject, in each case, to certain exceptions and amounts) that limit Avago Finance’s ability to, among other things, create liens, merge or consolidate with and into other persons, and sell assets; (iii) customary events of default, upon the occurrence of which, after any applicable grace period, the lenders will have the ability to accelerate all outstanding loans thereunder and terminate the commitments; and (iv) customary representations and warranties. In addition, Avago Finance has the ability, at any time, to increase the aggregate commitments under the credit agreement from $200 million to $300 million subject to the condition that no default or event of default shall have occurred and be continuing and other terms and conditions set forth in the credit agreement, and the receipt of sufficient commitments for such increase from the lenders. Certain subsidiaries of the Company guarantee the revolving credit facility. The credit agreement also provides for the issuance of letters of credit of up to $40 million in the aggregate, which reduces the available borrowing capacity under the revolving credit facility on a dollar for dollar basis. As of May 1, 2011, we had no borrowings outstanding under the new revolving credit facility and were in compliance with the financial covenants.

6. Fair Value

     Fair value is defined as the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three level hierarchy is applied to prioritize the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

     The three levels of the fair value hierarchy under the guidance for fair value measurements are described below:

     Level 1—Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Our Level 1 assets include money market funds, time deposits, bank acceptances and investment funds—deferred compensation plan assets. We measure money market funds and investment funds at quoted market price as they are traded in an active market with sufficient volume and frequency of transactions. Time deposits are highly liquid with maturities of ninety days or less. Bank acceptances are highly liquid with maturities of one hundred and eighty days or less. Due to their short-term maturities, we have determined that the fair value of time deposits and bank acceptances should be their face value.

     Level 2—Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability. We did not have any Level 2 asset or liability activities during the quarter ended May 1, 2011.

     Level 3—Level 3 inputs are unobservable inputs for the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date. Level 3 assets and liabilities include cost method investments, goodwill, amortizable intangible assets, and property, plant and equipment, which are measured at fair value using a discounted cash flow approach when they are impaired. We did not have any Level 3 asset or liability activities during the quarter ended May 1, 2011.

Assets Measured at Fair Value on a Recurring Basis

     The table below sets forth by level our financial assets that were accounted for at fair value as of May 1, 2011. The table does not include cash on hand and also does not include assets that are measured at historical cost or any basis other than fair value (in millions).

						Fair Value
						Measurement
						as of May 1,
						2011 Using
						Quoted Prices
		Portion of Carrying				In Active
		Value Measured at				Market For
		Fair Value as of May				Identical Assets
		1, 2011				(Level 1)
Money Market Funds (1)		$	89			$	89
Time deposits (1)			277				277
Investment Funds — Deferred Compensation Plan Assets (2)			5				5
Bank acceptances (2)			1				1
Total assets measured at fair value		$	372			$	372

     During the quarter and six months ended May 1, 2011, there were no material transfers between Level 1 and Level 2 fair value instruments.

Assets Measured at Fair Value on a Nonrecurring Basis

     There were no nonfinancial assets or liabilities measured at fair value as of May 1, 2011.

Fair Value of Other Financial Instruments

     The following table presents the carrying amounts and fair values of financial instruments as of October 31, 2010 and May 1, 2011 (in millions):

		October 31, 2010								May 1, 2011
										Carrying
		Carrying Value				Fair Value				Value				Fair Value
Fixed rate debt		$	230			$	247			$	—			$	—

     The fair values of cash and cash equivalents, trade accounts receivable, accounts payable and accrued liabilities, to the extent the underlying liability will be settled in cash, approximate carrying values because of the short-term nature of these instruments. The fair value of our long-term debt is based on quoted market rates.

7. Shareholders’ Equity

     We filed a prospectus supplement, dated December 6, 2010, with the SEC relating to sale of 25,000,000 of our ordinary shares by certain of our shareholders in a registered public offering, or the December Offering. This transaction closed on December 10, 2010 and 25,000,000 shares were sold to the public at a price of $25.35 per share including a $0.35 per share discount to the underwriters. We did not receive any proceeds from the sale of shares sold in the December Offering other than proceeds from options exercised by a shareholder in connection with the sale of shares by the shareholder in the December Offering.

     We filed a prospectus supplement, dated January 18, 2011, with the SEC relating to sale of 25,000,000 of our ordinary shares by certain of our shareholders in a registered public offering, or the January Offering. This transaction closed on January 21, 2011 and 25,000,000 shares were sold to the public at a price per share of $27.75 including a $0.50 per share discount to the underwriters. We did not receive any proceeds from the sale of shares sold in the January Offering other than proceeds from options exercised by a shareholder in connection with the sale of shares by the shareholder in the January Offering.

     We filed a prospectus supplement, dated February 28, 2011, with the SEC relating to sale of 25,000,000 of our ordinary shares by certain of our shareholders in a registered public offering, or the February Offering. This transaction closed on March 4, 2011 and 25,000,000 shares were sold to the public at a price per share of $32.50 including a $0.55 per share discount to the underwriters. We did not receive any proceeds from the sale of shares sold in the February Offering.

Dividends

     We paid a cash dividend of $0.08 per share, or $20 million in total in the second fiscal quarter and have paid aggregate dividends of $37 million during the first six months of fiscal year 2011.

Share-Based Compensation

     The following table summarizes share-based compensation expense related to share-based awards granted to employees, directors, and non-employees for the quarters and six months ended May 2, 2010 and May 1, 2011 (in millions):

		Quarter Ended								Six Months Ended
		May 2,				May 1,				May 2,				May 1,
		2010				2011				2010				2011
Cost of products sold		$	1			$	1			$	1			$	2
Research and development			2				3				3				6
Selling, general and administrative			3				5				7				8
Total share-based compensation expense		$	6			$	9			$	11			$	16

     The weighted-average assumptions utilized for our Black-Scholes valuation model for options and ESPP rights granted during the quarters and six months ended May 2, 2010 and May 1, 2011 are as follows:

		Options								Options								ESPP				ESPP
		Quarter Ended								Six Months Ended								Quarter Ended				Six Months Ended
		May 2,				May 1,				May 2,				May 1,				May 1,				May 1,
		2010				2011				2010				2011				2011				2011
Risk-free interest rate			2.6	%			2.2	%			2.6	%			2.2	%			0.2	%			0.2	%
Dividend yield			0	%			0.86	%			0	%			0.85	%			0.43	%			0.21	%
Volatility			44.0	%			44.0	%			45.0	%			44.0	%			40.0	%			41.0	%
Expected term (in years)			5.0				5.0				5.0				5.0				0.5				0.5

     The dividend yield of zero, for the quarter and six months ended May 2, 2010 is based on the fact that we did not intend to pay cash dividends as of the respective option grant dates during those periods. The dividend yield for the quarter and six months ended May 1, 2011 is based on the dividend yield as of the respective option grant dates. Expected volatility is based on the combination of historical volatility of guideline publicly traded companies over the period commensurate with the expected life of the options and the implied volatility of guideline publicly traded companies from traded options with a term of 180 days or greater measured over the last three months. The risk-free interest rate is derived from the average U.S. Treasury Strips rate during the period, which approximates the rate in effect at the time of grant. Our computation of expected term was based on data, such as the data of peer companies and company-specific attributes that we believe could affect employees’ exercise behavior.

     Based on the above assumptions, the weighted-average fair values of the options granted under the share option plans for the quarters ended May 2, 2010 and May 1, 2011 were $7.97 and $12.30, respectively, and $7.60 and $12.21 for the six months ended May 2, 2010 and May 1, 2011. The weighted-average fair values of the rights to purchase shares in the ESPP for the quarter and six months ended May 1, 2011 were $7.86 and $7.03, respectively. RSUs were first granted in the fourth quarter of fiscal year 2010. The weighted-average fair value of RSUs granted under the 2009 Equity Incentive Award Plan for the quarter and six months ended May 1, 2011 was $32.39.

     Total compensation cost related to unvested options as of May 1, 2011 was $108 million, which is expected to be recognized over the remaining weighted-average service period of 3 years. Total unrecognized compensation cost related to the ESPP as of May 1, 2011 was $1 million, which is expected to be recognized over the remaining 4 months of the current offering period under the ESPP. Total compensation cost related to unvested RSUs as of May 1, 2011 was $14 million, which is expected to be recognized over the remaining weighted-average service period of 4 years.

Share Option Plans

     A summary of option award activity related to our equity incentive plans follows (in millions, except years and per share amounts):

		Awards Outstanding
														Weighted-
										Weighted-				Average
		Awards								Average				Remaining				Aggregate
		Available for				Number				Exercise Price				Contractual Life				Intrinsic
		Grant				Outstanding				Per Share				(in years)				Value
Balance as of October 31, 2010			14				23			$	11.50				7.41			$	307
Granted			(4	)			4			$	32.11
Exercised			—				(6	)		$	6.61
Balance as of May 1, 2011			10				21			$	16.24				7.38			$	354
Vested as of May 1, 2011							5			$	9.09				6.19			$	126
Vested and expected to vest as of May 1, 2011							19			$	15.68				17.78			$	334

     The following table summarizes the ranges of outstanding and exercisable option awards as of May 1, 2011 (in millions, except years and per share amounts):

		Awards Outstanding												Awards Exercisable
						Weighted-
						Average				Weighted-								Weighted-
						Remaining				Average								Average
		Number				Contractual				Exercise Price				Number				Exercise Price
Exercise Prices		Outstanding				Life (in years)				Per Share				Exercisable				Per Share
$0.00-5.00			3				4.72			$	4.97				2			$	4.96
5.01-10.00			2				7.60			$	9.13				1			$	9.00
10.01-15.00			7				7.06			$	11.82				2			$	11.00
15.01-20.00			2				8.60			$	17.60				—			$	17.77
20.01-25.00			4				9.25			$	20.53				—			$	20.48
25.01-30.00			—				9.69			$	28.52				—			$	—
30.01-35.00			3				6.87			$	32.38				—			$	—
Total			21				7.38			$	16.24				5			$	9.09

     As of May 1, 2011, we had 0.5 million RSUs outstanding, which are not included in the above summaries.

Employee Share Purchase Plan

     The ESPP currently has 8 million shares authorized to be issued. The ESPP consists of successive six-month offering periods and permits eligible employees to purchase ordinary shares through payroll deductions, at the end of each offering period, at a price equal to the lesser of 85% of the fair market value of the ordinary shares at either the beginning or ending of the relevant offering period. Under the ESPP, employees purchased 0.2 million shares for aggregate consideration of $3 million in the second quarter of fiscal year 2011. The next purchase date under the ESPP is scheduled to occur in the fourth quarter of fiscal year 2011. As at May 1, 2011, 7.8 million shares remained available for issuance under the ESPP.

8. Income Taxes

     For the quarter ended May 1, 2011, we recorded an income tax provision of $2 million compared to $9 million for the quarter ended May 2, 2010. For the six months ended May 1, 2011 we recorded an income tax provision of $3 million compared to $13 million for the six months ended May 2, 2010. In February, 2010, the Malaysian government granted us a tax holiday on our qualifying Malaysian income, which is effective for ten years beginning with our fiscal year 2009. As a result of receiving this tax incentive, we wrote down deferred tax assets of $6 million during the quarter ended May 2, 2010 that we previously recorded in this

jurisdiction. The tax provision for the six months ended May 1, 2011 included the recognition of a tax benefit as a result of U.S. legislation enacted in the first quarter of fiscal year 2011 retroactively reinstating the research and development tax credit.

9. Segment Information

     ASC 280 “Segment Reporting,” or ASC 280, establishes standards for the way public business enterprises report information about operating segments in annual consolidated financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. ASC 280 also establishes standards for related disclosures about products and services, geographic areas and major customers. We have concluded that we have one reportable segment based on the following factors: sales of semiconductors represents our only material source of revenue; substantially all products offered incorporate analog functionality and are manufactured under similar manufacturing processes; we use an integrated approach in developing our products in that discrete technologies developed are frequently integrated across many of our products; we use a common order fulfillment process and similar distribution approach for our products; and broad distributor networks are typically utilized while large accounts are serviced by a direct sales force. The Chief Executive Officer has been identified as the Chief Operating Decision Maker as defined by ASC 280.

10. Related Party Transactions

Kohlberg Kravis Roberts & Co., or KKR, and Silver Lake Partners, or Silver Lake

     As of May 1, 2011, KKR and Silver Lake together, the Sponsors, indirectly owned approximately 20.3% of our shares. Prior to March 18, 2011, KKR, Silver Lake, held our shares indirectly through their ownership of Bali Investments S.àr.l, or Bali. On March 18, 2011, in connection with the liquidation of Bali, Bali distributed our ordinary shares held by it to its shareholders, including KKR and Silver Lake.

Capstone Consulting

     Capstone Consulting, or Capstone, an affiliate of KKR was granted options to purchase 800,000 ordinary shares with an exercise price of $5.00 per share on February 3, 2006. These options were no longer subject to variable accounting as 700,000 of the option shares vested by the end of the first quarter of fiscal year 2010 and performance targets related to the remaining 100,000 option shares were not met and these 100,000 options shares did not vest. In connection with our initial public offering in August 2009, and secondary public offerings of our shares in January 2010 and August 2010, Capstone exercised and sold an aggregate of 222,949 option shares, in respect of which we received aggregate option exercise proceeds of $1 million. During the first half of fiscal year 2011, Capstone exercised and sold an aggregate of 169,103 option shares in secondary public offerings of our shares in December 2010 and January 2011, in respect of which we received aggregate option exercise proceeds of $1 million. Capstone exercised this option with respect to the remaining 307,948 shares on February 2, 2011, as a result of which we received aggregate options exercise proceeds of $2 million.

Bali Investments S.àr.l, Seletar Investments Pte. Ltd. and Geyser Investment Pte. Ltd.

     In connection with a secondary offering in January 2010, selling shareholders Bali Investments S.àr.l, Geyser Investments Pte. Ltd. and Seletar Investment Pte. Ltd. agreed to reimburse the Company for certain expenses of that offering that amounted to less than $1 million.

Flextronics

     Mr. James A. Davidson, a director of the Company until March 9, 2011, also serves as a director of Flextronics International Ltd., or Flextronics. In the ordinary course of business, on an arm’s length basis, we sell certain of our products to Flextronics.

Hewlett-Packard Company

     Mr. John R. Joyce, a director of the Company until March 26, 2010, also serves as a director of Hewlett-Packard Company, or Hewlett-Packard. In the ordinary course of business, on an arm’s length basis, we sell certain of our products to Hewlett-Packard. We also use Hewlett-Packard as a service provider for information technology services.

PMC Sierra, Inc.

     Mr. James Diller, a director of the Company and the chairman of its board of directors, also serves on the board of directors of PMC Sierra, Inc., or PMC Sierra, as vice-chairman. In the ordinary course of business, on an arm’s length basis, we sell certain of our products to PMC Sierra.

Unisteel Technology Limited

     Funds affiliated with KKR own substantially all the outstanding shares of Unisteel Technology Limited or Unisteel. We purchase certain materials from Unisteel, in the ordinary course of business on an arm’s length basis.

WIN Semiconductor Corp.

     Mr. John Min-Chih Hsuan, who became a director of the Company on February 14, 2011, is also a director of WIN Semiconductor Corp., one of our third-party contract manufacturers with whom we do business in the ordinary course, on an arms’ length basis.

Wistron Corporation

     Mr. John Min-Chih Hsuan, a director of the Company, is also a director of Wistron Corporation, one of our customers. In the ordinary course of business, on an arms’ length basis, we sell certain of our products to Wistron Corporation.

Transactions and balances with our related parties were as follows (in millions):

		Quarter Ended								Six Months Ended
		May 2,				May 1,				May 2,				May 1,
		2010				2011				2010				2011
Net revenue:
Flextronics2		$	24			$	40			$	59			$	68
Hewlett-Packard Company1			6				—				12				—
Wistron Corporation3			—				1				—				1
Operating expenses:
Hewlett-Packard Company1		$	4				—			$	6				—
Capstone (Share-based compensation)			—	*			—				—	*			—
Unisteel Technology Limited			—	*			—	*			—	*			—	*
WIN Semiconductor Corp.4			—				20				—				20

		October 31,				May 1,
		2010				2011
Receivables:
Flextronics2		$	13			$	21
Seletar Investments Pte. Ltd.			—	*			—
Wistron Corporation3			—				1

		October 31,				May 1,
		2010				2011
Payables:
KKR		$	—	*		$	—
Silver Lake			—	*			—
Unisteel Technology Limited			—	*			—	*
WIN Semiconductor Corp.4			—				9

11. Commitments and Contingencies

Commitments

     Purchase Commitments. We have unconditional purchase obligations which include agreements to purchase goods or services that are enforceable and legally binding on us and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable price provisions and the approximate timing of the transaction. Purchase obligations exclude agreements that are cancelable without penalty.

     Debt. Estimated future interest expense payments related to our revolving credit facility include payments on our commitment fees. See Note 5. “Borrowings.”

     The following table sets forth changes in our commitments as of May 1, 2011 for the fiscal periods noted (in millions).

						2011
		Total				(remainder)				2012				2013				2014				2015				2016				Thereafter
Debt		$	3				—			$	1			$	1			$	1			$	—			$	—			$	—
Purchase commitments			54				54				—				—				—				—				—				—

     There were no other substantial changes to our contractual commitments during the first half of fiscal year 2011 from those disclosed in our Annual Report on Form 10-K for fiscal year 2010.

Contingencies

     From time to time, we are involved in litigation that we believe is of the type common to companies engaged in our line of business, including commercial disputes and employment issues. As of the date of this filing, we are not involved in any pending legal proceedings that we believe would likely have a material adverse effect on our financial condition, results of operations or cash flows. However, certain pending disputes involve claims by third parties that our activities infringe their patent, copyright, trademark or other intellectual property rights. These claims generally involve the demand by a third-party that we cease the manufacture, use or sale of the allegedly infringing products, processes or technologies and/or pay substantial damages or royalties for past, present and future use of the allegedly infringing intellectual property. For example, on July 23, 2009, TriQuint Semiconductor, Inc., or TriQuint, filed a complaint against us and certain of our subsidiaries in the U.S. District Court, District of Arizona seeking declaratory judgment that four of our patents relating to RF filter technology used in our wireless products are invalid and, if valid, that TriQuint’s products do not infringe any of those patents. TriQuint subsequently withdrew those claims with respect to three of those four patents. In addition, TriQuint claims that certain of our wireless products infringe three of its patents. TriQuint is seeking damages in an unspecified amount, treble damages for alleged willful infringement, attorneys fees and injunctive relief. We filed our answer and initial counterclaim on September 17, 2009, denying infringement, asserting the invalidity of TriQuint’s patents and asserting infringement by TriQuint of ten Avago patents and filed additional counterclaims on March 25, 2010 for the misappropriation of Avago trade secrets. On October 16, 2009, TriQuint filed its answer to our initial counterclaim, denying infringement and filed an antitrust counterclaim and counterclaims for declaratory judgment of non infringement and invalidity. While the court dismissed TriQuint’s antitrust counterclaims on procedural grounds on March 16, 2010, TriQuint filed a motion to file an amended pleading for its anti-trust claims, which was granted on August 3, 2010. We intend to defend this lawsuit vigorously, and future actions may include the assertion by us of additional claims or counterclaims against TriQuint related to our intellectual property portfolio.

     In addition, on February 8, 2010, PixArt Imaging Inc., or PixArt, filed an action against us in the U.S District Court, Northern District of California seeking a determination of whether PixArt is licensed to use our portfolio of patents for optical finger navigation products pursuant to an existing cross-license agreement between us and PixArt, which license is limited to optical mouse and optical mouse trackball products. We did not license to PixArt our patents for optical finger navigation products. We intend to defend this action vigorously and to seek to have the scope of the cross-license agreement properly construed by the court as excluding such

products. We also filed a counterclaim against PixArt on March 31, 2010, asserting that PixArt has breached the terms of the cross-license agreement between the parties. We are seeking a determination that PixArt is not licensed to use our portfolio of patents for optical finger navigation products, damages in an unspecified amount, termination for breach, or rescission, of the license agreement and attorneys fees.

     On March 15, 2010 we filed a patent infringement action against ST Microelectronics NV, or ST Microelectronics, in the Eastern District of Texas for infringement of four of our patents related to optical navigation devices. We amended the complaint on July 6, 2010 adding infringement of a fifth optical navigation related patent to the action. We are seeking injunctive relief, damages in an unspecified amount, treble damages for willful infringement and attorneys fees. In response, ST Microelectronics filed a patent infringement action against us in the Northern District of Texas alleging that our sales of certain optical navigation devices infringed two ST Microelectronics’ patents. ST Microelectronics is seeking injunctive relief and damages in an unspecified amount. ST Microelectronics filed a second suit against us on November 5, 2010 in the Northern District of California alleging certain anticompetitive actions by us in the optical navigation sensor market. ST Microelectronics is seeking injunctive and compensatory relief under the Sherman Act and the Clayton Act and Attorneys fees. On January 4, 2011, we filed a motion to dismiss ST Microelectronics’ claims relating to anticompetitive actions by us and on April 11, 2011, the court ordered a stay of this matter pending resolution of the patent litigation in the Eastern District of Texas. We intend to defend these lawsuits vigorously, and future actions may include the assertion by us of additional claims or counterclaims against ST Microelectronics related to our intellectual property portfolio.

     We have not yet been able to determine whether that an unfavorable outcome is probable or reasonably possible and have not been able to reasonably estimate the amount or range of any possible loss. As a result, no amounts have been accrued or disclosed in the accompanying unaudited condensed consolidated financial statements with respect to these legal proceedings.

     Claims that our products or processes infringe or misappropriate any third-party intellectual property rights (including claims arising through our contractual indemnification of our customers) often involve highly complex, technical issues, the outcome of which is inherently uncertain. Moreover, from time to time we pursue litigation to assert our intellectual property rights. Regardless of the merit or resolution of any such litigation, complex intellectual property litigation is generally costly and diverts the efforts and attention of our management and technical personnel.

Warranty

     Commencing in the second quarter of fiscal year 2008, we notified certain customers of a product quality issue and began taking additional steps to correct the quality issue and work with affected customers to determine potential costs covered by our warranty obligations. We maintain insurance coverage for product liability and have been working with our insurance carriers to determine the extent of covered losses in this situation. Based on settlements with customers to date, the status of discussions with other affected customers and discussions with our insurance carriers, we recorded a charge of $2 million during the fourth quarter of fiscal year 2009 to cover costs relating to this quality issue in excess of expected insurance coverage. We continue to have discussions with affected customers and presently believe that amounts we have recorded in our financial statements along with expected insurance coverage proceeds will be adequate to resolve these claims, although this assessment is subject to change based on the ultimate resolution of this matter with customers and the insurance carriers. In addition, if the timing of settlement of claims with customers and the timing of determination of insurance recoveries do not occur in the same reporting periods, there could be material increases in charges to the consolidated statement of operations in a future period and decreases in a subsequent period once insurance recoveries are deemed probable of realization.

     During fiscal year 2009 we identified another product quality issue with a particular component, took steps to correct the quality issue and notified our customers. Though the expected failure rate of the product was not 100%, based on our quality tests, we have offered to replace all such components used or still held by our customers. We recorded charges of $6 million during fiscal year 2009 related to this product quality issue, based on the progress of discussions with our customers and our evaluation of the best estimate of our exposure related to this matter, which covered costs to scrap inventory of such components held by us and costs associated with providing replacement parts to customers. During fiscal year 2010, we recorded additional charges of $11 million to cover customer claims for reimbursements of costs incurred by such customers related to this product quality issue and also during fiscal year 2010, we reached final settlement agreements with certain customers on this product quality issue. The final settlement amounts approximate the estimated accrued warranty obligations for those customers. In addition, we made $2 million of cash settlement payments in connection with these agreements during fiscal year 2010, resulting in a $2 million decrease in the warranty accrual for this product quality issue during the same period. During the first half of fiscal year 2011, we reached additional final settlement agreements with certain customers, made $1 million of cash settlement payments and shipped $1 million of replacement parts in connection with these agreements, resulting in a $2 million decrease in the warranty accrual for this product quality issue during the period. In addition, following these additional settlements, we reassessed our overall exposure relating to this product quality issue based on the estimates of unknown and known claims, including our estimate of any remaining replacement parts exposure, and reduced the warranty accrual we previously recorded by $4 million. We presently believe that amounts we have recorded in our financial statements will be adequate to resolve any warranty obligations related to this issue, although this assessment is subject to change based on the ultimate

resolution of this matter with remaining customers. However, we continue to have discussions with affected customers on the matter and although we have made our best estimate of the expected warranty obligation based on available information, we could record further charges in future periods based on the ultimate resolution of this matter with such customers.

Indemnifications to Hewlett-Packard and Agilent

     Agilent has given multiple indemnities to Hewlett-Packard Company in connection with its activities prior to its spin-off from Hewlett-Packard Company in June 1999 for the businesses that constituted Agilent prior to the spin-off. As the successor to the SPG business of Agilent, we have acquired responsibility for indemnifications related to assigned intellectual property agreements. Additionally, when we completed the acquisition of SPG from Agilent in December 2005, we provided indemnities to Agilent with regard to Agilent’s conduct of the SPG business prior to the SPG acquisition. In our opinion, the fair value of these indemnifications is not material and no amount has been accrued in the accompanying condensed consolidated financial statements with respect to these indemnification obligations.

Other Indemnifications

     As is customary in our industry and as provided for in local law in the United States and other jurisdictions, many of our standard contracts provide remedies to our customers and others with whom we enter into contracts, such as defense, settlement, or payment of judgment for intellectual property claims related to the use of our products. From time to time, we indemnify customers, as well as our suppliers, contractors, lessors, lessees, companies that purchase our businesses or assets and others with whom we enter into contracts, against combinations of loss, expense, or liability arising from various triggering events related to the sale and the use of our products, the use of their goods and services, the use of facilities and state of our owned facilities, the state of the assets and businesses that we sell and other matters covered by such contracts, usually up to a specified maximum amount. In addition, from time to time we also provide protection to these parties against claims related to undiscovered liabilities, additional product liability or environmental obligations. In our experience, claims made under such indemnifications are rare and the associated estimated fair value of the liability is not material.

12. Subsequent Events

     We filed a prospectus supplement, dated May 31, 2011, with the SEC relating to sale of 25,000,000 of our ordinary shares by certain of our shareholders in a registered public offering, or the May Offering. This transaction closed on June 3, 2011. We did not receive any proceeds from the sale of shares sold in the May Offering.

     On June 8, 2011, the Board of Directors of Avago Technologies Limited, or the Board of Directors, declared an interim cash dividend on the Company’s ordinary shares of $0.09 per share, payable on June 30, 2011 to shareholders of record at the close of business (5:00 p.m.), Eastern Time, on June 17, 2011.

     On June 8, 2011, our Board of Directors authorized the repurchase of up to 15 million of the Company’s outstanding ordinary shares, not to exceed $500 million of its ordinary shares, in the aggregate, pursuant to the shareholder approval of the Company’s 2011 share purchase mandate received at the Company’s 2011 Annual General Meeting on March 30, 2011, or the 2011 Share Purchase Mandate. Pursuant to the 2011 Share Purchase Mandate, the Company, upon authorization of the Board of Directors, is authorized to repurchase approximately 24.6 million ordinary shares (representing 10% of the outstanding shares on the date of the 2011 Annual General Meeting), in open market transactions or pursuant to equal access schemes, prior to the date on which the 2012 Annual General Meeting of the Company is held or is required by law to be held. The Company may not repurchase more than 15 million of ordinary shares, or more than $500 million of the Company’s ordinary shares, without further action by the Board of Directors. Share repurchases, if any, will be made in the open market at such times and in such amounts as the Company deems appropriate. The timing and actual number of shares repurchased will depend on a variety of factors including price, market conditions and applicable legal requirements. The share repurchase program does not obligate the Company to repurchase any specific number of shares and may be suspended or terminated at any time without prior notice.

     Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the fiscal year ended October 31, 2010, or fiscal year 2010, included in our Annual Report on Form 10-K for fiscal year 2010, or 2010 Annual Report on Form 10-K. References to “Avago” “we”, “our” and “us” are to Avago Technologies Limited and its consolidated subsidiaries, unless otherwise specified or the context otherwise requires. This Quarterly Report on Form 10-Q may contain predictions, estimates and other forward-looking statements that involve a number of risks and uncertainties, which are made under the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical fact could be deemed forward-looking, including, but not limited to, any projections of financial information; any statements about historical results that may suggest trends for our business; any statements of the plans, strategies, and objectives of management for future operations; any statements of expectation or belief regarding future events, technology developments, our products, product sales, expenses, liquidity, cash flow and growth rates, or enforceability of our intellectual property rights and related litigation expenses; and any statements of assumptions underlying any of the foregoing. These forward-looking statements are based on current expectations, estimates, forecasts and projections of future Avago or industry performance based on management’s judgment, beliefs, current trends and market conditions and involve risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements. Accordingly, we caution you not to place undue reliance on these statements. For example, there can be no assurance that our product sales efforts, revenues or expenses will meet any expectations or follow any trend(s), or that our ability to compete effectively will be successful or yield anticipated results. Important factors that could cause actual results to differ materially from our expectations are disclosed under “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q, and in other documents we file from time to time with the Securities and Exchange Commission, or SEC. We undertake no intent or obligation to publicly update or revise any of these forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

     We are a leading designer, developer and global supplier of a broad range of analog semiconductor devices with a focus on III-V based products. III-V semiconductor materials have higher electrical conductivity and thus tend to have better performance characteristics in radio frequency, or RF, and optoelectronic applications than silicon. We differentiate ourselves through our high performance design and integration capabilities. We serve four primary target markets: wireless communications, wired infrastructure, industrial and automotive electronics, and consumer and computing peripherals. Applications for our products in these target markets include cellular phones, consumer appliances, data networking and telecommunications equipment, enterprise storage and servers, factory automation, displays, optical mice and printers.

Critical Accounting Policies and Estimates

     The preparation of financial statements in accordance with generally accepted accounting principles in the United States, or GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by us may differ materially and adversely from our estimates. Our critical accounting policies are those that affect our historical financial statements materially and involve difficult, subjective or complex judgments by management. Those policies include revenue recognition, valuation of long-lived assets, intangible assets and goodwill, inventory valuation and warranty reserves, accounting for income taxes and share-based compensation.

     There have been no significant changes in our critical accounting policies during the quarter and six months ended May 1, 2011 compared to those previously disclosed in “Critical Accounting Policies and Estimates” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2010 Annual Report on Form 10-K.

Results from Operations

Quarter and Six Months Ended May 1, 2011 Compared to Quarter and Six Months Ended May 2, 2010

     The following tables set forth our results of operations for the quarters and six months ended May 1, 2011 and May 2, 2010.

		Quarter Ended
		May 2,				May 1,				May 2,				May 1,
		2010				2011				2010				2011
		(In millions)								(As a percentage of net revenue)
Statement of Operations Data:
Net revenue		$	515			$	560				100	%			100	%
Cost of products sold:
Cost of products sold			268				271				52				48
Amortization of intangible assets			14				14				3				3
Total cost of products sold			282				285				55				51
Gross margin			233				275				45				49
Research and development			70				76				14				14
Selling, general and administrative			48				55				9				10
Amortization of intangible assets			6				5				1				1
Restructuring charges			1				1				—				—
Total operating expenses			125				137				24				25
Income from operations			108				138				21				24
Interest expense			(8	)			(1	)			(2	)			—
Loss on extinguishment of debt			—				(1	)			—				—
Other income (expense), net			(1	)			1				—				—
Income before income taxes			99				137				19				24
Provision for income taxes			9				2				2				—
Net income		$	90			$	135				17	%			24	%

		Six Months Ended
		May 2,				May 1,				May 2,				May 1,
		2010				2011				2010				2011
		(In millions)								(As a percentage of net revenue)
Statement of Operations Data:
Net revenue		$	971			$	1,110				100	%			100	%
Costs and expenses:
Cost of products sold:
Cost of products sold			515				536				53				48
Amortization of intangible assets			29				28				3				3
Total cost of products sold			544				564				56				51
Gross margin			427				546				44				49
Research and development			134				149				14				13
Selling, general and administrative			94				105				10				10
Amortization of intangible assets			11				11				1				1
Restructuring charges			2				1				—				—
Total operating expenses			241				266				25				24
Income from operations			186				280				19				25
Interest expense			(19	)			(4	)			(2	)			—
Loss on extinguishment of debt			(24	)			(20	)			(2	)			(2	)
Other income (expense), net			(2	)			1				—				—
Income before income taxes			141				257				15				23
Provision for income taxes			13				3				2				—
Net income		$	128			$	254				13	%			23	%

     Net revenue. Net revenue was $560 million for the quarter ended May 1, 2011, compared to $515 million for the quarter ended May 2, 2010, an increase of $45 million or 9%. Net revenue was $1,110 million for the six months ended May 1, 2011, compared to $971 million for the six months ended May 2, 2010, an increase of $139 million or 14%. Net revenue increased primarily due to strength in the industrial and automotive electronics and wired infrastructure target markets in the quarter and six months ended May 1, 2011. The increase in net revenue was also due to significantly improved general economic conditions in the quarter and six months ended May 1, 2011, compared to the corresponding periods in 2010, as well as, we believe, gains in market share in our three largest target markets.

     Our three largest target markets, by revenue, are wireless communications, industrial and automotive electronics and wired infrastructure, with computer and consumer computing peripherals typically representing a much smaller percentage of our overall net revenues. The percentage of total net revenue generated by sales into each of our target market varies from quarter to quarter, due largely to fluctuations in end-market demand, including the effects of seasonality. The first fiscal quarter is typically our lowest revenue and cash generating quarter due, in part, to holiday shut downs at many original equipment manufacturer, or OEM, customers and distributors, and the first half of the fiscal year tends to generate lower revenues than the second half. We saw a return to this typical seasonality during the first half of fiscal year 2011. During the second quarter of fiscal year 2011, a devastating earthquake and subsequent tsunami struck Japan, a critical area for manufacturing many components important for the semiconductor supply chain. These events did not have a significant effect on our own business in the second fiscal quarter. However, we believe these events may cause semiconductor suppliers, manufacturers and customers to reevaluate many of the supply chain flows that are critical to their businesses, which may affect our business in the future.

     Net revenue by target market data is derived from our understanding of our end customers’ primary markets, and was as follows:

		Quarter Ended												Six Month Ended
		May 2,				May 1,								May 2,				May 1,
% of net revenue		2010				2011				Change				2010				2011				Change
Wireless communications			38	%			36	%			(2)	%			38	%			37	%			(1	)%
Industrial and automotive electronics			29				30				1				27				30				3
Wired infrastructure			24				29				5				25				28				3
Consumer and computing peripherals			9				5				(4	)			10				5				(5	)
Total net revenue			100	%			100	%							100	%			100	%

		Quarter Ended												Six Month Ended
		May 2,				May 1,								May 2,				May 1,
Net revenue (in millions)		2010				2011				Change				2010				2011				Change
Wireless communications		$	197			$	203			$	6			$	369			$	405			$	36
Industrial and automotive electronics			147				167				20				264				333				69
Wired infrastructure			123				160				37				244				313				69
Consumer and computing peripherals			48				30				(18	)			94				59				(35	)
Total net revenue		$	515			$	560			$	45			$	971			$	1,110			$	139

     Net revenue from wireless communications products increased, in absolute dollars, in both the second quarter and the first six months of the fiscal year 2011 compared with the corresponding prior year periods due to continued strength in mobile handset sales. The growth of key platforms in next-generation smart phones at leading new and existing OEM customers, which incorporate many of our proprietary products such as 3G radio frequency front-end devices drove this revenue growth. The slight decrease in net revenue as a percentage of net revenues was due, primarily, to the strength in our industrial and automotive electronics and wired infrastructure products.

     Net revenue from industrial and automotive electronics products increased substantially, in absolute dollars and as a percentage of net revenue, in both the second quarter and first six months of fiscal year 2011 compared with the corresponding prior year periods. The increase was in large part due to the effects of recovery in general economic conditions. The growth in this target market was broad based, with particular strength in sales of optocouplers, industrial fiber optic transceivers and motion encoders. We also continued to benefit from increased spending on and new uses for our devices in applications such as inverters, servo machine tools, factory automation and infrastructure applications including renewable energy, smart power grid installations and transportation, in both developed economies and in emerging economies such as China.

     Net revenue from wired infrastructure products increased substantially, in absolute dollars and as a percentage of net revenue, in both the second quarter and first six months of fiscal year 2011, compared with the corresponding prior year periods, as spending on enterprise networking data centers, storage systems and core routing improved. We also introduced a number of new fiber optic transceivers and designed new ASICs in the first six months of fiscal year 2011, compared with the corresponding prior year period, which also contributed to the increase in revenue. However, we believe that the growth in our fiber optics transceiver business was partially offset by a temporary weakness in our ASIC business due to inventory adjustments by some of our data networking customers in the quarter ended May 1, 2011.

     Net revenue from consumer and computing peripheral products decreased, in absolute dollars and as a percentage of net revenue, in the second quarter and first six months of fiscal year 2011 compared with the corresponding periods in 2010. This reflected a decline in sales of optical sensors used in optical mice and sales of motion encoders used in applications such as optical disc drives and printers in the second quarter and first six months of fiscal year 2011. We also believe that some customers continued to work through excess optical disc drive inventory during the quarter ended May 1, 2011. Net revenue from this target market during these periods was also affected by seasonal softness in the personal computer and printer market.

     Gross margin. Gross margin was $275 million for the quarter ended May 1, 2011 compared to $233 million for the quarter ended May 2, 2010, an increase of $42 million or 18%. As a percentage of net revenue, gross margin increased to 49% for the quarter ended May 1, 2011 from 45% for the quarter ended May 2, 2010. Gross margin was $546 million for the six months ended May 1, 2011 compared to $427 million for the six months ended May 2, 2010, an increase of $119 million or 28%. As a percentage of net revenue, gross margin increased to 49% for the six months ended May 1, 2011 from 44% for the six months ended May 2, 2010. The increase in gross margin percentage was attributable to continuing improvements in product mix. During both the quarter and six months ended May 1, 2011, compared to the quarter and six months ended May 2, 2010, a higher proportion of our net revenue was from products sold into the industrial and automotive electronics target market and from sales of our proprietary products, which generally earn higher margins than our other products. During the quarter and six months ended May 1, 2011, we also released warranty accruals of $4 million arising from our assessment of the remaining exposure for a certain product quality issue identified in the second quarter of fiscal year 2009, as discussed in Note 11 to the Unaudited Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

     Research and development. Research and development expense was $76 million for the quarter ended May 1, 2011, compared to $70 million for the quarter ended May 2, 2010, an increase of $6 million or 9%. As a percentage of net revenue, research and development expenses remained flat at 14% for the quarter ended May 1, 2011 compared to the quarter ended May 2, 2010. The increase in absolute dollars was attributable to $3 million increase in research and development project consumables and test hardware, $2 million increase in salary and employee benefits expense related to increase in headcount, $2 million increase in share-based compensation expense attributable to grants of share-based awards at higher fair market values and to our Employee Share Purchase Plan, or ESPP, and $1 million increase in depreciation expense related to capital expenditures supporting research and development efforts, partially offset by a $1 million decrease in accrued incentive compensation expense and a $1 million decrease in equipment repair expense, compared to the quarter ended May 2, 2010. The first six month purchase period under our ESPP began in September 2010 and ended in March 2011.

     Research and development expense was $149 million for the six months ended May 1, 2011, compared to $134 million for the six months ended May 2, 2010, an increase of $15 million or 11%. As a percentage of net revenue, research and development expenses decreased slightly to 13% for the six months ended May 1, 2011 from 14% for the six months ended May 2, 2010. The increase in absolute dollars was attributable to $7 million increase in research and development project consumables and test hardware, $4 million increase in salary and employee benefits expense related to increase in headcount, $3 million increase in share-based compensation expense attributable to grants of share-based awards at higher fair market values and to our ESPP and $2 million increase in depreciation expense related to capital expenditures supporting research and development efforts, partially offset by a $2 million decrease in equipment repair expense and a $1 million decrease in accrued incentive compensation expense, compared to the six months ended May 2, 2010.

     Selling, general and administrative. Selling, general and administrative expense was $55 million for the quarter ended May 1, 2011 compared to $48 million for the quarter ended May 2, 2010, an increase of $7 million or 15%. As a percentage of net revenue, selling, general and administrative increased slightly to 10% for the quarter ended May 1, 2011 compared to 9% for the quarter ended May 2, 2010. The increase in absolute dollars was primarily attributable to a $3 million increase in legal expenses related to offensive litigation matters initiated in fiscal year 2010, $3 million increase in salary expense related to increase in headcount and $2 million increase in share-based compensation expense attributable to grants of share-based awards at higher fair market values and to our ESPP, partially offset by a $1 million decrease in accrued incentive compensation expense, compared to the quarter ended May 2, 2010.

     Selling, general and administrative expense was $105 million for the six months ended May 1, 2011 compared to $94 million for the six months ended May 2, 2010, an increase of $11 million or 12%. As a percentage of net revenue, selling, general and administrative remained flat at 10% for the six months ended May 1, 2011 compared to the six months ended May 2, 2010. The increase in absolute dollars was primarily attributable to a $6 million increase in salary expense related to increase in headcount, $5 million increase in legal expenses related to offensive litigation matters initiated in fiscal year 2010 and $2 million increase in share-based compensation expense attributable to grants of share-based awards at higher fair market values and to our ESPP, partially offset by a $3 million reduction of incentive compensation expense related to final payments of employee bonuses for fiscal year 2010, compared to the six months ended May 2, 2010.

     Amortization of intangible assets. Total amortization of intangible assets incurred was $19 million and $20 million for the quarters ended May 1, 2011 and May 2, 2010, respectively. Total amortization of intangible assets incurred was $39 million and $40 million for the six months ended May 1, 2011 and May 2, 2010, respectively.

     Restructuring charges. We incurred $1 million of restructuring charges in each of the quarter and six months ended May 1, 2011, compared to restructuring charges of $1 million and $2 million for the quarter and six months ended May 2, 2010, respectively.

     Interest expense. Interest expense was $1 million for the quarter ended May 1, 2011, compared to $8 million for the quarter ended May 2, 2010, which represents a decrease of $7 million or 88%. Interest expense was $4 million for the six months ended May 1, 2011, compared to $19 million for the six months ended May 2, 2010, which represents a decrease of $15 million or 79%. The

decrease was primarily due to the redemption of the remaining $230 million aggregate principal amount of our outstanding senior subordinated notes in the quarter ended January 30, 2011.

     Loss on extinguishment of debt. During the six months ended May 1, 2011, we redeemed $230 million aggregate principal amount of our senior subordinated notes. The redemption of the senior subordinated notes resulted in a loss on extinguishment of debt of $19 million. During the quarter ended May 1, 2011, we replaced our existing revolving credit facility with a new revolving credit facility. This resulted in a loss on extinguishment of debt of $1 million, primarily related to the write-off of debt amortization costs. During the six months ended May 2, 2010, we redeemed $318 million aggregate principal amount of our senior fixed rate notes and the remaining $46 million aggregate principal amount of our senior floating rate notes. The redemption of the senior fixed rate notes and senior floating rate notes resulted in a loss on extinguishment of debt of $24 million during the six months ended May 2, 2010. See Note 5 to the Unaudited Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

     Other income (expense), net. Other income (expense), net includes interest income, currency gains (losses) on balance sheet remeasurement and other miscellaneous items. Other income, net was $1 million each for the quarter and six months ended May 1, 2011, respectively, compared to other expense, net of $1 million and $2 million for the quarter and six months ended May 2, 2010, respectively.

     Provision for income taxes. We recorded income tax expense of $2 million and $3 million for the quarter and six months ended May 1, 2011, compared to $9 million and $13 million for the quarter and six months ended May 2, 2010, respectively. In February, 2010, the Malaysian government granted us a tax holiday on our qualifying Malaysian income, which is effective for ten years beginning with our fiscal year 2009. As a result of receiving this tax incentive, we wrote down deferred tax assets of $6 million during the quarter ended May 2, 2010 that we previously recorded in this jurisdiction. The tax provision for the six months ended May 1, 2011 included the recognition of a tax benefit as a result of U.S. legislation enacted in the first quarter of fiscal year 2011 retroactively reinstating the research and development tax credit in the United States for 2011.

Backlog

     Our sales are generally made pursuant to short-term purchase orders. These purchase orders are made without deposits and may be rescheduled, canceled or modified on relatively short notice, and in most cases without substantial penalty. Therefore, we believe that purchase orders or backlog are not a reliable indicator of future sales.

Seasonality

     We are affected by seasonal trends in the semiconductor and related industries. We typically experience sequentially lower revenues in the first fiscal half of the year. Our revenue in the second half of the fiscal year is typically higher than our revenue in the first half of the fiscal year due to seasonality in two of our target markets, consumer and computing peripherals and wireless communications. These target markets typically experience seasonality due to the “back to school” and calendar year-end holiday selling seasons.

Liquidity and Capital Resources

     Our primary sources of liquidity as at May 1, 2011, consisted of: (1) approximately $596 million in cash and cash equivalents, (2) cash we expect to generate from operations and (3) our new $200 million revolving credit facility, which is committed until March 31, 2015, all of which is available to be drawn.

     Our short-term and long-term liquidity requirements primarily arise from: (i) working capital requirements and (ii) research and development and capital expenditure needs, including acquisitions from time to time. Our ability to fund these requirements will depend on our future cash flows, which are determined by future operating performance and are, therefore, subject to prevailing global macroeconomic conditions and financial, business and other factors, some of which are beyond our control.

     Our ability to service any indebtedness we may incur, under our revolving credit facility, or otherwise, will also depend on our ability to generate cash in the future. If we do not retain a sufficient amount of cash to fund our operations or finance growth opportunities, including acquisitions, or unanticipated capital expenditures, our financial condition and our business could suffer. We may seek to obtain debt or equity financing in the future. However, we cannot assure that such additional financing will be available on terms acceptable to us or at all.

     In December 2010, we paid $258 million for the redemption of our remaining $230 million senior subordinated notes at a redemption price of 105.938% of their principal amount, and accrued and unpaid interest thereon up to, but not including, the redemption date.

     In December 2010, we paid our first interim cash dividend of $0.07 per share, or approximately $17 million in total. In March 2011, we paid an interim cash dividend of $0.08 per share, or approximately $20 million in total and on June 8, 2011, our board of

directors declared an interim cash dividend of $0.09 per ordinary share, payable on June 30, 2011 to shareholders of record at the close of business (5:00 p.m.), Eastern Time, on June 17, 2011.

     On March 31, 2011, Avago Technologies Finance Pte. Ltd, or Avago Finance, and certain other subsidiaries of the Company entered into a credit agreement that provides for a $200 million unsecured, senior revolving credit facility, and for the issuance of letters of credit of up to $40 million in the aggregate, which reduce the available borrowing capacity under the revolving credit facility on a dollar for dollar basis. Certain subsidiaries of the Company guarantee the revolving credit facility. The credit agreement has a term of four years. The credit agreement includes (i) financial covenants requiring Avago Finance to maintain a maximum leverage ratio and a minimum interest coverage ratio; (ii) customary restrictive covenants (subject, in each case, to certain exceptions and amounts) that limit Avago Finance’s ability to, among other things, create liens, merge or consolidate with and into other persons, and sell assets; (iii) customary events of default, upon the occurrence of which, after any applicable grace period, the lenders will have the ability to accelerate all outstanding loans thereunder and terminate the commitments; and (iv) customary representations and warranties. In addition, Avago Finance has the ability, at any time, to increase the aggregate commitments under the credit agreement from $200 million to $300 million subject to the condition that no default or event of default shall have occurred and be continuing and other terms and conditions set forth in the credit agreement, and the receipt of sufficient commitments for such increase from the lenders. Avago Finance has agreed to pay the lenders a commitment fee at a rate per annum that varies based on the credit rating of Avago Finance’s long-term unsecured debt or Avago Finance’s corporate credit rating, as applicable, referred to as the Public Debt Rating. Interest rates on outstanding borrowings under the credit agreement will also vary based on Avago Finance’s Public Debt Rating. Any downgrades in such credit ratings would adversely affect the cost of maintaining, and borrowing under, the revolving credit facility.

     We anticipate that our capital expenditures for fiscal year 2011 will be higher than for fiscal year 2010 due to spending on mask sets for new ASIC designs and capacity expansion in both our Fort Collins, Colorado and Singapore internal fabrication facilities. We believe that our cash and cash equivalents on hand, and cash flows from operations, combined with availability under our revolving credit facility, will provide sufficient liquidity to fund our current obligations, projected working capital requirements and capital spending for at least the next 12 months. As of May 1, 2011, we were in compliance with the covenants under our credit agreement, and based on current outlook, we expect to be in compliance with such covenants over the next 12 months.

     In summary, our cash flows were as follows (in millions):

		Six Months Ended
		May 2,				May 1,
		2010				2011
Net cash provided by operating activities		$	156			$	318
Net cash used in investing activities			(27	)			(60	)
Net cash used in financing activities			(345	)			(223	)
Net increase (decrease) in cash and cash equivalents		$	(216	)		$	35

Cash Flows for the Six Months Ended May 1, 2011 and May 2, 2010

Operating Activities

     Net cash provided by operating activities during the six months ended May 1, 2011 was $318 million. The net cash provided by operating activities was principally due to net income of $254 million and non-cash charges of $108 million, partially offset by changes in operating assets and liabilities of $44 million. The non-cash charges of $108 million included $79 million for depreciation and amortization, $16 million of share-based compensation, $8 million in tax benefits from share-based compensation and $6 million of debt issuance costs written off in connection with our debt redemption. Net income was also reduced by $14 million for the premium paid on our debt redemption which is included in the $19 million loss on extinguishment of debt in the unaudited condensed consolidated statement of operations.

     Accounts receivable increased to $289 million at the end of the second quarter of fiscal year 2011 from $285 million at the end of fiscal year 2010. The number of days sales outstanding increased to 47 days at May 1, 2011 from 45 days at October 31, 2010 due to linearity of revenue. We use the current quarter revenue and accounts receivable at quarter end in our calculation of number of days sales outstanding.

     Inventory increased to $194 million at May 1, 2011 from $189 million at the end of fiscal year 2010. The number of days of inventory on hand increased to 65 days at May 1, 2011 compared to 61 days at October 31, 2010. We use the current quarter cost of products sold and inventory at quarter end in our calculation of days on hand of inventory.

     Current liabilities decreased to $296 million at the end of the second quarter of fiscal year 2011 from $565 million at the end of fiscal year 2010, mainly due to the redemption of $230 million of long-term debt that was classified as current at October 31, 2010 (as

it had been irrevocably called for redemption before the fiscal year end) and decreases in employee compensation and benefits accruals and accrued interest, offset by an increase in accounts payable. Employee compensation and benefits decreased to $62 million from $82 million at fiscal year 2010 mainly due to payments made under our employee bonus plan in respect of fiscal year 2010 performance. Accrued interest decreased to less than $1 million from fiscal year 2010 mainly due to the debt redemption and semi-annual interest payments made during the first half of fiscal year 2011. Accounts payable increased to $206 million from $198 million at the end of fiscal year 2010 mainly due to timing of disbursements.

     Net cash provided by operating activities during the six months ended May 2, 2010 was $156 million. The net cash provided by operating activities was principally due to net income of $128 million and non-cash charges of $99 million, offset by changes in operating assets and liabilities of $71 million. The non-cash charges of $99 million included $79 million for depreciation and amortization, $8 million of debt issuance costs written off in connection with our debt redemption and $11 million of share-based compensation. Net income was also reduced by $16 million for the premium paid on our debt redemption which is included in the $24 million loss on extinguishment of debt in the unaudited condensed consolidated statement of operations.

     Accounts receivable at the end of the second quarter of fiscal year 2010 increased by $63 million, or 34%, from the amount at the end of fiscal year 2009. The number of days sales outstanding increased to 44 days at May 2, 2010 from 40 days at November 1, 2009 due to linearity of revenue. We use the current quarter revenue and accounts receivable at quarter end in our calculation of number of days sales outstanding.

     Inventory increased to $178 million at May 2, 2010 from $162 million at the end of fiscal year 2009. The number of days of inventory on hand slightly decreased from 62 days at November 1, 2009 to 60 days at May 2, 2010. We use the current quarter cost of products sold and inventory at quarter end in our calculation of days on hand of inventory.

     Current liabilities decreased from $633 million at the end of fiscal year 2009 to $281 million at the end of the second quarter of fiscal year 2010 mainly due to the redemption of $364 million of long-term debt that was classified as current at November 1, 2009 (as it had been irrevocably called for redemption before the fiscal year end) and decreases in accrued interest. This decrease was offset by an increase in accounts payable. Accrued interest decreased $13 million or 52% from fiscal year 2009 mainly due to the debt redemption and semi-annual interest payments made during the first quarter of fiscal year 2010. Accounts payable increased by $15 million or 10% from the end of fiscal year 2009 mainly due to timing of disbursements.

Investing Activities

     Net cash used in investing activities for the six months ended May 1, 2011 was $60 million, primarily due to purchases of property, plant and equipment of $51 million, in connection with the expansion of our manufacturing facilities in Fort Collins, Colorado, and in Singapore and $8 million related to a business acquisition completed in the first six months of fiscal year 2011.

     Net cash used in investing activities for the six months ended May 2, 2010 was $27 million, due to purchases of property, plant and equipment.

Financing Activities

     Net cash used in financing activities for the six months ended May 1, 2011 was $223 million. The net cash used in financing activities was principally due to the redemption of the remaining $230 million in principal amount of senior subordinated notes and $37 million in payments of cash dividends to shareholders, partially offset by $44 million provided by the issuance of ordinary shares upon the exercise of options and purchases under our ESPP.

     Net cash used in financing activities for the six months ended May 2, 2010 was $345 million. The net cash used in financing activities was principally from the redemption of $318 million in principal amount of senior fixed rate notes and $46 million principal amount of senior floating rate notes, offset by $19 million provided by the issuance of ordinary shares upon the exercise of options.

Indebtedness

     As of May 1, 2011, we had $6 million of capital lease obligations. At such date, we had an additional $200 million of borrowing capacity available under our revolving credit facility.

Contractual Commitments

     See Note 11 to the Unaudited Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

     There were no other substantial changes to our contractual commitments during the first six months of fiscal year 2011 from those disclosed in our 2010 Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

     We had no material off-balance sheet arrangements at May 1, 2011 as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Indemnifications

          See Note 11 to the Unaudited Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

Accounting Changes and Recent Accounting Standards

     For a description of accounting changes and recent accounting standards, including the expected dates of adoption and estimated effects, if any, on our unaudited consolidated condensed financial statements, see Note 1 to the Unaudited Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

Item 3.		Quantitative and Qualitative Disclosures About Market Risk

     There have been no material changes in market risk from the information presented in Part II, Item 7A. “Quantitative and Qualitative Disclosures About Market Risk,” in our 2010 Annual Report on Form 10-K other than those noted below.

Foreign Currency Derivative Instruments

     Gains from foreign currency transactions, as well as derivative instruments, were included in our unaudited consolidated statements of operations in the amounts of less than $1 million each, for the quarter and six months ended May 1, 2011, respectively, compared to losses of $2 million and $3 million, for the quarter and six months ended May 2, 2010, respectively.

Item 4.		Controls and Procedures

     (a) Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, evaluated the effectiveness of our disclosure controls and procedures as of May 1, 2011. We maintain disclosure controls and procedures that are intended to ensure that the information required to be disclosed in our Exchange Act filings is properly and timely recorded, processed, summarized and reported. These disclosure controls and procedures are also intended to ensure that information is accumulated and communicated to management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosures. Based on this evaluation, our CEO and CFO concluded that, as of May 1, 2011, our disclosure controls and procedures were effective at the reasonable assurance level.

     In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their desired control objectives, and our management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

     (b) Changes in Internal Controls Over Financial Reporting. There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1.		Legal Proceedings

     From time to time, we are involved in litigation that we believe is of the type common to companies engaged in our line of business, including commercial disputes and employment issues. As of the date of this filing, we are not involved in any pending legal proceedings that we believe would likely have a material adverse effect on our financial condition, results of operations or cash flows. However, certain pending disputes involve claims by third parties that our activities infringe their patent, copyright, trademark or other intellectual property rights. These claims generally involve the demand by a third-party that we cease the manufacture, use or sale of the allegedly infringing products, processes or technologies and/or pay substantial damages or royalties for past, present and future use of the allegedly infringing intellectual property. For example, on July 23, 2009, TriQuint Semiconductor, Inc. filed a complaint against us and certain of our subsidiaries in the U.S. District Court, District of Arizona seeking declaratory judgment that four of our patents relating to RF filter technology used in our wireless products are invalid and, if valid, that TriQuint’s products do not infringe any of those patents. TriQuint subsequently withdrew those claims with respect to three of those four patents. In addition, TriQuint claims that certain of our wireless products infringe three of its patents. TriQuint is seeking damages in an unspecified amount, treble damages for alleged willful infringement, attorneys fees and injunctive relief. We filed our answer and initial counterclaim on September 17, 2009, denying infringement, asserting the invalidity of TriQuint’s patents and asserting infringement by TriQuint of ten Avago patents and filed additional counterclaims on March 25, 2010 for the misappropriation of Avago trade secrets. On October 16, 2009, TriQuint filed its answer to our initial counterclaim, denying infringement and filed an antitrust counterclaim and counterclaims for declaratory judgment of non infringement and invalidity. While the court dismissed TriQuint’s antitrust counterclaims on procedural grounds on March 16, 2010, TriQuint filed a motion to file an amended pleading for its anti-trust claims, which was granted on August 3, 2010. We intend to defend this lawsuit vigorously, and future actions may include the assertion by us of additional claims or counterclaims against TriQuint related to our intellectual property portfolio.

     In addition, on February 8, 2010, PixArt Imaging Inc. filed an action against us in the U.S District Court, Northern District of California seeking a determination of whether PixArt is licensed to use our portfolio of patents for optical finger navigation products pursuant to an existing cross-license agreement between us and PixArt, which license is limited to optical mouse and optical mouse trackball products. We did not license to PixArt our patents for optical finger navigation products. We intend to defend this action vigorously and to seek to have the scope of the cross-license agreement properly construed by the court as excluding such products. We also filed a counterclaim against PixArt on March 31, 2010, asserting that PixArt has breached the terms of the cross-license agreement between the parties. We are seeking a determination that PixArt is not licensed to use our portfolio of patents for optical finger navigation products, damages in an unspecified amount, termination for breach, or rescission, of the license agreement and attorneys fees.

     On March 15, 2010 we filed a patent infringement action against ST Microelectronics NV in the Eastern District of Texas for infringement of four of our patents related to optical navigation devices. We amended the complaint on July 6, 2010 adding infringement of a fifth optical navigation related patent to the action. We are seeking injunctive relief, damages in an unspecified amount, treble damages for willful infringement and attorneys fees. In response, ST Microelectronics filed a patent infringement action against us in the Northern District of Texas alleging that our sales of certain optical navigation devices infringed two ST Microelectronics’ patents. ST Microelectronics is seeking injunctive relief and damages in an unspecified amount. ST Microelectronics filed a second suit against us on November 5, 2010 in the Northern District of California alleging certain anticompetitive actions by us in the optical navigation sensor market. ST Microelectronics is seeking injunctive and compensatory relief under the Sherman Act and the Clayton Act and attorneys fees. On January 4, 2011, we filed a motion to dismiss ST Microelectronics’ claims relating to anticompetitive actions by us and on April 11, 2011, the court ordered a stay of this matter pending resolution of the patent litigation in the Eastern district of Texas. We intend to defend these lawsuits vigorously, and future actions may include the assertion by us of additional claims or counterclaims against ST Microelectronics related to our intellectual property portfolio.

     Claims that our products or processes infringe or misappropriate any third-party intellectual property rights (including claims arising through our contractual indemnification of our customers) often involve highly complex, technical issues, the outcome of which is inherently uncertain. Moreover, from time to time we pursue litigation to assert our intellectual property rights. Regardless of the merit or resolution of any such litigation, complex intellectual property litigation is generally costly and diverts the efforts and attention of our management and technical personnel.

Item 1A.		Risk Factors

     A description of the risk factors associated with our business is set forth below. We review and, where applicable, update our risk factors each quarter. The description set forth below supersedes the description of the risk factors previously disclosed in Part II, Item 1A of our Quarterly Report on Form 10-Q for the fiscal quarter ended January 30, 2011. These risk factors, which could materially affect our business, financial conditions or results of operations, are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also adversely affect our business, financial condition or results of operations.

Risks Related to Our Business

We operate in the highly cyclical semiconductor industry, which is subject to significant downturns.

     The semiconductor industry is highly cyclical and is characterized by constant and rapid technological change and price erosion, evolving technical standards, short product life cycles (for semiconductors and for the end-user products in which they are used) and wide fluctuations in product supply and demand. From time to time, these and other factors, together with changes in general economic conditions, cause significant upturns and downturns in the industry in general and in our business in particular. For example, the global semiconductor market experienced substantial declines in 2001 and 2009, in each case beyond the declines experienced in the typical cycles experienced by the semiconductor industry, due in large part to deteriorating global economic conditions during those periods. Periods of industry downturns, including the recent economic downturn, have been characterized by diminished demand for end-user products, high inventory levels and periods of inventory adjustment, underutilization of manufacturing capacity, changes in revenue mix and accelerated erosion of average selling prices, resulting in an adverse effect on our business, financial condition and results of operations. Furthermore, poor or worsening global economic conditions may cause reductions in customer spending and could lead to the insolvency of key suppliers resulting in product delays, customer insolvencies, and also counterparty failures that may negatively impact our treasury operations, all of which may negatively affect our business, results of operations and financial condition. We expect our business to continue to be subject to cyclical downturns even when overall economic conditions are relatively stable.

Our operating results are subject to substantial quarterly and annual fluctuations.

     Our revenues and operating results have fluctuated in the past and are likely to fluctuate in the future. These fluctuations may occur on a quarterly and annual basis and are due to a number of factors, many of which are beyond our control. These factors include, among others:

	•		changes in end-user demand for the products manufactured and sold by our customers;
	•		the timing of receipt, reduction or cancellation of significant orders by customers;
	•		fluctuations in the levels of component inventories held by our customers;
	•		the gain or loss of significant customers;
	•		market acceptance of our products and our customers’ products;
	•		our ability to develop, introduce and market new products and technologies on a timely basis;
	•		the timing and extent of product development costs;
	•		new product announcements and introductions by us or our competitors;
	•		incurrence of research and development and related new product expenditures;
	•		seasonality or cyclical fluctuations in our markets;
	•		currency fluctuations;
	•		utilization of our internal manufacturing facilities;
	•		fluctuations in manufacturing yields;

	•		significant warranty claims, including those not covered by our suppliers or our insurers;
	•		availability and cost of raw materials from our suppliers;
	•		changes in our product mix or customer mix;
	•		intellectual property disputes;
	•		loss of key personnel or the shortage of available skilled workers;
	•		the effects of competitive pricing pressures, including decreases in average selling prices of our products; and
	•		changes in our tax incentive arrangements or structure, which may adversely affect our net tax expense in any quarter in which such an event occurs.