RISK FACTORS

         Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below with all of the other information included in this prospectus before making an investment decision. If any of the possible adverse events described below actually occurs, our business, results of operations or financial condition would likely suffer. In such an event, the market price of our common stock could decline and you could lose all or part of your investment.

Risks Related to Our Business and Industry

If we are not able to continue transitioning our product mix from lower margin standard complementary metal oxide semiconductor process technologies to higher margin specialty process technologies, our margins will be lower than expected.

        Since our separation from Conexant Systems, Inc., we have focused our research and development and marketing efforts primarily on specialty process technologies. We anticipate that any growth in our business will primarily result from these technologies. However, the majority of our revenues to date have been derived from standard complementary metal oxide semiconductor process technologies, and primarily from our two major customers, Conexant Systems, Inc. and Skyworks Solutions, Inc., an entity that resulted from the spin-off of Conexant's wireless division and subsequent merger with Alpha Industries, Inc. Standard complementary metal oxide semiconductor processes generally have lower margins than the more specialized processes, such as advanced analog, radio frequency, advanced radio frequency, bipolar and silicon germanium bipolar complementary metal oxide semiconductor processes. In addition, there are significantly more providers of foundry services for standard complementary metal oxide semiconductor processes and consequently much greater competition. For the year ended December 31, 2003, we derived 55.2% of our revenues from standard complementary metal oxide semiconductor processes and 44.8% of our revenues from specialty process technologies. For the three month period ended March 31, 2004, we derived 45.0% of our revenues from standard complementary metal oxide semiconductor processes and 55.0% of our revenues from specialty process technologies. To be successful, we will need to increase our percentage of revenues derived from specialty processes in order to support our business plan. In order to expand and diversify our customer base we will need to identify and attract customers who will use the specialty process technologies we target. We cannot assure you that demand for these specialty process technologies will increase or that we will be able to attract customers who use them. If we are not able to increase our percentage of revenues from specialized processes, our margins will be lower than expected and our business and results of operations will be harmed.

We presently depend on Conexant and Skyworks for the vast majority of our revenues. A reduction in business from either one of these customers would adversely affect our revenue and could seriously harm our business.

        For the period March 12, 2002 (inception) to December 31, 2002, the year ended December 31, 2003 and the three month period ended March 31, 2004, our top two customers, Conexant and Skyworks, together accounted for 97.3%, 90.3% and 77.2% of our revenues, respectively. We expect that we will continue to be dependent upon Conexant and Skyworks for a significant majority of our revenues for the foreseeable future. While we have long-term supply agreements with Conexant and Skyworks, our agreement with Conexant is for products primarily utilizing standard complementary metal oxide semiconductor processes. Consequently, if we are not able to capture Conexant's next generation of designs, we expect its business with us to decline significantly as it moves away from its current designs and processes. We cannot assure you that our revenues generated from these customers, individually or in the aggregate, will reach or exceed historical levels in any future period. Loss or cancellation of business from, significant changes in scheduled deliveries to, or decreases in the prices of services sold to, either one of these customers has, in the past, significantly reduced our revenues for a reporting period and could, in the future, harm our financial condition and business.

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Our business plan is premised on the increasing use of outsourced foundry services by both fabless semiconductor companies and integrated device manufacturers for the production of semiconductors using specialty process technologies and our business will not be successful if this trend does not develop as we expect.

        We operate as an independent wafer foundry focused primarily on specialty process technologies. Our business model assumes that demand for these highly specialized processes within the semiconductor industry will grow and will follow the broader trend towards outsourcing foundry operations. Although the use of independent foundries is established and growing for standard complementary metal oxide semiconductor processes, the use of outsourced foundry services for specialty process technologies is less common and may never develop into a significant part of the semiconductor industry. If fabless companies and vertically integrated device manufacturers determine that they cannot reduce their costs or allocate resources and capital more efficiently by accessing independent specialty foundry capacity, the manufacture of specialty process technologies may not follow the trend of standard complementary metal oxide semiconductor processes. If the broader trend to outsourced foundry services does not prove applicable to the specialty process technologies we intend to target, our business and results of operations will be harmed.

We may not be successful in adding new customers or in securing significant volume from new customers.

        In order to be successful under our business plan, we need to add new customers whose products utilize our specialty processes and generate significant revenues from those customers. To date, we have not derived significant revenues from any individual customer other than Conexant and Skyworks, and we cannot assure you that we will be able to attract new customers or generate significant revenues from existing or new customers in the future. The sales cycle for our services is long and requires us to invest significant resources as we work with each potential customer, without assurance of sales to that customer. Due to the highly specialized nature of the processes we target, our sales cycle typically begins with the potential customer's design phase as we seek to convince potential customers to design products that take advantage of our specialty process technologies. When a potential customer decides to design a specific integrated circuit using one of our processes, we refer to this as a design win. The period between design win and production often takes between eight and 26 months. Due in part to the length of this process, we cannot assure you that a given design will actually be implemented in our customer's product and result in commercial orders or generate any revenues. If we are not successful in adding new customers who use our specialty process technologies, or do not convert design wins with those customers into revenue generating products, our revenues and results of operations will be harmed.

We expect to rely on Advanced Semiconductor Manufacturing Corporation and Hua Hong NEC Electronics Co., Ltd., partners over whom we have limited control, for a significant portion of our future manufacturing capacity, and these partners may not deliver sufficient production capacity or quality to allow us to meet our customers' needs.

        We operate one semiconductor fabrication facility in Newport Beach, California, in which we currently produce substantially all of our products. We have entered into strategic relationships and supply agreements with Advanced Semiconductor Manufacturing Corporation, or ASMC, and Hua Hong NEC Electronics Co., Ltd., or HHNEC, to allow us to utilize production capacity at two additional fabrication facilities in China. The capacity at the ASMC facility is currently available to us, but the capacity at the HHNEC facility will not be available until October 2004. We expect to use our Newport Beach fab to develop and implement the specialty process technologies required to meet the needs of our customers, and to use the foundry capacity of ASMC and HHNEC to implement higher volume production runs for our customers once process implementation is complete and as the capacity of our Newport Beach fab is exceeded. We are dependent on these arrangements to achieve the

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capacity levels needed for our business to continue to grow. However, we have limited control over ASMC's and HHNEC's production and quality control systems, and these companies have little or no prior manufacturing experience using our specialty process technologies. Should we fail to maintain and expand our strategic relationships, or if ASMC or HHNEC do not deliver the capacity that we require in a timely manner, or do not produce wafers to specifications and at costs acceptable to our customers, our ability to meet our customers' needs could be seriously harmed and our customers may turn to our competitors to satisfy their requirements causing us to lose significant sources of revenues.

If we cannot compete successfully in the highly competitive foundry segment of the semiconductor industry, our business will suffer.

        We compete internationally and domestically with dedicated foundry service providers as well as with integrated device manufacturers, which have internal semiconductor manufacturing capacity or foundry operations. Most of our competitors have substantially greater production, financial, research and development and marketing resources than our company. As a result, these companies may be able to compete more aggressively over a longer period of time than we can. In addition, several new dedicated foundries have commenced operations and may compete directly with us.

        IBM competes actively in both the standard complementary metal oxide semiconductor segment and in specialty process technologies. In addition, there are a number of smaller participants in the specialty process arena. We believe that the largest independent participants in the foundry services market, Taiwan Semiconductor Manufacturing Company, United Microelectronics Corporation and Chartered Semiconductor Manufacturing Ltd., compete primarily in the standard complementary metal oxide semiconductor segment, but they have some capacity for specialty process technologies. Prior to our separation from Conexant, Conexant entered into a long-term semiconductor cross-licensing agreement with Taiwan Semiconductor under which Taiwan Semiconductor licensed from Conexant the right to manufacture semiconductors using Conexant's then existing 0.18 micron or greater silicon germanium bipolar complementary metal oxide semiconductor process technologies for Conexant and third parties. A micron is equal to one millionth of a meter. Under this agreement, Taiwan Semiconductor agreed to provide foundry capacity to Conexant for these processes and to pay a royalty to Conexant based on the number of wafers manufactured by Taiwan Semiconductor using the licensed technology. We do not believe that Taiwan Semiconductor has focused its business on the silicon germanium bipolar complementary metal oxide semiconductor market to date. However, Taiwan Semiconductor publicly announced in 2001 that it planned to use the licensed technology to accelerate its own foundry processes for the networking and wireless communications markets. In the event Taiwan Semiconductor determines to focus its business on the silicon germanium bipolar complementary metal oxide semiconductor market, it may use and develop the technology licensed to it in 2001 to compete with us, and such competition could harm our business. A number of semiconductor manufacturers have announced plans to increase their manufacturing capacity and, as a result, we expect that there will be a significant increase in worldwide semiconductor capacity during the next several years. If growth in demand fails to match the growth in capacity, or occurs more slowly than anticipated, there may be more intense competition and pricing pressure on our services, and underutilization of our capacity may result.

        Any significant increase in competition or pricing pressure may erode our profit margins, weaken our earnings or increase our losses. If we cannot compete successfully in our industry, our results of operations will be harmed.

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We are dependent on the highly cyclical semiconductor market, which has experienced significant and sometimes prolonged downturns and overcapacity. A significant or prolonged downturn in this industry would cause our revenues, earnings and margins to decline, potentially more significantly than declines for integrated device manufacturers because such manufacturers may reduce their purchases from foundries before reducing their own internal capacity and they may make additional capacity available on a foundry basis.

        Our business is dependent upon market conditions in the highly cyclical semiconductor industry. Variations in order levels from our customers directly result in volatility in our revenues and earnings. From time to time, the semiconductor industry has experienced significant, and sometimes prolonged, downturns. According to Gartner Dataquest's estimates, global semiconductor sales decreased by approximately 32% in 2001 and increased by approximately 2% in 2002. Because our business is, and will continue to be, dependent on the requirements of semiconductor companies for our services, downturns in this industry lead to reduced demand for our services and increased pricing pressure. Historically, companies in the semiconductor industry have aggressively expanded their manufacturing capacity during periods of increased demand, as was the case in 2000. As a result, periods of overcapacity in the semiconductor industry have frequently followed periods of increased demand. Starting in the first quarter of 2001, the semiconductor industry experienced a significant downturn due to a number of factors, including a slowdown in the global economy, oversupply and overcapacity in the semiconductor industry and a worldwide inventory adjustment. Due to the significant downturn in the industry, most, if not all, integrated device manufacturers that had previously begun purchasing wafer fabrication services from foundries reduced purchases from such foundries, and many integrated device manufacturers allocated a portion of their internal foundry capacity to contract production of semiconductor wafers for others, particularly fabless companies that we also target as customers, which may reduce demand for our services. Any significant downturn in our customers' markets or in general economic conditions would also likely result in a reduction in demand for our services. Any reduction in demand for our services may force us to operate at significantly less than full capacity and could reduce our margins and harm our financial condition and results of operations.

We have experienced net losses during our limited history operating as an independent company and we may never attain or sustain profitability.

        Since the inception of our business on March 12, 2002, we have incurred cumulative net losses through the first quarter of 2004 of $19.6 million. While we achieved net income for the second quarter of 2003 and the first quarter of 2004, we have predominantly incurred net losses in our reported results of operations and may continue to do so in the future. We cannot assure you that we will be able to sustain profitability on a quarterly or annual basis in the future. If we are not able to sustain profitability, our stock price will decline.

Our historical financial information may not be indicative of our future results.

        Since our inception, the vast majority of our revenues have been derived from our two largest customers, and have primarily been derived from products manufactured using digital and standard analog complementary metal oxide semiconductor processes that we do not intend to have as our focus in the future. As customers design their products for more advanced complementary metal oxide semiconductor processes, they may look to other foundries to provide their requisite manufacturing capacity. It is unlikely that we will continue to generate the same level of revenues from our digital and standard analog complementary metal oxide semiconductor processes in the future as we shift our focus and operations to our more specialized processes: advanced analog, radio frequency, advanced radio frequency, bipolar and silicon germanium bipolar complementary metal oxide semiconductor processes.

        In connection with our formation, we entered into a wafer supply agreement with Conexant. Under the supply agreement, Conexant is obligated to purchase aggregate minimum annual volumes of wafers that decline to zero over the first three years of the agreement. We also have a supply

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agreement with Skyworks that provides for certain declining minimum annual wafer volume commitments. If we are unable to sell additional capacity to Conexant and Skyworks or other customers as Conexant's and Skyworks' minimum purchase obligations decline, our revenues will decline.

We expect our operating results to fluctuate from quarter to quarter and year to year, which may make it difficult to predict our future performance and could cause our stock price to fluctuate and decline.

        Our revenues, expenses and results of operations are difficult to predict, have varied significantly in the past and will continue to fluctuate significantly from quarter to quarter and year to year in the future due to a number of factors, many of which are beyond our control. For example, our revenues for the previous five successive quarters were $40.2 million, $49.5 million, $39.8 million, $55.6 million and $55.1 million. We had a net loss of $3.8 million for the quarter ended March 31, 2003, net income of $1.7 million for the quarter ended June 30, 2003, a net loss of $2.3 million for the quarter ended September 30, 2003, a net loss of $1.6 million for the quarter ended December 31, 2003 and net income of $0.9 million for the quarter ended March 31, 2004. A significant portion of our overall costs are fixed, so reductions in demand for our services or changes in the mix of products towards standard complementary metal oxide semiconductor products, which typically have lower margins, can have a negative effect on our results of operations, as we are less able to reduce costs to respond to downturns. For example, revenues were lower than we expected in the third quarter of 2003 in part because we delayed shipment of products to a customer at its request. We expect fluctuations to continue for a number of reasons, including:

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slow or negative growth in the communications, consumer electronics, storage and computing semiconductor industries and in the markets served by our customers;



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our customers' adjustments in their inventory;



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the loss of a key customer or the postponement of orders from a key customer;



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the rescheduling or cancellation of large orders by our customers, or the deferral of shipment of our finished products to customers;



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unanticipated delays or problems in introducing new products by us or our customers;



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our ability to obtain equipment, raw materials, electricity, water and other required utilities on a timely and economic basis;



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our or our competitors' announcements of new products, services or technological innovations;



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changes in our pricing policies or the pricing policies of our competitors;



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the level of utilization of our manufacturing facility;



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variation in the yield of our fab in Newport Beach and those of our manufacturing partners;



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costs related to possible acquisitions of technologies or businesses;



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an increase in the number or magnitude of product liability claims;



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our inability to accurately forecast our sub-contracted assembly and test needs;



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the occurrence of accounts receivable write-offs;



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intellectual property right disputes;



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our effective tax rate, which may take into account tax benefits that may not be available in the future;



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changes in foreign currency exchange rates; and

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•

events, such as fires and earthquakes, or industrial accidents.

        Due to the factors noted above and other risks discussed in this section, many of which are beyond our control, you should not rely on quarter-to-quarter or year-over-year comparisons to predict our future financial performance. Unfavorable changes in any of the above factors may seriously harm our business, financial condition and results of operations.

Most of our customers do not place purchase orders far in advance, which makes it difficult for us to predict our future revenues, adjust production costs and allocate capacity efficiently on a timely basis.

        Most of our customers generally place purchase orders only two or three months before shipment. Other than our major customers, most of our customers are also generally able to cancel or delay the delivery of orders on short notice. In addition, due to the cyclical nature of the semiconductor industry, our customers' purchase orders have varied significantly from period to period. The lack of significant backlog and the limited certainty of customer orders can make it difficult for us to forecast our revenues in future periods and allocate our capacity efficiently. Moreover, our expense levels are based in part on our expectations of future revenues and we may be unable to adjust costs in a timely manner to compensate for revenue shortfalls.

Decreases in demand and average selling price for end-user applications of our customers' products may decrease demand for our services and may result in a decrease in our revenues and results of operations.

        A vast majority of our revenues are derived from customers who use our services to produce semiconductors for use in wireless and wireline communications, consumer electronics, storage and computing. Any significant decrease in the demand for end-user applications of semiconductors manufactured using our services may decrease the demand for our services and may result in a decrease in our revenues and earnings. In addition, the historical and continuing trend of declining average selling prices of end-user applications places pressure on the prices of the components that go into these end-user applications. If the average selling prices of end-user applications continue to decrease, the pricing pressure on components produced by us for our customers may lead to a reduction of our revenues and earnings.

If we are unable to maintain high capacity utilization or improve our yields, we may be unable to achieve and maintain profitability.

        Our ability to achieve and maintain profitability depends, in part, on our ability to:

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maintain high capacity utilization, which is the number of wafers we produce in relation to our capacity;



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continuously maintain and improve our fab yield, which is the number of wafers completed that meet certain acceptance criteria, expressed as a percentage of total wafers for which the fabrication process is commenced; and



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continuously maintain and improve our manufacturing yield, which is the percentage of functioning die on a wafer, expressed as a percentage of total die per wafer.

        Our capacity utilization affects our operating results because a large percentage of our costs are fixed. Our fab and manufacturing yields directly affect our ability to attract and retain customers, as well as the price of our services. If we are unable to maintain high capacity utilization and continuously improve our yields, our margins may substantially decline and our business and results of operations may be harmed.

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We rely on subcontractors for assembly and test services. These subcontractors may not be able to meet our timing and quality requirements, which may hinder our ability to meet our customers' needs.

        We offer our customers assembly and test services for completed semiconductors through our outsourcing relationships with assembly and test service providers, including Advanced Semiconductor Engineering, Inc. and ST Assembly Test Services Ltd. in Taiwan and Singapore, respectively. We are dependent on these outsourcing partners for our ability to offer semiconductor assembly and test services. If our subcontractors are not able to meet our timing and quality requirements, our ability to meet our customers' needs could be seriously harmed and our customers may turn to our competitors to satisfy their requirements, causing us to lose significant sources of revenues.

We may not be able independently to develop or secure on commercially reasonable terms critical process technology, which may result in our loss of customers and market share and may cause us to incur an investment obligation or give up rights.

        Enhancing our manufacturing process technologies is critical to our ability to provide services for our customers. The semiconductor industry and the process technologies used are constantly changing. If we do not anticipate these changes in process technologies and rapidly develop innovative technologies, or secure on commercially reasonable terms the rights to use critical process technology developed by others, we may not be able to provide specialty foundry services on competitive terms. If we are unable to maintain the ability to provide specialty foundry services on competitive terms, some of our customers may use the services of our competitors instead of our services. As a result, we expect that we will need to offer, on an ongoing basis, increasingly advanced and cost-effective process technologies prior to these technologies and processes being offered by our competitors. If we are not able to independently develop, or secure on commercially reasonable terms, critical process technology, we may lose customers and market share, and our business and results of operations may be harmed.

If we are unable to provide documents, data and training support to permit the qualification of 0.13 micron process technologies at HHNEC's facility or unable to obtain the necessary export licenses for such technologies, we may incur additional capital obligations to one of our strategic partners or incur a reduction in our equity ownership of the strategic partner.

        We have agreed to provide documents, data and training support to HHNEC to permit the qualification of 0.13 micron process technologies at its facility and to obtain the necessary export licenses for such technologies by December 2005. If we are unable to fulfill this obligation to HHNEC, we will be obligated to either contribute an additional $10.0 million to HHNEC or reduce our equity ownership in HHNEC by a corresponding amount.

We intend to expand our operations, which may strain our resources and increase our operating expenses.

        We plan to expand our operations, domestically and internationally, and may do so through internal growth, strategic relationships or acquisitions. We expect that this expansion will strain our systems and operational and financial controls. In addition, we are likely to incur significantly higher operating costs. To manage our growth effectively, we must continue to improve and expand our systems and controls. If we fail to do so, our growth will be limited. Our officers have limited experience in managing large or rapidly growing businesses. Further, our officers have limited experience managing companies through acquisitions and technological changes. If we fail to effectively manage our planned expansion of operations, our business and results of operations may be harmed.

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Our management has limited experience in managing a public company and may not be able to effectively manage our operations following this offering.

        Operation of a public company presents significant challenges that are different from those faced by private companies, including a need to establish and maintain expanded operational, financial and management controls, reporting systems and procedures. Our officers have limited experience as executives of a public company, and little or no experience serving in the senior executive positions they hold with us for other public companies. We cannot assure you that our management will be able to manage our operations as a public company effectively. Any failure to effectively manage our operations could adversely affect our business and results of operations.

If we fail to adequately protect our intellectual property rights, we may lose valuable assets, experience reduced revenues and incur costly litigation to protect our rights.

        We depend in part on patents and other intellectual property rights covering our design and manufacturing processes. We hold patents and patent licenses and we intend to continue to seek patents on our inventions relating to product designs and manufacturing processes. The process of seeking patent protection can be long and expensive, however, and we cannot guarantee that all of our currently pending or future applications will result in issued patents. Even if patents are issued, they may not be of sufficient scope or strength to provide meaningful protection or any commercial advantage. Because patent and other intellectual property litigation is costly and unpredictable, our attempts to protect our rights or to defend ourselves against claims made by others could impose high costs and risks on our business. Litigation, whether successful or unsuccessful, could result in substantial costs and diversion of management resources, either of which could seriously harm our business and results of operations.

        A portion of our intellectual property is also used by our manufacturing partners in China, a country in which we currently have no issued patents. In addition, effective intellectual property enforcement may be unavailable or limited in some foreign countries. It may be difficult for us to protect our intellectual property from misuse or infringement by other companies in these countries. We expect this to become a greater risk for us as we increase our use of manufacturing capacity in China, which provides less protection for intellectual property than does the United States. Our inability to enforce our intellectual property rights, and the inability of our manufacturing partners to enforce their intellectual property rights in some countries, especially China, may harm our business and results of operations.

If we are subject to a protracted infringement claim or one that results in significant damage awards, our results of operations may be adversely affected.

        Our ability to compete successfully depends on our ability to operate without infringing the proprietary rights of others. We have no means of knowing what patent applications have been filed in the United States until they are either published or granted. Due to the complexity of the technology used and the multitude of patents, copyrights and other overlapping intellectual property rights, the semiconductor industry is characterized by frequent litigation regarding patent, trade secret, copyright and other intellectual property rights. It is common for patent owners to assert their patents against semiconductor manufacturers. From time to time we receive communications from third parties asserting that their patents cover certain of our technologies and alleging infringement of their intellectual property rights, and we expect to continue to receive such communications in the future. As a result, we engage in discussions from time to time concerning the licensing of third party technology or cross-licensing such technology and our technology. We are currently in discussions regarding a potential intellectual property cross license and release agreement with an unrelated third party. Under terms being discussed, we would agree to make certain payments in exchange for the license and the release. However, we cannot assure you as to whether an agreement will be reached or as to the terms

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of any agreement that is consummated. As a result, we are currently unable to estimate the timing or amount of payments that may be negotiated and no related amounts have been recorded in the consolidated financial statements. In the event any third party were to make a successful claim against us or our customers that we or our customers have misappropriated their trade secrets or infringed on their patents, copyrights or other intellectual property rights, we or our customers could be required to:

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acquire licenses, which may not be available on commercially reasonable terms, if at all;



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discontinue using certain process technologies, which could cause us to stop manufacturing certain products;



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pay substantial monetary damages; and



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develop non-infringing technologies, which may not be feasible.

        In addition, third parties, some of which are potential competitors, may initiate litigation against our manufacturing partners or our suppliers, alleging infringement of their proprietary rights with respect to existing or future materials, processes or equipment. In the event of a successful claim of infringement and the failure or inability to license or independently develop alternative, non-infringing technology on a timely basis by us or our manufacturing partners or suppliers, we may be unable to obtain sufficient manufacturing capacity or offer competitive products. As a result, our product portfolio would be limited, and we would experience increased expenses.

        Any one of these developments could place substantial financial and administrative burdens on us and hinder our business. We may not have sufficient resources to defend ourselves or our customers against litigation. If we fail to obtain necessary licenses or if litigation relating to patent infringement or other intellectual property matters occurs, it could hurt our reputation in our industry and prevent us from manufacturing particular products or applying particular process technologies, which could reduce our opportunities to generate revenues. As a result, our business, operating results and financial condition could be significantly harmed.

The international nature of our business exposes us to financial and regulatory risks.

        A significant portion of our planned manufacturing capacity, as well as our ability to provide assembly and test services through subcontractors, is derived from our international relationships with manufacturers and others, particularly in Asia. We have an established office in Asia and we are seeking to expand our global presence by opening additional offices, particularly in Asia and Europe. To date, we do not have significant sales in foreign countries. If we are successful in expanding our global presence, we will be more significantly exposed to risks associated with international operations. International operations are subject to a number of risks, including the following:

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political and economic instability, international terrorism and anti-American sentiment;



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laws and business practices favoring local companies;



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withholding tax obligations on license revenues that we may not be able to offset fully against our U.S. tax obligations, including the further risk that foreign tax authorities may re-characterize license fees or increase tax rates, which could result in increased tax withholdings and penalties;



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the timing and availability of export licenses;



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tariffs and other trade barriers;



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difficulties in collecting accounts receivable;



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currency exchange risks;

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burdens and costs of compliance with a variety of foreign laws;



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less effective protection of intellectual property than is afforded to us in the United States; and



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difficulties and costs of staffing and managing foreign operations.

        In addition, the United States or foreign countries may implement quotas, duties, taxes or other charges or restrictions upon the importation or exportation of our products, leading to a reduction in sales and profitability in that country. The geographical distance between the United States, Asia and Europe also creates a number of logistical and communication challenges. We cannot assure you that we will not experience any serious harm in connection with our international operations.

Failure to comply with governmental regulations by us, our manufacturing partners or our customers could reduce our sales or require design modifications.

        The semiconductors we produce and the export of technologies used in our manufacturing processes may be subject to U.S. export control and other regulations as well as various standards established by authorities in other countries. Failure to comply with existing or evolving U.S. or foreign governmental regulation or to obtain timely domestic foreign regulatory approvals or certificates could materially harm our business by reducing our production capacity, requiring modifications to our processes that we license to our foreign manufacturing partners or requiring unacceptable modifications to the products of our customers. If controlled, neither we nor our customers may export such products without obtaining an export license. In addition, we depend on our manufacturing partners in China for a significant portion of our planned manufacturing capacity, and export licenses may be required in order for us to transfer technology related to our manufacturing processes to our foreign manufacturing partners. These restrictions may make foreign competitors facing less stringent controls on their processes and their customers' products more competitive in the global market than we or our customers are. The U.S. government may not approve any pending or future export license requests. In addition, the list of products and countries for which export approval is required, and the regulatory policies with respect thereto, could be revised.

Our manufacturing partners in China are subject to extensive government regulation, which can lead to uncertainty.

        Our manufacturing partners, ASMC and HHNEC, on which we expect to rely for a significant portion of our future manufacturing capacity, are located in China. The Chinese government has broad discretion and authority to regulate the technology industry in China. China's government has also implemented policies from time to time to regulate economic expansion in China. The economy of China has been transitioning from a planned economy to a market-oriented economy. Although in recent years the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of sound corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the Chinese government. In addition, the Chinese government continues to play a significant role in regulating industrial development. It also exercises significant control over China's economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. New regulations or the readjustment of previously implemented regulations could require us and our manufacturing partners to change our business plan, increase our costs or limit our ability to sell products and conduct activities in China, which could adversely affect our business and operating results.

        In addition, the Chinese government and provincial and local governments have provided, and continue to provide, various incentives to domestic companies in the semiconductor industry, including our manufacturing partners and competitors, in order to encourage development of the industry. Such

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incentives include tax rebates, reduced tax rates, favorable lending policies and other measures. Any of these incentives could be reduced or eliminated by governmental authorities at any time. Any such reduction or elimination of incentives currently provided to us or our manufacturing partners could adversely affect our business and operating results.

We depend on key personnel, and we may not be able to retain, hire and integrate sufficient qualified personnel to maintain and expand our business.

        Our success depends to a significant extent upon our key senior executives and research and development, engineering, marketing, sales, manufacturing, support and other personnel, in particular our Chief Executive Officer, Shu Li, and our Chief Marketing and Technology Officer, Paul Kempf. We do not have employment agreements with our executives or other key personnel. The loss of the services of Dr. Li and Mr. Kempf could significantly delay or prevent the achievement of our business objectives. Our success also depends upon our ability to continue to attract, retain and integrate qualified personnel, particularly engineers. The competition for these employees is intense, especially in southern California, and we cannot assure you that we will be able to secure the services of enough qualified personnel, or do so at a reasonable cost, for our business to succeed. If we fail to retain, hire, train and integrate qualified employees, we will not be able to maintain and expand our business.

A significant portion of our workforce is unionized, and our operations may be adversely affected by work stoppages, strikes or other collective actions which may disrupt our production and adversely affect the yield of our fab.

        A significant portion of our employees at our Newport Beach fab are represented by a union and covered by a collective bargaining agreement that expires in 2008. We cannot predict the effect that continued union representation or future organizational activities will have on our business. We have not experienced any work stoppages and we believe that our relations with employees and the union are generally good. Conexant experienced a work stoppage at our Newport Beach fab in 1998. We cannot assure you that we will not experience a material work stoppage, strike or other collective action in the future, which may disrupt our production and adversely affect our customer relations and operational results.

If we are unable to collaborate successfully with electronic design automation vendors and third-party design service companies to meet our customers' design needs, our business could be harmed.

        We have established relationships with electronic design automation vendors and third-party design service companies. We work together with these vendors to develop complete design kits that our customers can use to meet their design needs using our process technologies. Our ability to meet our customers' design needs successfully depends on the availability and quality of the relevant services, tools and technologies provided by electronic design automation vendors and design service providers, and on whether we, together with these providers, are able to meet customers' schedule and budget requirements. Difficulties or delays in these areas may adversely affect our ability to attract customers, and thereby harm our company.

We provide foundry services to Conexant, Skyworks and RF Micro Devices, Inc., which may result in conflicts of interest in the future.

        We provide foundry services to Conexant and RF Micro Devices, two of our significant stockholders that also have representatives on our board of directors. We also provide foundry services to Skyworks. Two of our directors are also members of the board of directors of Skyworks.

        While our board has implemented procedures to ensure that these stockholders and customers cannot control business decisions involving them, and to protect the confidential information of our

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customers that may be competitors of Conexant, Skyworks or RF Micro Devices, circumstances may arise in the future in which our business relationship with Conexant, Skyworks and RF Micro Devices may be influenced by their officers or directors who are members of our board or their significant percentage ownership of our capital stock, particularly Conexant. There could be situations in which the interests of these stockholders and customers conflict with your interests.

Risks Relating to Manufacturing

Our manufacturing processes are highly complex, costly and potentially vulnerable to impurities and other disruptions that can significantly increase our costs and delay product shipments to our customers.

        Our manufacturing processes are highly complex, require advanced and costly equipment and are continuously being modified to improve fab and manufacturing yields and product performance. Impurities or other difficulties in the manufacturing process or defects with respect to equipment or supporting facilities can lower manufacturing yields, interrupt production or result in losses of products in process. As system complexity has increased and process technology has become more advanced, manufacturing tolerances have been reduced and requirements for precision have become more demanding. Although we continue to enhance our manufacturing capabilities and efficiency, from time to time we have experienced production difficulties that have caused delivery delays and quality control problems, as is common in the semiconductor industry. In the past, we have encountered manufacturing and related problems, including:

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capacity constraints due to changes in product mix or the delayed delivery of equipment critical to our production, including steppers and chemical stations;



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delays during expansions and upgrades of our clean rooms and other facilities;



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difficulties in increasing production at our Newport Beach, California fab;



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difficulties in changing or upgrading our process technologies;



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raw materials shortages and impurities; and



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other operational and engineering problems resulting in reduced product yields for our customers.

        We cannot guarantee you that we will be able to increase our manufacturing capacity or maintain our efficiency in the future, to the same extent as in the past. In addition, we cannot guarantee you that our manufacturing partners in China will not experience production difficulties.

If we are unable to obtain raw materials and equipment in a timely manner, our production schedules could be delayed and we may lose customers.

        We depend on our suppliers of raw materials. To maintain competitive manufacturing operations, we must obtain from our suppliers, in a timely manner, sufficient quantities of materials at acceptable prices. Although we source most of our raw materials from several suppliers, we use only one supplier of silicon wafers because of the consistent quality of their wafers, the long working history of Rockwell and Conexant with this supplier and our sales arrangement with this supplier. We also use single suppliers for photomasks and certain photoresists used in our processes. We do not have long-term contracts with most of our suppliers. From time to time, vendors have extended lead times or limited the supply of required materials to us because of capacity constraints. Consequently, we have experienced difficulty in obtaining the quantities of raw materials we need on a timely basis.

        In addition, from time to time we may reject materials that do not meet our specifications, resulting in a decline in manufacturing or fab yields. We cannot assure you that we will be able to obtain sufficient quantities of raw materials and other supplies in a timely manner. If the supply of

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materials is substantially diminished or if there are significant increases in the costs of raw materials, we may not be able to obtain raw materials at all or we may be forced to incur additional costs to acquire sufficient quantities of raw materials to sustain our operations, which may increase our marginal costs and reduce profitability.

        We also depend on a limited number of manufacturers and vendors that make and maintain the complex equipment we use in our manufacturing processes. We rely on these manufacturers and vendors to improve our technology to meet our customers' demands as technology improves. In periods of volatile market demand, the lead times from order to delivery of this equipment can be as long as six to 12 months. If there are delays in the delivery of equipment or if there are increases in the cost of equipment, it could cause us to delay our introduction of new manufacturing capacity or process technologies and delay product deliveries, which may result in the loss of customers and revenues.

If the semiconductors we manufacture are used in defective products, we may be subject to product liability or other claims and our reputation could be harmed.

        We provide custom manufacturing to our customers who use the semiconductors we manufacture as components in their products sold to end users. If these products are used in defective or malfunctioning products, we could be sued for damages, especially if the defect or malfunction causes physical harm to people. The occurrence of a problem could result in product liability claims as well as a recall of, or safety alert or advisory notice relating to, the product. While we maintain product liability insurance, we cannot assure you that it will be adequate to satisfy claims made against us in the future or that we will be able to obtain insurance in the future at satisfactory rates, in adequate amounts, or at all. Product liability claims or product recalls in the future, regardless of their ultimate outcome, could have a material adverse effect on our business, financial condition and on our ability to attract and retain customers.

We may be subject to the risk of loss due to fire because the materials we use in our manufacturing processes are highly flammable and our insurance coverage may not be sufficient to cover all of our potential losses.

        We use highly flammable materials such as silane and hydrogen in our manufacturing processes and may therefore be subject to the risk of loss arising from fires. The risk of fire associated with these materials cannot be completely eliminated. We maintain insurance policies to reduce losses caused by fire, including business interruption insurance. Our insurance coverage is subject to deductibles and would not be sufficient to cover all of our potential losses such as the full replacement of our fab. If our fab or our manufacturing partners' fabs were to be damaged or cease operations as a result of a fire, the time to repair or rebuild the fab would be significant and it would reduce our manufacturing capacity, delay the manufacture of our customers' products, reduce our revenues and profits and may cause us to lose important customers.

Our production yields and business could be significantly harmed by natural disasters, particularly earthquakes.

        Our fab is located in southern California, a region known for seismic activity. In addition, substantially all of our manufacturing partners' capacity is located in a geographically concentrated area in China, where disruptions from natural disasters may affect the region. Due to the complex and delicate nature of our manufacturing processes, our and our manufacturing partners' facilities are particularly sensitive to the effects of vibrations associated with even minor earthquakes. Our business operations depend on our ability to maintain and protect our facilities, computer systems and personnel. The structure of our Newport Beach fab has been upgraded to minimize the risk of disruption from seismic events. We cannot be certain that the precautions we have taken will be adequate to protect our facilities in the event of a major earthquake, and any resulting damage could seriously disrupt our production and result in reduced revenues.

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Our production may be interrupted if we cannot maintain sufficient sources of fresh water and electricity.

        The semiconductor manufacturing process requires extensive amounts of fresh water and a stable source of electricity. Droughts, pipeline interruptions, power interruptions, electricity shortages or government intervention, particularly in the form of rationing, are factors that could restrict our access to these utilities in the areas in which our fabs are located. In particular, our Newport Beach fab is located in an area that is susceptible to water and electricity shortages. If there is an insufficient supply of fresh water or electricity to satisfy our requirements, we may need to limit or delay our production, which could adversely affect our business and operating results. In addition, a power outage, even of very limited duration, could result in a loss of wafers in production and a deterioration in our manufacturing yields.

Failure to comply with environmental regulations could harm our business.

        We use hazardous materials and substances in the manufacturing and testing of products and in the development of our technologies in our research and development laboratories. We are subject to a variety of local, state and federal regulations relating to the storage, discharge, handling, emission, generation, manufacture and disposal of toxic or other hazardous materials and substances. Failure to comply with environmental regulations could result in revocation of operating permits, the imposition of substantial fines or penalties on us, interruption of production, alteration of our manufacturing processes or cessation of operations. In addition, we must obtain and comply with operating permits in a timely manner to support our product development and product ramp or our production may be delayed or halted. Compliance with environmental regulations could require us to acquire expensive pollution control equipment or to incur other substantial expenses. We could also be required to incur costs associated with the investigation and remediation of contamination at currently or formerly owned, operated or used sites, or at sites at which our hazardous waste was disposed. Any failure by us to control the use, disposal, removal or storage of, or to adequately restrict the discharge of, or assist in the cleanup of, hazardous or toxic substances, could subject us to significant liabilities, including joint and several liability under certain statues. The imposition of these liabilities could significantly harm our business.

Risks Related To This Offering

If the ownership of our common stock continues to be highly concentrated, it may prevent you and other stockholders from influencing significant corporate decisions and may result in conflicts of interest that could cause our stock price to decline.

        Following the completion of this offering, our executive officers, directors, major stockholders and their affiliates will directly or indirectly beneficially own or control approximately      % of our outstanding shares of common stock (after giving effect to the exercise of all outstanding vested options exercisable within 60 days from                         , 2004). In addition, our major stockholders will enter into an amended and restated stockholders agreement to be effective upon the completion of this offering under which they will agree to vote all capital stock held by them in favor of their designees to our board of directors. For a discussion of the amended and restated stockholders agreement, refer to "Description of Capital Stock—Stockholders Agreement."

        Following this offering, our executive officers, directors, major stockholders and their affiliates, acting as a group, will have substantial control over the outcome of corporate actions requiring stockholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of our assets or any other significant corporate transactions. Some of these persons or entities may have interests different than yours. For example, these stockholders may delay or prevent a change of control of us, even if such a change of control would benefit our other stockholders, or pursue strategies that are different from the wishes of other investors. The significant concentration of

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stock ownership may adversely affect the trading price of our common stock due to investors' perception that conflicts of interest may exist or arise. See "Management" and "Principal and Selling Stockholders" for details on the composition of our board of directors and our capital stock ownership. In addition, upon completion of the offering, we will be a "controlled company" within the meaning given to that term under the rules of the NASDAQ Stock Market. As a controlled company, we will be exempt from the requirements that our board of directors be comprised of a majority of independent directors or that our compensation committee and governance and nominating committee be comprised of independent directors. Directors who are independent from Jazz will from time to time after this offering comprise less than a majority of our board of directors and, if so, independent directors will have less influence over our corporate governance and other issues in which stockholders may have an interest than if they comprised a majority of our board of directors.

Our common stock has no prior public market, and it is not possible to predict how our stock will perform after this offering.

        There has not been a public market for our common stock. An active trading market for our common stock may not develop following this offering. You may not be able sell your shares quickly or at the market price if trading in our common stock is not active. The initial public offering price for the shares will be determined by negotiations between us and representatives of the underwriters and may not be indicative of prices that will prevail in the trading market. Please see "Underwriting" for more information regarding our arrangements with the underwriters and the factors considered in setting the initial public offering price.

        The trading price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in price in response to various factors, many of which are beyond our control, including:

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the depth and liquidity of the market for our common stock;



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developments generally affecting the semiconductor foundry industry;



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investor perceptions of us and our business;



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actions by institutional or other large stockholders;



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terrorist acts;



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our results of operations and financial performance;



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general economic, industry and market conditions.

        In addition, the stock market in general often experiences substantial volatility that is seemingly unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock.

You will incur immediate and substantial dilution in the net tangible book value of the stock you purchase.

        The initial public offering price is substantially higher than the prices paid for our common stock in the past. This is referred to as dilution. Accordingly, if you purchase common stock in the offering, you will incur immediate dilution of approximately $         per share in the net tangible book value per share of our common stock from the price you pay for our common stock. The exercise of outstanding options may result in further dilution.

Substantial future sales of our common stock in the public market may cause the price of our stock to decline.

        If our stockholders sell substantial amounts of our common stock, including shares issued upon the exercise of outstanding options, in the public market following this offering, the market price of our common stock could fall. Such sales also might make it more difficult for us to sell equity or

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equity-related securities in the future at a time and price that we deem appropriate. Upon the completion of this offering, we will have outstanding approximately                    shares of common stock, based upon the assumptions described in "The Offering." Of these shares, the shares sold in this offering will be freely tradable. Of the remaining shares of common stock outstanding immediately after this offering, approximately                   shares will be available for sale in the public market 180 days after the date of this prospectus when the lock-up agreements described in "Underwriting" between the underwriters and the stockholders expire. However, some of those sales will be subject to the volume restrictions imposed by Rule 144 under the federal securities laws on our affiliates. The remaining outstanding shares will become tradable upon expiration of various holding periods under Rule 144, subject in some cases to the volume restrictions of that rule, or earlier and without restrictions if they are registered under the federal securities laws.

        After this offering, the holders of an aggregate of                   shares of our common stock will have registration rights to include their shares in public offerings we undertake in the future. After this offering, we intend to register all shares of common stock that we may issue under our equity incentive plan. Once we register these shares, they may be freely sold in the public market upon issuance, subject to the lock-up agreements described in "Underwriting."

Our amended and restated certificate of incorporation, bylaws and Delaware law will contain provisions that could discourage transactions resulting in a change in control, which may negatively affect the market price of our common stock.

        In addition to the effect that the concentration of ownership by our significant stockholders may have, our amended and restated certificate of incorporation and our bylaws will contain provisions that may enable our management to resist a change in control. These provisions may discourage, delay or prevent a change in the ownership of our company or a change in our management. In addition, these provisions could limit the price that investors would be willing to pay in the future for shares of our common stock. Such provisions, to be set forth in our restated certificate of incorporation or bylaws effective upon the completion of this offering, include:

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our board of directors will be authorized, without prior stockholder approval, to create and issue preferred stock, commonly referred to as "blank check" preferred stock, with rights senior to those of common stock;



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advance notice requirements for nominations to serve on our board of directors or for proposals that can be acted upon at stockholder meetings;



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our board will be classified so not all members of our board are elected at one time, which may make it more difficult for a person who acquires control of a majority of our outstanding voting stock to replace our directors;



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stockholder action by written consent will be prohibited;



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special meetings of the stockholders will be permitted to be called only by the chairman of our board of directors, our president or by a majority of our board of directors;



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stockholders will not be permitted to cumulate their votes for the election of directors;



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vacancies on our board of directors will be filled only by majority vote of the remaining directors;



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our board of directors will be expressly authorized to make, alter or repeal our bylaws; and



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stockholders will be permitted to amend our bylaws only upon receiving at least 75% of the votes entitled to be cast by holders of all outstanding shares then entitled to vote generally in the election of directors, voting together as a single class.

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        Upon completion of the offering, we will also be subject to the restrictions contained in Section 203 of the Delaware General Corporation Law, which provides, subject to enumerated exceptions, that if a person acquires 15% or more of our voting stock, the person is an "interested stockholder" and may not engage in "business combinations" with us for a period of three years from the time the person acquired 15% or more of our voting stock. Section 203 of the Delaware General Corporate Law may also have the effect of discouraging, delaying or preventing a change in control of our company.

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