ANADIGICS INC, 10-K405, 1998-03-30

ANADIGICS INC
10-K405, 1998-03-30
SEMICONDUCTORS & RELATED DEVICES

Previous: LOGANSPORT FINANCIAL CORP, 10-K, 1998-03-30

Next: ACACIA NATIONAL VARIABLE LIFE INSURANCE SEPARATE ACCOUNT 1, 24F-2NT, 1998-03-30

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark one)

|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997.

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

Commission File No. 0-25662

ANADIGICS, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)

Delaware 22-2582106
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

[LOGO]

35 Technology Drive
Warren, New Jersey 07059
--------------------------------------- ----------
(Address of principal executive offices) (Zip Code)

(908) 668-5000
----------------------------------------------------
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value

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

The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of February 13, 1998 was approximately $242,611,000, based upon
the closing sales price of the Registrant's common stock as quoted on the NASDAQ
National Market on such date.

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

The number of shares outstanding of the Registrant's common stock as of February
13, 1998 was 14,703,704.

DOCUMENTS INCORPORATED BY REFERENCE

1. Registrant's Proxy Statement for the 1998 Annual Meeting of Stockholders (the
"1998 Proxy Statement") (to be filed with the Securities and Exchange Commission
on or before April 30, 1998 is incorporated by reference in Part III hereof.
<PAGE>

PART 1

ITEM 1. BUSINESS.

THE COMPANY

GENERAL

ANADIGICS, Inc. ("ANADIGICS" or the "Company") is a leading supplier of
radio frequency ("RF") and microwave gallium arsenide ("GaAs") integrated
circuits. The Company's products are used to receive and transmit signals in a
variety of high volume, wide-band communications applications in cellular
telephone systems and personal communication systems ("PCS"), in cable ("CATV")
and direct broadcast television systems ("DBS"), and in fiber optic
communication systems. The Company designs, develops and manufactures its
integrated circuits in GaAs semiconductor material that allows the integration
of numerous RF/microwave functions which cannot be easily integrated in
silicon-based circuits. The Company's high frequency integrated circuits can
typically replace 30 to 100 discrete components, permitting manufacturers of end
products to reduce the size and weight of their products, increase power
efficiency, improve reliability, reduce manufacturing time and cost and enhance
overall system performance.

The Company's objective is to be the leading supplier of high volume GaAs
integrated circuits for RF/microwave receiver and transmitter applications. To
date, the Company has delivered over 100 million GaAs integrated circuits,
including over 37 million in 1997. The Company has developed high volume
manufacturing capabilities geared toward achieving higher yields and lower
costs. The Company has made a significant investment in proprietary processes,
including design, wafer fabrication and testing, which the Company believes
gives it a competitive advantage. The Company manufactures integrated circuits
at its existing facility in Warren, New Jersey and is in the process of moving
certain manufacturing operations to a new production facility in Warren, New
Jersey. The new production facility also houses the Company's new wafer
fabrication facility which is currently being qualified for production. The new
wafer fabrication facility is expected to commence production in the first half
of 1999. See "--Manufacturing, Assembly and Testing".

ANADIGICS believes that the market for high frequency integrated circuits
for receiver and transmitter applications will grow as demand for broadband,
high frequency end products grows in the communications, information and video
entertainment markets. The Company believes that it is currently one of the few
sources of RF/microwave GaAs integrated circuits for high volume communications
applications.

In the cellular (800 MHz) and PCS (1900 MHz) wireless communications
market, the Company's products are used primarily as power amplifiers in
telephone handsets, where they replace more traditional hybrid or discrete
component solutions containing 30 to 50 chip components. The Company's
integrated circuit power amplifiers provide a smaller footprint, lower parts
count and lower power consumption compared to traditional hybrid or discrete
solutions. The Company currently is producing GaAs integrated circuit power
amplifiers for the analog Advanced Mobile Phone Service ("AMPS") and Expanded
Total Access Communication System ("ETACS") standards, and for the digital
Global System Mobile ("GSM"), Time Division Multiple Access ("TDMA") and Code
Division Multiple Access ("CDMA") standards. In addition to power amplifier
integrated circuits for telephone handsets, the Company is also producing
receiver integrated circuits for cellular handsets, base stations and fixed
wireless local loop applications.

The Company's products for the cable television market products are used
primarily in wide band tuners for set top converters operating at the 500 and
800 megahertz ("MHz") bandwidth. The 800 MHz bandwidth provides increased analog
channel capacity, digital cable television capability and Internet access via
cable modems. The Company also offers wide band linear amplifier products
operating at frequencies of up to 860 MHz for hybrid fiber/coaxial
infrastructure applications. In the DBS market, the Company's products are used
as down converters primarily in satellite dishes, as well as in set top tuners.

The Company's principal products for fiber optic systems are
transimpedance amplifiers that are used primarily in Synchronous Optical Network
("SONET") and Synchronous Digital Hierarchy ("SDH") fiber optic transmission at
rates from 155 megabits per second ("Mb/s") to 2.4 Gb/s. Increasingly, these
products are also being used in higher bit rate data communication applications.

2
<PAGE>

The Company has developed working relationships with leading companies
in each of its target markets. The Company's principal customers in 1997
include LM Ericsson AB ("Ericsson"), General Instrument Corp. ("General
Instrument"), Lucent Technologies, Inc. ("Lucent"), Nokia Corp. ("Nokia"),
Nortel Ltd. ("Nortel"), Philips Electronics N.V., and Qualcomm Personal
Electronics ("Qualcomm PE"), a partnership between Qualcomm, Inc. And Sony
Corp, and Qualcomm, Inc. ("Qualcomm"). The Company's three largest customers
in each of the past three years together accounted for 56%, 45% and 62% of
net sales for 1995, 1996 and 1997, respectively. The Company's net sales have
grown from $20.2 million in 1992 to $102.5 million in 1997.

The Company was incorporated in Delaware on April 24, 1984. The executive
offices of the Company are located at 35 Technology Drive, Warren, New Jersey
07059. The Company's telephone number is (908) 668-5000. The Company's Website
is http://www.anadigics.com.

INDUSTRY OVERVIEW

Over the last decade, there has been a continuous trend toward delivering
various forms of electronic information at faster rates and in greater quantity.
New technologies such as wireless, fiber optic and satellite communication have
continued to evolve, providing greater capacity and improved performance at
decreasing cost. Markets for wireless products such as cellular and PCS
telephones continue to grow rapidly and new services such as wireless computing,
cable modems, fixed personal wireless telephones and satellite telephone
services are emerging. Fiber optic technology, capable of transmitting extremely
large bandwidth (or data rates) over long distances without reamplification, is
being used to replace copper, coaxial cable or microwave links for many
applications, including cable television systems. Satellite communications
technology is evolving into a low cost method for distributing information over
wide geographic areas to fixed and mobile users. Satellites are now used to
cost-effectively transmit multiple channels of television to cable headends as
well as directly to the home. Increased availability of multichannel video
services and demand for more portable and more visually rich means of
communication have hastened the development of broadband and mobile
communication services.

Occurring in parallel with the development of new communications
technologies and services is the transition from analog to digital modulation of
sound and video images. Digital modulation, enabled by improved performance of
digital circuitry, provides improved quality, security and increased capacity at
lower costs. The combination of greater bandwidth and digital modulation
facilitates the development of enhanced multimedia communication.

THE TREND TOWARD HIGHER FREQUENCIES

The need to transmit increasing amounts of multimedia information through
wired and wireless communications systems has resulted in the requirements for
both more bandwidth and higher operating frequencies. The new high frequency and
broadband communication systems described above require receivers and
transmitters capable of operating at very high frequencies. For example,
cellular telephones and cellular base stations require receivers and
transmitters operating in frequencies ranging from 800 to 900 MHz, while cable
television systems require broadband receivers operating in frequencies ranging
from 50 to 860 MHz. PCS operates at even higher frequencies, in the 1800 to 2000
MHz range. The high frequency portion of a communication system, sometimes
called the radio frequency or microwave frequency front end, operates as the
"bridge" between the outside world (antenna or cable) and the electronic
components that process the information and, as such, is an important element in
establishing the performance and cost of the system. The RF/microwave front end,
in addition to operating at very high frequencies, must be sensitive, have low
distortion and, in battery operated portable systems, be power efficient.

TRANSITION FROM ANALOG TO DIGITAL MODULATION

Information, whether modulated in analog or digital form, is embedded at
the transmission site in a high frequency analog wave which carries the signal
over the air or through a cable to a receiving station. The same type of
RF/microwave front end is required whether the information is transmitted by
means of analog modulation or digital modulation. As communication systems
evolve from analog to digital modulation, RF/microwave front ends must be able
to handle both types of modulation simultaneously in order to accommodate both
the existing analog user base and the new digital user base (as in the case of
dual mode cellular telephones).

UTILIZATION OF DISCRETE COMPONENTS AND SILICON-BASED INTEGRATED CIRCUITS

Circuits using discrete components such as transistors, diodes,
capacitors, inductors and resistors have been used for most RF/microwave
applications because, until recently, there have been no cost effective
integrated circuit solutions available. Integrated circuits generally offer
better reliability and, by replacing many discrete components with a single
integrated circuit, reduced size and costs. These cost reductions can take the
form of simplified manufacturing processes, more efficient parts management and
reduced warranty expenses.

3
<PAGE>

While silicon-based integrated circuits have replaced discrete components
in most digital electronics and low frequency analog applications, their use has
been limited in RF/microwave applications due to silicon's inability to meet
basic performance requirements at higher frequencies. The highest frequency
silicon integrated circuits are not power efficient and have relatively high
noise figures and distortion. In addition, it is very difficult to integrate the
passive components (inductors, capacitors and resistors) on silicon substrates
that are required to complete RF/microwave integrated circuits. Because of these
limitations, silicon integrated circuits operating at higher frequencies have
failed to replace discrete components in most RF/microwave functions, even
though discrete components do not offer an optimal solution for many
RF/microwave applications.

Although GaAs technology offers an alternative means of producing
integrated circuits for high-frequency applications, some manufacturers have
been reluctant to adopt GaAs integrated circuits for use in high volume
commercial applications because of perceived risks relating to GaAs technology
in general. Such perceived risks include the unfamiliarity of designing
commercial systems with GaAs integrated circuits, unfamiliar manufacturing
processes and uncertainties about the cost effectiveness of GaAs integrated
circuits.

THE ANADIGICS SOLUTION

Since 1995, the Company, through its research and development efforts, has
developed expertise in producing cost-effective GaAs-based integrated circuits
for high-volume commercial applications which offer many of the performance
attributes required for RF/microwave applications that are not easily obtainable
with silicon-based integrated circuits. GaAs transistors can operate at
frequencies up to three to five times greater than those possible with silicon
and therefore can handle the requirements of RF/microwave applications. GaAs
integrated circuits have a lower noise figure than silicon-based integrated
circuits, providing increased sensitivity, significantly better linearity, less
distortion and interference and better dynamic range, thereby enabling systems
to handle a wide range of signal strengths. GaAs is a semi-insulating material
which facilitates integration of the passive components required in RF/microwave
applications. Finally, GaAs integrated circuits used in transmitter applications
are also more power-efficient than silicon-based circuits, allowing for longer
battery life or use of smaller batteries.

ANADIGICS' STRATEGY

The Company's objective is to be the leading supplier of high volume GaAs
integrated circuits for RF/microwave receiver and transmitter applications. The
following elements, all of which are interrelated, form the basis of ANADIGICS'
strategy:

FOCUS ON GROWING, HIGH VOLUME COMMUNICATIONS MARKETS

ANADIGICS focuses on a few diverse high volume communications
markets--cellular and PCS communications, cable and broadcast television
receivers, and fiber optic communications--that it believes will provide both
significant growth opportunities and increasing stability through product and
geographic diversity. Each of the Company's target markets is characterized by a
transition to broader bandwidths, to higher operating frequencies and, in many
cases, from analog to digital modulation, as well as by competing standards
(e.g., AMPS, TDMA, CDMA and GSM in cellular and PCS telephony) and
communications methods (e.g., cable versus direct broadcast satellite in
television). The Company believes that these market trends offer opportunities
for ANADIGICS' integrated circuit solutions that can add value by lowering
costs, improving reliability and reducing the size of customers' products.
Moreover, the Company is capable of providing integrated circuit solutions for
each of the competing communications methods and standards in its target markets
and, as a result, believes that it has positioned itself to compete effectively
regardless of which method or standard ultimately prevails.

LOW COST, HIGH VOLUME MANUFACTURER

ANADIGICS believes that its success depends on its ability to be a low
cost manufacturer of integrated circuits for high volume, wide-band
communication applications. The Company believes that a low cost manufacturer
must control all of the critical phases of production in order to maintain high
manufacturing yields. ANADIGICS uses the same basic GaAs depletion metal
semiconductor field effect transistor ("D-MESFET") manufacturing processes to
produce all of its GaAs integrated circuits, thereby deriving economies of scale
and gaining manufacturing experience applicable across all product lines.
ANADIGICS has been continually improving its manufacturing process and, to date,
has delivered over 100 million GaAs integrated circuits, including over 37
million in 1997.

4
<PAGE>

RAPID DESIGN CYCLE TIME

ANADIGICS has developed an experienced engineering staff that can rapidly
design cost-effective integrated circuit solutions for its target markets. The
combination of design experience and a "quick-turn" wafer fabrication and
assembly capability allows the Company to develop prototypes that can be ready
for testing in less than one month. This design efficiency contributes to
customer satisfaction and allows the Company to improve product designs rapidly
for manufacturing efficiency.

PARTNER WITH WORLDWIDE INDUSTRY LEADERS

ANADIGICS believes that in order to create products which have the
potential to become industry standards it must develop working relationships
with leading companies in each target market. This strategy provides ANADIGICS
with rapid feedback from customers during the product design phase and increases
the likelihood that products will meet customers' cost and performance
requirements for high volume applications. ANADIGICS' working relationships with
customers worldwide have ranged from guaranteed purchase orders to partially or
fully funded development programs, in most cases with a limited exclusivity
period granted to the customer with respect to the developed circuit. Examples
of the Company's strategy to focus on worldwide industry leaders are the
development of cellular telephone power amplifiers and receivers with Ericsson
in the United States and Sweden and the development of cable television
converter integrated circuits with General Instrument in the United States and
Taiwan.

TARGET MARKETS AND PRODUCTS

TELECOMMUNICATIONS SYSTEMS

ANADIGICS has developed GaAs integrated circuits for use in both wireless
and fiber optic telecommunications systems. ANADIGICS' GaAs integrated circuits
are used in wireless telephony equipment, such as cellular and PCS telephone
handsets, cellular base stations and fixed wireless systems, and in fiber optics
transmission systems.

WIRELESS COMMUNICATIONS MARKET. The Company believes that the need for
compact, high-efficiency transmitters and sensitive, low power consumption
receivers in the rapidly developing wireless communications market has the
potential to provide numerous opportunities for ANADIGICS.

CELLULAR AND PERSONAL COMMUNICATION SERVICES ("PCS") TELEPHONY. Cellular
telephony, which began service in 1982, and PCS telephony have grown rapidly
over the past three years. Worldwide cellular and PCS subscribers at December
31, 1997 totaled approximately 203 million, according to Kagan World Media, with
approximately 58 million subscribers resident in the United States and
approximately 56 million in Western Europe. According to Kagan World Media,
subscriber growth for the cellular and PCS market in 1997 was 45% worldwide.

Cellular and PCS telephone systems consist of base stations which are
connected to the public switched telephone networks which transmit and receive
telephone signals via radio frequency waves in the 800 or 1900 MHz frequency
range. Using either a portable or mobile telephone, a subscriber can communicate
through a base station and can move seamlessly from one cell to another. Each
caller is connected to a cell through a dedicated wireless channel.

In order to increase capacity at a lower cost, and to improve voice
quality and increase security, digital modulation standards have been developed.
In the United States there are two competing digital cellular standards, which
are defined below:

TDMA (IS-136): TIME DIVISION MULTIPLE ACCESS increases capacity by placing
three or more calls in the same channel separated by time.

CDMA (IS-96): CODE DIVISION MULTIPLE ACCESS increases capacity by coding
voice messages and spreading information over many channels.

Telephones operating on the TDMA standard are also called DAMPS (for
digital AMPS) telephones because they can transmit on either analog AMPS or
digital TDMA signals. DAMPS service began in 1994 and is being adopted by
several U.S. and South American operators, including the AT&T Wireless Cellular
unit of AT&T. CDMA telephones, which are dual mode with AMPS, were introduced in
the second half of 1995 and are currently being offered primarily in the United
States and parts of Asia.

5
<PAGE>

The European digital standard, Global System Mobile, (or "GSM") was
introduced in 1991 and has been developed and standardized by the European
Union. GSM is the most widely deployed digital standard in the world with a high
degree of acceptance in Europe and Asia. According to GSM MoU, an association
comprised of approximately 253 GSM administrators, regulators, and network
operators, GSM networks have begun operations in 105 countries, including
several Asian countries. In addition, according to GSM MoU, GSM subscribers
worldwide totaled approximately 66 million at December 31, 1997. GSM 1900 is the
third PCS digital standard being offered in the United States, along with TDMA
and CDMA PCS digital standards.

The following table lists the major global standards being used for
cellular and PCS systems:

<TABLE>
<CAPTION>
SERVICE
--------------------------------
CELLULAR PCS/DCS PREDOMINANT
STANDARD MODULATION 800-900 MHZ 1800-2000 MHZ MARKETS
- -------- ---------- --------------- --------------- -----------------------------
<S> <C> <C> <C> <C>
AMPS ANALOG Yes No North America, South America

ETACS ANALOG Yes No Europe, China

GSM DIGITAL Yes Yes Europe, Asia, North America,
South America

DCS DIGITAL Yes Yes Europe

TDMA DIGITAL Yes Yes North America, South America

CDMA DIGITAL Yes Yes North America, South America,
Korea, Hong Kong, China

PDC DIGITAL Yes 1500 MHz Japan
</TABLE>

WIRELESS COMMUNICATIONS PRODUCTS. ANADIGICS' integrated circuit products
are used in transmitters and receivers of cellular and PCS handsets where small
size and low power consumption are key parameters. The Company offers products
for both the traditional analog cellular market and all of the major digital
cellular and PCS applications.

POWER AMPLIFIERS. Until 1994, the power amplifiers in portable cellular
handset transmitters were constructed exclusively with hybrid solutions such as
silicon bipolar transistors and silicon metal oxide semiconductor field effect
transistors ("MOSFET") or with discrete GaAs field effect transistors ("FETs").
Hybrid silicon solutions are relatively inexpensive to manufacture but have low
power efficiency, while GaAs FET power amplifiers have better performance
characteristics at higher costs. ANADIGICS has developed low cost GaAs
integrated circuit power amplifiers that are smaller than discrete component and
hybrid module solutions, which the Company believes perform as well as GaAs FET
discrete solutions.

RECEIVERS. ANADIGICS has developed and initiated production of GaAs
integrated circuit front ends for cellular handset receivers and for use in
wireless local loop applications. The Company has also developed linear receiver
front ends for use in cellular base stations.

The following is a list of some of the Company's cellular telephony and
PCS products currently in production:

<TABLE>
<CAPTION>
PRODUCT LINE FREQUENCY PRODUCTION STATUS
- ------------------------------------------------------------- ----------- -----------------
<S> <C> <C>
POWER AMPLIFIERS
AMPS....................................................... 800 MHz Produced since 1994
DAMPS...................................................... 800 MHz Produced since 1994
ETACS...................................................... 800 MHz Produced since 1995
GSM........................................................ 800 MHz Produced since 1996
CDMA....................................................... 1900 MHz Produced since 1996
DCS........................................................ 1800 MHz Produced since 1997
AMPS/TDMA.................................................. 800/1900 MHz Produced since 1997
GSM/DCS.................................................... 900/1800 MHz Produced since 1997

RECEIVERS/DRIVERS
Wireless Local Loop Receiver............................... 900 MHz Produced since 1995
AMPS Receiver.............................................. 900 MHz Produced since 1995
Base Station Receiver...................................... 900 MHz Produced since 1996
CDMA Driver................................................ 1900 MHz Produced since 1996
</TABLE>

6
<PAGE>

In addition, the Company is in various stages of planning, development or
production start-up for the following products for the cellular telephony and
PCS market: 3-volt power amplifiers for all major cellular standards, dual-band,
dual-mode power amplifiers for the GSM/DCS and CDMA/AMPS standards, a second
generation power amplifier for TDMA/AMPS, other dual-band, dual-mode and
tri-mode power amplifiers for cellular and PCS applications, and handset and
cellular base station receivers.

During 1997, the Company's major customers for wireless communications
products were Ericsson, Nokia, Qualcomm and Qualcomm PE.

FIBER OPTIC MARKET. The capacity of the global telecommunications
infrastructure is currently being upgraded with fiber optic communication
systems in order to handle the demand for increasing amounts of information,
driven in part by the rapid growth of the internet community. High data rate
fiber optic receivers are therefore in increasing demand for telecommunications,
data communications and cable television applications. In order to facilitate
this upgrade process, North America has adopted the SONET standard and the rest
of the world has adopted the similar SDH standard for telecommunications
systems.

A fiber optic transmission system uses low loss fiber optic cable to link
central office switches with one another and to connect the central office to
the serving area. Fiber optic transceivers are used as repeaters in transmission
systems to send and receive high data rate information. The transceiver consists
of a laser transmitter and an optical receiver. The front end of any fiber optic
receiver contains a detector diode and a transimpedance amplifier ("TIA") which
provides current to voltage conversion and low noise signal amplification.
ANADIGICS began producing TIAs in 1989 and currently produces and sells GaAs
integrated circuit TIAs that operate at SONET standards ranging from 52 Mbps to
2.4 Gb/s. The primary applications of ANADIGICS' TIAs are in long-haul systems
at 2480 Mb/s (OC-48) and for fiber in the local loop applications at 622 Mb/s
(OC-12) and at 155 Mb/s (OC-3). ANADIGICS also provides TIAs for other
applications, including cable television distribution, asynchronous transfer
mode (ATM) data communication, data transmission and related products. In
addition, ANADIGICS' TIAs in 1997 were starting to be used in emerging wave
division multiplex and gigabit Ethernet applications.

The Company's major customers in 1997 for fiber optic products include
Hewlett-Packard, Lucent, Nortel and Toshiba Corporation.

FIBER OPTIC PRODUCTS. The following is a list of some of the Company's products
for fiber optic networks currently in production:

PRODUCT LINE FREQUENCY PRODUCTION STATUS
- ------------------------------------------------------------------------------
OC-3 TIA................................... 155 Mb/s Produced since 1990
OC-12 TIAs................................. 622 Mb/s Produced since 1990
OC-48 TIAs................................. 2480 Mb/s Produced since 1990

250 Mbps Datacom........................... 250 Mb/s Produced since 1996
155 Mbps Datacom........................... 155 Mb/s Produced since 1996

TELEVISION SYSTEMS

ANADIGICS has developed GaAs integrated circuits for both cable and direct
broadcast television receivers.

CABLE TELEVISION/MULTIMEDIA MARKET. Cable television is evolving from an
industry that has traditionally delivered multichannel one-way analog television
programming over a coaxial cable system to a multimedia industry delivering up
to 500 channels of interactive video and other services such as telephony and
internet access over hybrid fiber optic coaxial ("HFC") cable systems. The large
bandwidth available from cable television systems is now being increasingly used
to provide high speed internet access via cable modems, thereby overcoming the
congestion frequently experienced by users who access the internet by telephone
lines. In a conventional analog cable television system, the programmer's signal
is first scrambled and then transmitted to a C-Band satellite. A cable system
"headend" facility receives television signals from satellites and other sources
and retransmits them to subscribers through a distribution network composed of
coaxial and fiber optic cable and distribution amplifiers which boost the signal
level. The final component of the cable television system, the subscriber
equipment, is comprised of a "dropwire" and, in some cases, a "drop amplifier"
which extend from the distribution network to the subscriber's home and connect
either directly to the subscriber's television set or to a set-top converter
box. Addressable set-top converter boxes permit the efficient delivery of
premium cable television services, including pay-per-view programming. In the
multimedia environment, the HFC cable distribution system delivers digitally
compressed video to the home, has a return path to the headend and contains
switching functions. In such an environment, the set-top converter box is
essentially a special purpose computer, handling compressed video and
interactive services.

7
<PAGE>

CABLE TELEVISION/MULTIMEDIA PRODUCTS. ANADIGICS' 50-550 MHz upconverter
integrated circuit is capable of receiving an incoming block of up to 80 cable
television channels and enabling selection of a particular desired channel. This
integrated circuit replaces approximately 30 discrete components. In addition,
products made with discrete components typically require manual tuning in the
manufacturing process. Use of GaAs integrated circuits significantly reduces
manual tuning requirements, thereby reducing manufacturing costs and enhancing
reliability.

In response to the requirement for broader bandwidth and the presence of
analog and digital modulation, In 1995, ANADIGICS introduced a 50-860 MHz
integrated circuit chip set comprised of an upconverter and downconverter for
the tuner used in analog and digital 50-860 MHz set-top converters and in cable
modems. During 1997, the Company introduced a low power consumption (5 volt)
50-860 MHz chip set in response to demand for a lower voltage product to be used
in set-top boxes and cable modems. The Company believes that this chip set meets
the performance requirements of the set-top converter application at a lower
cost than alternative discrete component solutions. The chip set has been
designed into tuners by General Instrument and Komatsu Murata Manufacturing
Company, Limited and in cable modems by Bay Networks Inc. Com21, Inc., and
Motorola, Inc.

General Instrument is the Company's principal customer for cable
television set-top products. Since 1989, the Company has had a strategic
relationship with General Instrument for the development of GaAs-based chip sets
used in set-top converters.

In 1996, the Company developed a GaAs integrated circuit line amplifier to
be used as a repeater in 50-750 MHz HFC distribution networks. These integrated
circuits are replacing silicon bipolar hybrid circuits used in this application.
The Company's principal customer for this amplifier is Scientific-Atlanta, Inc.

The following is a list of some of the Company's products for the cable
television market currently in production:

<TABLE>
<CAPTION>
PRODUCT LINE BANDWIDTH PRODUCTION STATUS
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
SET-TOP CONVERTER PRODUCTS
550 MHz Converter....................................... 50-550 MHz Produced since 1991
860 MHz Converter Chip Set.............................. 50-860 MHz Produced since 1995
Low power consumption - 860 MHz Converter Chip Set...... 50-860 MHz Produced since 1997

NETWORK PRODUCTS
Drop Amplifier.......................................... 50-860 MHz Produced since 1994
Line Amplifier.......................................... 50-750 MHz Produced since 1995
</TABLE>

DIRECT BROADCAST SATELLITE MARKET. The DBS market is an alternative method
to cable television for delivering multiple channel television programming to
the home. In a broadcast television system, programming is uplinked to a series
of collocated satellites, which then downlink the programming at Ku-Band
(10.7-12.7 GHz) to the satellite dish antenna with an attached low noise block
converter ("LNB") serving the customer's home. The Ku-Band LNB amplifies and
converts the signal to a lower frequency and sends the signal via coaxial cable
to a set-top converter, where the channel is selected by a broadcast satellite
tuner ("BS Tuner") and displayed on television sets.

DIRECT BROADCAST SATELLITE PRODUCTS. ANADIGICS designs and manufactures
GaAs integrated circuits for both the LNB and the BS Tuner. GaAs devices are
suitable for the LNB function because of their low noise and broad bandwidth
characteristics. This functionality would typically require 30 to 50 components
if implemented using a discrete component alternative. ANADIGICS' BS Tuner
integrated circuit is used in the set-top converter, which enables selection of
a specific frequency (i.e., a particular channel) within the block of
frequencies downconverted by the outdoor LNB.

The following is a list of some of the Company's products for the DBS
television market currently in production:

<TABLE>
<CAPTION>
PRODUCT LINE REGION FREQUENCY PRODUCTION STATUS
- -------------------- ----------------------- ------------ ------------------
<S> <C> <C> <C>
KU-BAND LNB
ASTRA Band........ Europe 10.7-11.8 GHz Produced since 1989
Universal/ASTRA... Europe, Asia, Middle East, S. Amer. 10.7-12.8 GHz Produced since 1995
DirecTV........... USA 12.2-12.7 GHz Produced since 1995

B.S. TUNER
Universal/ASTRA... Europe, Asia, Middle East, S. Amer. 950-2150 MHz Produced since 1992
</TABLE>

8
<PAGE>

MARKETING, DISTRIBUTION AND CUSTOMER SUPPORT

The Company sells its products directly to customers worldwide. The
Company also selectively utilizes independent manufacturers' representatives and
distributors to complement its direct sales and customer support efforts.

ANADIGICS believes that the technical nature of its products and markets
demands an extraordinary commitment to close relationships with its customers.
The sales and marketing staff, assisted by the technical staff and senior
management, visit prospective and existing customers worldwide on a regular
basis, and between visits both field and factory sales personnel stay in close
contact with customers. The Company believes that these contacts are vital to
the development of a close long-term working relationship with its customers,
and in obtaining regular forecasts, market updates, and information regarding
technical and market trends.

The ANADIGICS design and applications engineering staff is actively
involved with a customer during all phases of design and production by
publishing and providing the customer with engineering data, up-to-date product
application notes, following up with the customer's engineers on a regular
basis, and assisting in resolving technical problems by working with the
customer's engineers both on and off site. In most cases the design and
applications engineers obtain prototypes from the customer in order to debug and
identify potential improvements to the design in parallel with the customer's
effort. This strategy helps customers speed up their design process, achieve
cost-effective and manufacturable design, and ensure a smooth transition into
high volume production.

ANADIGICS' policy is to provide its customers with applications
engineering support at its customers' factories throughout the world, generally
within 48 hours of a customer request. The Company's sales are typically made
pursuant to customer purchase orders, and such orders may be canceled without
significant penalty.

MANUFACTURING, ASSEMBLY AND TESTING

The Company fabricates integrated circuits on four-inch diameter GaAs
wafers at its plant in Warren, New Jersey in an 8,000 square foot, Class 100
cleanroom. Present production capacity is approximately 40,000 four-inch
diameter wafers per year, and the Company delivered more than 37 million GaAs
integrated circuits during the year ended December 31, 1997.

The Company currently manufactures all of its integrated circuits at its
wafer fabrication facility located at 35 Technology Drive in Warren, New Jersey.
The Company believes that this facility should be able to satisfy its production
needs through the end of 1998. See "Risk Factors--Possible Production Capacity
Constraints; Possible Delay in Construction of New
Production Facility".

In 1996, the Company entered into a lease agreement with United States
Land Resources, L.P. ("USLR") that provided an additional 167,000 square feet of
manufacturing and office space following refurbishment by USLR. The USLR
facility is located at 141 Mt. Bethel Road in Warren, New Jersey, adjacent to
the Company's existing facility. USLR has completed construction of certain
office and manufacturing areas of the new facility. Located in the new facility
is the Company's new wafer fabrication facility. During 1997, the Company
installed equipment in the wafer fabrication facility and began the process of
qualifying the equipment and processes. The Company expects to continue the
qualification process in 1998 and commence production in the new wafer
fabrication facility during the first half of 1999.

The Company expects that the new wafer fabrication facility will enable
the Company to approximately double its 1997 production levels. The new wafer
fabrication facility will have additional space in which the Company expects to
add more manufacturing capacity in the future. The Company believes that it
could increase its wafer production capacity further if necessary by upgrading
this facility for the production of six-inch diameter wafers.

During the first quarter of 1998, the Company moved certain assembly and
test operations (along with support operations) from its old fabrication
facility into the new wafer fabrication facility.

ANADIGICS' wafer processing technology has been developed for reliable
high volume manufacturing. The Company has developed a GaAs D-MESFET process
that it uses to produce all of its products. By using ion implant variations,
the Company can optimize performance and yield, allowing it to produce, for
example, high linearity, low-noise, receiver integrated circuits or transmitter
integrated circuits with high power and efficiency.

9
<PAGE>

Completed wafers are shipped to contractors in Asia for assembly in
integrated circuit packages. Once assembled by the contractor, packaged
integrated circuits are shipped to the Company's Warren, New Jersey facility for
final testing. The Company believes that its automated test systems are
important to its ability to manufacture high quality integrated circuits at low
cost. ANADIGICS has a staff of test engineers that designs and builds custom
test systems and programs commercially available test systems to facilitate
rapid testing of its GaAs integrated circuits at high frequencies. See "Risk
Factors--Possible Production Capacity Constraints; Possible Delay in
Construction of New Production Facility" and "--Dependence on Semiconductor
Assembly Contractors".

The Company's design and manufacturing processes were certified as ISO
9001 compliant in December 1993. Since that date, the Company has maintained
compliance with this standard.

RESEARCH AND DEVELOPMENT

The Company's research and development has been focused on developing low
cost, high volume production of GaAs integrated circuit products for the
telecommunication and television industries. During 1997, approximately
two-thirds of the Company's research and development expenses were for the
development of integrated circuits for cellular, PCS and other wireless
applications and the remaining one-third was primarily for the development of
integrated circuits for fiber optic telecommunications applications and cable
television applications. As of March 3, 1998, the Company had approximately 110
engineers assigned primarily to research and development. In 1995, 1996 and
1997, the Company expended $11.7 million, $12.0 million and $16.8 million,
respectively, for Company-sponsored research and development and $1.8 million,
$3.2 million and $1.6 million, respectively, for customer sponsored research and
development.

The ability to simulate and model circuits is a critical technology for
analog integrated circuit design, especially at high frequencies. The Company
has developed a set of simulation tools and device models which are custom-fit
to the Company's process and, in many areas the Company believes, exceed the
capability of commercially available computer aided design products. These tools
and models allow the Company to efficiently design products for RF/microwave
front-ends.

RAW MATERIALS

Blank GaAs wafers and other raw materials and equipment used in the
production of the Company's GaAs integrated circuits are available from several
suppliers. The Company currently has two qualified blank wafer suppliers, both
located in Japan. Although the Company has not experienced any significant delay
in obtaining wafers or components, no assurances can be given that a shortage
will not arise in the future. See "Risk Factors--Limited Sources for Certain
Components, Materials and Equipment".

COMPETITION

While competition in all of the markets for the Company's current products
is intense, the basis on which the Company competes varies by product.
Competitors in the wireless market are entrenched suppliers of discrete receiver
front-end devices such as Fujitsu Microelectronics Inc., Mitsubishi Electric
Corp., Motorola, Inc., Philips Electronics N.V. and Siemens AG; discrete hybrid
power amplifiers suppliers such as Fujitsu Microelectronics Inc., Hitachi, Ltd.,
Matsushita Electric Industrial Co. Ltd., Mitsubishi Electric Corp. and Philips
Electronics N.V.; and GaAs integrated circuit manufacturers for receiver
front-end or power amplifiers such as Fujitsu Microelectronics Inc., Motorola,
Radio Frequency Microwave Devices Inc., Raytheon Co., Rockwell International
Inc. and TriQuint Semiconductor, Inc. The Company competes in the wireless
market generally on the basis of price and product performance.

In the cable and broadcast television markets, ANADIGICS' integrated
circuits compete primarily with manufacturers of discrete components. In these
markets, the Company competes on the basis of price and product performance,
specifically as they relate to the ability of its GaAs integrated circuits to
replace a large number of discrete components. Manufacturers of discrete
components include Fujitsu Microelectronics Inc., Mitsubishi Electric Corp., NEC
Corp., Philips Electronics N.V. and Siemens AG. Competition from other GaAs
integrated circuit manufacturers, which include Raytheon Co. and Fujitsu
Microelectronics Inc., has emerged in the broadcast television market.

In the fiber optic markets, ANADIGICS competes with other GaAs and silicon
integrated circuit manufacturers, generally on the basis of product performance,
reliability and price. Principal competitors in this market are Analog Devices,
Inc., Philips Electronics N.V., TriQuint Semiconductor, Inc. and Vitesse
Semiconductor Corp. as well as many end-user product manufacturers who design
and fabricate their own systems.

Many of the Company's competitors have significantly greater financial,
technical, manufacturing and marketing resources than the Company. Increased
competition could adversely affect the Company's revenue and profitability by
causing it to reduce prices or by reducing demand for the Company's products.

10
<PAGE>

EMPLOYEES

At December 31, 1997, the Company had approximately 580 employees, none of
whom was a member of a labor union. The Company believes its labor relations to
be good and has never experienced a work stoppage. See "Subsequent Events" in
Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations.

PATENTS, LICENSES AND PROPRIETARY RIGHTS

It is the Company's practice to seek U.S. and foreign patent and copyright
protection on its products and developments where appropriate and to protect its
valuable technology under U.S. and foreign laws affording protection for trade
secrets and for semiconductor chip designs. As of December 31, 1997, the Company
owns thirteen U.S. patents and has seven pending U.S. patent applications and
two pending foreign patent applications filed under the Patent Cooperation
Treaty. The U.S. patents were issued between 1988 to 1997 and will expire
between 2006 to 2015.

The Company relies primarily upon trade secrets, technical know-how and
other unpatented proprietary information relating to its product development and
manufacturing activities. To protect its trade secrets, technical know-how and
other proprietary information, the Company's employees are required to enter
into agreements providing for maintenance of confidentiality and the assignment
of rights to inventions made by them while in the employ of the Company. The
Company also has entered into non-disclosure agreements to protect its
confidential information delivered to third parties in conjunction with possible
corporate collaborations and for other purposes. However, there can be no
assurance that these type of agreements will effectively prevent unauthorized
disclosure of the Company's confidential information, that these agreements will
not be breached, that the Company would have adequate remedies for any breach or
that the Company's trade secrets and proprietary know-how will not otherwise
become known or independently discovered by others.

ENVIRONMENTAL MATTERS

The Company's operations are subject to a variety of extensive and
changing federal, state and local environmental laws, regulations and ordinances
that govern activities or operations that may have adverse effects on human
health or the environment. Such laws, regulations or ordinances may impose
liability for the cost of remediating, and for certain damages resulting from,
sites of past releases of hazardous materials. The Company believes that it
currently conducts, and in the past has conducted, its activities and operations
in substantial compliance with applicable environmental laws, and believes that
costs arising from existing environmental laws will not have a material adverse
effect on the Company's financial position or results of operations. There can
be no assurance, however, that the environmental laws will not become more
stringent in the future or that the Company will not incur significant costs in
the future in order to comply with such laws.

11
<PAGE>

RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS REPORT, THE
FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN
INVESTMENT IN THE COMPANY. CERTAIN STATEMENTS IN THIS REPORT, SUCH AS STATEMENTS
CONCERNING THE DEVELOPMENT OF NEW COMMUNICATION TECHNOLOGIES AND SERVICES, THE
TREND IN COMMUNICATION SYSTEMS TOWARD HIGHER OPERATING FREQUENCIES, THE
EVOLUTION OF COMMUNICATION SYSTEMS FROM ANALOG TO DIGITAL MODULATION, THE GROWTH
OPPORTUNITIES OF CERTAIN MARKETS FOR THE COMPANY'S PRODUCTS, THE COMPANY'S PLANS
WITH RESPECT TO, AMONG OTHER THINGS, CAPITAL EXPENDITURES, PRODUCTION CAPACITY,
REVENUES, EARNINGS, LIQUIDITY AND CAPITAL RESOURCES, ACCOUNTING AND TAX MATTERS
AND REGULATORY MATTERS, AND OTHER STATEMENTS REGARDING MATTERS THAT ARE NOT
HISTORICAL FACTS, ARE FORWARD-LOOKING STATEMENTS (AS THAT TERM IS DEFINED IN THE
SECURITIES ACT OF 1933, AS AMENDED) THAT INVOLVE RISKS AND UNCERTAINTIES. THESE
FORWARD-LOOKING STATEMENTS CAN GENERALLY BE IDENTIFIED AS SUCH BECAUSE THE
CONTEXT OF THE STATEMENT WILL INCLUDE WORDS SUCH AS THE COMPANY "BELIEVES",
"ANTICIPATES", "EXPECTS" OR WORDS OF SIMILAR IMPORT. SIMILARLY, STATEMENTS THAT
DESCRIBE THE COMPANY'S FUTURE PLANS, OBJECTIVES, ESTIMATES OR GOALS ARE
FORWARD-LOOKING STATEMENTS. THE CAUTIONARY STATEMENTS MADE IN THIS REPORT SHOULD
BE READ AS BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING STATEMENTS WHEREVER
THEY APPEAR IN THIS REPORT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS
AND DEVELOPMENTS TO BE MATERIALLY DIFFERENT FROM THOSE EXPRESSED OR IMPLIED BY
SUCH STATEMENTS INCLUDE THOSE FACTORS DISCUSSED BELOW, AS WELL AS THOSE
DISCUSSED ELSEWHERE HEREIN.

DEPENDENCE ON A SMALL NUMBER OF CUSTOMERS

The Company receives most of its revenues from a few significant
customers. Sales to the Company's three largest customers in each of the past
three years accounted for 56%, 45% and 62% of net sales in 1995, 1996 and 1997,
respectively. Ericsson, Qualcomm PE and Qualcomm (combined), and General
Instrument accounted for 33%, 16%, and 13% of 1997 net sales, respectively. The
Company's operating results have been materially and adversely affected in the
past by the failure of anticipated orders to be realized and by deferrals or
cancellations of orders as a result of changes in customer requirements. If the
Company were to lose a major customer, or if sales to a major customer were to
decrease materially, the Company's results of operations would be materially and
adversely affected. See "The Company--Target Markets and Products" in this
Section and "Subsequent Events" in Item 7 - Management's Discussion and Analysis
of Financial Condition and Results of Operations.

POSSIBLE DELAYS IN DEVELOPMENT OF NEW MARKETS; UNCERTAINTY OF ACCEPTANCE OF NEW
PRODUCTS

The Company supplies GaAs integrated circuits for mass-market applications
related to communication, information and video entertainment systems. The
extent of the Company's success will depend to a considerable extent upon the
continued worldwide growth and increased availability of cellular and PCS
communications applications and services. No assurance can be given regarding
the rate at which the markets for such applications will develop or the
Company's ability to produce competitive products for such applications and
systems as they develop. The success of new product introductions is dependent
upon several factors, including timely completion of new product designs,
achievement of acceptable manufacturing yields and market acceptance of its
products and its customer's products. No assurance can be given that the
Company's product and process development efforts will be successful or that its
new products or its customer's new products will achieve market acceptance.

VARIABILITY OF MANUFACTURING YIELDS

The Company's manufacturing yields vary significantly among products,
depending on the complexity of a particular GaAs integrated circuit's design and
the Company's experience in manufacturing such integrated circuit. Historically,
the Company has experienced difficulties in achieving planned yields on certain
new GaAs integrated circuits, which have adversely affected gross margins.
Although the Company's process technology utilizes standard silicon
semiconductor manufacturing equipment, aggregate production quantities of GaAs
integrated circuits manufactured by the Company and the GaAs integrated circuit
industry in general have been relatively low compared with silicon integrated
circuit production volumes, and the process technology is significantly less
mature than silicon process technologies.

Regardless of the process technology used, the fabrication of integrated
circuits is a highly complex and precise process. Defects in masks, impurities
in the materials used, contamination of the manufacturing environment, equipment
failure and other difficulties in the fabrication process can cause a
substantial percentage of wafers to be rejected or numerous integrated circuits
on each wafer to be nonfunctional, thereby reducing yields.

12
<PAGE>

Because a large portion of the Company's costs of manufacturing are
relatively fixed and average selling prices tend to decline over time,
improvements in the number of shippable integrated circuits per wafer and
increases in the production volume of wafers are critical to maintaining and
improving the Company's results of operations. Yield decreases can result in
substantially higher unit costs, which could materially and adversely affect
operating results. There can be no assurance that the Company will be able to
continue to improve its yields in the future or that the Company will not suffer
periodic yield problems, particularly during the early production of new
products, such as those experienced by the Company in the third quarter of 1996.
In either case, the Company's results of operations could be materially and
adversely affected. See "The Company--Manufacturing, Assembly and Testing".

POSSIBLE PRODUCTION CAPACITY CONSTRAINTS; POSSIBLE DELAY IN CONSTRUCTION OF NEW
PRODUCTION FACILITY

The Company currently manufactures all of its integrated circuits at its
four-inch wafer fabrication facility located at 35 Technology Drive in Warren,
New Jersey. The Company believes that this facility should be able to satisfy
its production needs through the end of 1998. However, if production volumes
were to significantly increase from 1997 levels, the Company may be required to
successfully hire, train and manage additional production personnel in order to
successfully increase production capacity at this facility. There can be no
assurance that the Company will be able to implement these changes successfully.
If the increase in production capacity is delayed for any reason, the Company
will be limited in its ability to increase sales volumes. In addition, a failure
to increase production could adversely affect relationships with customers if
the Company does not have sufficient capacity to satisfy the demand for its
products.

The Company is currently in the process of qualifying a new wafer
fabrication facility located at 141 Mount Bethel Road, Warren, New Jersey.
Qualification activities are expected to continue in 1998 and production is
expected to commence in the first half of 1999. There can be no assurance that
the Company will successfully qualify the wafer fabrication facility and failure
to do so would have a material adverse effect on its operations.

The successful operation of the new facility, once completed, as well as
the Company's overall production operations, will also be subject to numerous
risks. The Company will be required to hire, train and manage production
personnel successfully in order to operate effectively the new facility. The
Company does not have excess production capacity at its 35 Technology Drive
facility to offset any failure of the new facility to meet planned production
goals beyond 1998. The failure of the Company to successfully operate the new
facility would have a material and adverse effect on its results of operations.

The Company will also have to effectively coordinate and manage two wafer
fabrication facilities to successfully meet its overall production goals in the
future. The Company has no experience in coordinating and managing full scale
production facilities which are located at different sites. The failure to
successfully coordinate and manage the two sites would adversely affect the
Company's overall production and could have a material and adverse effect on its
results of operations. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations".

RAPID PRODUCT AND PROCESS DEVELOPMENT AND RAPID TECHNOLOGICAL CHANGES

The markets for the Company's products are characterized by rapid changes
in both product and process technologies. Because of continual improvements in
these technologies, the Company believes that its future success will depend in
part upon its ability to continue to improve its product and process
technologies and develop new products and process technologies. If a competing
technology develops that is superior to the Company's existing technology and
the Company is unable to implement successfully such technology or to develop a
competitive and economic alternative technology, the Company's operations would
be materially and adversely affected. See "The Company--Competition" and
"--Research and Development".

In each of the markets in which the Company competes, prices of
established products tend to decline significantly over time. Accordingly, in
order to remain competitive, the Company believes that it must continue to
develop product enhancements and new technologies that will either slow the
price declines of its products or reduce the cost of producing and delivering
its products. Developing these enhancements and technologies requires investment
by the Company, and there can be no assurance that funds for such investments
will be available or that such enhancements and technologies will be successful.

13
<PAGE>

SIGNIFICANT VARIABILITY OF OPERATING RESULTS

The Company participates in a highly dynamic industry and future results
could be subject to significant volatility, particularly on a quarterly basis.
The Company may experience substantial period-to-period fluctuations in future
operating results due to numerous factors, including general industry and global
economic conditions, the timing and success of new product introductions,
changes in selling prices for the Company's integrated circuits due to
competitive or currency exchange rate pressures, changes in product mix,
availability of raw materials, availability of manufacturing capacity,
fluctuations in manufacturing yields, the size and timing of shipments, market
acceptance of end-user products, the pattern of end-user or customer purchasing
cycles, the processes and technologies used by the Company and its competitors
and seasonality.

The semiconductor industry has been characterized by cyclicality. The
industry has experienced significant economic downturns at various times,
characterized by diminished product demand, accelerated erosion of average
selling prices and production over-capacity. Although the semiconductor industry
in general, and the portion of such industry serving the communications industry
in particular, are currently experiencing a period of increased demand, there
can be no assurance that these conditions will continue.

PRODUCT LIFE CYCLES

The life cycles of certain products manufactured by the Company are
heavily dependent upon the life cycles of the end products which include the
Company's products. The Company estimates that current life cycles for cellular
and PCS telephone handsets, and in turn the Company's cellular and PCS products,
are approximately 18 to 24 months.

Products with short life cycles (i.e. less than two years) require the
Company to closely manage production and inventory levels. There can be no
assurance that the Company will not be materially effected by obsolete or excess
inventories, which may result from unanticipated changes in the estimated total
demand for the Company's products and/or the estimated life cycles of the end
products which include the Company's products.

COMPETITION

The semiconductor industry is intensely competitive and is characterized
by rapid technological change. To date, the Company has competed primarily with
manufacturers of discrete GaAs and silicon semiconductors. The Company expects
increased competition from discrete semiconductor manufacturers, as well as
other GaAs integrated circuit manufacturers, silicon analog integrated circuit
manufacturers and a number of companies which may enter the GaAs integrated
circuit market. In addition, certain of the Company's customers are competitors
of the Company.

Increased competition could result in decreased prices of GaAs integrated
circuits, reduced demand for the Company's products and a reduction in the
Company's ability to recover development engineering costs. Any of these
developments could materially and adversely affect the Company's results of
operations. Most of the Company's current and potential competitors, including
Fujitsu Microelectronics Inc., ITT Corp., Motorola Inc., Radio Frequency
Microwave Devices, Inc., Raytheon Co. and Rockwell International Corp., have
significantly greater financial, technical, manufacturing and marketing
resources than the Company. There can be no assurance that the Company will be
able to compete successfully with its existing or new competitors. See "The
Company--Competition".

DEPENDENCE ON SEMICONDUCTOR ASSEMBLY CONTRACTORS

The Company does not assemble its integrated circuits; instead it provides
the GaAs integrated circuit dice and, in some cases, packaging components to
various integrated circuit assembly vendors, all of which are located in Asia.
The Company (when economical) attempts to maintain more than one qualified
service supplier for each assembly process, but at times is unable to achieve
this goal because of minimum volume requirements, service quality issues or
other factors. The Company's inability to obtain sufficient high quality and
timely assembly service, or the loss of any of its current assembly vendors,
would result in delays or reductions in product shipment, and/or reduced product
yields that could materially and adversely affect its results of operations.

14
<PAGE>

RELUCTANCE OF MANUFACTURERS TO ADOPT GAAS COMPONENTS

Silicon semiconductor technologies are the dominant process technologies
for integrated circuits. The Company's prospective customers are typically
systems designers and manufacturers who use such silicon technologies in their
existing systems and who are evaluating GaAs integrated circuits for use in
their next generation systems. Some potential customers may be reluctant to
adopt the Company's GaAs products because of perceived risks relating to GaAs
technology generally. Such perceived risks include the unfamiliarity of
designing systems with GaAs products as compared with silicon products, novel
design, unfamiliar manufacturing processes and uncertainties about the relative
cost effectiveness of GaAs products compared to high performance silicon-based
integrated circuits. In addition, customers may be reluctant to rely on a
smaller company such as ANADIGICS for critical components. There can be no
assurance that additional systems manufacturers will design the Company's
products into their respective systems, that the companies that have utilized
the Company's products will continue to do so in the future or that GaAs
integrated circuit technology will achieve widespread market acceptance. See
"The Company--Industry Overview" and "--Competition".

LIMITED SOURCES FOR CERTAIN COMPONENTS, MATERIALS AND EQUIPMENT

The Company does not manufacture any of the blank wafers or packaging
components used in the production of its GaAs integrated circuits. Blank wafers
and packaging components are available from a limited number of sources. The
inability of the Company to obtain these wafers or components in the required
quantities could result in delays or reductions in product shipments which would
materially and adversely affect the Company's operating results. Although the
Company has not to date experienced any significant difficulty in obtaining
wafers or components, no assurance can be given that shortages will not arise in
the future.

The Company is dependent on a limited number of vendors to supply
equipment used in its manufacturing processes. At times of high demand for
semiconductor manufacturing equipment, lead times for delivery of such equipment
can be substantial. No assurance can be given that the Company would not lose
potential sales if it were unable to maintain or increase capacity due to the
unavailability of manufacturing equipment. See "Possible Production Capacity
Constraints; Possible Delay in Construction of New Production Facility".

INTERNATIONAL SALES AND OPERATIONS

Sales to customers located outside North America (based on shipping
addresses and not on the locations of ultimate end users) accounted for
approximately 68%, 65% and 57% of total net sales for 1995, 1996 and 1997,
respectively. The Company expects that revenues derived from international sales
will continue to represent a significant portion of its total net sales.
International sales are subject to a variety of risks, including those arising
from currency fluctuations and restrictions, tariffs, trade barriers, taxes and
export license requirements. Because all of the Company's foreign sales are
currently denominated in U.S. dollars, the Company's products become less price
competitive in countries with currencies that are low or are declining in value
against the U.S. dollar. In addition, there can be no assurance that the
Company's international customers will continue to accept orders denominated in
U.S. dollars. If such customers do not continue to accept orders denominated in
U.S. dollars, the Company's reported sales and earnings would become more
directly subject to foreign exchange fluctuations.

During February 1998, the Company received order cancellations from one of
the Company's customers as a result of the economic turmoil in Asia. Continued
economic turmoil in the Asian markets, or elsewhere in the world, may adversely
impact the Company's customer's ability to sell its products in those effected
markets or to customers producing for the effected market.

Substantially all of the Company's blank wafers and packaging components
used in the production of GaAs integrated circuits are supplied by, and
substantially all of the Company's products are assembled by, independent third
parties in Asia. Due to its reliance on such foreign suppliers and assemblers,
the Company is subject to the risks of conducting business outside of the United
States. These risks include unexpected changes in, or impositions of,
legislative or regulatory requirements, delays resulting from difficulty in
obtaining export licenses, tariffs and other trade barriers and restrictions,
and the burdens of complying with a variety of foreign laws and other factors
beyond the Company's control. The Company is also subject to general
geopolitical risks in connection with its international operations, such as
political, social and economic instability, potential hostilities and changes in
diplomatic and trade relationships.

15
<PAGE>

Although the Company has not to date experienced any material adverse effect on
its operations as a result of such regulatory, geopolitical and other factors,
there can be no assurance that such factors will not adversely affect the
Company's operations in the future or require the Company to modify its current
business practices. The Company currently transacts business with its foreign
suppliers and assemblers in U.S. dollars and consequently the cost of the
Company's blank wafers and packaging components, as well as assembly costs,
would increase in countries with currencies that are increasing in value against
the U.S. dollar. In addition, there can be no assurance that the Company's
international suppliers and assemblers will continue to accept orders
denominated in U.S. dollars. If such suppliers and assemblers do not continue to
accept orders denominated in U.S. dollars, the Company's costs would become more
directly subject to foreign exchange fluctuations.

INTELLECTUAL PROPERTY CLAIMS

The Company's success depends in part on its ability to obtain patents and
copyrights, maintain trade secret protection and operate without infringing on
the proprietary rights of third parties.

As is typical in the semiconductor industry, the Company has been
notified, and may be notified in the future, that it is infringing certain
patent and/or other intellectual property rights of others. Currently, there is
one unresolved notice claiming that the Company is infringing intellectual
property rights of others. The Company believes this assertion is without merit
and intends to defend such action vigorously. In the event of such infringement,
no assurance can be given that licenses could be obtained on commercially
reasonably terms. The Company does not believe that the failure to obtain
necessary licenses or other rights would have a material adverse effect on the
Company's business.

In addition to patent and copyright protection, the Company also relies on
trade secrets, technical know-how and other unpatented proprietary information
relating to its product development and manufacturing activities which it seeks
to protect, in part, by confidentiality agreements with its collaborators and
employees. There can be no assurance that these agreements will not be breached,
that the Company would have adequate remedies for any breach or that the
Company's trade secrets and proprietary know-how will not otherwise become known
or independently discovered by others. See "The Company--Patents, Licenses and
Proprietary Rights".

GOVERNMENT REGULATION OF COMMUNICATIONS INDUSTRY

The sale of products by customers who purchase the Company's GaAs
integrated circuits may be materially and adversely affected by governmental
regulatory policies, the imposition of common carrier tariffs or taxation of
telecommunications services.

ENVIRONMENTAL REGULATIONS

The Company's operations are subject to a variety of extensive and
changing federal, state and local environmental laws, regulations and ordinances
that govern activities or operations that may have adverse effects on human
health or the environment. Such laws, regulations or ordinances may impose
liability for the cost of remediating, and for certain damages resulting from,
sites of past releases of hazardous materials. The Company believes that it
currently conducts, and in the past has conducted, its activities and operations
in substantial compliance with applicable environmental laws, and believes that
costs arising from existing environmental laws will not have a material adverse
effect on the Company's financial condition or results of operations. There can
be no assurance, however, that environmental laws will not become more stringent
in the future or that the Company will not incur significant costs in the future
in order to comply with such laws. See "The Company--Environmental Matters".

DEPENDENCE ON KEY MANAGERIAL AND TECHNICAL PERSONNEL

The Company's success depends in part upon attracting and retaining the
services of its managerial and technical personnel. To the extent the Company
proceeds with its future expansion plans, it may be required to hire additional
personnel. The competition for qualified personnel is intense. There can be no
assurance that the Company will be able to retain its key managerial and
technical employees or that it will be able to attract, assimilate or retain
other managerial and skilled technical personnel in the future. The Company does
not maintain "key person" life insurance policies on any of its key personnel.
See "The Company--Employees" and "Item 10. Directors and Executive Officers of
the Registrant".

16
<PAGE>

ITEM 2. PROPERTIES.

The Company's corporate headquarters are located in Warren, New Jersey.
The Company currently occupies space in three buildings, all of which are
located in the same industrial park. Approximately 72,000 square feet of office
and manufacturing space is occupied in a building located at 35 Technology Drive
under a lease expiring on May 1, 2005, the terms of which may be extended for an
additional ten year period and two additional five year periods. Approximately
20,000 square feet of office space is occupied in a building located at 30
Technology Drive under a five year rental agreement. In 1996, the Company leased
an additional 167,000 square feet of manufacturing and office located at 141 Mt.
Bethel Road in Warren, New Jersey under a twenty year lease expiring on December
31, 2016.

ITEM 3. LEGAL PROCEEDINGS.

On or about March 2, 1998, two proposed class action lawsuits, captioned
(i) Jean Assuncao v. Anadigics, Inc. Ronald Rosenzweig, George Gilbert and Harry
Rein, No. 98-CV-917, and (ii) Office and Professional Employees International
Union Local 153 Pension Fund v. Anadigics, Inc., Ronald Rosenzweig, George
Gilbert and Harry Rein, No. 98-CV-919, were filed in the United States District
Court for the District of New Jersey. On or about March 3, 1998, a third
proposed class action lawsuit, captioned Beatrice Kotler v. Anadigics, Inc.,
Ronald Rosenzweig, John F. Lyons and George Gilbert, No. 98-CV-923, was also
filed in the United States District Court for the District of New Jersey. A
fourth proposed class action lawsuit, captioned Gray v. Anadigics, Inc., Ronald
Rosenzweig, John F. Lyons and George Gilbert, No. 98-CV-1337, was filed in the
United States District Court for the District of New Jersey on or about March
16, 1998. (The Assuncao, Union Local 153, Kotler and Gray actions are
collectively referred to hereafter as the "Lawsuits"). The Complaints filed in
the Lawsuits seek unspecified damages in connection with alleged violations of
Sections 10(b) (and Rule 10b-5 promulgated thereunder) and 20(a) of the
Securities and Exchange Act of 1934 and, as set forth in the Union Local 153,
Kotler and Gray Complaints, common law fraud and/or negligent misrepresentation.
The Complaints allege that, as a result of certain material misstatements and
omissions made by the Company in connection with its business, the price of the
Company's common stock was artificially inflated during the proposed class
periods. The longest class period alleged in the Complaints runs from August 6,
1997 through January 30, 1998. Although the Company is unable at this time to
assess the probable outcome of the Lawsuits or the materiality of the risk of
loss in connection therewith (given the early stage of the litigation and the
fact that none of the Complaints alleges damages with any particularity), the
Company believes that it has acted responsibly and intends to vigorously defend
the Lawsuits.

The Company is also involved in other threatened and pending legal
proceedings arising in the course of the Company's business. The adverse outcome
of any of these other legal proceedings is not expected to have a material
adverse effect on the results of operation or financial condition of the
Company.

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of security holders during the fourth
quarter of 1997.

17
<PAGE>

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

ANADIGICS' Common Stock has been quoted on the NASDAQ National Market
under the symbol "ANAD" since the commencement of trading on April 21, 1995
following the initial public offering of the Common Stock. The following table
sets forth for the periods indicated the high and low sale prices for the
Company's Common Stock.

HIGH(1) LOW(1)
--------- ---------

1997
Fourth Quarter................................ $ 51.38 $ 21.00
Third Quarter................................. 54.25 30.50
Second Quarter................................ 35.50 22.50
First Quarter................................. 37.68 24.00

1996
Fourth Quarter................................ $ 27.00 $ 16.33
Third Quarter................................. 23.50 13.92
Second Quarter................................ 20.50 13.92
First Quarter................................. 15.17 11.83

As of February 13, 1998, there were 14,703,704 shares of Common Stock
outstanding and 347 holders of record of the Common Stock.

The Company has never paid cash dividends on its capital stock. The
Company's bank credit agreement prohibits the payment of cash dividends without
the consent of the lender thereunder. See Note 8 to the Financial Statements.
The Company currently anticipates that it will retain all available funds for
use in the operation and expansion of its business, and does not anticipate
paying any cash dividends in the foreseeable future.

18
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA.

The following selected financial data are derived from the Financial
Statements of ANADIGICS. The data should be read in conjunction with Item 10.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements, related Notes and other financial
information included herein.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1993 1994 1995 1996 1997
--------- ---------- ---------- ----------- -----------

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................... $ 29,024 $ 34,832 $ 51,460 $ 68,864 $ 102,536
Cost of sales...................... 15,323 18,454 24,995 38,887 56,093
---------- ---------- ---------- ----------- -----------
Gross profit....................... 13,701 16,378 26,465 29,977 46,443
Research and development........... 6,699 9,195 11,733 12,036 16,765
Selling and administrative
expense.......................... 4,171 4,530 6,640 8,206 12,139
---------- ---------- ---------- ----------- -----------
Operating income................... 2,831 2,653 8,092 9,735 17,539
Interest expense................... 1,009 831 573 371 155
Interest income.................... 166 343 1,301 1,739 3,384
---------- ---------- ---------- ----------- -----------
Income before income taxes......... 1,988 2,165 8,820 11,103 20,768
Provision (benefit) for
income taxes(1).................. 52 300 1,527 (888) 5,439
---------- ---------- ---------- ----------- -----------
Net income(1)...................... $ 1,936 $ 1,865 $ 7,293 $ 11,991 $ 15,329
========= ========== ========== =========== ===========
Diluted earnings per share(1)(2)... $ 0.28 $ 0.23 $ 0.64 $ 0.93 $ 1.02
========= ========== ========== =========== ===========
Weighted average common and
dilutive securities
outstanding(2)................... 6,940,401 8,260,430 11,374,745 12,907,851 15,063,879

<CAPTION>
AT DECEMBER 31,
---------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- -------

(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital............................. $ 5,469 $ 11,349 $ 35,953 $ 37,825 $ 64,836
Total assets................................ 21,850 30,885 66,250 86,996 168,084
Current maturities of capital lease
obligations............................... 4,510 3,829 1,718 1,292 425
Capital lease obligations, less current
portion................................... 3,475 2,807 1,919 627 389
Total stockholders' equity.................. 10,394 20,520 53,823 70,557 146,463
</TABLE>

(1) Includes recognition of a net deferred tax benefit of approximately $1.2
million (diluted earnings per share $0.11), $3.6 million (diluted earnings
per share of $0.28) and $1.9 million (diluted earnings per share of $0.13)
in 1995, 1996 and 1997, respectively. See Item 10. "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations--1997 Compared to 1996 and 1996 Compared
to 1995--Provision (Benefit) for Income Taxes" and Note 6 to the
consolidated financial statements contained in Item 8 - Financial
Statement and Supplementary Data.

(2) The earnings per share amounts prior to 1997 have been restated as
required to comply with Statement of Financial Accounting Standards No.
128, Earnings Per Share. For further discussion of earnings per share and
the impact of Statement No. 128, see the notes to the consolidated
financial statements contained in Item 8 - Financial Statement and
Supplementary Data.

19
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

OVERVIEW

The Company was organized in 1984 and initially focused on the development
and manufacture of GaAs integrated circuits for low volume defense and aerospace
applications. In 1988 the Company began shifting its strategy to focus on
RF/microwave communications systems for high volume applications, and began
production for these applications in 1989. The first high volume application for
its technology was in DBS systems. Product sales in 1990 and 1991 were chiefly
DBS television integrated circuits, and fiber optic integrated circuits which
were sold primarily to telecommunication infrastructure manufacturers. In 1992
the Company introduced integrated circuits for cable television and expanded its
DBS product offerings. In late 1994 the Company entered the wireless
communications market with the introduction of cellular telephone integrated
circuits. The Company's net sales have grown from $20.2 million in 1992 to
$102.5 million in 1997. To date, the Company has delivered nearly 100 million
GaAs integrated circuits, including over 37 million in 1997.

RESULTS OF OPERATIONS

The following table sets forth statements of operations data as a
percentage of net sales for the periods indicated:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales.............................................. 100.0% 100.0% 100.0%
Cost of sales.......................................... 48.6 56.5 54.7
----- ----- -----
Gross profit........................................... 51.4 43.5 45.3
Research and development............................... 22.8 17.5 16.4
Selling and administrative expense..................... 12.9 11.9 11.8
----- ----- -----
Operating income....................................... 15.7 14.1 17.1
Interest expense....................................... 1.1 0.5 0.2
Interest income........................................ 2.5 2.5 3.3
----- ----- -----
Income before income taxes............................. 17.1 16.1 20.2
Provision (benefit) for income taxes................... 2.9 (1.3) 5.3
----- ----- -----
Net income............................................. 14.2% 17.4% 14.9%
===== ===== =====
</TABLE>

1997 COMPARED TO 1996

NET SALES. Net sales during 1997 increased 49% to $102.5 million from
$68.9 million in 1996. Net sales consist of product sales and engineering
service sales. Net product sales increased 54% to $101.0 million from $65.7
million in 1996. Engineering service sales decreased 51% during 1997 to $1.5
million from $3.2 million in 1996.

Sales of integrated circuits for cellular and PCS applications increased
144% during 1997 to $59.7 million from $24.5 million in 1996 as a result of
higher volumes. During 1997, the Company sold power amplifier integrated
circuits for all three major wireless digital standards, including GSM, TDMA and
CDMA. As a percentage of total sales, sales of integrated circuits for the GSM,
TDMA, and CDMA frequency bands were approximately 37%, 24%, and 28%,
respectively in 1997. Sales of integrated circuits for cable television
applications in 1997 increased 51% to $20.8 million from $13.8 million in 1996
as demand for integrated circuits used in set top converters and cable modems
increased.

Sales of integrated circuits for fiber optic SONET, SDH and ATM
telecommunication applications decreased 1% during 1997 to $11.5 million from
$11.6 million in 1996. Sales of integrated circuits for DBS television
applications decreased 43% during 1997 to $9.0 million from $15.8 million in
1995 as demand from European manufacturers of DBS equipment for the European
market decreased.

Generally, selling prices for same product sales were lower in 1997
compared to 1996.

20
<PAGE>

GROSS MARGIN. Gross margin during 1997 increased to 45.3% from 43.5% in
1996. The increase was due to manufacturing efficiencies, which resulted in part
from the conversion from three-inch wafers used in 1996 to four-inch wafers used
during 1997, higher production volume and improved production yields. These
factors were partially offset by additional costs associated with assembly and
packaging quality problems on certain products that were incurred during the
fourth quarter of 1997 and a shift in sales mix to lower margin products during
1997, compared to 1996.

The Company believes that lower production volumes, shorter product life
cycles, and lower selling prices for its cellular and PCS integrated circuits
will adversely impact its gross margin during 1998, and anticipates that its
first quarter 1998 gross margin will be below the fourth quarter 1997 level of
39.5%.

RESEARCH AND DEVELOPMENT. Company sponsored research and development
expense increased 39% during 1997 to $16.8 million from $12.0 million during
1996. The increase was primarily attributable to increased research and
development of integrated circuits for cellular, PCS, and other wireless
applications. As a percentage of sales, these expenses declined to 16.4% during
1997 from 17.5% during 1996.

During 1997, approximately two-thirds of the Company's research and
development expenses were for the development of integrated circuits for
cellular, PCS and other wireless applications, compared to approximately
one-half in 1996.

SELLING AND ADMINISTRATIVE. Selling and administrative expenses increased
48% during 1997 to $12.1 million from $8.2 million during 1996. As a percentage
of sales, these expenses declined during 1997 to 11.8% from 11.9% during 1996.
Administrative expenses increased 64% in 1997 due in part to increased
compensation, recruiting and training costs. Selling expenses increased by 32%
in 1997 due to staffing increases primarily associated with the expansion of the
Company's wireless integrated circuit sales efforts, increased consulting fees,
and increased sales commission expense.

INTEREST INCOME AND INTEREST EXPENSE. Interest income increased $1.7
million during 1997 to $3.4 million from $1.7 million during 1996. The increase
was due to higher invested cash balances following the receipt of proceeds from
the public offering of the Company's common stock in February, 1997. Interest
expense decreased by $0.2 during 1997 to $0.2 million from $0.4 million during
1996 on lower levels of indebtedness.

PROVISION (BENEFIT) FOR INCOME TAXES. The provision for income taxes
during 1997 was $5.4 million, or 26.2% of pre-tax income. The benefit for income
taxes in 1996 was $0.9 million, or 8% of pre-tax income. The provision for
income taxes in 1997 included a $1.9 million reduction in the valuation
allowance (which is explained below), which had been recorded prior to 1997 with
respect to deferred tax assets (primarily federal net operating loss ("NOL")
carryforwards). The benefit for income taxes in 1996 arose from a $5.2 million
reduction in the valuation allowance, which had been recorded prior to 1996 with
respect to deferred tax assets (primarily NOL carryforwards).

As of December 31, 1996, the Company had net deferred tax assets of
approximately $15.7 million, which primarily consisted of federal NOL
carryforwards of $12.6 million and general business credit carryforwards of $0.8
million. A valuation allowance of $10.8 million was provided for the federal
NOLs and general business credit carryforwards as of December 31, 1996. As of
December 31, 1997, the Company had net deferred tax assets of approximately $3.5
million and no valuation allowance.

The reductions in the net deferred tax assets and the valuation allowance
from 1996 to 1997 primarily resulted from; (1) the Company's determination that
certain pre-1989 federal NOL and general business credit carryforwards that were
severely restricted under Section 382 of the Internal Revenue Code would not be
utilized prior to their expiration, and (2) the results of an Internal Revenue
Service examination completed in 1997 which resolved uncertainties regarding
possible limitations of federal NOL carryforwards and general business credit
carryforwards generated between 1989 and 1992. The Company had been providing
taxes in 1996 and prior years as if the use of these federal NOLs and general
business carryforwards were restricted.

The reduction in the pre-1989 NOLs and general business credit
carryforwards noted above had no effect on net income. The reduction in the
federal NOLs and general business credit carryforwards generated between 1989
and 1992 resulted in a reduction of the current federal provision for income tax
expense. The effect of this reduction was an increase in net income in 1997 of
approximately $1.9 million.

21
<PAGE>

1996 COMPARED TO 1995

NET SALES. Net sales during 1996 increased 34% to $68.9 million from $51.5
million in 1995. Net sales includes both product sales and engineering service
sales. Net product sales during 1996 increased by 32% to $65.7 million from
$49.7 million during 1995. Sales of integrated circuits for cellular and PCS
applications increased by 62% during 1996 to $24.5 million from $15.1 million in
1995 as a result of higher volumes. During 1996, the Company sold power
amplifier integrated circuits for almost all of the major standards, including
AMPS, DAMPS, ETACS, GSM and CDMA. New products introduced during 1996 for the
digital GSM and CDMA standards accounted for 60% of the cellular and PCS sales.
Sales of integrated circuits for analog standards (AMPS and ETACS) declined
during 1996 as the market shifted to digital standards. Net product sales of
integrated circuits for cable television applications in 1996 increased by 29%
to $13.8 million from $10.7 million in 1995 as demand for integrated circuits
used to produce set top converters increased. Net product sales of integrated
circuits for fiber optic SONET and ATM telecommunication applications increased
19% during 1996 to $11.6 million from $9.8 million in 1995 as a result of
increased unit volume. Net product sales of integrated circuits for DBS
television applications increased 12% during 1996 to $15.8 million from $14.1
million in 1995. Generally, selling prices for same product sales were lower in
1996 compared to 1995. Engineering service sales, which reflect customers'
contributions to the Company's research and development efforts, increased by
71% during 1996 to $3.2 million from $1.8 million in 1995.

GROSS MARGIN. Gross margin during 1996 decreased to 43.5% from 51.4% in
1995. The decrease was due in part to significant sales volumes of new cellular
integrated circuits and other new products for which production yields were not
up to desired levels, and generally lower selling prices. Gross margins improved
significantly in the fourth quarter of 1996 to 43.5% from 34.5% in the third
quarter of 1996 as yields improved on the newer products, certain of which
experienced production start-up problems in the third quarter.

RESEARCH AND DEVELOPMENT. Company sponsored research and development
expense increased by 3% during 1996 to $12.0 million from $11.7 million during
1995. As a percentage of sales, these expenses declined to 17.5% during 1996
from 22.8% during 1995. The Company's focus on meeting customer demands for
products in the third and fourth quarters of 1996 temporarily reduced the amount
of engineering resources normally applied to research and development. The
Company expects that research and development expense, as a percentage of sales,
will increase in 1997 compared to 1996.

SELLING AND ADMINISTRATIVE. Selling and administrative expenses increased
by 24% during 1996 to $8.2 million from $6.6 million during 1995. As a
percentage of sales, these expenses declined during 1996 to 11.9% from 12.9%
during 1995. Selling expenses increased by 33% in 1996 due to higher commissions
paid to sales representatives and staffing increases associated with the
expansion of the Company's wireless integrated circuit sales efforts.
Administrative expenses increased by 15% in 1996 due in part to higher
consulting and legal costs.

INTEREST INCOME AND INTEREST EXPENSE. Interest income increased by 34%
during 1996 to $1.7 million from $1.3 million during 1995 as a result of higher
average cash balances. Interest expense decreased by 37% during 1996 to $0.4
million from $0.6 million during 1995 on lower levels of indebtedness.

PROVISION (BENEFIT) FOR INCOME TAXES. The benefit for income taxes during
1996 was $0.9 million, or 8% of pre-tax income. The provision for income taxes
in 1995 was $1.5 million, or 17% of pre-tax income. The benefit for income taxes
in 1996 arose from a reduction in a valuation allowance which had been recorded
prior to 1996 with respect to deferred tax assets (primarily NOL carryforwards).

Deferred tax assets of approximately $15.6 million less a valuation
allowance of $10.8 million were recorded as of December 31, 1996. Deferred tax
assets of approximately $17.4 million, less a valuation allowance of $16.2
million, were recorded as of December 31, 1995. At December 31, 1996, the
Company reduced its valuation allowance associated with its deferred tax assets
by $5.2 million based upon the level of historical taxable income and current
projections for future taxable income over the periods in which the deferred tax
assets would be realized. Additionally, the Company considered the expiration of
and limitation on the annual use of the Company's federal NOL carryforwards.

22
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1997 the Company had $25.7 million of cash and cash
equivalents on hand and $25.6 million in marketable securities. There were no
borrowings outstanding under the Company's credit facilities at December 31,
1997.

The Company's $20.0 million revolving bank credit facility provides for
interest at the bank's base rate minus 50 basis points or, at the Company's
discretion, other market-based rates. The Company also has the option to swap
floating rate for fixed rate loans at the time of draw down. The draw down
period expires on July 1, 1999. Any drawdowns may be paid over a term of up to
sixty months. Its availability is subject to a number of financial covenants.
Under this facility, the payment of dividends, among other things, requires
approval by the bank. Substantially all of the assets of the Company are pledged
as security for the repayment of amounts drawn under this revolving bank credit
facility. The Company also has a $10.0 million line of credit from the same
bank. This facility expires on July 1, 1998 and provides for interest at the
bank's base rate minus 75 basis points or, at the Company's discretion, other
market-based rates. Its availability is subject to approval by the bank.
Substantially all of the assets of the Company are pledged as security for the
repayments of amounts drawn on this bank line of credit.

Operations generated $14.3 million in cash during 1997 and investing
activities used $68.7 million of cash during 1997. Capital expenditures of $52.1
million were made during 1997 and net purchases of marketable securities were
$16.6 million during 1997. The capital expenditures consisted of equipment and
leasehold improvements for the Company's new wafer fabrication facility and
related manufacturing areas, expansion of the Company's existing wafer
fabrication facility, and increased assembly, test and research and development
capacities. The Company plans to continue activities associated with qualifying
its new wafer fabrication facility during 1998 and anticipates commencing
production in the first half of 1999.

At December 31, 1997 the Company had committed to purchase approximately
$15 million of equipment and leasehold improvements. During 1998, the Company
expects to spend approximately $14 million on equipment and approximately $4
million on leasehold improvements.

Net cash generated by financing activities was $57.0 million during 1997.
The Company received approximately $55.4 million (net of expenses) upon
completion of a public offering of 1,875,000 shares of the Company's common
stock.

In 1997, income taxes paid were $2.8 million, while the provision for
income taxes was $5.4 million.

The Company believes that its sources of capital, including internally
generated funds and $30 million available under existing credit arrangements,
will be adequate to satisfy anticipated capital needs for the next twelve
months. However, the Company may nevertheless elect to finance all or part of
its future capital requirements through additional equity or debt financing.
There can be no assurance that such additional financing would be available on
satisfactory terms.

23
<PAGE>

IMPACT OF YEAR 2000

The Company has determined that it will need to modify or replace significant
portions of its software so that its computer systems will function properly
with respect to dates in the year 2000 and beyond. The Company presently
believes that with modifications to existing software and conversions to new
software, the Year 2000 issue will not pose significant operational problems for
its computer systems. However, if such modifications and conversions are not
made, or are not completed timely, the Year 2000 issue could have a material
impact on the operations of the Company. The Company plans to initiate formal
communications with all of its significant suppliers, large customers and
financial institutions to ensure that those parties have appropriate plans to
remediate Year 2000 issues where their systems interface with the Company's
systems or otherwise impact its operations. The Company is assessing the extent
to which its operations are vulnerable should those organizations fail to
remediate properly their computer systems.

The Company's comprehensive Year 2000 initiative is being managed by a team of
internal staff and outside consultants. The team's activities are designed to
ensure that there is no adverse effect on the Company's core business operations
and that transactions with customers, suppliers, and financial institutions are
fully supported. The Company is well under way with these efforts, which are
scheduled to be completed in early 1999. The total cost of the Year 2000 project
is estimated at $1 million and is being funded through operating cash flows. Of
the total project cost, approximately one-half is attributable to the purchase
of new software which will be capitalized. The remaining one-half will be
expensed when incurred. While the Company believes its planning efforts are
adequate to address its Year 2000 concerns, there can be no guarantee that the
systems of other companies on which the Company's systems and operations rely
will be converted on a timely basis and will not have a material effect on the
Company. The Company has determined it has no exposure to contingencies related
to the Year 2000 issue for the products it has sold.

SUBSEQUENT EVENTS

During January and February 1998, the Company experienced a substantial
reduction in orders from its cellular and PCS customers. As a result, the
Company anticipates significantly lower sales in the first quarter of 1998,
resulting in a loss for the period. The lower demand is due to several factors,
including increased competition, a shift in demand to lower cost phones not
using ANADIGICS parts, customer delays in ramp-up of new generation dual-band
phones using the Company's new parts, and in part, to the effect of the Asian
financial crisis on the wireless communications market. In response to the lower
demand, the Company reduced staff by 100 employees and recorded a workforce
reduction charge of $1.1 million during March 1998.

24
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Report of Independent Auditors

The Board of Directors and Stockholders
ANADIGICS, Inc.

We have audited the accompanying consolidated balance sheets of ANADIGICS, Inc.
as of December 31, 1996 and 1997, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1997. Our audit also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of ANADIGICS, Inc. as
of December 31, 1996 and 1997, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997, in conformity with generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.

ERNST & YOUNG LLP

MetroPark, New Jersey
January 27, 1998, except for
Notes 12 and 13 as to which
the date is March 19, 1998

25
<PAGE>

ANADIGICS, INC.

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
-------- --------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ......................................... $ 23,112 $ 25,675
Marketable securities ............................................. 9,008 15,826
Accounts receivable, net of allowance for doubtful accounts of $340
and $396 in 1996 and 1997, respectively ......................... 10,696 17,999
Inventory ......................................................... 8,901 19,678
Prepaid expenses and other current assets ......................... 1,221 1,470
Deferred taxes .................................................... 699 4,461
-------- --------
Total current assets ................................................ 53,637 85,109

Marketable securities ............................................... 9,801
Plant and equipment:
Equipment and furniture ........................................... 40,151 58,916
Leasehold improvements ............................................ 3,710 4,212
Projects in process ............................................... 6,702 39,540
-------- --------
50,563 102,668
Less accumulated depreciation and amortization .................... 21,830 30,419
-------- --------
28,733 72,249
Deferred taxes ...................................................... 4,131
Deposits ............................................................ 495 925
-------- --------
$ 86,996 $168,084
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable .................................................. $ 7,173 $ 11,223
Accrued liabilities ............................................... 3,671 6,186
Income taxes payable .............................................. 3,676 2,439
Current maturities of capital lease obligations ................... 1,292 425
-------- --------
Total current liabilities ........................................... 15,812 20,273

Deferred taxes ...................................................... 959
Capital lease obligations, less current portion ..................... 627 389
Commitments and contingencies .......................................
Stockholders' equity:
Preferred stock, $0.01 par value, 5,000,000 shares authorized,
none issued or outstanding ......................................
Common stock, convertible, non-voting, $0.01 par value, 1,000,000
shares authorized, none issued or outstanding ...................
Common stock, $0.01 par value, 34,000,000 shares authorized,
12,564,678 and 14,657,089 issued and outstanding at December 31,
1996 and 1997, respectively ..................................... 126 147
Additional paid-in capital ........................................ 98,800 159,356
Accumulated deficit ............................................... (28,369) (13,040)
-------- --------
Total stockholders' equity .......................................... 70,557 146,463
-------- --------
$ 86,996 $168,084
======== ========
</TABLE>

See accompanying notes.

26
<PAGE>

ANADIGICS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1996 1997
--------- ---------- ----------
<S> <C> <C> <C>
Net sales............................................... $ 51,460 $ 68,864 $ 102,536
Cost of sales........................................... 24,995 38,887 56,093
---------- ---------- ----------
Gross profit............................................ 26,465 29,977 46,443
Research and development expenses....................... 11,733 12,036 16,765
Selling and administrative expenses..................... 6,640 8,206 12,139
---------- ---------- ----------
18,373 20,242 28,904
---------- ---------- ----------
Operating income........................................ 8,092 9,735 17,539
Interest expense........................................ 573 371 155
Interest income......................................... 1,301 1,739 3,384
---------- ---------- ----------
Income before income taxes.............................. 8,820 11,103 20,768
Provision (benefit) for income taxes.................... 1,527 (888) 5,439
---------- ---------- ----------
Net income.............................................. $ 7,293 $ 11,991 15,329
========== ========== ==========

Basic earnings per share................................ $ 0.67 $ 0.97 $ 1.07
========== ========== ==========

Weighted average common shares outstanding.............. 10,857,450 12,355,311 14,279,957
========== ========== ==========

Diluted earnings per share.............................. $ 0.64 $ 0.93 $ 1.02
========== ========== ==========
Weighted average common and dilutive securities
outstanding........................................... 11,374,745 12,907,851 15,063,879
========== ========== ==========
</TABLE>

See accompanying notes.

27
<PAGE>

ANADIGICS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
COMMON
STOCK,
JUNIOR CONVERTIBLE COMMON ADDITIONAL TOTAL
PREFERRED PREFERRED COMMON NON- STOCK PAID-IN ACCUMULATED STOCKHOLDERS'
STOCK STOCK STOCK VOTING SUBSCRIBED CAPITAL DEFICIT EQUITY
----------- ---------- ------- ----------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994.. $ 1,111 $ 3 $ 12 $ (32) $ 67,079 $ (47,653) $ 20,520
Mandatory conversion of
Preferred Stock to
Common Stock............ (1,111) (3) 63 $ 5 1,046
Issuance of Common Stock
in initial public
offering, net of
expenses................ 35 25,073 25,108
Stock options exercised... 5 171 176
Repayment of employee
receivables............. 29 (10) 19
Shares issued under
employee stock purchase
plan.................... 1 706 707
Net income................ 7,293 7,293
----------- --------- -------- ----------- ----------- ---------- --------- ---------
Balance, December 31, 1995.. -- -- 116 5 (3) 94,065 (40,360) 53,823
Exercise of warrants...... 3 3,607 3,610
Conversion of non-voting
Common Stock to Common
Stock................... 5 (5)
Stock options exercised... 1 348 349
Repayment of employee
receivables............. 3 3
Shares issued under
employee stock purchase
plan.................... 1 780 781
Net income................ 11,991 11,991
----------- --------- -------- ----------- ----------- -------- --------- ---------
Balance, December 31, 1996.. -- -- 126 -- -- 98,800 (28,369) 70,557
Issuance of Common Stock
in public offering, net
of expenses............. 19 55,373 55,392
Stock options exercised... 2 1,700 1,702
Shares issued under
employee stock purchase
plan.................... 978 978
Tax effect of stock
options exercised 2,505 2,505
Net income................ 15,329 15,329
----------- --------- -------- ----------- ----------- -------- --------- ---------
Balance, December 31, 1997.. -- -- $ 147 -- -- $159,356 $ (13,040) $ 146,463
=========== ========= ======== =========== =========== ======== ========= =========
</TABLE>

See accompanying notes.

28
<PAGE>

ANADIGICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income.................................................... $ 7,293 $ 11,991 $ 15,329
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation................................................ 2,317 3,865 7,644
Amortization................................................ 2,227 2,323 945
Deferred taxes.............................................. (1,216) (3,614) 1,328
Changes in operating assets and liabilities:
Accounts receivable....................................... (1,515) (3,317) (7,303)
Inventory................................................. (752) (166) (10,777)
Prepaid expenses and other current assets................. (485) (240) (249)
Deposits.................................................. 180 (215) (430)
Accounts payable.......................................... 1,083 4,502 4,050
Income taxes payable...................................... 1,993 1,584 1,268
Accrued liabilities....................................... 1,985 (356) 2,515
--------- --------- ---------
Net cash provided by operating activities..................... 13,110 16,357 14,320

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of plant and equipment............................... (9,488) (16,444) (52,105)
Purchase of marketable securities............................. (39,116) (15,453) (43,768)
Proceeds from sales of marketable securities.................. 16,337 29,233 27,149
--------- --------- ---------
Net cash used in investing activities......................... (32,267) (2,664) (68,724)

CASH FLOWS FROM FINANCING ACTIVITIES
Payment of obligations under capital leases................... (1,931) (1,718) (1,105)
Repayment of notes payable and debt........................... (3,083)
Exercise of warrants.......................................... 3,610
Issuances of common stock..................................... 25,982 1,130 58,072
Proceeds of common stock subscribed........................... 19 3
--------- --------- ---------
Net cash provided by financing activities..................... 20,987 3,025 56,967
--------- --------- ---------

Net increase in cash and cash equivalents..................... 1,830 16,718 2,563
Cash and cash equivalents at beginning of period.............. 4,564 6,394 23,112
--------- --------- ---------
Cash and cash equivalents at end of period.................... $ 6,394 $ 23,112 $ 25,675
========= ========= =========

Non-cash investing and financing activities:
Acquisition of plant and equipment under financing leases..... $ 957
Conversion of operating leases to capital leases.............. 1,056
---------
$ 2,013
=========
Interest paid................................................. $ 579 $ 343 $ 155
========= ========= =======
Taxes paid.................................................... $ 750 $ 1,142 $ 2,843
========= ========= =======
</TABLE>

See accompanying notes.

29
<PAGE>

ANADIGICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS AND BASIS OF PRESENTATION

ANADIGICS, Inc. (the "Company") is a leading supplier of radio frequency
("RF") and microwave frequency gallium arsenide ("GaAs") integrated circuits.
The Company's products are used to receive and transmit signals in a variety of
high volume, wide-band communications applications in cellular telephone systems
and personal communication systems ("PCS"), in cable and broadcast television
systems, and in fiber optic communications systems. The Company designs,
develops and manufactures integrated circuits in GaAs semiconductor material
that allows the integration of numerous RF/microwave functions which cannot be
easily integrated in silicon-based circuits. The Company's high frequency
integrated circuits can typically replace 30 to 100 discrete components,
permitting manufacturers of end products to reduce the size and weight of their
products, improve reliability, reduce manufacturing time and cost and enhance
system performance.

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, ANADIGICS Foreign Sales Corporation. All
significant inter-company accounts and transactions have been eliminated in
consolidation.

CONCENTRATION OF CREDIT RISK

The Company grants trade credit to its customers which are primarily
foreign manufacturers of wireless communication devices, cable and broadcast
television receivers and fiber optic communication devices. The Company performs
continuing credit evaluations of its customers and generally does not require
collateral. Accounts receivable from customers are denominated in U.S. dollars.
The Company has not experienced significant losses related to receivables from
individual customers.

Approximately 48% of the Company's net sales in 1995 were to two
customers, accounting for 30% and 18% of net sales. Approximately 44% of the
Company's net sales in 1996 were to three customers, accounting for 16%, 16%,
and 12% of net sales. Approximately 62% of the Company's net sales in 1997 were
to three customers, accounting for 33%, 16% and 13% of net sales; accounts
receivable from these customers accounted for 68% of total accounts receivable
at December 31, 1997.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles 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.

REVENUE RECOGNITION

Production revenue is recorded when products are shipped to customers.
Revenues under customer-funded research and development contracts, which are
recorded relative to the deliverables and other contractual obligations were
$1,863 in 1995, $3,193 in 1996, and $1,566 in 1997, and are included in net
sales on the statements of income.

WARRANTY COSTS

The Company provides, by a current charge to income, an amount it
estimates will be needed to cover future warranty obligations for products sold
during the year. The accrued liability for warranty costs is included in Accrued
Liabilities in the consolidated balance sheet.

COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE

All direct internal and external costs incurred in connection with the
designing of software configuration and software interface, installing hardware
and testing systems are capitalized. All other costs associated with internal
use software are expensed when incurred. Amounts capitalized are amortized on a
straight-line basis over three years.

30
<PAGE>

ANADIGICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

PLANT AND EQUIPMENT

Plant and equipment are stated at cost. Depreciation of plant and
equipment has been provided on the straight-line method over 3-5 years.

The cost of equipment acquired under capital leases was $13,339 and
$13,045 at December 31, 1996 and 1997, respectively, and accumulated
amortization was $10,996 and $11,941 at December 31, 1996 and 1997,
respectively. Equipment acquired under capital leases, which contain a bargain
purchase option, are amortized over the useful life of the leased equipment. All
other equipment acquired under capital leases are amortized over the life of the
lease.

INCOME TAXES

Deferred income taxes reflect the net effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.

RESEARCH AND DEVELOPMENT COSTS

The Company charges all research and development costs associated with the
development of new products to expense when incurred. Engineering and design
costs related to customer-funded research and development contracts are
classified as cost of sales.

CASH EQUIVALENTS

The Company considers as cash equivalents all highly liquid marketable
securities with an original maturity of three months or less.

MARKETABLE SECURITIES

Marketable securities consist of fixed income investments (U.S. Government
obligations and short-term commercial paper) with maturities of one month to
twenty months as of December 31, 1997 which can be readily purchased or sold
using established markets. Management determines the appropriate classification
of debt securities at the time of purchase and reevaluates such designation as
of each balance sheet date. Such securities are classified as available for sale
and, accordingly, are carried at fair value which approximates cost at December
31, 1996 and 1997. The amortized cost of debt securities is adjusted for
amortization of premium and accretion of discounts to maturity. Such
amortization, realized gains and losses, interest and dividends are included in
interest income.

STOCK BASED COMPENSATION

As permitted by FASB Statement No. 123, "Accounting for Stock-Based
Compensation" (FASB 123), the Company has elected to follow Accounting Principal
Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and
related interpretations in accounting for its employee stock option plans. Under
APB 25, no compensation expense is recognized at the time of option grant
because the exercise price of the Company's employee stock option equals the
fair market value of the underlying common stock on the date of grant.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company records impairment losses on long-lived assets used in
operations or expected to be disposed when events and circumstances indicate
that the undiscounted cash flows estimated to be generated by these assets are
less than the carrying amounts of those assets.

EARNINGS PER SHARE

In 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share", ("FASB 128"). FASB 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
restated to conform to the FASB 128 requirements.

31
<PAGE>

ANADIGICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

REPORTING COMPREHENSIVE INCOME

In June 1997, the Financial Accounting Standards Board issued Statement
No. 130, Reporting Comprehensive Income ("FASB 130"). FASB 130 establishes new
standards for the reporting and display of comprehensive income and its
components in the financial statements. The adoption of FASB 130 will not effect
results of operations or financial position, but will require unrealized gains
(losses) on the Company's available-for-sale securities, which currently would
be reported in stockholders' equity, to be included in other comprehensive
income and the disclosure of total comprehensive income. FASB 130 is effective
for fiscal years beginning after December 15, 1997. The Company plans to adopt
FASB 130 on January 1, 1998. If the Company adopted FASB 130 for the year ended
December 31, 1997, the total of other comprehensive income items and
comprehensive income (which includes net income) would be $37 and $15,366,
respectively, and would be displayed separately.

DISCLOSURES ABOUNT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION

In June 1997, the Financial Accounting Standards Board issued Statement
No. 131, Disclosures About Segments of an Enterprise and Related Information
("FASB 131"). FASB 131 establishes standards for reporting information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
FASB 131 is effective for fiscal years beginning after December 15, 1997. The
adoption of FASB 131 will have no impact on the Company's consolidated results
of operation, financial position or cash flows.

RECLASSIFICATIONS

Certain amounts as of December 31, 1996 have been reclassified to conform
with the December 31, 1997 presentation.

2. INVENTORIES

Inventories are stated at the lower of cost (first in-first out method) or
market. Inventories consist of the following:

DECEMBER 31,
--------------------
1996 1997
--------- ---------
Raw materials............................................. $ 1,278 $ 1,670
Work in process........................................... 6,291 12,054
Finished goods............................................ 1,332 5,954
--------- ---------
$ 8,901 $ 19,678
========= =========
3. ACCRUED LIABILITIES

Accrued liabilities consist of the following:

DECEMBER 31,
--------------------
1996 1997
--------- ---------

Accrued compensation...................................... $ 2,516 $ 4,599
Warranty reserve.......................................... 225 550
Other..................................................... 930 1,037
--------- ---------
$ 3,671 $ 6,186
========= =========

32
<PAGE>

ANADIGICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

4. LEASES

The Company leases manufacturing, warehousing and office space under
noncancelable operating leases that expire through 2016. The Company also leases
certain equipment under capital leases that expire through 2000 and under
noncancelable operating leases that expire through 1998. Rent expense was
$1,546, $1,810 and $1,640 in 1995, 1996 and 1997, respectively.

The future minimum lease payments under the noncancelable operating leases
and the present value of the minimum capital lease payments are as follows:

CAPITAL OPERATING
YEAR LEASES LEASES
- ---- --------- ---------
1998................................................... $ 470 $ 2,512
1999................................................... 246 2,676
2000................................................... 173 2,839
2001................................................... 2,884
2002................................................... 2,925
Thereafter............................................. 32,170
--------- ---------
Total minimum lease payments........................... 890 $ 46,006
--------- =========
Less amount representing interest...................... 76
---------
Present value of net minimum lease payments............ $ 814
=========

5. SEGMENT INFORMATION

The regions to which the Company had sales are as follows:

YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
Europe......................................... $ 19,069 $ 24,819 $ 32,097
Asia........................................... 15,819 19,836 26,142
North America.................................. 16,572 24,209 44,297

6. INCOME TAXES

The components of the provision (benefit) for income taxes are as follows:

YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------- -------- --------
Current provision: Federal......... $ 2,743 $ 2,726 $ 3,780
State ......... 331
Deferred provision (benefit): Federal......... (503) (3,214) 826
State........... (713) (400) 502
------- -------- --------
Total .................................... $ 1,527 $ (888) $ 5,439
======= ======== ========

33
<PAGE>

ANADIGICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

6. INCOME TAXES (CONTINUED)

Significant components of the Company's net deferred tax assets and
liabilities as of December 31, 1996 and 1997 are as follows:

DECEMBER 31,
--------------------
1996 1997
--------- --------
Current:
Accruals/reserves..................................... $ 1,610 $ 4,193
Net operating loss carryforwards...................... 592
Research and development credits...................... 268
--------- --------
2,202 4,461
Valuation allowance for current deferred tax assets..... (1,503)
--------- --------
Net current deferred tax assets......................... 699 4,461
Long-term:
Net operating loss carryforwards...................... 12,584 107
General business and research and development credits. 1,079 268
Difference in basis of plant and equipment............ (204) (1,334)
--------- --------
13,459 (959)
Valuation allowance for long-term deferred tax assets... (9,328)
--------- --------
Net long-term deferred tax assets (liabilities)......... 4,131 (959)
--------- --------
Net deferred tax assets................................. $ 4,830 $ 3,502
========= ========

The reductions in the net operating loss ("NOL") and general business
credit carryforwards from 1996 to 1997 primarily resulted from; (1) the
Company's determination that certain pre-1989 federal NOL and general business
credit carryforwards that were severely restricted under Section 382 of the
Internal Revenue Code would not be utilized prior to their expiration, and (2)
the results of an Internal Revenue Service examination completed in 1997 which
resolved uncertainties regarding possible limitations of other federal NOL
carryforwards and general business credit carryforwards. The Company had been
providing taxes in 1996 and prior years as if the use of these federal NOLs and
general business carryforwards were restricted.

The reduction in the pre-1989 NOLs and general business credit
carryforwards, as well as the related valuation allowance noted above had no
effect on net income. The reduction in the valuation allowance related to the
federal NOLs and general business credit carryforwards generated between 1989
and 1992 resulted in a reduction of the current federal provision for income tax
expense. The effect of this reduction was an increase in net income in 1997 of
approximately $1.9 million.

The reconciliation of income tax expense computed at the U.S. federal
statutory rate to the provision (benefit) for income taxes is as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1995 1996 1997
--------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Tax at U.S. statutory rate................ $ 2,999 34.0% $ 3,775 34.0% $ 7,268 35.0%
Change in federal valuation allowance..... (1,288) (14.6) (4,673) (42.1) (1,913) (9.2)
Tax benefit of foreign sales corporation.. (472) (2.3)
State tax expense, net of federal
tax effect ............................ 542 2.6
Other..................................... (184) (2.1) 10 0.1 14 0.1
------- ---- -------- ---- ------- ----
Provision (benefit) for income taxes...... $ 1,527 17.3% $ (888) (8.0)% $ 5,439 26.2%
======= ==== ======== ==== ======= ====
</TABLE>

34
<PAGE>

ANADIGICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

7. EARNINGS PER SHARE

The reconciliation of shares used to calculate basic and diluted earnings
per share consists of the following:

Year ended December 31,
------------------------------------
1995 1996 1997
---------- ---------- ----------
Weighted average common shares
outstanding used to calculate
basic earnings per share ............ 10,857,450 12,355,311 14,279,957

Net effect of dilutive stock options -
based on treasury stock method
using average market price .......... 517,295 552,540 783,922
---------- ---------- ----------
Weighted average common and dilutive
securities outstanding used
to calculate diluted earnings
per share ........................... 11,374,745 12,907,851 15,063,879
========== ========== ==========

8. CREDIT FACILITIES

The Company has a secured $20,000 revolving credit facility and a $10,000
uncommitted bank line of credit.

The $20,000 revolving bank credit facility provides for interest at the
bank's base rate minus 50 basis points or, at the Company's discretion, other
market-based rates. The Company also has the option to swap floating rate for
fixed rate loans at the time of drawdown. The drawdown period expires on July 1,
1999. Any drawdowns may be paid over a term of up to sixty months. Its
availability is subject to a number of financial covenants. Under this facility,
the payment of dividends, among other things, requires approval by the bank. The
interest rate was 7.75% at December 31, 1997. Substantially all assets of the
Company are pledged as security for the repayment of amounts drawn under this
credit facility. On a quarterly basis, the Company pays an annual commitment fee
equal to 0.125% of the daily unused line of credit.

The $10,000 bank line of credit provides for interest at the bank's base
rate minus 75 basis points or, at the Company's discretion, other market-based
rates. Its availability is subject to the approval by the bank. The interest
rate was 7.50% at December 31, 1997. Substantially all assets of the Company are
pledged as security for the repayment of amounts drawn under this bank line of
credit, which expires on July 1, 1998.

As of December 31, 1996 and 1997, there were no borrowings outstanding
under these credit facilities.

9. STOCKHOLDERS' EQUITY

On February 20, 1997, the Company paid a stock dividend of one share of
common stock for each two shares of common stock outstanding to holders of
record on February 10, 1997. In addition, on February 20, 1997, the Company sold
1,875,000 shares of common stock to the public at a price of $31.50 per share.
The net proceeds from the offering were used to purchase capital equipment, make
leasehold improvements, and the remainder was used for working capital purposes.

The Company has warrants outstanding which entitle the holder to purchase
22,500 shares of common stock at exercise prices ranging from $21.50 to $48.25
per share, of which warrants to purchase 15,000 shares of common stock were
exercisable at December 31, 1997 and the remaining warrants to purchase 7,500
shares of common stock become exercisable on September 6, 1998. The warrants
expire between September of 2001 and 2003.

During 1996, warrants to purchase 313,905 shares of common stock were
exercised at an exercise price of $11.50 per share. In addition, in 1996,
521,672 shares of non-voting common stock were converted on a one-to-one basis
into common stock.

35
<PAGE>

ANADIGICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

10. EMPLOYEE BENEFIT PLANS

In 1995, the Company adopted an employee stock purchase plan ("ESP
Plan")under Section 423 of the Internal Revenue Code. All full-time employees of
the Company and "part-time" employees, as defined in the ESP Plan, are eligible
to participate in the ESP Plan. An aggregate of 562,500 shares of common stock
are reserved for offering under the ESP Plan. Offerings are made at the
commencement of each calendar year and must be purchased by the end of that
calendar year. In 1996, 65,501 shares of common stock were purchased at a price
of $11.92 per share, as determined by the ESP Plan, which approximates fair
value. During 1997, 44,515 shares of common stock were purchased at a price of
$21.99 per share, as determined by the ESP Plan, which approximates fair value.

Certain executives and key employees have been granted options to purchase
shares of common stock under stock option plans adopted in 1994, 1995 and 1997.
An aggregate of 326,087 and 2,775,000 and 1,200,000 shares of common stock were
reserved for issuance under the 1994 Long-Term Incentive Share and Award Plan,
the 1995 Long-Term Incentive Share Award Plan and the 1997 Long-Term Incentive
and Share Award Plan for Employees (the "Plans"), respectively. The Plans
provide for the granting of stock options, stock appreciation rights, restricted
shares, or other share based awards to eligible employees and directors, as
defined in the Plans. Options granted under the Plans become exercisable in
varying amounts over periods of up to three years.

FASB 123 requires pro forma information regarding net income and earnings
per share as if the Company has accounted for its employee stock options and
warrants granted subsequent to December 31, 1994 and shares of common stock
purchased by employees in connection with the ESP Plan ("equity awards") under
the fair value method of FASB 123. The fair value of these equity awards was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted average assumptions for 1995, 1996 and 1997,
respectively: risk-free interest rate of 6.57%, 5.17%, and 5.90%; expected
volatility of 0.50; expected option life of one year from vesting and an
expected dividend yield of 0.0%.

For purposes of pro forma disclosures, the estimated fair value of the
equity awards is amortized to expense over the options' vesting period. The
Company's pro forma information is as follows:

1995 1996 1997
--------- --------- ---------
Pro forma net income......................... $ 6,504 $ 10,555 $ 11,777
Pro forma basic earnings per share........... $ 0.59 $ 0.85 $ 0.82

Because FASB 123 is applicable only to equity awards granted subsequent to
December 31, 1994, its pro forma effect was not fully reflected until 1997.

A summary of the Company's stock option activity, and related information
for the years ended December 31, 1996 and 1997 follows:

<TABLE>
<CAPTION>
1995 1996 1997
----------------- ------------------ ----------------
WEIGHTED WEIGHTED WEIGHTED
COMMON AVERAGE COMMON AVERAGE COMMON AVERAGE
STOCK EXERCISE STOCK EXERCISE STOCK EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year... 204,001 $ 0.57 686,565 $ 6.13 1,088,221 $ 9.77
Granted.......................... 524,277 8.28 484,575 14.64 710,931 31.54
Exercised........................ (22,939) 4.43 (59,068) 6.14 (219,246) 7.78
Forfeited........................ (18,774) 7.57 (23,851) 13.14 ( 21,831) 24.74
------- --------- ---------
Outstanding at end of year......... 686,565 6.10 1,088,221 9.77 1,558,075 19.77
======= ========= =========
Exercisable at end of year......... 262,878 4.97 481,426 6.20 745,963 10.30
======= ========= =========
Weighted average fair value of
options granted during the year.. $ 2.67 $ 5.50 $ 12.15
</TABLE>

36
<PAGE>

ANADIGICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

10. EMPLOYEE BENEFIT PLANS (CONTINUED)

Stock options outstanding at December 31, 1997 are summarized as follows:

OUTSTANDING WEIGHTED AVERAGE WEIGHTED AVERAGE
RANGE OF OPTIONS AT REMAINING EXERCISE
EXERCISE PRICES DECEMBER 31, 1997 CONTRACTUAL LIFE PRICE
- ----------------- ------------------- --------------------- -----------------
$ .57 113,705 6.17 $ .57
$ 8.00 333,126 7.28 $ 8.00
$12.00 to $14.17 51,840 7.78 $ 13.93
$14.33 to $14.33 337,007 7.43 $ 14.33
$15.67 to $47.50 722,397 8.95 $ 31.17
---------
$ .57 to $47.50 1,558,075 8.02 $ 19.77
=========

11. QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 29, DEC. 31, MARCH 30, JUNE 29, SEPT. 28, DEC. 31,
1996 1996 1996 1996 1997 1997 1997 1997
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales..................... $ 13,574 $ 15,862 $ 17,005 $ 22,423 $ 22,860 $ 24,969 $ 26,727 $ 27,980
Cost of sales................. 6,835 8,254 11,136 12,662 12,321 13,159 13,688 16,925
--------- --------- --------- --------- --------- --------- --------- --------
Gross profit.................. 6,739 7,608 5,869 9,761 10,539 11,810 13,039 11,055
Research and development...... 2,878 3,284 2,756 3,118 3,439 4,185 4,375 4,767
Selling and administrative
expense..................... 1,968 2,063 1,619 2,557 2,746 3,028 3,226 3,138
--------- --------- --------- --------- --------- --------- --------- --------
Operating income.............. 1,893 2,261 1,494 4,086 4,354 4,597 5,438 3,150
Interest expense.............. 105 90 84 92 54 63 33 6
Interest income............... 418 411 432 479 615 1,066 866 837
--------- --------- --------- --------- --------- --------- --------- --------
Income before income taxes.... 2,206 2,582 1,842 4,473 4,915 5,600 6,271 3,981
Provision (benefit) for income
Taxes(2).................... 441 516 369 (2,214) 1,745 1,988 2,310 (605)
--------- --------- --------- --------- --------- --------- --------- --------
Net income.................... $ 1,765 $ 2,066 $ 1,473 $ 6,687 $ 3,170 $ 3,612 $ 3,961 $ 4,586
========= ========= ========= ========= ========= ========= ========= ========
Basic Earnings per share(1)... $ 0.15 $ 0.17 $ 0.12 $ 0.54 $ 0.24 $ 0.25 $ 0.28 $ 0.31
========= ========= ========= ========= ========= ========= ========= ========
Diluted Earnings per share(1). $ 0.14 $ 0.16 $ 0.11 $ 0.51 $ 0.23 $ 0.24 $ 0.26 $ 0.30
========= ========= ========= ========= ========= ========= ========= ========

Market price per share of
common stock:
High........................ $ 15.17 $ 20.50 $ 23.50 $ 27.00 $ 37.68 $ 35.50 $ 54.25 $ 51.38
Low......................... $ 11.83 $ 13.92 $ 13.92 $ 16.33 $ 24.00 $ 22.50 $ 30.50 $ 21.00
</TABLE>

(1) - The 1996 and first three quarters of 1997 earnings per share amounts
have been restated to comply with FASB 128.

(2) - The benefit for income taxes for the quarters ended December 31, 1996
and 1997 resulted from the reduction in the valuation allowance related
to deferred tax assets.

37
<PAGE>

ANADIGICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

12. COMMITMENTS AND CONTINGENCIES

On January 29, 1998, the Company announced its results for the quarter and
year ended December 31, 1997 and also announced that it was experiencing a
substantial reduction in orders and forecasts for orders from its wireless
customers, which will result in significantly lower sales in the first quarter
OF 1998 and could result in a net loss for the period. On the day following the
announcement, the stock price of the Company's common stock declined from a
closing price of $33 13/16 on January 29, 1998 to a closing price of $14 1/8 on
January 30, 1998. As a result, certain proposed class action lawsuits have been
filed against the Company and certain of its officers and directors. These
lawsuits have been filed in the U.S. District Court for the District of New
Jersey on behalf of purchasers of the Company's common stock during the period
from August 6, 1997 through January 30, 1998, inclusive. The plaintiffs seek
unspecified money damages. Although the Company is unable at this time to assess
the probable outcome of the lawsuits or the materiality of the risk of loss in
connection therewith (given the early stage of the litigation and the fact that
none of the Complaints in those lawsuits alleges damages with any
particularity), the Company believes that it has acted responsibly and intends
to vigorously defend the lawsuits. Accordingly, no provisions for these
contingencies have been made in the consolidated financial statements.

At December 31, 1997, the Company had committed to purchase approximately
$15,000 of equipment and furniture, and leasehold improvements during 1998.

13. SUBSEQUENT EVENTS

During January and February 1998, the Company experienced a substantial
reduction in orders from its cellular and PCS customers. In response to the
lower demand, the Company reduced staff by 100 employees and recorded a work
force reduction charge of $1.1 million during march 1998.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information contained in the 1998 Proxy Statement under the heading
"Information Regarding Directors and Executive Officers" is incorporated herein
by reference in response to this item.

ITEM 11. EXECUTIVE COMPENSATION.

The information contained in the 1998 Proxy Statement under the heading
"Compensation and Other Transactions with Directors and Executive Officers" is
incorporated herein by reference in response to this item.

38
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information contained in the 1998 Proxy Statement under the heading
"Principal Stockholders" and "Stock Ownership of Directors and Management" is
incorporated herein by reference in response to this item.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a) 1. Financial Statements

Financial Statements are included in Item 8, "Financial Statements and
Supplementary Data" as follows:

- Report of Independent Auditors

- Balance Sheets - December 31, 1996 and 1997

- Statements of Income - Years ended December 31, 1995, 1996, and 1997

- Statements of Shareholder's Equity - Years ended December 31, 1995,
1996, and 1997

- Statements of Cash Flows - Years ended December 31, 1995, 1996, and
1997

- Notes to Financial Statements - December 31, 1997

(a) 2. Financial Statement Schedules

Schedule II - Valuation and Qualifying Accounts All other schedules for
which provision is made in the applicable accounting regulation of the
Securities and Exchange Commission are not required under the related
instructions or are inapplicable and therefore have been omitted.

(a) 3. Exhibit List

3.2 Form of Restated Certificate of Incorporation of the Registrant. Filed
as an exhibit to the Company's Registration Statement on Form S-1
(Registration No. 33-89928), and incorporated herein by reference.

3.4 Form of Amended By-laws of the Registrant. Filed as an exhibit to the
Company's Registration Statement on Form S-1 (Registration No.
33-89928), and incorporated by reference.

4.1 Form of Common Stock Certificate. Filed as an exhibit to the Company's
Registration Statement on Form S-1 (Registration No. 33-89928), and
incorporated herein by reference.

4.2 Form of Registration Rights Agreement. Filed as an exhibit to the
Company's Registration Statement on Form S-1 (Registration No.
33-89928), and incorporated herein by reference.

4.3 Schedule to Form of Registration Rights Agreement. Filed as an exhibit
to the Company's Registration Statement on Form S-1 (Registration No.
333-20783), and incorporated herein by reference.

9.1 Consent and Voting Agreement dated as of February 28, 1994, executed in
connection with the issuance of Senior Series P Convertible Preferred
Stock. Filed as an exhibit to the Company's Registration Statement on
Form S-1 (Registration No. 33-89928), and incorporated herein by
reference.

39
<PAGE>

9.2 Schedule of Consent and Voting Agreements which are substantially
identical to the Consent and Voting Agreement filed as Exhibit 9.1.
Filed as an exhibit to the Company's Registration Statement on Form S-1
(Registration No. 33-89928), and incorporated herein by reference.

9.3 Consent and Voting Agreement dated as of September 20, 1989, between
the Registrant and Ronald Rosenzweig. Filed as an exhibit to the
Company's Registration Statement on Form S-1 (Registration No.
33-89928), and incorporated herein by reference.

9.4 Schedule of Consent and Voting Agreements which are substantially
identical to the Consent and Voting Agreement filed as Exhibit 9.3.
Filed as an exhibit to the Company's Registration Statement on Form S-1
(Registration No. 33-89928), and incorporated herein by reference.

10.1 Form of 1995 Long-Term Incentive and Share Award Plan. Filed as an
exhibit to the Company's Registration Statement on Form S-1
(Registration No. 33-89928), and incorporated herein by reference.

10.2 1994 Long-Term Incentive and Share Award Plan. Filed as an exhibit
to the Company's Registration Statement on Form S-1 (Registration
No. 33-89928), and incorporated herein by reference.

10.3 Employee Savings and Protection Plan. Filed as an exhibit to the
Company's Registration Statement on Form S-1 (Registration No. 33-
89928), and incorporated herein by reference.

10.4 Form of Employee Stock Purchase Plan. Filed as an exhibit to the
Company's Registration Statement on Form S-1 (Registration No. 33-
89928), and incorporated herein by reference.

10.5 Lease Agreement between Mr. Bethel Corporate Center and the Registrant
dated May 1, 1993. Filed as an exhibit to the Company's Registration
Statement on Form S-1 (Registration No. 33-89928), and incorporated
herein by reference.

10.8 Stock Purchase Agreement dated as of February 28, 1994. Filed as an
exhibit to the Company's Registration Statement on Form S-1
(Registration No. 33-89928), and incorporated herein by reference.

10.9 Right of First Refusal and Tag Along Agreement dated as of February 28,
1994. Filed as an exhibit to the Company's Registration Statement on
Form S-1 (Registration No. 33-89928), and incorporated herein by
reference.

10.10 Amended and Restated Loan Agreement by and between First Union National
Bank, formerly known as First Fidelity Bank, National Association dated
January 25, 1996. Filed as an exhibit to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995, and incorporated herein
by reference.

10.11 First Amendment, dated as of December 23, 1996, to the Amended and
Restated Loan Agreement, dated as of January 25, 1996, between the
Company and First Union National Bank, formerly known as First Fidelity
Bank, National Association. Filed as an exhibit to the Company's
Registration Statement (Registration No. 333-20783), and incorporated
herein by reference.

10.12 Lease Agreement between United States Land Resources, L.P. and the
Company dated as of April 26, 1996. Filed as an exhibit to the
Company's Registration Statement (Registration No. 333-20783), and
incorporated herein by reference.

*23.1 Consent of Ernst and Young LLP.

*27.1 Financial Data Schedule.

(b) Reports on Form 8-K

No current reports on Form 8-K were filed during the fourth quarter of
1997.

* Filed herewith.

40
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on the 19th day of March,
1998.

ANADIGICS, INC.

BY: /s/ Ronald Rosenzweig
-----------------------------------------
Ronald Rosenzweig
CHIEF EXECUTIVE OFFICER
AND PRESIDENT

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON
THE DATES INDICATED:

NAME TITLE DATE
- --------------------------- --------------------------- --------------
/s/ Ronald Rosenzweig Chief Executive Officer and March 26, 1998
- --------------------------- President (Chief Executive
Ronald Rosenzweig Officer); Director

/s/ John F. Lyons Senior Vice President and March 26, 1998
- --------------------------- Chief Financial Officer (Chief
John F. Lyons Financial Officer and Principal
Accounting Officer)

/s/ George Gilbert Director March 26, 1998
- ---------------------------
George Gilbert

/s/ Charles Huang Director March 26, 1998
- ---------------------------
Charles Huang

/s/ Paul S. Bachow Director March 26, 1998
- ---------------------------
Paul S. Bachow

/s/ Charles Burton Director March 26, 1998
- ---------------------------
Charles Burton

/s/ David Fellows Director March 26, 1998
- ---------------------------
David Fellows

/s/ Bruns Grayson Director March 26, 1998
- ---------------------------
Bruns Grayson

/s/ Harry T. Rein Director March 26, 1998
- ---------------------------
Harry T. Rein

/s/ Lewis Solomon Director March 26, 1998
- ---------------------------
Lewis Solomon

41
<PAGE>

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
- ------------------------------------------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Year ended December 31, 1997:
Deducted from asset account:
Allowance for doubtful accounts............ $ 340 $ 77 $ (21)(1) $ 396
Reserve for excess and obsolete inventory.. 1,681 5,776 (283)(2) 7,174
Valuation allowance for deferred tax assets 10,831 - 10,831 (3) 0
Reserve for warranty claims.................. 225 1,554 (1,229)(4) 550

Year ended December 31, 1996:
Deducted from asset account:
Allowance for doubtful accounts............ $ 482 $ 239 $ (381)(1) $ 340
Reserve for excess and obsolete inventory.. 1,508 1,238 (1,065)(2) 1,681
Valuation allowance for deferred tax assets 16,170 -- (5,339)(3) 10,831
Reserve for warranty claims.................. 525 321 (621)(4) 225

Year ended December 31, 1995:
Deducted from asset account:
Allowance for doubtful accounts............ $ 266 $ 220 $ (4)(1) $ 482
Reserve for excess and obsolete inventory.. 429 1,133 (54)(2) 1,508
Valuation allowance for deferred tax assets 17,389 -- (1,219)(3) 16,170
Reserve for warranty claims.................. 290 346 (111)(4) 525
</TABLE>

- ----------
(1) Uncollectible accounts written-off and adjustments to the allowance
account.

(2) Inventory write-offs and adjustments to the reserve account.

(3) Benefit and/or recognition of deferred tax assets.

(4) Warranty expenses incurred and other adjustments to the reserve for
warranty claims.

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-89928) pertaining to the ANADIGICS, Inc. Stock Option Plan,
1994 Long-Term Incentive and Share Award Plan, 1995 Long-Term Incentive Share
Award Plan and Employee Stock Purchase Plan, and the Registration Statement
(Form S-8 No. 33-32533) pertaining to the ANADIGICS, Inc. 1997 Long-Term
Incentive and Share Award Plan for Employees, of our report dated January 27,
1998 (except Notes 12 and 13, as to which the date is March 19, 1998), with
respect to the consolidated financial statements and schedule of ANADIGICS, Inc.
included in the Annual Report (Form 10-K) for the year ended December 31, 1997.

ERNST & YOUNG LLP

MetroPark, New Jersey
March 26, 1998

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted for the
twelve months ended December 31, 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 25,675,000
<SECURITIES> 25,627,000
<RECEIVABLES> 17,999,000
<ALLOWANCES> 0
<INVENTORY> 19,678,000
<CURRENT-ASSETS> 85,109,000
<PP&E> 102,668,000
<DEPRECIATION> 30,419,000
<TOTAL-ASSETS> 168,084,000
<CURRENT-LIABILITIES> 20,273,000
<BONDS> 0
0
0
<COMMON> 147,000
<OTHER-SE> 146,316,000
<TOTAL-LIABILITY-AND-EQUITY> 168,084,000
<SALES> 102,536,000
<TOTAL-REVENUES> 102,536,000
<CGS> 56,093,000
<TOTAL-COSTS> 56,093,000
<OTHER-EXPENSES> 28,904,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (3,229,000)
<INCOME-PRETAX> 20,768,000
<INCOME-TAX> 5,439,000
<INCOME-CONTINUING> 15,329,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,329,000
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 1.02

</TABLE>