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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


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

For the quarterly period ended August 31, 2007


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

Commission file number 0-7422

STANDARD MICROSYSTEMS CORPORATION

(Exact name of registrant as specified in its charter)


DELAWARE		11-2234952
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

80 Arkay Drive, Hauppauge, New York		11788-3728
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code:
(631) 435-6000

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 þ Noo

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

Large accelerated filer o Accelerated filer þ Non-accelerated filero

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

As of August 31, 2007 there were 23,350,585 shares of the registrant’s common stock outstanding.

PART I

Item 1. — Financial Statements

STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)


	August 31,			February 28,
	2007			2007
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	31,384		$	36,255
Short-term investments		150,328			123,768
Accounts receivable, net		55,286			48,014
Inventories		42,646			50,873
Deferred income taxes		19,229			19,312
Other current assets		9,013			8,751

Total current assets		307,886			286,973

Property, plant and equipment, net		56,383			58,020
Goodwill		99,976			98,259
Intangible assets, net		37,824			40,256
Deferred income taxes		6,772			7,094
Other assets		3,265			3,037

TOTAL ASSETS	$	512,106		$	493,639

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	22,071		$	25,617
Deferred income on shipments to distributors		15,452			12,752
Accrued expenses, income taxes and other liabilities		33,071			36,378

Total current liabilities		70,594			74,747

Deferred income taxes		8,087			10,100
Other liabilities		14,509			16,850
Commitments and contingencies
Shareholders’ equity:
Preferred stock		—			—
Common stock		2,586			2,511
Additional paid-in capital		295,846			276,701
Retained earnings		153,628			139,657
Treasury stock, at cost		(41,325	)		(32,038	)
Accumulated other comprehensive income		8,181			5,111

Total shareholders’ equity		418,916			391,942

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	512,106		$	493,639

See accompanying Notes to Condensed Consolidated Financial Statements

STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED INCOME STATEMENTS
(in thousands, except per share amounts)


	Three Months Ended						Six Months Ended
	August 31,						August 31,
	2007			2006			2007			2006
	(Unaudited)						(Unaudited)
Product sales	$	94,436		$	93,834		$	172,950		$	177,126
Intellectual property revenues		3,086			2,829			6,119			5,681

		97,522			96,663			179,069			182,807
Costs and expenses:
Costs of goods sold (exclusive of amortization shown below)		47,879			52,359			86,730			97,273
Research and development		18,192			17,142			36,181			32,310
Amortization of intangible assets		1,652			1,591			3,293			3,160
Selling, general and administrative		21,718			18,159			41,990			31,962

Income from operations		8,081			7,412			10,875			18,102
Interest income		1,665			1,173			3,067			2,319
Interest expense		(89	)		(111	)		(174	)		(144	)
Other income (expense), net		52			9			410			(53	)

Income before provision for income taxes		9,709			8,483			14,178			20,224
Provision for income taxes		428			2,756			1,695			5,864

Net income	$	9,281		$	5,727		$	12,483		$	14,360

Basic net income per share:	$	0.40		$	0.26		$	0.54		$	0.66

Diluted net income per share:	$	0.38		$	0.25		$	0.52		$	0.62

Weighted average common shares outstanding:
Basic		23,097			21,904			22,939			21,864
Diluted		24,160			22,784			24,010			23,005

See accompanying Notes to Condensed Consolidated Financial Statements

STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)


	August 31,
	2007			2006
	(Unaudited)
Cash flows from operating activities:
Net income	$	12,483		$	14,360
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		9,961			8,787
Excess tax benefits associated with stock-based compensation		(1,019	)		(182	)
Stock-based compensation		10,059			994
Deferred income taxes		(1,886	)		207
Changes in operating assets and liabilities, net of business acquisition impact:
Accounts receivable		(6,516	)		(14,202	)
Inventories		8,510			(11,036	)
Accounts payable, accrued expenses and other liabilities		(9,560	)		2,536
Deferred income		2,700			3,520
Income taxes payable		(2,262	)		1,602
Other changes, net		991			(1,132	)

Net cash provided by operating activities		23,461			5,454

Cash flows from investing activities:
Capital expenditures		(5,337	)		(12,506	)
Acquisition of OASIS SiliconSystems Holding AG, net of cash acquired		—			(12,555	)
Purchases of short-term investments		(348,965	)		(239,685	)
Sales of short-term investments		322,405			244,640

Net cash used in investing activities		(31,897	)		(20,106	)

Cash flows from financing activities:
Excess tax benefits associated with stock-based compensation		1,019			182
Proceeds from issuance of common stock		12,764			2,847
Purchases of treasury stock		(9,287	)		(6,077	)
Repayments of obligations under capital leases and notes payable		(1,185	)		(628	)

Net cash provided by (used in) financing activities		3,311			(3,676	)

Effect of foreign exchange rate changes on cash and cash equivalents		254			(35	)

Net decrease in cash and cash equivalents		(4,871	)		(18,363	)
Cash and cash equivalents at beginning of period		36,255			43,932

Cash and cash equivalents at end of period	$	31,184		$	25,569

See accompanying Notes to Condensed Consolidated Financial Statements

STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial information of Standard Microsystems Corporation and subsidiaries (“SMSC” or the “Company”) has been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (“SEC”), and reflects all adjustments, consisting only of normal recurring adjustments, which in management’s opinion are necessary to state fairly the Company’s financial position, results of operations and cash flows as of August 31, 2007 and for the three and six month periods ended August 31, 2007 and 2006. The February 28, 2007 balance sheet information has been derived from audited financial statements, but does not include all disclosures required by U.S. GAAP.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of sales and revenues and expenses during the reporting period. Actual results may differ from those estimates, and such differences may be material to the financial statements.

These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the fiscal year ended February 28, 2007 included in the Company’s Annual Report on Form 10-K, as filed on April 30, 2007 with the SEC.

The results of operations for the three and six-month periods ended August 31, 2007 are not necessarily indicative of results to be expected for the full fiscal year or any future periods.

Certain items in the prior years’ consolidated financial statements have been reclassified to conform to the fiscal 2008 presentation. Specifically, the Company had previously included rebates payable on product sales as a component of Accounts receivable, net in its consolidated balance sheets. Such rebates are now included as a component of Accrued expenses, income taxes and other liabilities. This change resulted in an increase in each of these balance sheet captions of $7.4 million as of February 28, 2007. The Condensed Consolidated Statement of Cash Flows for the six months ended August 31, 2006 has also been conformed to this change in presentation.

2. STOCK-BASED COMPENSATION

The Company has several stock-based compensation plans in effect under which incentive stock options, non-qualified stock options, restricted stock awards (“RSAs”) and stock appreciation rights (“SARs”) are granted to employees and directors. Stock options, RSAs and SARs are granted with exercise prices equal to the fair value of the underlying shares on the date of grant.

The following table summarizes the stock-based compensation expense for stock options, RSAs and SARs under SFAS No. 123R (revised 2004), Share-Based Payments (“SFAS 123R”) included in our income from operations (in thousands):


	Three Months		Three Months		Six Months		Six Months
	Ended		Ended		Ended		Ended
	August 31,		August 31,		August 31,		August 31,
	2007		2006		2007		2006
Costs of goods sold	$	679	$	317	$	1,055	$	(134	)
Research and development		2,200		1,344		4,044		1,022
Selling, general and administrative		3,707		1,893		6,294		107

Stock-based compensation expense under SFAS 123R, before income tax benefit		6,586		3,554		11,393		994
Tax benefit		2,371		1,279		4,101		358

Stock-based compensation expense under SFAS 123R, after income tax benefit	$	4,215	$	2,275	$	7,292	$	636

Employee and Director Stock Option Plans

Under the Company’s stock option plans, the Compensation Committee of the Board of Directors is authorized to grant options to purchase shares of common stock. The purpose of these plans is to promote the interests of the Company and its shareholders by providing officers, directors and key employees with additional incentives and the opportunity, through stock ownership, to better align their interests with the Company’s and enhance their personal interest in its continued success. Options under inducement plans may only be offered to new employees. Options are granted at prices not less than the fair market value on the date of grant. As of August 31, 2007, 630,620 shares of common stock were available for future grants of stock options, of which 491,478 shares can also be issued as restricted stock awards. The grant date fair values of stock options are recorded as compensation expense ratably over the vesting period of each award. Option awards generally vest over four or five-year periods, and expire no later than ten years from the date of grant.

Stock option plan activity is summarized below (shares in thousands):


				Weighted
				Average		Weighted
	Fiscal			Exercise		Average
	2008			Prices		Contractual		Aggregate
	Shares			per Share		Term		Intrinsic Value
Options outstanding, March 1, 2007		4,302		$	20.81
Granted		183		$	34.08
Exercised		(707	)	$	18.12
Canceled or expired		(148	)	$	21.38

Options outstanding, August 31, 2007		3,630		$	21.98		6.8	$	50,833,810

Options exercisable, August 31, 2007		1,543		$	18.93		5.2	$	26,295,416

The total remaining unrecognized compensation cost related to SMSC’s employee and director stock option plans is $22.6 million as of August 31, 2007. The weighted average period over which the cost is expected to be recognized is 2.24 years.

The Company recognizes compensation expense for options using the Black-Scholes option pricing model. The Black-Scholes model requires certain assumptions, judgements and estimates by the Company to determine fair value, including expected stock price volatility, risk-free interest rate, and expected life. The Company based the expected volatility on historical volatility. Additionally, the Company based the expected life of options granted on an actuarial model. There were no dividends expected to be paid on the Company’s common stock over the expected lives estimated.

The weighted average fair values per share of stock options granted in connection with the Company’s stock incentive plans have been estimated utilizing the following assumptions:


	Three Months	Three Months	Six Months	Six Months
	Ended	Ended	Ended	Ended
	August 31,	August 31,	August 31,	August 31,
	2007	2006	2007	2006
Dividend yield	—	—	—	—
Expected volatility	52%	59%	52%	59%
Risk-free interest rates	4.41	5.06	4.41-4.59	4.59-5.06
Expective lives (in years)	4.46	4.42	4.46	4.42

Restricted Stock Awards

The Company provides common stock awards to certain officers and key employees. The Company grants these awards, at its discretion, from the shares available under its 2001 and 2003 Stock Option and Restricted Stock Plans and its 2005 Inducement Stock Option and Restricted Stock Plan. The shares awarded are typically earned in 25%, 25% and 50% increments on the first, second and third anniversaries of the award, respectively, and are distributed provided the employee has remained employed by the Company through such anniversary dates; otherwise the unearned shares are forfeited. The grant date fair value of these shares at the date of award is recorded as compensation expense ratably as vested over the three-year periods from the respective award dates, as adjusted for forfeitures of unvested awards.

Restricted stock activity for the six months ended August 31, 2007 is set forth below (shares in thousands):


	Number of			Grant-Date
	Shares			Fair Value
Restricted stock shares outstanding, March 1, 2007		231		$	22.71
Granted		48		$	33.50
Canceled or expired		(3	)	$	26.66
Vested		(75	)	$	21.04


Restricted stock shares outstanding, August 31, 2007		201		$	25.82

The total unrecognized compensation cost related to SMSC’s restricted stock plans is $4.2 million as of August 31, 2007. The weighted average period over which the cost is expected to be recognized is 1.59 years.

Stock Appreciation Rights Plan

In September 2004 and September 2006, the Company’s Board of Directors approved Stock Appreciation Rights (SAR) Plans (the “Plan”), the purpose of which is to attract, retain, reward and motivate employees and consultants to promote the Company’s best interests and to share in its future success. The Plan authorizes the Board’s Compensation Committee to grant up to four million SAR awards to eligible officers, employees and consultants. Each award, when granted, provides the participant with the right to receive payment in cash, upon exercise, for the appreciation in market value of a share of SMSC common stock over the award’s exercise price. Employee SAR awards generally vest over four or five-year periods, and expire no later than ten years from the date of grant. In October 2005 and July 2006, the Company’s Board of Directors approved Director Stock Appreciation Rights Plans. The Company can grant up to 249,000 Director SARs under these plans. The exercise price of a SAR is equal to the closing market price of SMSC stock on the date of grant. Director SAR awards under the 2006 plan vest over a three year period for initial grants and over one year for annual grants, and expire no later than ten years from the date of grant.

Activity under the Stock Appreciation Rights Plan is summarized below (shares in thousands):


				Weighted
				Average		Weighted
				Exercise		Average
	Fiscal 2008			Prices		Contractual		Aggregate
	Shares			per Share		Term		Intrinsic Value
SARs outstanding, March 1, 2007		2,775		$	25.54
Granted		246		$	33.83
Exercised		(99	)	$	18.53
Canceled or expired		(46	)	$	28.03

SARs outstanding, August 31, 2007		2,876		$	26.44		8.38	$	27,415,062

SARs exercisable, August 31, 2007		293		$	20.17		7.00	$	4,633,003

The total unrecognized compensation cost related to SMSC’s stock appreciation rights plans is $31.4 million as of August 31, 2007. The weighted average period over which the cost is expected to be recognized is 1.68 years.

The weighted average fair values per share of stock appreciation rights granted in connection with the Company’s stock incentive plans have been estimated utilizing the following assumptions:


	Three Months	Three Months	Six Months	Six Months
	Ended	Ended	Ended	Ended
	August 31, 2007	August 31, 2006	August 31, 2007	August 31, 2006
Dividend yield	—	—	—	—
Expected volatility	52%	59%	52%	59%
Risk-free interest rates	4.55-4.87	4.86-4.92	4.55-4.87	4.86-4.97
Expected lives (in years)	1.54-4.44	2.75-4.55	1.54-4.44	2.75-4.55

3. INVESTMENTS

Short-term investments consist of investments in obligations with maturities of between three and twelve months, at acquisition, and investments in auction rate securities. All of these investments are classified as available-for-sale. The costs of these short-term investments approximate their market values as of August 31, 2007 and February 28, 2007.

The Company invests excess cash in a variety of marketable securities, including auction rate securities. Auction rate securities have long-term underlying maturities, but have interest rates that are reset every 90 days or less, at which time the securities can typically be purchased or sold, creating a highly liquid market. The Company’s intent is not to hold these securities to maturity, but rather to use the interest rate reset feature to provide the opportunity to maximize returns while preserving liquidity. The Company’s investment in these securities provides higher yields than money market and other cash equivalent investments.

4. BALANCE SHEET DATA

Inventories are valued at the lower of first-in, first-out cost or market and consist of the following (in thousands):


	August 31,		February 28,
	2007		2007

Raw materials	$	1,783	$	2,307
Work-in-process		17,982		20,861
Finished goods		22,881		27,705

	$	42,646	$	50,873

Property, plant and equipment consist of the following (in thousands):


	August 31,			February 28,
	2007			2007

Land	$	578		$	578
Buildings and improvements		32,643			32,303
Machinery and equipment		110,185			104,281

		143,406			137,162
Less: accumulated depreciation		(87,023	)		(79,142	)

	$	56,383		$	58,020

5. NET INCOME PER SHARE

Basic net income per share is calculated using the weighted-average number of common shares outstanding during the period. Diluted net income per share is calculated using the weighted-average number of common shares outstanding during the period, plus the dilutive effect of unvested restricted stock awards and shares issuable through stock options.

The shares used in calculating basic and diluted net income per share for the Condensed Consolidated Income Statements included within this report are reconciled as follows (in thousands):


	Three Months Ended August 31,				Six Months Ended August 31,
	2007		2006		2007		2006
Average shares outstanding for basic net income per share		23,097		21,904		22,939		21,864
Dilutive effect of stock options and unvested restricted stock awards		1,063		880		1,071		1,141

Average shares outstanding for diluted net income per share		24,160		22,784		24,010		23,005

Options covering 0.2 million and 1.1 million shares for the three-month periods ended August 31, 2007 and 2006, respectively, and 0.3 million and 0.9 million shares for the six-month periods ended August 31, 2007 and 2006, respectively, were excluded from the computation of average shares outstanding for diluted net income per share because their effect was antidilutive.

6. COMPREHENSIVE INCOME

The Company’s other comprehensive income consists of foreign currency translation adjustments from those subsidiaries not using the U.S. dollar as their functional currency, unrealized gains and losses on equity investments classified as available-for-sale, and changes in minimum pension liability adjustments.

The components of the Company’s comprehensive income for the three and six month periods ended August 31, 2007 and 2006 were as follows (in thousands):


	Three Months Ended					Six Months Ended August
	August 31,					31,
	2007		2006			2007		2006
Net income	$	9,281	$	5,727		$	12,483	$	14,360

Other comprehensive income:

Change in foreign currency translation adjustments		1,302		(701	)		2,969		3,527
Change in unrealized gain on marketable equity securities, net of taxes		4		—			7		—
Change in minimum pension liability adjustment, net of taxes		47		5			94		(3	)

Total comprehensive income	$	10,634	$	5,031		$	15,553	$	17,884

The components of the Company’s accumulated other comprehensive income as of August 31, 2007 and February 28, 2007, net of taxes, were as follows (in thousands):


	August 31,			February 28,
	2007			2007
Unrealized gains and losses on investments	$	(14	)	$	(21	)
Foreign currency items		8,605			5,636
Minimum pension liability adjustment		(410	)		(504	)

Total accumulated other comprehensive income	$	8,181		$	5,111

7. BUSINESS RESTRUCTURING

In December 2001, the Company announced a restructuring plan for its exit from the PC chipset business.

The Company carried a reserve related to this restructuring of approximately $0.1 million and $0.2 million at August 31, 2007 and February 28, 2007, respectively, for future payments against previously reserved non-cancelable lease obligations, which will continue through their respective lease terms through August 2008.

8. GOODWILL AND INTANGIBLE ASSETS

The Company’s March 2005 acquisition of OASIS included the acquisition of $42.9 million of finite-lived intangible assets, an indefinite-lived trademark of $5.4 million, and goodwill of $67.8 million. The Company’s June 2002 acquisition of Tucson, Arizona-based Gain Technology Corporation included the acquisition of $7.1 million of finite-lived intangible assets and $29.4 million of goodwill, after adjustments.

In accordance with the provisions of SFAS 142, goodwill is not amortized, but is tested for impairment in value at least annually, or when events or circumstances indicate possible impairment in value. The Company performs an annual goodwill impairment review during the fourth quarter of each fiscal year, and completed its most recent annual review during the fourth quarter of fiscal 2007; no impairment in value was identified.

All finite-lived intangible assets are being amortized on a straight-line basis, which approximates the pattern in which the estimated economic benefits of the assets are realized, over their estimated useful lives. Existing technologies have been assigned estimated useful lives of between six and eight years, with a weighted-average useful life of approximately eight years. Customer relationships and contracts have been assigned useful lives of between one and ten years, with a weighted-average useful life of approximately eight years.

Intangible assets that are denominated in a functional currency other than the U.S. dollar have been translated into U.S. dollars using the exchange rate in effect on the reporting date. As of August 31, 2007 and February 28, 2007, the Company’s identifiable intangible assets consisted of the following (in thousands):


	August 31, 2007				February 28, 2007
			Accumulated				Accumulated
	Cost		Amortization		Cost		Amortization
Purchased technologies	$	39,396	$	15,441	$	38,846	$	12,718
Customer relationships and contracts		11,321		3,492		10,988		2,709

Total — finite-lived intangible assets		50,717		18,933		49,834		15,427
Trademark and other		6,040		0		5,849		0

	$	56,757	$	18,933	$	55,683	$	15,427

Total amortization expense recorded for finite-lived intangible assets was $1.7 million and $1.6 million for the three month periods ended August 31, 2007 and 2006, respectively, and $3.3 million and $3.2 million for the six-month periods ended August 31, 2007 and 2006, respectively .

Estimated future finite-lived intangible asset amortization expense for the remainder of fiscal 2008 and thereafter is as follows (in thousands):


Period	Amount
Remainder of fiscal 2008	$	3,294
Fiscal 2009	$	5,817
Fiscal 2010	$	5,559
Fiscal 2011	$	5,559
Fiscal 2012	$	5,559
Fiscal 2013 and thereafter	$	5,995

9. INCOME TAXES

Effective March 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes–an interpretation of FASB Statement No. 109 (“FIN 48”), which clarifies the accounting for uncertainty in income tax positions. Under FIN 48, benefits associated with uncertain tax positions are recognized in the Company’s consolidated financial statements only when it is determined to be more likely than not that such positions would be sustained upon examination, based on technical merits. FIN 48 outlines a two-step approach to recognizing and measuring uncertain tax positions. If the weight of available evidence indicates that it is more likely than not (more than 50% likely) that a tax position would be sustained on examination (including resolution of related appeals or litigation processes, if any), the associated tax benefit is then measured as the largest amount that is more than 50% likely of being realized upon ultimate settlement.

Upon adoption, the Company reduced previously recorded tax reserves by approximately $1.5 million, accounting for such as a cumulative effect of a change in accounting principle that resulted in a corresponding increase to retained earnings. As of the date of adoption, the Company had approximately $3.3 million of liabilities for uncertain tax positions, consisting of $2.7 million of gross unrecognized tax benefits and $0.6 million in accrued interest and penalties. In the three and six month periods ended August 31, 2007, the Company increased its reserves for liabilities for uncertain tax positions by approximately $0.2 million and $0.3 million, respectively, in connection with credits expected to be taken in its fiscal 2008 U.S. federal income tax return. Substantially all such unrecognized tax benefits would be recorded as part of the provision for income taxes if realized in future periods. The Company does not currently anticipate that liabilities for uncertain tax positions will significantly increase or decrease on or prior to August 31, 2008, and all liabilities for uncertain tax positions are classified as long term and included in Other liabilities in the condensed consolidated balance sheet as of August 31, 2007.

The Company will continue its policy of including interest and penalties related to unrecognized tax benefits within the provision for taxes on the consolidated condensed statements of income. For the three and six month periods ended August 31, 2007, the Company provided an additional $0.1 million and $0.2 million, respectively, for interest and penalties.

The Company files U.S. federal, U.S. state, and foreign tax returns, and is generally no longer subject to tax examinations for fiscal years prior to 2003 (in the case of certain foreign tax returns, calendar year 2002).

On July 6, 2007, the German federal government passed legislation substantially reducing national corporate tax rates, effective for companies as of the beginning of the first tax year ending in 2008 (for SMSC’s German operations, as of March 1, 2007). This legislation reduced the Company’s effective statutory rate applicable to taxable income in Germany from approximately 39% to 29.5%. The Company has net deferred tax liabilities in Germany, primarily relating to nondeductible goodwill and other intangible assets acquired in connection with the March 2005 acquisition of Oasis. SMSC’s consolidated tax provision for the three month period ended August 31, 2007 includes a one-time adjustment of approximately $2.1 million relating to the remeasurement of these deferred tax liabilities based on the change in the German corporate tax rate. This one-time adjustment is expected to reduce SMSC’s annual effective rate for fiscal 2008 by approximately 6%.

10. RETIREMENT PLANS

The Company maintains an unfunded Supplemental Executive Retirement Plan to provide senior management with retirement, disability and death benefits. The Company’s subsidiary, SMSC Japan, also maintains an unfunded retirement plan, which provides its employees and directors with separation benefits, consistent with customary practices in Japan. Benefits under these defined benefit plans are based upon various service and compensation factors.

The following table sets forth the components of the consolidated net periodic pension expense for the three and six month periods ended August 31, 2007 and 2006, respectively (in thousands):


	Three Months Ended
	August 31,				Six Months Ended August 31,
	2007		2006		2007		2006
Components of net periodic benefit costs:
Service cost — benefits earned during the period	$	140	$	91	$	274	$	183
Interest cost on projected benefit obligations		87		109		174		219
Amortization of net obligation		65		82		130		158

Net periodic pension expense	$	292	$	282	$	578	$	560


	August 31,		February 28,
	2007		2007
Amounts recognized in accumulated other comprehensive income:
Transition obligation	$	474	$	603
Net income		190		190
Prior service cost		5		5

Total amount recognized in accumulated other comprehensive income	$	669	$	798

Annual benefit payments under these plans are expected to be approximately $0.6 million in fiscal 2008.

Additionally, the Company is the beneficiary of life insurance policies that have been purchased as a method of partially financing benefits under the Supplemental Executive Retirement Plan.

11. COMMON STOCK REPURCHASE PROGRAM

was expanded from one million shares to two million shares and in July 2002 the authorization was expanded from two million shares to three million shares. During the second quarter of fiscal 2008, 0.3 million shares were repurchased at a cost of $9.3 million. As of August 31, 2007, the Company had repurchased approximately 2.5 million shares of common stock at a cost of $41.3 million under this program.

12. OPERATING SEGMENT INFORMATION

Because of the impact marketplace technology convergence has had on the management of the Company’s business and internal reporting, beginning with the quarter ending November 30, 2005 the Company now is deemed to operate in and report as one business segment — the design, development, and marketing of semiconductor integrated circuits. This change had no impact on the Company’s disclosures because it previously aggregated the results of operating segments into one reportable segment under the aggregation criteria set forth in SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.”

13. COMMITMENTS AND CONTINGENCIES

United States Customs Liability Payment

On July 6, 2006 SMSC made a prior disclosure to the United States Commissioner of Customs (“Customs”) pursuant to 19 C.F.R. § 162.74 related to SMSC’s learning that in certain cases it has not declared the full value or costs of assists provided by SMSC to its foreign suppliers. SMSC conducted a comprehensive review of its customs entries over the past five years and determined the amount of the additional fees. SMSC filed with Customs on October 4, 2006 an updated disclosure, and tendered to Customs approximately $0.4 million for these prior periods.

OPTi, Inc. Patent Infringement Lawsuit

On July 3, 2007, OPTi, Inc. (“OPTi”) filed a lawsuit in the United States District Court for the Eastern District of Texas against the Company, Advanced Micro Devices, Inc., Atmel Corporation, Broadcom Corporation, Renesas Technology America, Inc., Silicon Storage Technology, Inc., STMicroelectronics, Inc., and Via Technology, Inc. OPTi’s Complaint alleges that the Company’s Low Pin Count products infringe two patents and seeks unspecified damages (including treble damages for willful infringement), attorneys fees and injunctive relief. On September 5, 2007, the Company answered the Complaint, denying OPTi’s allegations and asserting counterclaims for declaratory judgments of invalidity, unenforceability and noninfringement of the two patents-in-suit. No discovery schedule or trial date has been set. The Company intends to vigorously defend against the allegations of OPTi’s Complaint.

14. RECENT ACCOUNTING PRONOUNCEMENTS

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 (SMSC’s fiscal year beginning March 1, 2008). We plan to adopt SFAS No. 157 beginning in the first quarter of fiscal 2009. We are currently evaluating the impact, if any, the adoption of SFAS No. 157 will have on our operating income or net earnings.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”). SFAS No. 159 permits companies to choose to measure certain financial instruments and other items at fair value. The standard requires that unrealized gains and losses are reported in earnings for items measured using the fair value option. SFAS No. 159 is effective for fiscal years beginning November 15, 2007 (SMSC’s fiscal year beginning March 1, 2008). The Company is currently evaluating the impact, if any, the adoption of SFAS No. 159 will have on its financial position, results of operations and cash flows.

STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 2007

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

GENERAL

The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and accompanying notes included in Part I Item 1. — Financial Statements, of this Quarterly Report on Form 10-Q (“Quarterly Report”) of Standard Microsystems Corporation (the “Company” or “SMSC”).

Forward-Looking Statements

Portions of this report may contain forward-looking statements about expected future events and financial and operating results that involve risks and uncertainties. Words such as “believe,” “expect,” “anticipate” and similar expressions identify forward-looking statements. These uncertainties may cause the Company’s actual future results to be materially different from those discussed in forward-looking statements. The Company’s risks and uncertainties include the timely development and market acceptance of new products; the impact of competitive products and pricing; the Company’s ability to procure capacity from suppliers and the timely performance of their obligations, the effects of changing economic conditions domestically and internationally and on its customers; changes in customer order patterns, relationships with and dependence on customers and growth rates in the personal computer, consumer electronics and embedded and automotive markets and with the Company’s sales channel; changes in customer order patterns, including order cancellations or reduced bookings; the effects of tariff, import and currency regulation; potential or actual litigation; and excess or obsolete inventory and variations in inventory valuation, among others. In addition, SMSC competes in the semiconductor industry, which has historically been characterized by intense competition, rapid technological change, cyclical market patterns, price erosion and periods of mismatched supply and demand.

The Company’s forward looking statements are qualified in their entirety by the inherent risks and uncertainties surrounding future expectations and may not reflect the potential impact of any future acquisitions, mergers or divestitures. All forward-looking statements speak only as of the date hereof and are based upon the information available to SMSC at this time. Such statements are subject to change, and the Company does not undertake to update such statements, except to the extent required under applicable law and regulation. These and other risks and uncertainties, including potential liability resulting from pending or future litigation, are detailed from time to time in the Company’s reports filed with the United States Securities & Exchange Commission (“SEC”). Investors are advised to read the Company’s Annual Report on Form 10-K and quarterly reports on Form 10-Q as filed with the SEC, particularly those sections entitled “Risk Factors”, for a more complete discussion of these and other risks and uncertainties. Other cautionary statements and risks and uncertainties may also appear elsewhere in this report.

Description of Business

Many of the world’s global technology companies rely upon SMSC as a resource for semiconductor system solutions that span analog, digital and mixed-signal technologies. Leveraging intellectual property, integration expertise and global infrastructure, SMSC solves design challenges and delivers performance, space, cost and time-to-market advantages to its customers. SMSC’s application focus targets key vertical markets including consumer electronics & infotainment, mobile & desktop PCs and industrial applications. The Company has developed leading technology positions, providing application-specific solutions such as analog/mixed-signal system controllers, non-PCI Ethernet, ARCNET, MOST® and Hi-Speed USB. Each of these technologies is increasingly sold into multiple end markets, and the underlying technology, intellectual property and processes are increasingly being re-used and recombined into new solutions.

SMSC is headquartered in Hauppauge, New York with operations in North America, Taiwan, Japan, Korea, China, Singapore and Europe. Engineering design centers are located in Arizona, New York, Texas and Karlsruhe, Germany. Additional information is available at www.smsc.com.

CRITICAL ACCOUNTING POLICIES & ESTIMATES

This discussion and analysis of the Company’s financial condition and results of operations is based upon the unaudited condensed consolidated financial statements included in this report, which have been prepared in accordance with accounting principles for interim financial statements generally accepted in the United States. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period.

The Company believes that the critical accounting policies and estimates listed below are important to the portrayal of the Company’s financial condition and operating results, and require critical management judgments and estimates about matters that are inherently uncertain. Although management believes that its judgments and estimates are appropriate and reasonable, actual future results may differ from these estimates, and to the extent that such differences are material, future reported operating results may be affected.

	•		Revenue Recognition

	•		Inventory Valuation

	•		Determination of the Allowance for Doubtful Accounts Receivable

	•		Valuation of Long-Lived Assets

	•		Valuation of Share-Based Payments

	•		Accounting for Deferred Income Taxes

	•		Accounting for Uncertain Tax Positions

	•		Legal Contingencies

Further information regarding these policies appears within the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2007, as filed with the SEC on April 30, 2007. During the six month period ended August 31, 2007, there were no significant changes to any critical accounting policies or to the related estimates and judgments involved in applying these policies, other than the adoption of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Income Tax Uncertainties (“FIN 48”). FIN 48 defines the threshold for recognizing the benefits of tax return positions in the financial statements as “more-likely-than-not” to be sustained by the taxing authority. See Part I Item 1 — Financial Statements — Note 9, for further discussion on the Company’s adoption of FIN 48.

RESULTS OF OPERATIONS

Sales and Revenues

SMSC’s sales and revenues are comprised of sales of products across three strategically targeted “vertical” end-markets, as well as intellectual property revenues (consisting of royalties and similar contractual payments), as presented in the following tables for the three and six-month periods ended August 31, 2007 and 2006 (dollars in millions):


	Three Months Ended August 31,
	2007					2006
	Amount		Percent			Amount		Percent
Consumer Electronics & Infotainment	$	37.1		39	%	$	38.1		41	%
Mobile & Desktop PC		43.5		46	%		41.6		44	%
Industrial & Other		13.8		15	%		14.1		15	%

Total Product Sales		94.4		100	%		93.8		100	%
Intellectual Property Revenues		3.1					2.9

Total Sales and Revenues	$	97.5				$	96.7


	Six Months Ended August 31,
	2007					2006
	Amount		Percent			Amount		Percent
Consumer Electronics & Infotainment	$	68.0		39	%	$	69.1		39	%
Mobile & Desktop PC		75.1		44	%		79.0		45	%
Industrial & Other		29.9		17	%		29.0		16	%

Total Product Sales		173.0		100	%		177.1		100	%
Intellectual Property Revenues		6.1					5.7

Total Sales and Revenues	$	179.1				$	182.8

The Company’s sales and revenues for the three months ended August 31, 2007 were $97.5 million, consisting of $94.4 million of product sales and $3.1 million of intellectual property revenues. For the three months ended August 31, 2006 sales and revenues were $96.7 million, consisting of $93.8 million of product sales and $2.9 million of intellectual property revenues.

The Company’s sales and revenues for the six months ended August 31, 2007 were $179.1 million, consisting of $173.0 million of product sales and $6.1 million of intellectual property revenues. For the six months ended August 31, 2006 sales and revenues were $182.8 million consisting of $177.1 million of product sales and $5.7 million of intellectual property revenues.

Sales in the Consumer Electronics & Infotainment market decreased by approximately $1.0 million, or 3% in the quarter ended August 31, 2007 and by approximately $1.1 million, or 2% in the six-month period ended August 31, 2007 compared to the same periods in the prior year, primarily due to declines in Universal Serial Bus (“USB”) and Physical Layer Interface (“PLI”) product sales.

Sales in the Mobile & Desktop PC market increased by approximately $1.9 million, or 5%, in the quarter ended August 31, 2007 and decreased $3.9 million, or 5% in the six month period ended August 31, 2007 compared to the same periods in the prior year. The increase in Mobile & Desktop PC sales for the quarter was primarily attributable to a rebound in demand from some of the Company’s largest end customers in this end market, as overall PC market conditions improved from the first quarter of fiscal 2008. For the six-month period, sales were unfavorably impacted by the phase-out of certain lower margin products, consistent with a strategy adopted by the Company this fiscal year. This decline was partially offset by continued sales growth associated with new Analog Products and Technology (“APT”) products, as the Company continued to successfully broaden its APT product offerings.

Sales in the Industrial & Other market decreased approximately $0.3 million, or 2%, in the quarter ended August 31, 2007 compared to the same period in the prior year due to the timing of shipments. However, sales increased $0.9 million, or 3%, in the six-month period ended August 31, 2007 compared to the same period in the prior year as market demand for SMSC’s embedded computing designs and embedded networking technology increased both as a result of new product offerings and improved market penetration. The Company expects that overall industrial market adoption rates of embedded technology and market penetration due to enhanced product offerings will increase in the future.

Intellectual property revenues include $3.0 million and $2.8 million in the three months ended August 31, 2007 and 2006, respectively, and $6.0 million and $5.5 million in the six months ended August 31, 2007 and 2006, respectively, of payments received from Intel Corporation pursuant to the terms of a September 2003 business agreement.

Costs of Goods Sold

Costs of goods sold for the quarter ended August 31, 2007 was $47.9 million, or 49.1% of sales and revenues, as compared to $52.4 million, or 54.2% of sales and revenues, in the comparable prior year period. Excluding intellectual property revenues, costs of goods sold were 50.7% of product sales in the current year period compared to 55.8% in the same period last year. The decrease in costs of goods sold on a percentage basis in the current-year period compared to the prior-year results is primarily a result of ongoing cost reduction initiatives and the selective phase out of sales of lower margin products this fiscal year. Stock based compensation charges of $0.7 million are included in costs of goods sold in the current quarterly period as compared to a charge of $0.3 million in the three month period ended August 31, 2006.

Costs of goods sold for the six-month period ended August 31, 2007 was $86.7 million, or 48.4% of sales and revenues, as compared to $97.3 million, or 53.2% of sales and revenues, in the same period last fiscal year. Excluding intellectual property revenues, costs of goods sold were 50.1% of product sales in the current year period compared to 54.9% in the same period last year

Stock based compensation charges of $1.1 million are included in the current six-month period as compared to a credit of $0.1 million in the six-month period ended August 31, 2006.

Research and Development Expenses

R&D expenses were $18.2 million, or 18.7% of sales and revenues, for the three months ended August 31, 2007 compared to $17.1 million, or approximately 17.7% of sales and revenues, for the three months ended August 31, 2006. Stock based compensation charges of $2.2 million are included in the current quarterly period as compared to a charge of $1.3 million in the three month period ended August 31, 2006. Additionally, R&D expenses increased primarily due to increased headcount to support further investment in new product development.

R&D expenses were $36.2 million, or 20.2% of revenues, for the six months ended August 31, 2007 compared to $32.3 million, or approximately 17.7% of revenues, for the six months ended August 31, 2006. Stock based compensation charges of $4.0 million are included in the current six-month period as compared to a charge of $1.0 million in the six-month period ended August 31, 2006.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $21.7 million, or approximately 22.3% of sales and revenues, for the quarter ended August 31, 2007, compared to $18.2 million, or approximately 18.8% of revenues, for the quarter ended August 31, 2006. Stock based compensation charges of $3.7 million are included in the current quarterly period as compared to a charge of $1.9 million in the three month period ended August 31, 2006. Selling, general and administrative expenses also increased due to increased headcount and other infrastructure costs in support of business growth.

Selling, general and administrative expenses were $42.0 million, or approximately 23.4% of sales and revenues, for the six-month period ended August 31, 2007, compared to $32.0 million, or approximately 17.5% of sales and revenues, for the six-month period ended August 31, 2006. Stock based compensation charges of $6.3 million are included in the current six-month period as compared to a charge of $0.1 million in the six-month period ended August 31, 2006.

Amortization of Intangible Assets

Amortization expense was $1.7 million and $3.3 million for the three and six month periods ended August 31, 2007 representing the amortization of finite-lived intangible assets acquired in the March 2005 OASIS transaction and the June 2002 Gain Technology Corporation (“Gain”) transaction. For the three and six month periods ended August 31, 2006, the Company recorded $1.6 million and $3.1 million, respectively, of amortization expenses for the finite-lived intangible assets acquired in the Oasis transaction and the Gain transaction.

Interest and Other Income (Expense)

The increase in interest income, from $1.2 million and $2.3 million in the three and six-month periods ended August 31, 2006, to $1.7 million and $3.1 million in the three and six-month periods ended August 31, 2007, respectively, primarily reflects the impact of higher average invested balances and interest rates in the current year.

Provision for Income Taxes

The Company’s effective income tax rate reflects statutory federal, state and foreign tax rates, the impact of certain permanent differences between the book and tax treatment of certain expenses, and the impact of tax-exempt income and various income tax credits.

The provision for income taxes for the three and six-month periods ended August 31, 2007 was $0.4 million and $1.7 million, respectively, for an effective income tax rate of 4.4% on $9.7 million and an effective income tax rate of 12.0%, on $14.2 million of income before income taxes, respectively.

LIQUIDITY & CAPITAL RESOURCES

The Company currently finances its operations through a combination of cash generated by operations and existing working capital resources.

The Company’s cash, cash equivalents and liquid investments (including investments in marketable securities with maturities in excess of one year, if any) were $181.7 million at August 31, 2007, compared to $160.0 million at February 28, 2007.

Working capital increased $25.1 million, or 11.8%, to $237.3 million in the six month period ended August 31, 2007. Accounts receivable increased from $48.0 million at February 28, 2007 to $55.3 million at August 31, 2007. The Company’s inventories decreased to $42.6 million at August 31, 2007, compared to $50.9 million at February 28, 2007.

Operating activities provided $23.5 million of cash during the first six months of fiscal 2008, compared to $5.5 million of cash generated during the first six months of fiscal 2007. Comparative operating cash flows primarily reflect a substantial decrease in net inventory investment, as well as substantial decreases in accounts payable and accounts receivable due to the overall decrease in sales volume and related activities relative to the first six months of fiscal 2007. In the six months ended August 31, 2007, approximately $8.5 million of cash was provided by a reduction in net inventories, compared to the six months ended August 31, 2006, in which approximately $11.0 million of cash was used for net inventory build. The Company is actively managing its inventory levels to minimize inventory investment while ensuring adequate supply and maximizing cost efficiency opportunities.

Investing activities consumed $31.9 million of cash during the six month period ended August 31, 2007, reflecting a $26.6 million increase of short-term investments and $5.3 million in capital expenditures. Capital expenditures were significantly lower than in the six month period ended August 31, 2006, which included expenditures for new test and other related production equipment, as well as the completion of the Hauppauge, New York headquarters building expansion.

Net cash provided by financing activities of $3.3 million during the six month period ended August 31, 2007, consisted of $12.8 million of proceeds from exercises of stock options and $1.0 million of excess tax benefits from stock-based compensation, offset by $9.3 million of treasury stock purchases and $1.2 million of payments under supplier financing arrangements. Net cash of $3.7 million used for financing activities during the first six months of fiscal 2007 included $6.1 million of treasury stock purchases and $0.6 million used in the repayment of long term financing, offset by $2.8 million of proceeds from exercises of stock options and $0.2 million of excess tax benefits from stock-based compensation.

In October 1998, the Company’s Board of Directors approved a common stock repurchase program, allowing the Company to repurchase up to one million shares of its common stock on the open market or in private transactions. In July 2000, the authorization was expanded from one million shares to two million shares and in July 2002 the authorization was expanded from two million shares to three million shares. As of August 31, 2007, the Company had repurchased approximately 2.5 million shares of common stock at a cost of $41.3 million under this program.

The Company has considered in the past, and will continue to consider, various possible transactions to secure necessary wafer foundry or assembly/test manufacturing capacity, including equity investments in, prepayments or equipment consignments to, or deposits with foundries in exchange for guaranteed capacity or other arrangements which address the Company’s manufacturing requirements. The Company may also consider utilizing cash to acquire or invest in complementary businesses or products or to obtain the right to use complementary technologies. From time to time, the Company may evaluate potential acquisitions of or investments in such businesses, products or technologies owned by third parties.

The Company expects that its cash, cash equivalents, short-term investments, cash flows from operations and its potential borrowing capacity will be sufficient to finance the Company’s operating and capital requirements for the next twelve months and for the foreseeable future.

COMMITMENTS AND CONTINGENCIES

United States Customs Liability Payment

OPTi, Inc. Patent Infringement Lawsuit

On July 3, 2007, OPTi, Inc. (“OPTi”) filed a lawsuit in the United States District Court for the Eastern District of Texas against the Company, Advanced Micro Devices, Inc., Atmel Corporation, Broadcom Corporation, Renesas Technology America, Inc., Silicon Storage Technology, Inc., STMicroelectronics, Inc., and Via Technology, Inc. OPTi’s Complaint alleges that the Company’s Low Pin Count products infringe two patents and seeks unspecified damages (including treble damages for willful infringement), attorneys fees, and injunctive relief. On September 5, 2007, the Company answered the Complaint, denying OPTi’s allegations and asserting counterclaims for declaratory judgments of invalidity, unenforceability and noninfringement of the two patents-in-suit. No discovery schedule or trial date has been set. The Company intends to vigorously defend against the allegations of OPTi’s Complaint.

RECENT ACCOUNTING PRONOUNCEMENTS

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 (SMSC’s fiscal year beginning March 1, 2009). We plan to adopt SFAS No. 157 beginning in the first quarter of fiscal 2009. We are currently evaluating the impact, if any, the adoption of SFAS No. 157 will have on our operating income or net earnings.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”). SFAS No. 159 permits companies to choose to measure certain financial instruments and other items at fair value. The standard requires that unrealized gains and losses are reported in earnings for items measured using the fair value option. SFAS No. 159 is effective for fiscal years beginning November 15, 2007 (SMSC’s fiscal year beginning March 1, 2009). The Company is currently evaluating the impact, if any, the adoption of SFAS No. 159 will have on its financial position, results of operations and cash flows.

Item 3. — Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

The Company’s exposure to interest rate risk relates primarily to its investment portfolio. The primary objective of SMSC’s investment portfolio management is to invest available cash while preserving principal and meeting liquidity needs. In accordance with the Company’s investment policy, investments are placed with high credit-quality issuers and the amount of credit exposure to any one issuer is limited.

As August 31, 2007, the Company’s $150.3 million of short-term investments consisted primarily of investments in auction rate securities, and investments in corporate, government and municipal obligations with maturities of between three and twelve months at acquisition. Auction rate securities have long-term underlying maturities, but have interest rates that are reset every 90 days or less, at which time the securities can typically be purchased or sold.

As with all fixed-income instruments, these securities are subject to interest rate risk and would likely decline in market value if market interest rates increase. If market interest rates were to increase immediately and uniformly by 10% from levels at August 31, 2007, the Company estimates that the fair values of these investments would decline by an immaterial amount, due to the portfolio’s relatively short-term overall maturity. Furthermore, the Company has the option to hold its fixed-income investments until maturity and, therefore, would not expect to realize any material adverse impact to its results from operations or cash flows from such a decline. Declines in market interest rates would, over time, reduce the Company’s interest income.

Equity Price Risk

The Company has no material investments in equity securities of other companies on its Consolidated Balance Sheet as of August 31, 2007.

Foreign Currency Risk

The Company has international sales and expenditures and is, therefore, subject to certain foreign currency rate exposures. The Company conducts a significant amount of its business in Asia. In order to reduce the risk from fluctuation in foreign exchange rates, most of the Company’s product sales and all of its arrangements with its foundry, test and assembly vendors are denominated in U.S. dollars. Most transactions in the Japanese market made by the Company’s subsidiary, SMSC Japan, are denominated in Japanese yen. SMSC Japan purchases a significant amount of its products for resale from SMSC in U.S. dollars, and from time to time has entered into forward exchange contracts to hedge against currency fluctuations associated with these product purchases. No such contracts were executed during either fiscal 2007 or the first six months of fiscal 2008, and there are no obligations under any such contracts as of August 31, 2007. The Company has never received a cash dividend (repatriation of cash) from SMSC Japan.

OASIS’ operating activities in Europe include transactions conducted in both euros and U.S. dollars. The euro has been designated as OASIS’ functional currency for its European operations. From time to time, OASIS has entered into foreign currency contracts to minimize the exposure of its U.S. dollar denominated transactions, assets and liabilities to currency exchange rate risk. Gains or losses on these contracts are intended to offset the gains or losses recorded from the remeasurement of certain assets and liabilities from U.S. dollars into euros. No such contracts were executed during either fiscal 2007 or the first six months of fiscal 2008, and there are no obligations under any such contracts as of August 31, 2007. Gains and losses recorded from the remeasurement of U.S. dollar denominated assets and liabilities into euros, were not significant during the three and six month periods ended August 31, 2007.

Item 4. — Controls and Procedures

The Company has carried out an evaluation under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon the Company’s evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of August 31, 2007, the disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in the reports the Company files under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.

There have been no changes in the Company’s internal control over financial reporting during the Company’s fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II

Item 1. Legal Proceedings

Item 1.A. — Risk Factors

Readers of this Quarterly Report on Form 10-Q should carefully consider the risks described in the Company’s other reports filed or furnished with the SEC, including the Company’s prior and subsequent reports on Forms 10-K, 10-Q and 8-K, in connection with any evaluation of the Company’s financial position, results of operations and cash flows.

The risks and uncertainties described in the Company’s most recent Annual Report on Form 10-K, filed with the SEC as of April 30, 2007, are not the only ones facing the Company. Additional risks and uncertainties not presently known or those that are currently deemed immaterial may also affect the Company’s operations. Any of the risks, uncertainties, events or circumstances described therein could cause the Company’s future financial condition, results of operations or cash flows to be adversely affected.

Item 2. — Unregistered Sales of Equity Securities and Use of Proceeds

(a) None.

(b) None.

In October 1998, the Company’s Board of Directors approved a common stock repurchase program, allowing the Company to repurchase up to one million shares of its common stock on the open market or in private transactions. In July 2000, the authorization was expanded from one million shares to two million shares and in July 2002 the authorization was expanded from two million shares to three million shares. During the second quarter of fiscal 2008, 0.3 million shares were repurchased at a cost of $9.3 million. As of August 31, 2007, the Company had repurchased approximately 2.5 million shares of common stock at a cost of $41.3 million under this program.

Total

Number of

Shares

Maximum

Total

Purchased as

Number of

Average

Part of Publicly

Shares that

Shares

Price per

Announced

may Yet be

Period

Purchased

Share

Plans

Purchased

July 2007

103,090

33.92

103,090

651,826

August 2007

164,728

35.15

164,728

487,098

Total

267,818

34.67

267,818

487,098

Item 3. — Defaults Upon Senior Securities

None.

Item 4. — Submission of Matters to a Vote of Security Holders

On July 17, 2007 the Company held its annual meeting of stockholders. Mr. Timothy P. Craig and Mr. Ivan T. Frisch were elected as directors to serve until the Company’s 2010 annual meeting of stockholders. Messrs. Steven J. Bilodeau, Andrew M. Caggia, Peter F. Dicks and James A. Donahue continued as directors after the annual meeting. In addition to the election of directors, the stockholders also voted to ratify the appointment of PricewaterhouseCoopers LLP as the Company’s registered independent public accounting firm. No other matters were considered at the annual meeting. Set forth below are the numbers of votes cast for, against, withheld and abstentions, for each matter considered at the annual meeting. There were no broker non-votes for any matter considered at the annual meeting.


	For		Against		Withheld		Abstentions
Election of Timothy P. Craig		20,874,015				390,013
Election of Ivan T. Frisch		20,780,316				483,712
Proposal to ratify the appointment of PricewaterhouseCoopers, LLP as the Company’s registered independent public accounting firm		21,200,331		55,249				8,447

Item 5. — Other Information

Effective September 24, 2007 the Board of Directors of the Company (the “Board”) unanimously consented to amend the Company’s By-Laws to allow the Company to issue uncertificated shares to become eligible to participate in a direct registration program as required by amendments to NASDAQ listing requirements. In addition, for clarification purposes only, the By-Laws were also amended to explicitly authorize the Board and its committees to act by consent without a meeting by email or other forms of electronic transmission. The description of the amended By-laws is qualified in its entirety by the full text of that document, attached hereto as Exhibit 3.2 and incorporated herein by reference.

Item 6. — Exhibits


3.2	—	Amended and Restated By-Laws of Standard Microsystems Corporation, effective September 24, 2007.

31.1	—	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) (17 CFR 240.13a-14(a)), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	—	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) (17 CFR 240.13a-14(a)), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	—	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


Part I — FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of August 31, 2007 and February 28, 2007
Condensed Consolidated Income Statements for the Three and Six-Month Periods Ended August 31, 2007 and 2006
Condensed Consolidated Statements of Cash Flows for the Six-Month Periods Ended August 31, 2007 and 2006
Notes to Condensed Consolidated Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II — OTHER INFORMATION
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits
Signatures
Amended & Restated Bylaws
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350

STANDARD MICROSYSTEMS CORPORATION

/s/ Joseph S. Durko

(Signature)

Joseph S. Durko
Vice President, Corporate Controller and Chief
Accounting Officer (duly authorized officer)

DATE: September 25, 2007


Exhibit
No.		Description
3.2	—	Amended and Restated By-Laws of Standard Microsystems Corporation, effective September 24, 2007.

31.1	—	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) (17 CFR 240.13a-14(a)), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	—	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) (17 CFR 240.13a-14(a)), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	—	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.