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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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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 March 29, 2003,
|   |  |                                          
|or

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

| |  |                                                             
| |  | ------------------------------------------------------------
| |  | For the transition period from           
   to            .

Commission file number: 0-22594



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Alliance Semiconductor Corporation

(Exact name of Registrant as specified in its charter)


|                                                                       |  |                                                  
|---------------------------------------------------------------------- |  | -------------------------------------------------
|Delaware(State or other jurisdiction of
incorporation or organization) |  | 77-0057842(I.R.S. Employer
Identification Number)

2575 Augustine Drive
Santa Clara, California 95054-2914(Address of principal executive offices)

Registrants telephone number, including area code is (408) 855-4900



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

Securities registered pursuant to Section 12(g) of the Act:

|                              |  |                                          
|----------------------------- |  | -----------------------------------------
|Title of each class           |  | Name of each exchange on which registered
|                              |  |                                          
|Common Stock, par value $0.01 |  | Nasdaq                                   

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 [  ]

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 registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [  ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12(b)(2) of the Exchange Act). Yes [  ] No [X]

The
aggregate market value of the voting common equity held by non-affiliates of
the Registrant was approximately $69,340,000 as of
September 27, 2002, based upon
the closing sale price computed by reference to the closing price for Common
Stock as quoted by the Nasdaq National Stock Market reported for such date.
Shares of Common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded since such
persons may be deemed to be affiliates of Alliance Semiconductor. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.

As of June 13, 2003, there were 34,998,226 shares of Registrants Common
Stock outstanding. The aggregate market value of the voting stock held by
non-affiliates of the registrant on June 13, 2003, based upon the closing price
of the Common Stock on the Nasdaq National Market for such date, was
approximately $74,600,000.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Registrants definitive Proxy Statement for its 2003 Annual
Meeting of Stockholders (Proxy Statement) to be filed pursuant to Regulation
14A of the Securities and Exchange Commission under the Securities Exchange Act
of 1934, as amended, which is anticipated to be filed within 120 days after the
end of Registrants fiscal year ended March 29, 2003, are incorporated by
reference into Part III hereof. Item 14 of Part III is included
on page 31 herein.

Exhibit Index on page 33



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TABLE OF CONTENTS



|              |                                                                                                                          |  |  |  |  |  |  | 
|------------- | ------------------------------------------------------------------------------------------------------------------------ |  |  |  |  |  |  | 
|PART I       
|              | Item 1. Business                                                                                                        
|              | Item 2. Facilities                                                                                                      
|              | Item 3. Legal Proceedings                                                                                               
|              | Item 4. Submission of Matters to a Vote of Security Holders                                                             
|PART II      
|              | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                                           
|              | Item 6. Selected Consolidated Financial Data                                                                            
|              | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations                           
|              | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                                                     
|              | Item 8. Consolidated Financial Statements and Supplementary Data                                                        
|              | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                            
|PART III     
|              | Item 10. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act
|              | Item 11. Executive Compensation                                                                                         
|              | Item 12. Security Ownership of Certain Beneficial Owners and Management                                                 
|              | Item 13. Certain Relationships and Related Transactions                                                                 
|              | Item 14. Controls and Procedures                                                                                        
|              | Item 15. Principle Account Fees and Services                                                                            
|              | Item 16. Exhibits, Financial Statements, Financial Statement Schedules and Reports on Form 8-K                          
|EXHIBIT INDEX
|SIGNATURES   
|EXHIBIT 10.52
|EXHIBIT 10.53
|EXHIBIT 21.01
|EXHIBIT 23.01
|EXHIBIT 99.01
|EXHIBIT 99.02
|EXHIBIT 99.03
|EXHIBIT 99.04



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PART I

Forward Looking Statements

This Report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended, including, but not limited to
statements as to future operating results and plans that involve risks and
uncertainties. We use words such as expects, anticipates, believes,
estimates and similar expressions to identify forward looking statements.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance or
achievements of the Company to differ materially from any future results,
performance or achievements expressed or implied by those projected in the
forward-looking statements for any reason, including the risks and
uncertainties set forth in Item 1 of Part I hereof (entitled Business) and in
Item 7 of Part II hereof (entitled Factors Affecting Future Results) and
elsewhere in this report.




Item 1.Business

Overview

Alliance Semiconductor Corporation is a worldwide provider of memory,
mixed signal and system solutions for the networking, wireless, consumer and
computing markets. Through these integrated business units, Alliance provides
leading OEMs with mixed signal products for Electromagnetic
Interference (EMI)
management, high speed chip-to-chip interconnects based on
HyperTransport
technology, as well as synchronous and fast asynchronous static random access
memory (SRAM), super low power pseudo SRAMs and dynamic random access memory
(DRAM).

The Company, incorporated in California on February 4, 1985 and
reincorporated in Delaware on October 26, 1993, is headquartered in Santa
Clara, California with major design centers in Bangalore and Hyderabad, India
and international sales offices in Asia, Japan and Europe.

The Companys transition from being solely focused on memory products to
one providing solutions for next-generation applications was a proactive
response to the prolonged and severe decline in average selling prices (ASPs)
and end user demand for our memory products during ten of the last eleven quarters. To
offset the affects of declining selling prices and its impact on revenue, the
Company modified its strategy to diversify its product mix to focus on
additional, high growth markets with value-added products outside of high
performance memory, including mixed signal and system solutions products.
As part of this diversification strategy, the Company completed two
acquisitions during fiscal 2003 and 2002 to accelerate the transition.

In January 2002, the Company acquired the assets of PulseCore, Inc.
(PulseCore), a fabless semiconductor company specializing in high speed and
low power mixed signal products. The acquisition of PulseCore formed the
foundation for our Mixed Signal business unit. The acquisition cost was $5.1
million and was accounted for using the purchase method in accordance with SFAS
141 and, accordingly, PulseCores results of operations have been included in
the accompanying consolidated financial statements from the date of
acquisition. Net revenues from sales of PulseCore products were $2.9 million
in fiscal 2003 and were immaterial in fiscal 2002.

In January 2003, the Company completed the acquisition of Chip Engines,
Inc. (Chip Engines), a development stage company that designs semiconductor
products for the networking, communications, cable and storage markets. Chip
Engines is the most recent acquisition which supports the Companys
diversification strategy. The acquisition provides new research and
development resources to its System Solutions business unit. The Company held
a net investment of $4.8 million in Chip Engines prior to the acquisition in
part through its ownership of Alliance Ventures and investment in Solar
Venture. The acquisition was accounted for as a purchase of assets and Chip
Engines results of operations have been included in the accompanying
consolidated financial statements from the date of acquisition.

The semiconductor industry is highly cyclical and subject to significant
downturns at various times that are typically characterized by diminished
product demand, production overcapacity and under capacity, and accelerated
erosion of ASPs. The market for the Companys memory devices has experienced
excess supply relative to demand, which has resulted in a significant downward
pressure on ASPs for the past two years.

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The ASP that the Company is able to command for its memory products is
highly dependent on industry-wide production capacity and demand. In fiscal
2003, the Company experienced, as it did in previous years, rapid erosion in
product pricing which is not within the control of the Company and which will
continue to have an adverse material effect on the Companys results of
operations. At this time, the Company is unable to predict the future prices
for its products.

Throughout this report, the Company has indicated its fiscal years as
ending on March 31, whereas the Companys fiscal year actually ends on the
Saturday nearest the end of March. The fiscal years 2003, 2002 and 2001 all
contained 52 weeks.

Products

Mixed Signal

The Companys Mixed Signal business unit products are designed around low
EMI frequency timing technology which are designed to utilize Spread Spectrum
Modulation (SSM) techniques for EMI reduction, in conjunction
with proprietary direct digital synthesis. This serves as a basis for many application specific
standard products (ASSPs).

EMI Suppression

The EMI suppression ICs are designed to provide extensive programmability
and features in the smallest, lowest cost packages available.

To help resolve EMI compliance issues at the beginning of the design
phase, the Company offers a proprietary software simulation tool,
EMI-Lator,
which is correlated to its line of EMI management products. This provides
greater predictability and improved time-to-market over the traditional
train-and-error approach, where EMI issues are addressed at the end of the
engineering cycle.

Power Management

High frequency switching of currents and voltages are the primary cause of
electro-magnetic radiation. Because of this, naturally, Switched Mode Power
Supplies (SMPS) have always been serious EMI radiators.

The power products line of integrated circuits is an extension of the
Companys EMI suppression products that address and provide EMI solutions for
Switched Mode Power Supplies.

The Company currently produces more than 40 different mixed signal
products. Sales from the Mixed Signal business unit accounted for 16% of net
revenues for fiscal 2003 and less than 1% of net revenues during fiscal 2002 and 2001,
respectively.

System Solutions

Within the System Solutions business unit, the Company develops integrated
circuits that are designed to provide solutions that accelerate the
transmission and switching of data, video and voice in performance and
bandwidth-intensive networking, storage and server markets.

HyperTransport

The product portfolio includes a line of high speed and high-bandwidth
chip-to-chip interconnects including HyperTransport (HT)-to-Peripheral
Component Interface (PCI) bridges and HT-to-HT switches. The family of
interconnects can expand the possibilities for todays system architects and
designers by providing them with design options based on HT, PCI and industry
standard networking and Input/Output interconnect technologies.

The Company believes the chip-to-chip interconnect line will be a key
building block in a number of different systems including storage systems and
switches, imaging and graphics systems, LAN switches, servers, access and edge
routers. These solutions are currently planned to include a complete
eco-system that incorporates integrated circuit devices with software
drivers, protocol stacks, reference designs, evaluation kits and an extensive
set of documentation to speed customer time-to-market.

Sales
from the System Solutions business unit accounted for 9% of net revenues
during fiscal 2003, and 0% of net revenues in fiscal 2002 and 2001.

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Memory

SRAM

SRAMs are used for the storage and retrieval of data in
telecommunications, data communication, networking, consumer and wireless
markets, as well as others. The Company produces SRAMs for a wide variety of
applications, including high-performance or high-bandwidth applications that
require a buffer or cache of high-speed memory to provide data access and
data routing quickly. The Company offers a wide variety of SRAM products,
including high-speed synchronous SRAMs, fast asynchronous SRAMs and low power
pseudo SRAMs. The Companys SRAM products are offered in a broad range of
densities, from 64 Kbit to 8 Mbit, packages, speed grades as fast as 8ns and
power ranges with stand by power as low as 20uA. Currently, the Companys most
advanced SRAM products are manufactured using 0.13 micron technology. Sales of
the Companys SRAM products accounted for 41% of the Companys net revenues in
fiscal 2003. During fiscal 2002 and 2001, SRAM products contributed
approximately 50% and 43%, respectively, to the Companys net revenues.

DRAM

DRAMs are high density, low-cost-per-bit, random access memory components
that store digital information and provide high-speed storage and retrieval of
data. DRAMs are the most widely used semiconductor memory component in computer
systems. The Companys primary DRAM products are 4-Mbit and 16-Mbit densities
in various configurations. Sales of the Companys DRAM products accounted for
34% of the Companys net revenues in fiscal 2003. During fiscal years 2002 and
2001, DRAM products accounted for 48% and 57%, respectively, of the Companys
net revenues.

Product Development

Timely development and introduction of new products are essential to
maintaining the Companys competitive position. The Company currently develops
all of its products in-house and has 183 development personnel (65 in the
United States and 118 in India) as of March 31, 2003. The Company uses a
workstation-based computer-aided design environment to design and prototype new
products. The Companys design process uses network computing, high-level
design methodologies, simulators, circuit synthesizers and other related tools.
During fiscal 2003, 2002, and 2001, the Company spent approximately $24.5
million, $10.4 million, and $13.8 million, respectively, on product development
activities. The Company plans to continue to invest substantial amounts in
development to design additional products.

The markets for the Companys products are characterized by rapid
technological change, evolving industry standards and product obsolescence. The
Companys future success will be highly dependent upon the timely completion
and introduction of new products at competitive performance levels. The success
of new product offerings, and its existing product lines, depends on a variety
of factors, including product selection, successful and timely completion of
product development, the Companys ability to secure sufficient foundry
capacity for volume manufacturing of wafers, achievement of acceptable wafer
fabrication yields (the proportion of good die on a silicon wafer) by the
Companys independent foundries and the Companys ability to offer products at
competitive prices. There can be no assurance that the Company will be able to
identify new product opportunities successfully, or develop and bring to market
such new products in a timely and cost effective manner, or that the Company
will be able to respond effectively to new technological changes or new product
announcements by others. There also can be no assurance that the Company can
secure adequate foundry capacity for the production of such products, or obtain
acceptable manufacturing yields necessary to enable the Company to offer
products at competitive prices. Additionally, there can be no assurance that
the Companys products will gain or maintain market acceptance. Such
inabilities could materially and adversely affect the Companys results of
operations.

The markets for the Companys products are volatile and subject to rapid
technological and price change. Any inventory of products for those markets may
be subject to obsolescence and price erosion, which could materially and
adversely affect the Companys results of operations.

Customers

The Companys primary customers are major domestic and international
manufacturers of personal computer and computer peripherals, consumer,
networking, telecommunications and wireless products, including; Takebishi,
Mitronics, Celestica, 3Com, Mecnet, Kanematsu, BenQ Technologies, LG Philips,
Teksel, General Instruments, Solectron, Samsung, Eastele, Linpo Precision,

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Sabre, Republic Electronics, SCI Systems, and Rockwell. A decline in
demand in these industries or lack of success in developing new markets or new
products has had and may continue to have a material adverse effect on the
Companys results of operations.

Sales to the Companys customers are typically made pursuant to specific
purchase orders, which may be canceled by the customer without enforceable
penalties. During each of fiscal 2003, 2002 and 2001, no single customer accounted for
more than 10% of the Companys net revenues.

Historically, the semiconductor industry in general, and the semiconductor
memory business in particular, have experienced cyclical downturns in business
every few years. The industry experienced such a downturn in the mid 1990s and
had recovered during the late 1990s. Beginning in the fourth fiscal quarter
of fiscal 2001, the industry and the Company experienced a significant
downturn. The Company cannot predict when the current downturn will end. Even
after the end of the current downturn, the Company fully expects that other
downturns will occur. It is difficult to predict when such downturns will
occur, and when customers will start canceling orders. There can be no
assurance that the Company will be able to manage its business in a manner so
as to prepare for downturns, when they occur. Additionally, even if the Company
is able to prepare for downturns, any such downturns would have a significant
and material negative impact on the Companys ability to sell products and
results of operations, and such a negative impact on the Company may last
several years.

Sales and Marketing

The Company markets and distributes its products through a network of
sales offices, manufacturers representatives and distributors throughout North
America, Europe, Asia and the rest of the world.

The Company uses manufacturers representatives and distributors who are
not subject to minimum purchase requirements and who can discontinue marketing
the Companys products at any time. Many of the Companys distributors are
permitted to return a limited amount of product purchased in exchange for
future orders. The loss of one or more manufacturers representatives or
distributors could have a material adverse effect on the Companys results of
operations. The Company believes that its relations with its manufacturers
representatives and distributors generally are good.

The Company believes that customer service and technical support are
important competitive factors in selling to major customers. The Company
provides technical support to its customers worldwide. Distributors and
manufacturers representatives supplement the Companys efforts by providing
additional customer service at a local level. The Company also works closely
with its customers in the qualification of its products and providing the
needed quality and reliability data. The Company believes that close contact
with its customers not only improves the customers level of satisfaction but
also provides important insights into future market directions.

International
revenues accounted for approximately 69%, 74%, and 63% of
net revenues in fiscal 2003, 2002 and 2001, respectively. The Company expects
that international sales will continue to represent a significant portion of
net revenues. In addition, the Companys products are manufactured, assembled
and tested by independent third parties primarily located in Asia and North
America, and the Company has in the past, and intends in the future, to make
investments in certain foundries in Asia or elsewhere, including Israel, in
order to secure production capacity. Due to its international sales and
independent third party manufacturing, assembly and testing operations, the
Company is subject to the risks of conducting business internationally. These
risks include unexpected changes in regulatory requirements, delays resulting
from difficulty in obtaining export licenses of certain technology, tariffs and
other barriers and restrictions, and the burdens of complying with a variety of
foreign laws. The Company is also subject to general geopolitical risks in
connection with its international operations, such as political and economic
instability and changes in diplomatic and trade relationships. In addition,
because the Companys international sales generally are denominated in U.S.
dollars, fluctuations in the U.S. dollar could increase the price in local
currencies of the Companys products in foreign markets and make the Companys
products relatively more expensive than competitors products that are
denominated in local currencies. There can be no assurance that such
regulatory, geopolitical or other factors will not adversely impact the
Companys results of operations in the future or require the Company to modify
its current business practices.

Manufacturing

The Company subcontracts its manufacturing to independent foundries, which
allows the Company to avoid the significant capital investment required for
wafer fabrication facilities. The Company, however, has entered into agreements
providing for the investment

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of significant sums for the formation of companies to build and operate
manufacturing facilities or to obtain guaranteed capacity as described below.
As a result, the Company focuses its resources on product design and
development, quality assurance, marketing and sales, and customer support. The
Company designs its products using proprietary circuit modules and standard
fabrication processes in order to operate within the process parameters of its
contract manufacturers.

The Companys major foundry relationships are with United Microelectronics
Corporation (UMC) in Taiwan and Japan, Chartered Semiconductor Manufacturing
Ltd. (Chartered) in Singapore and National Semiconductor Corporation
(National) in the United States. In fiscal 2001, the Company entered into a
foundry production agreement with Tower Semiconductor, Ltd. (Tower), in
conjunction with an investment in a new fabrication facility being constructed
by Tower in Israel. To date the Company has not used the Tower facility for
production purposes. Although the Company believes it currently has adequate
capacity to address market requirements, there can be no assurance that in the
future the Companys current foundry relationships, together with any
additional sources, would be willing or able to satisfy all of the Companys
requirements on a timely basis. The Company has encountered delays in the
qualification process and production ramp-up in the past, and qualification or
production ramp-up at any additional foundries could take longer than
anticipated. The Company has entered into equity arrangements in order to
obtain an adequate supply of wafers, especially wafers manufactured using
advanced process technologies. The Company will continue to consider various
possible transactions, including but not limited to equity investments in
independent wafer manufacturers, in exchange for guaranteed production; the
formation with others of new companies to own and operate foundries; the usage
of take or pay contracts that commit the Company to purchase specified
quantities of wafers over extended periods; and the licensing of certain of the
Companys designs, in order to obtain an adequate supply of wafers using
advanced process technologies. There can be no assurance, however, that the
Company would be able to consummate any such transaction in a timely manner, or
at all, or on terms commercially acceptable to the Company.

In addition, some of UMCs foundries are located in the Science-Based
Industrial Park in Hsin-Chu City, Taiwan. The Company currently expects these
foundries to supply the substantial portion of the Companys products in fiscal
2004. The Company has experienced disruption of the operations at its
foundries, and any future disruptions for any reason, including work stoppages,
an outbreak of Severe Acute Respiratory Syndrome (SARS), fire, earthquakes,
or other natural disasters, could cause delays in shipments of the Companys
products, and could have a material adverse effect on the Companys results of
operations. In 1997, a fire caused extensive damage to one of UMCs foundries,
not used by the Company, which is located in the Hsin-Chu Science-Based
Industrial Park in Taiwan. There have been at least two other fires at
semiconductor manufacturing facilities in the Hsin-Chu Science-Based Industrial
Park. There can be no assurance that fires or other disasters will not have a
material adverse effect on UMC in the future. In addition, as a result of the
rapid growth of the semiconductor industry based in the Hsin-Chu Science-Based
Industrial Park, severe constraints have been placed on the water and
electricity supply in that region. Any shortages of water or electricity could
adversely affect the Companys foundries ability to supply the Companys
products, which could have a material adverse effect on the Companys results
of operations.

The Company is using multiple sources for certain of its products, which
may require the Companys customers to perform separate product qualifications.
The Company has not, however, developed alternate sources of supply for certain
other products, and its newly introduced products are typically produced
initially by a single foundry until alternate sources can be qualified. The
requirement that a customer perform separate product qualifications or a
customers inability to obtain a sufficient supply of products from the Company
may cause that customer to satisfy its product requirements from the Companys
competitors, which would adversely affect the Companys results of operations.

Reliance on these foundries involves several risks, including constraints
or delays in timely delivery of the Companys products, reduced control over
delivery schedules, quality assurance, costs and loss of production due to
seismic activity, weather conditions and other factors. Although the Company
continuously evaluates sources of supply and may seek to add additional foundry
capacity, there can be no assurance that such additional capacity can be
obtained at acceptable prices, if at all. The occurrence of any supply or other
problem resulting from these risks could have a material adverse effect on the
Companys results of operations. There can be no assurance that problems
affecting manufacturing yields of the Companys products will not occur in the
future.

The Company uses offshore subcontractors, which are located primarily in
Taiwan and Singapore, for die assembly and testing. In the assembly process, the
silicon wafers are separated into individual dies that are then assembled into
packages and tested in accordance with procedures developed by the Company.
Following assembly, the packaged devices are further tested and inspected
pursuant to the Companys quality assurance program before shipment to
customers. While the timeliness, yield and quality of product deliveries from
the Companys suppliers of assembly and test services have been acceptable to
date, there can be no assurance that problems will not occur in the future. Any
significant disruption in adequate supplies from these subcontractors, or any
other circumstances that would require the Company to qualify alternative
sources of supply, could delay shipment and result in the loss
of

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customers, limitations or reductions in the Companys revenue, and other
adverse effects on the Companys results of operations. Most of the Companys
wafer foundries, assembly and testing facilities comply with the requirements
of ISO 9000.

There is an ongoing risk that the suppliers of wafer fabrication, wafer
sort, assembly and test services to the Company may increase the price charged
to the Company for the services they provide, to the point that the Company may
not be able to profitably have its products produced by such suppliers. The
occurrence of such price increases could have a material adverse effect on the
Companys results of operations.

The Company also is subject to the risks of shortages and increases in the
cost of raw materials used in the manufacture or assembly of the Companys
products. Shortages of raw materials or disruptions in the provision of
services by the Companys assembly or testing houses or other circumstances
that would require the Company to seek alternative sources of supply, assembly
or testing could lead to constraints or delays in timely delivery of the
Companys products. Such constraints or delays may result in the loss of
customers, limitations or reductions in the Companys revenue or other adverse
effects on the Companys results of operations. The Companys reliance on
outside foundries and independent assembly and testing houses involves several
other risks, including reduced control over delivery schedules, quality
assurance and costs. Interruptions in supply at the Companys foundries or
assembly or testing houses may cause delays in delivery of the Companys
products. The occurrence of any supply or other problem resulting from the
risks described above could have a material adverse effect on the Companys
results of operations.

Competition

The semiconductor industry is intensely competitive and is characterized
by price erosion, rapid technological change, product obsolescence and
heightened international competition in many markets. Many of the Companys
customers may be purchasing products from both the Company and the Companys
competitors. The Companys principal competitors include Cypress Semiconductor
Corporation, Integrated Device Technology, Inc., Integrated Silicon Solutions,
Inc., PLX Technology, Samsung, Toshiba, and other U.S., Japanese, Korean, and
Taiwanese manufacturers. Most of the Companys competitors and potential
competitors have substantially greater financial, technical, marketing,
distribution and other resources, broader product lines and longer-standing
relationships with customers than the Company. During an industry downturn such
as the current downturn and such as has occurred previously, companies that
have broader product lines and longer-standing customer relationships may be in
a stronger competitive position than the Company. In addition, the Company has
entered into new markets, where it faces additional competition. Markets for
most of the Companys products are characterized by intense price competition.
The Companys future success will be highly dependent upon the successful
development and timely introduction of new products that meet the needs of the
market at a competitive price. There can be no assurance that the Company will
be able to develop or market any such products successfully. The Company
believes that its ability to compete successfully depends on a number of
factors both within and outside of its control, including price, product
quality, performance, success in developing new products, adequate foundry
capacity, sources of raw materials, efficiency of production, timing of new
product introductions by competitors, protection of Company products by
effective utilization of intellectual property laws and general market and
economic conditions. There can be no assurance that the Company will be able to
compete successfully in the future.

Licenses, Patents and Maskwork Protection

The Company seeks to protect its proprietary technology by filing patent
applications in the United States and registering its circuit designs pursuant
to the Semiconductor Chip Protection Act of 1984. As of May 26, 2003, the
Company holds 82 United States patents covering certain aspects of its product
designs or manufacturing technology, which patents expire between 2009 and
2022. The Company also has 22 pending United States patent applications, one of
which has been allowed and is expected to be issued as a patent. No assurance
can be given that the claims allowed on any patents held by the Company will be
sufficiently broad to protect the Companys technology. In addition, no
assurance can be given that any patents issued to the Company will not be
challenged, invalidated or circumvented or that the rights granted thereunder
will provide competitive advantages to the Company. The loss of patent
protection on the Companys technology or the circumvention of its patents by
competitors could have a material adverse effect on the Companys ability to
compete successfully in its products business. There can be no assurance that
any existing or future patent applications by the Company will result in issued
patents with the scope of the claims sought by the Company, or at all, that any
current or future issued or licensed patents, trade secrets or know-how will
afford sufficient protection against competitors with similar technologies or
processes, or that any patents issued will not be infringed upon or designed
around by others. In addition, there can be no assurance that others will not
independently develop proprietary technologies and processes, which are the
same as or substantially, equivalent or superior to those of the Company.

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The semiconductor industry is characterized by frequent claims and
litigation regarding patent and other intellectual property rights. The Company
has from time to time received, and believes that it likely will receive in the
future, notices alleging that the Companys products, or the processes used to
manufacture the Companys products, infringe the intellectual property rights
of third parties. The Company is in discussions with one company who
has
made claims that some of the Companys products and/or processes infringe
patents held by such companies. If the Company determines that the Company
possibly infringes a patent and the patent appears valid, the Company will
attempt to negotiate a license, if possible. The ultimate conclusion with
respect to any alleged infringement must be determined by a court or
administrative agency in the event of litigation, and there can be no assurance
that a court or administrative agency would determine that the Companys
products do not infringe the patents in question. Patent litigation is
inherently uncertain and the Company cannot predict the result of any such
litigation or the level of damages that could be imposed if it were determined
that certain of the Companys products or processes infringe any of the patents
in question.

Copyrights and maskwork protection are also key elements in the conduct of
the Companys business. The Company also relies on trade secrets and
proprietary know-how, which it seeks to protect by confidentiality agreements
with its employees and consultants, and with third parties. There can be no
assurance that these agreements will not be breached, that the Company will
have adequate remedies for any breach, or that its trade secrets and
proprietary know-how will not otherwise become known or be independently
discovered by others.

Backlog

Sales of the Companys products are made pursuant to standard purchase
orders. Purchase orders are subject to changes in quantities of products and
delivery schedules in order to reflect changes in the customers requirements
and to price renegotiations. In addition, orders typically may be canceled at
the discretion of the buyer without enforceable penalty. The Companys
business, in line with that of much of the semiconductor industry, is
characterized by short lead-time orders and quick delivery schedules. Also, the
Companys actual shipments depend on the manufacturing capacity of the
Companys foundries. Finally, capacity constraints or unexpected manufacturing
delays may prevent the Company from meeting the demand for certain of its
products. The backlog is not necessarily indicative of future sales.

Investments

The Company has had and continues to hold significant investments in
marketable securities and investments in shares that are classified as
long-term. During fiscal 2003, certain investments in marketable securities
held by the Company experienced declines in market value as a result of the
continued economic slowdown in the semiconductor industry and declines in the
stock market in general. As a result, the Company recorded other than
temporary write-downs in these investments. During the second and third
quarters of fiscal 2003, the Company recorded pre-tax, non-operating losses of
$673,000 and $16.2 million, respectively, on three of its
investments. During the third quarter of fiscal 2003, the Company
recorded a pre-tax, non-operating loss of $14.1 million on its
long-term investment in Tower shares. At March 31, 2003, a
portion of the Companys investment in Tower shares was
classified as long-term.

During the first six months of fiscal 2002, marketable securities held by
the Company experienced significant declines in market value. As a result, the
Company recorded a pre-tax, non-operating loss of $288.5 million during the
second quarter of fiscal 2002. During the last nine months of fiscal 2001,
marketable securities held by the Company experienced significant declines in
market value. As a result, the Company recorded a pre-tax, non-operating loss
of $506.8 million during the fourth quarter of fiscal 2001.

United Microelectronics Corporation

At March 31, 2003, the Company owned approximately 245.0 million shares of
United Microelectronics Corporation (UMC) common stock, representing
approximately 1.7% ownership. At March 31, 2002, the Company owned
approximately 313.1 million shares of UMC common stock, representing
approximately 2.1% ownership. In May 2000, January 2002, and August 2002, the
Company received an additional 56.6 million, 51.0 million, and 44.0 million
shares of UMC by way of stock dividends.

Of the 245.0 million shares of UMC common stock owned by Alliance at March
31, 2003, approximately 56.7 million shares are subject to a lock-up or no-trade
provision. Of the shares subject to a lock-up, approximately 28.3 million
shares will become available for sale in each of July 2003 and January 2004.
The Company accounts for its investment in UMC as an available-for-sale
marketable security in accordance with SFAS 115. In fiscal 2003, the Company
sold 112.2 million shares of UMC common stock for $87.6 million and recorded a
pre-tax, non-operating gain of $24.7 million. The Company also
collected a $7.9 million receivable from the sale of UMC shares
during fiscal 2002. Total cash receipts during
fiscal 2003 from UMC share sales were $95.5 million.

As of March 31, 2003, the Company had pledged 145 million shares of UMC
common stock to secure a loan with Chinatrust Commercial Bank, Ltd. (See Note
2 of the consolidated financial statements included in this report).

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UMCs common stock price has historically experienced significant
fluctuations in market value, and has decreased significantly throughout fiscal
2003. Given the market risk for the UMC common stock held by the Company,
there can be no assurance that the Companys investment in UMC will maintain
its value.

Chartered Semiconductor Manufacturing Ltd

In fiscal 2003, the Company sold all of its holdings in Chartered, a total
of 16.4 million ordinary shares or 1.6 million American Depository Shares
(ADSs). The Company received gross proceeds of $6.3 million and recorded a
pre-tax, non-operating loss of $5.8 million. At December 31, 2002, the Company
wrote down its investment in Chartered and recognized a pre-tax, non-operating
loss of approximately $16.2 million.

Broadcom Corporation

In August 2001, the Company had entered into a cashless collar arrangement
with a brokerage firm with respect to 75,000 shares of Broadcom Corporation
(Broadcom) common stock. The collar arrangement consisted of a written call
option to buy 75,000 shares of Broadcom common stock at a price of $64.72 and a
purchased put option to sell 75,000 shares at a price of $36.72 through August
2002. On August 5, 2002, the Company exercised its put option and sold all of
its holdings in Broadcom for aggregate proceeds of $2.8 million recognizing a
pre-tax, non-operating gain of $1.4 million.

Vitesse Semiconductor Corporation

At March 31, 2003, the Company owned 95,417 shares of the common stock of
Vitesse Semiconductor Corporation (Vitesse). The Company accounts for its
investment in Vitesse as an available-for-sale marketable security in
accordance with SFAS 115.

In the second quarter of fiscal 2003, the Company sold 142,876 shares of
Vitesse common stock. The Company received gross proceeds of $195,000 and
recorded a pre-tax, non-operating loss of $912,000. At September 30, 2002, the
Company wrote down its investment in Vitesse and recognized a pre-tax,
non-operating loss of approximately $673,000.

Vitesses common stock price has historically experienced significant
fluctuations in market value, and has decreased significantly throughout fiscal
2003. Given the market risk for the Vitesse common stock held by the Company,
there can be no assurance that the Companys investment in Vitesse will
maintain its value.

In January 2001, the Company entered into two derivative contracts
(Derivative Agreements) with a brokerage firm and received aggregate cash
proceeds of approximately $31.0 million. The Derivative Agreements had
repayment provisions that incorporated a collar arrangement with respect to
490,000 shares of Vitesse common stock. The Company, at its option, could
settle the contracts by either delivering shares of Vitesse common stock or
making a cash payment to the brokerage firm in January 2003, the maturity date
of the Derivative Agreements (the Settlement Date). The number of Vitesse
shares to be delivered or the amount of cash to be paid was determined by a
formula in the Derivative Agreements based upon the market price of the Vitesse
shares on the Settlement Date. Under the Derivative Agreements, if the stock
price of Vitesse exceeded the ceiling of the collar on the Settlement Date,
then the settlement amount also increased by an amount determined by a formula
included in the Derivative Agreements (generally equal to the excess of the
value of the stock over the ceiling of the collar.) If the stock price of
Vitesse declined below the floor of the collar on the Settlement Date, then the
settlement amount also decreased by an amount determined by a formula included
in the Derivative Agreements (generally equal to the excess of the floor of the
collar over the value of the stock.) On January 24, 2003, the Company settled
its derivative contract on 300,000 Vitesse shares by delivering the shares to
the brokerage firm holding the contract. On January 30, 2003, the Company
settled its derivative contract on 190,000 Vitesse shares by delivering the
shares to the brokerage firm holding the contract.

PMC-Sierra Corporation

In the second quarter of fiscal 2003, the Company sold all of its holdings
in PMC-Sierra, a total of 68,152 common shares. The Company received gross
proceeds of $432,000 and recorded a pre-tax, non-operating loss of $274,000.

Adaptec, Inc.

At March 31, 2003, the Company owned 516,617 shares of Adaptec. The
Company records its investment in Adaptec as an available-for-sale marketable
security in accordance with SFAS 115.

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In December 2001, the Company entered into a derivative contract with a
brokerage firm and received aggregate cash proceeds of $5.0 million. The
contract has repayment provisions that incorporate a collar arrangement with
respect to 362,173 shares of Adaptec common stock. The Company has to deliver
a certain number of Adaptec shares in June 2003, the maturity date of the
contract. The number of Adaptec shares to be delivered is determined by a
formula in the contract based upon the market price of the Adaptec shares on
the settlement date. In June 2003, the Company settled the derivative contract
it had on 362,173 Adaptec shares by delivering those shares to the brokerage
firm holding the contract.

In the second quarter of fiscal 2003, the Company sold 924,344 shares of
Adaptec common stock. The Company received gross proceeds of $4.9 million and
recorded a pre-tax, non-operating loss of $5.4 million.

Adaptecs common stock price has historically experienced significant
fluctuations in market value, and has decreased significantly throughout fiscal
2003. Given the market risk for the Adaptec common stock held by the Company,
there can be no assurance that the Companys investment in Adaptec will
maintain its value.

Magma Design Automation

In the first quarter of fiscal 2003, the Company sold all of its holdings
in Magma Design Automation (Magma), a total of 360,244 common shares. The
Company received gross proceeds of $6.0 million and recorded a pre-tax,
non-operating gain of $1.2 million.

Tower Semiconductor Ltd.

At March 31, 2003, the Company owned 6,067,100 shares of Tower of which
1,111,321 shares were classified as short-term and accounted for as an
available for sale marketable security in accordance with SFAS 115. A total
of 794,995 of these shares were acquired as part of a Tower rights offering in
which the Company participated during the third quarter of fiscal 2003. These
shares can be transferred at the Companys discretion subject to certain
rights of first refusal which are held by the other participants in the
original Share Purchase Agreement relating to the Tower shares (the Tower
Share Purchase Agreement). These rights do not preclude the Company from
being able to transfer these shares at its discretion. As part of the rights
offering, the Company also received warrants to purchase a total of 357,747
ordinary shares of Tower. Each whole warrant entitles the holder to purchase
one ordinary share at an exercise price of $7.50 per share through October 31,
2006. The remaining 5,272,105 shares were purchased in accordance with the
original Tower Share Purchase Agreement executed in January 2001. A total of
316,326 of these shares are classified as short-term. The original Tower Share
Purchase Agreement allows for limited share transfers after the Initial
Restricted Period ends in January 2004. During the period between January 2004
and January 2006 (the Subsequent Restricted Period), the Company may transfer
no more than 6% of its shares in any quarter on a cumulative basis and no more
than 48% of its shares by the end of this period. These restrictions only
apply to shares acquired as part of the original Tower Share Purchase
Agreement.

In the quarter ended December 31, 2002, the Company wrote down its
investment in Tower shares recognizing a pre-tax, non-operating loss of
approximately $14.1 million. In the quarter ended September 30, 2002, the
Company wrote off a portion of its investment in wafer credits recognizing a
pre-tax, operating loss of approximately $9.5 million. The Company had
determined, at that time, that the value of these credits will not be realized
given the Companys sales forecast of product to be manufactured at Tower.
There can be no assurances that the Companys investment in Tower and Tower
wafer credits will not decline further in value.

In May 2003, the Company paid $3.6 million to Tower Semiconductor, in
accordance with the terms of the share purchase agreement between the two
companies. The Company received an additional 1,206,839 shares of Tower at
$2.98 per share.

N.
Damodar Reddy is a director of Tower.

Alliance Venture Management, LLC

In October 1999, the Company formed Alliance Venture Management LLC,
(Alliance Venture Management), a California limited
liability company, to
manage and act as the general partner in the investment funds the Company
intended to form. Alliance Venture Management does not directly invest in the
investment funds with the Company, but is entitled to receive (i) a management fee out of
the net profits of the investment funds and (ii) a commitment fee
based on the amount of capital committed to each partnership, each as
described more fully below. This structure was
created to provide incentives to the individuals who participate in the
management of the investment funds, which includes N. Damodar Reddy and C.N.
Reddy.

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In November 1999, the Company formed Alliance Ventures I, LP (Alliance
Ventures I) and Alliance Ventures II, LP (Alliance Ventures II), both
California of the limited partnerships. The Company, as the sole limited partner,
owns 100% of the limited partnership interests in each partnership. Alliance
Venture Management acts as the general partner of these partnerships and
receives a management fee of 15% based upon investment gains from these partnerships for its
managerial efforts.

At Alliance Venture Managements inception in November 1999, Series A
member units and Series B member units in Alliance Venture Management were
created. The holders of Series A units and Series B units receive management
fees of 15% of investment gains realized by Alliance Ventures I and Alliance
Ventures II, respectively. In February 2000, upon the creation of Alliance
Ventures III, LP (Alliance Ventures III), the management agreement for
Alliance Venture Management was amended to create Series C member units which
are entitled to receive a management fee of 16% of investment gains realized by
Alliance Ventures III. In January 2001, upon the creation of Alliance Ventures
IV, LP (Alliance Ventures IV) and Alliance Ventures V, LP (Alliance Ventures
V), the management agreement for Alliance Venture Management was amended to
create Series D and E member units which are entitled to receive a management
fee of 15% of investment gains realized by Alliance Ventures IV and Alliance
Ventures V, respectively.

Each of the owners of the Series A, B, C, D and E member units (Preferred
Member Units) paid the initial carrying value for their shares of the
Preferred Member Units. While the Company owns 100% of the common units in
Alliance Venture Management, it does not hold any Preferred Member Units and
does not participate in the management fees generated by the management of the
investment funds. N. Damodar Reddy and C.N. Reddy, who are directors of the
Company and members of the Companys senior management, each hold 48,000
Preferred Member Units, respectively, of the 162,152 total Preferred Member
Units outstanding and 172,152 total Member Units outstanding.

Annually, Alliance Venture Management earns 0.5% of the total fund
commitment of Alliance I, II, III, IV and V. In fiscal 2003, the Company
incurred $875,000 of commitment fees. This amount was offset in its entirety
by expenses incurred by the Company on behalf of Alliance Venture Management of
$875,000. Neither N. Damodar Reddy nor C.N. Reddy received any commitment fees
during fiscal 2003.

After Alliance Ventures I was formed, the Company contributed all its then
current investments, except Chartered, UMC and Broadcom, to Alliance Ventures I
to allow Alliance Venture Management to manage these investments. As of March
31, 2003, Alliance Ventures I, the focus of which is investing in networking
and communication start-up companies, has invested $20.0 million in nine
companies, with a fund allocation of $20.0 million. Alliance Ventures II, the
focus of which is in investing in internet start-up ventures, has invested
approximately $9.1 million in ten companies, with a total fund allocation of
$15.0 million. As of March 31, 2003, Alliance Ventures III, the focus of which
is investing in emerging companies in the networking and communication market
areas, has invested $43.9 million in 13 companies, with a total fund allocation
of $100.0 million. As of March 31, 2003, Alliance Ventures IV, the focus of
which is investing in emerging companies in the semiconductor market areas, has
invested $29.7 million in seven companies, with a total fund allocation of
$40.0 million. As of March 31, 2003, Alliance Ventures V, the focus of which
is investing in emerging companies in the networking and communication market
areas, has invested $21.0 million in nine companies, with a total fund
allocation of $60.0 million.

In fiscal 2003, 2002 and 2001, the Company wrote-down certain of its
investments in Alliance Ventures and recognized pre-tax, non-operating losses
of approximately $19.0 million, $7.3 million and $2.6 million, respectively.
Also, several of the Alliance Venture investments are accounted for under the
equity method due to the Companys ability to exercise significant influence on
the operations of investees resulting from ownership interest and/or board
representation. The total equity in the net losses of Alliance Ventures
investee companies was approximately $9.9 million, $8.4 million and $5.7
million, net of tax, for fiscal 2003, 2002 and 2001, respectively.

Alliance Venture Management generally directs the individual Alliance
funds to invest in startup, pre-IPO (initial public offering) companies. These
types of investments are inherently risky and many venture funds have a large
percentage of investments decrease in value or fail. Most of these startup
companies fail, and the investors lose their entire investment. Successful
investing relies on the skill of the investment managers, but also on market
conditions and other factors outside the control of the managers. The market
for these types of investments has, in the past, been successful and many
venture capital funds have been profitable. While the Company has been
successful in certain of its past investments, there can be no assurance as to
any future or continued success. It is possible there will be a downturn in the
success of these types of investments in the future, and the Company will
suffer significant diminished success in these investments. It is possible
that many or most, and maybe all of the Companys venture type investments may
fail, resulting in the complete loss of most or all the money the Company has
invested in these types of investments.

N.  Damodar Reddy and C.N. Reddy have formed private venture funds, Galaxy
Venture Partners, L.L.C., Galaxy Venture Partners II, L.L.C. and Galaxy Venture
Partners III, L.L.C., which have invested in 23 of the 37 total companies
invested in by Alliance Venture Managements Investment funds. See Part
III  Item 13  Certain Relationships and Related
Transactions and Note 22 to Consolidated Financial
Statements.

Solar Venture Partners, LP

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Through March 31, 2003, the Company has invested $12.5 million in Solar
Venture Partners, LP (Solar), a venture capital partnership that focuses on
investing in early stage companies in the areas of networking,
telecommunications, wireless, software infrastructure enabling efficiencies of
the Web and e-commerce, semiconductors for emerging markets, and design
automation. The Company has a 73% interest in Solar.

Due to the Companys majority interest in Solar, the Company accounts for
Solar under the consolidation method. Some of the investments Solar has made
are accounted for under the equity method due to the Companys ability to
exercise significant influence on the operations of the investees resulting
from ownership interest and/or board representation. In fiscal 2003 and 2002,
the Company recorded an equity in the loss of investees of approximately
$911,000 and $1.1 million, net of tax, and wrote down certain Solar investments
by $5.8 million and $1.0 million, respectively.

C.N.
Reddy is a general partner of Solar and participates in running its
daily operations. Furthermore,
certain of the Companys directors, officers and employees, including
C.N. Reddy and Jon Minnis, have also invested in Solar. Solar has
invested in 14 of the 37 total companies in which Alliance Venture
Managements funds have invested. See Part III  Item 13  Certain Relationships and Related
Transactions.

The Investment Company Act of 1940

Following a special study after the stock market crash of 1929 and the
ensuing Depression, Congress enacted the Investment Company Act of 1940 (the
Act). The Act was primarily meant to regulate investment companies, which
generally include families of mutual funds of the type offered by the Fidelity
and Vanguard organizations (to pick two of many), closed-end investment
companies that are traded on the public stock markets, and certain non-managed
pooled investment vehicles such as unit investment trusts. In those cases, the
entities in question describe themselves as being in the business of investing,
reinvesting and trading in securities and generally own relatively diversified
portfolios of publicly traded securities that are issued by companies not
controlled by these entities. The fundamental intent of the Act is to protect
the interests of public investors from fraud and manipulation by the people who
establish and operate investment companies, which constitute large pools of
liquid assets that could be used improperly, or not be properly safeguarded, by
the persons in control of them.

When the Act was written, its drafters (and Congress) concluded that a
company could, either deliberately or inadvertently, come to have the defining
characteristics of an investment company within the meaning of the Act without
proclaiming that fact or being willing to voluntarily submit itself to
regulation as an acknowledged investment company, and that investors in such a
company could be just as much in need of protection as are investors in
companies that are openly and deliberately established as investment companies.
In order to deal with this perceived potential abuse, the Act and rules under
it contain provisions and set forth principles that are designed to
differentiate true operating companies from companies that may be considered
to have sufficient investment-company-like characteristics to require
regulation by the Acts complex procedural and substantive requirements. These
provisions apply to companies that own or hold securities, as well as companies
that invest, reinvest and trade in securities, and particularly focus on
determining the primary nature of a companys activities, including whether an
investing company controls and does business through the entities in which it
invests or, instead, holds its securities investments passively and not as part
of an operating business. For instance, under what is, for most purposes, the
most liberal of the relevant tests, a company may become subject to the Acts
registration requirements if it either holds more than 45% of its assets in, or
derives more than 45% of its income from, investments in companies that the
investor does not primarily control or through which it does not actively do
business. In making these determinations the Act generally requires that a
companys assets be valued on a current fair market value basis, determined on
the basis of securities public trading price or, in the case of illiquid
securities and other assets, in good faith by the companys board of directors.

The Company viewed its investments in Chartered, UMC, and Tower, as
operating investments primarily intended to secure adequate wafer manufacturing
capacity and other strategic goals. Because of the success over the past few
years of the Companys investments, including its strategic wafer manufacturing
investments,
however, at least from the time of the completion of the merger of USC and USIC
into UMC in January 2000, the Company believes that it could be viewed as
holding a much larger portion of its assets in investment securities than is
presumptively permitted by the Act for a company that is not registered under
it.

On the other hand, the Company also believes that the investments that it
currently holds in UMC, and Tower, and previously held in Chartered, even
though in companies that the Company does not control, should be regarded as
strategic deployments of Company assets for the purpose of furthering the
Companys memory chip business, rather than as the kind of financial
investments that generally are considered to constitute investment securities.
Applying certain other tests that the SEC utilizes in determining investment
company status, the Company has never held itself out as an investment company;
its historical development has focused almost exclusively on the memory chip
business; the activities of its officers and employees have been overwhelmingly
addressed to achieving success in the memory chip business; and prior to the
past few years, its income (and losses) have been derived almost exclusively
from the memory chip business. Accordingly, the Company believes that it
should be regarded as being primarily engaged in a business other than
investing, reinvesting, owning, holding or trading in securities.

In August
2000, the Company applied to the SEC for an order under section 3(b)(2) of the
Act confirming its non-investment-company status. In March 2002, the staff of
the SEC informed the Company that the staff could not support the granting of
the requested exemption. Since that time, the Company has been working
diligently to resolve its status under the Act and has recommenced informal
discussions with the staff of the SEC to assess various means to achieve that
goal. No assurances can be given that the SEC will agree that the Company is
not currently deemed to be an unregistered investment company in violation of
the Act. If the SEC takes the view that the Company has been operating and
continues to operate as an unregistered investment company in violation of the
Act, and does not provide the Company with a sufficient period to either
register as an investment company or divest itself of investment securities
and/or acquire non-investment securities, the Company may be subject to
significant potential penalties.

In the absence of exemptions granted by the SEC (which are discretionary
in nature and require the SEC to make certain findings), the Company would be
required either to register as a closed-end investment company under the Act,
or, in the alternative, to divest itself of sufficient investment securities
and/or to acquire sufficient non-investment assets so as not to be regarded as
an investment company under the Act.

If the Company elects to register as a closed-end investment company under
the Act, a number of significant requirements will be imposed upon the Company.
These would include, but not be limited to, a requirement that at least 40% of
the Companys board of directors not be interested persons of the Company as
defined in the Act and that those directors be granted certain special rights
with respect to the approval of certain kinds of transactions (particularly
those that pose a possibility of giving rise to conflicts of interest);
prohibitions on the grant of stock options that would be outstanding for more
than 120 days and upon the use of stock for compensation (which could be highly
detrimental to the Company in view of the competitive circumstances in which it
seeks to attract and retain qualified employees); and broad prohibitions on
affiliate transactions, such as the compensation arrangements applicable to the
management of Alliance Venture Management, many kinds of incentive compensation
arrangements for management employees and joint investment by persons who
control the Company in entities in which the Company is also investing (which
could require the Company to abandon or significantly restructure its
management arrangements, particularly with respect to its investment
activities). While the Company could apply for individual exemptions from these
restrictions, there could be no guarantee that such exemptions would be
granted, or granted on terms that the Company would deem practical.
Additionally, the Company would be required to report its financial results in
a different form from that currently used by the Company, which would have the
effect of turning the Companys Statement of Operations upside down by
requiring that the Company report its investment income and the results of its
investment activities, instead of its operations, as its primary sources of
revenue.

If the Company elects to divest itself of sufficient investment securities
and/or to acquire sufficient non-investment assets so as not to be regarded as
an investment company under the Act, the Company would need to ensure that the
value of investment securities (excluding the value of U.S. Government
securities and securities of certain majority-owned subsidiaries) does not
exceed forty percent (40%) of the Companys total assets (excluding the value
of U.S. Government securities and cash items) on an unconsolidated basis. In
seeking to meet this requirement, the Company might choose to divest itself of
assets that it considers strategically significant for the conduct of its
operations or to acquire additional operating assets that would have a material
effect on the Companys operations. There can be no assurance that the Company
could identify such operating assets to acquire or could successfully acquire
such assets. Any such acquisition could result in the Company issuing
additional shares that may dilute the equity of the Companys existing
stockholders, and/or result in the Company incurring additional indebtedness,
which could have a material impact on the Companys balance sheet and results
of operations. Were the Company to acquire any additional businesses, there
would the additional risk that the Companys acquired and previously-existing
businesses could be disrupted while the Company attempted to integrate the
acquired business, as well as risks associated with the Company attempting to
manage a new business with which it was not familiar. Any of the above risks
could result in a material adverse effect on the Companys results of
operations and financial condition.

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Employees

As of March 31, 2003, the Company had 261 full-time employees, consisting
of 183 in research and development, 14 in marketing, 10 in sales, 28 in
administration and 26 in operations. Of the 183 research and development
employees (65 in the US and 118 in India), 77 have advanced degrees. The
Company believes that the Companys future success will depend, in part, on its
ability to continue to attract and retain qualified technical and management
personnel, particularly highly-skilled design engineers involved in new product
development, for whom competition is intense. The Companys employees are not
represented by any collective bargaining unit, and the Company has never
experienced a work stoppage. The Company believes that its employee relations
are good.

The Company has recently experienced and may continue to experience growth
in the number of its employees and the scope of its operating and financial
systems, resulting in increased responsibilities for the Companys management.
To manage future growth effectively, the Company will need to continue to
implement and improve its operational, financial and management information
systems and to hire, train, motivate and manage its employees. There can be no
assurance that the Company will be able effectively to manage future growth,
and the failure to do so could have a material adverse effect on the Companys
results of operations.

The Company depends to a large extent on the continued contributions of
its founders, N. Damodar Reddy, Chairman of the Board, Chief Executive Officer
and President of the Company, and his brother C.N. Reddy, Executive Vice
President for Investments and Director of the Company (collectively referred to
as the Reddys), as well as other officers and key design personnel, many of
whom would be difficult to replace. In the last few years, a number of officers
and design personnel left the Company to pursue various other opportunities. As
a result of these departures, some projects have been delayed. The future
success of the Company will depend on its ability to attract and retain
qualified technical and management personnel, particularly highly-skilled
design engineers involved in new product development, for whom competition is
intense. The loss of either of the Reddys or key design personnel could delay
product development cycles or otherwise have a material adverse effect on the
Companys business. The Company is not insured against the loss of any of its
key employees, nor can the Company assure the successful recruitment of new and
replacement personnel.

Web Site Access to Our Periodic SEC Reports

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Our primary Internet address is www.alsc.com. We make our periodic SEC
Reports (Forms 10-Q and 10-K) and current reports (Form 8-K) available
free of charge through our Web site as soon as reasonably practicable after
they are filed electronically with the SEC. We may from time to time provide
important disclosures to investors by posting them in the investor relations
section of our Web site, as allowed by SEC rules.




Item 2.Facilities

The Companys executive offices and its principal marketing, sales and
product development operations are located in a 56,600 square foot leased
facility in Santa Clara, California under a lease which expires in June 2006.
The Company has an option to extend the lease for a term of five years. The
Company has a lease associated with a facility in Fremont, California resulting
from its investment in SiPackets. The Company is subleasing this facility to
a third party. Both the Companys master lease and sublease to the Fremont,
California facility expire June 30, 2003 and the Company does not intend to
continue to lease this facility. The Company also leases office space in
Hsin-Chu, Taiwan to manage the logistics of the wafer fabrication, assembly and
testing of the Companys products in Taiwan. The Company leases two buildings
to house its design center in Bangalore, India, and has purchased a parcel of
land in an office park under development in Hyderabad, India, for product
development. The Company also leases a building in Hyderabad, India to support
its design center there. This leased facility was acquired as part of the
Companys acquisition of Chip Engines. Additionally, the Company leases sales
offices in Natick, Massachusetts; Berkshire, United Kingdom; Taipei, Taiwan;
and Tokyo, Japan. The Company believes that its facilities are suitable and
adequate for its needs.




Item 3.Legal Proceedings

In February 1997, Micron Technology, Inc. filed an antidumping petition
with the United States International Trade Commission (ITC) and United States
Department of Commerce (DOC), alleging that SRAMs fabricated in Taiwan were
being sold in the United States at less than fair value, and that the United
States industry producing SRAMs was materially injured or threatened with
material injury by reason of imports of SRAMs fabricated in Taiwan. After a
final affirmative DOC determination of dumping and a final affirmative ITC
determination of injury, DOC issued an antidumping duty order in April 1998.
Under that order, the Companys imports into the United States on or after
approximately April 16, 1998 of SRAMs fabricated in Taiwan were subject to a
cash deposit in the amount of 50.15% (the Antidumping Margin) of the entered
value of such SRAMs. The Company posted a bond in the amount of 59.06% (the
preliminary margin) with respect to its importation, between approximately
October 1997 and April 1998, of SRAMs fabricated in Taiwan. In May 1998, the
Company and others filed an appeal in the United States Court of International
Trade (the CIT), challenging the determination by the ITC that imports of
Taiwan-fabricated SRAMs were causing material injury to the U.S. industry.
Following two remands from the CIT, the ITC, on June 12, 2000, reversed its
original determination that Taiwan-fabricated SRAMs were causing material
injury to the U.S. industry. The CIT affirmed the ITCs negative determination
on August 29, 2000, and Micron appealed to the U.S. Court of Appeals for the
Federal Circuit (CAFC). On September 21, 2001, the CAFC affirmed the ITCs
negative injury determination. The Company had made cash deposits in the
amount of $1.7 million and had posted a bond secured by a letter of credit in
the amount of approximately $1.7 million relating to the Companys importation
of Taiwan-manufactured SRAMs. The balances remained unchanged at December 31,
2001. In January 2002, the decision of the CIT was made final and the DOC
revoked the order and instructed the U.S. Customs Service to refund the
Companys cash deposits with interest. The Company received a refund of $2.6
million, including interest of approximately $515,000 from its deposits during
the quarter ended March 31, 2002. In the first quarter of fiscal 2003, the
Company received approximately $262,000, including interest of approximately
$56,000; also, the cash deposit of $1.7 million at March 31, 2002 has been
released and became unrestricted in April 2002. In the second quarter of
fiscal 2003, the Company received approximately $195,000, including interest of
approximately $1,000. No refund was received during the third or fourth
quarters of fiscal 2003. The Company believes that it will not
receive any additional proceeds related to this action.

In July 1998, the Company learned that a default judgment was entered
against it in Canada, in the amount of approximately $170 million (USD), in a
case filed in 1985 captioned Prabhakara Chowdary Balla and TritTek Research
Ltd. v. Fitch Research Corporation, et al., British Columbia Supreme Court No.
85-2805 (Victoria Registry). The Company, which had previously not
participated in the case, believes that it never was properly served with
process in this action, and that the Canadian court lacks jurisdiction over the
Company in this matter. In addition to jurisdictional and procedural arguments,
the Company also believes it may have grounds to argue that the claims against
the Company should be deemed discharged by the Companys bankruptcy in 1991.
In February 1999, the court set aside the default judgment against the Company.
In April 1999, the plaintiffs were granted leave by the Court to appeal this
judgment. Oral arguments were made before the Court of Appeals in June 2000. In
July 2000, the Court of Appeals instructed the lower Court to allow the parties
to take depositions regarding the issue of service of process, while also
setting aside the default judgment against the Company. The plaintiffs
appealed the setting aside of the default judgment against the Company to the
Canadian Supreme Court. In June 2001, the Canadian Supreme Court refused to
hear the appeal of the setting aside

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##### Table of Contents



of the default judgment against the Company. The Company believes the
resolution of this matter will not have a material adverse effect on its
financial conditions and its results of operations.

In November 2001, Amstrad plc (Amstrad) filed suit against the Company
in England in the amount of approximately $1.5 million. This claim is based on
allegations that a batch of 15,000 parts supplied by the Company, and which
were incorporated into Amstrad products, were defective. The Company prepared
and filed a detailed defense to Amstrads suit in February 2002. The Company
reached a settlement on November 14, 2002 with Amstrad.

On December 3, 2002, the Company and its then Vice President of Sales were
sued in Santa Clara Superior Court by plaintiff SegTec Ltd., an Israeli company
and former sales representative of the Company. In its complaint, SegTec
alleges that the Company terminated an oral sales agreement (Agreement) and
had failed to pay commissions due to SegTec in an amount in excess of $750,000.
SegTec also alleges that the Companys termination of the Agreement was
without cause and that the Company has materially breached the Agreement, and
certain other matters, including misappropriation of trade secrets. Plaintiff
seeks compensatory, incidental, and consequential damages for the
aforementioned allegations, punitive damages for the fraud allegations
specifically, and payment for the value of services rendered. Plaintiff served
the complaint on the Company and its Vice President of Sales on December 9,
2002. Plaintiff has indicated that it intends to file an amended complaint in
the near future and that neither the Company nor its Vice President of Sales
need respond to the initial complaint. If an amended complaint is filed, the
Company and its Vice President of Sales intend to defend it vigorously.

On February 24, 2003, a stockholder of the Company filed a putative
derivative action entitled Fritsche v. Reddy, et al, and Alliance Semiconductor
Corporation (case no. CV 814996) in Santa Clara County Superior Court. This
action, purportedly brought on behalf of the Company, names as defendants
certain current and former officers and directors of the Company. The Company
is named as a nominal defendant. Plaintiffs generally allege that the
Companys equity investments in venture funds managed by Alliance Venture
Management, LLC, and related transactions by certain current and former
officers and directors of the Company, give rise to claims against the
defendants for breach of fiduciary duties, abuse of control, gross
mismanagement, waste of corporate assets, and alleged violations of Cal. Corp.
Code §25402. Plaintiffs seek, purportedly on behalf of the Company,
declaratory, injunctive and other equitable relief, and compensatory, statutory
and punitive damages. On May 20, 2003, the defendants and the Company demurred
to the complaint on the grounds that plaintiff lacked standing to bring the
action because he had not made a demand on the Companys board of directors. A
hearing on the demurrers is currently scheduled for August 5, 2003. Due to the
early stage of the litigation, the Company cannot determine what, if any,
effect resolution of this matter will have on its financial condition and
results of operations.

In addition, the Company is party to various legal proceedings and claims,
either asserted or unasserted, which arise in the ordinary course of business.
While the outcome of these claims cannot be predicted with certainty, the
Company does not believe that the outcome of any of these or any of the above
mentioned legal matters will have a material adverse effect on the Companys
consolidated financial position, results of operations or cash flows.




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

Not applicable.

Executive Officers of the Registrant

Information concerning executive officers of the Company as of the date of
this report is set forth below:

|                  |  |     |    |          |  |                                                                        
|----------------- |  | --- | -- | -------- |  | -----------------------------------------------------------------------
|Name              |  | Age |    | Position
|                  |  |     |    |         
|N. Damodar Reddy  |  |     | 64 |          |  | Chairman, President and Chief Executive Officer                        
|C.N. Reddy        |  |     | 47 |          |  | Executive Vice President for Investments, Director                     
|Ronald K. Shelton |  |     | 42 |          |  | Vice President, Finance and Administration, and
Chief Financial Officer
|Ritu Shrivastava  |  |     | 52 |          |  | Vice President/General Manager, Technology Development and Operations  

N.  Damodar Reddy is the co-founder of the Company and has served as the
Companys Chairman of the Board, Chief Executive Officer and President from its
inception in February 1985. Mr. Reddy also served as the Companys Chief
Financial Officer from June 1998 until January 1999. Under his
guidance, the Company created the fabless model that many memory
companies follow today. From September 1983 to
February 1985, Mr. Reddy co-founded and served as President and Chief Executive Officer of

14



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##### Table of Contents



Modular Semiconductor, Inc., and from 1980 to 1983, he served as manager
of Advanced CMOS Technology Development at Synertek, Inc., a subsidiary of
Honeywell, Inc. Prior to that time, Mr. Reddy held various research and
development and management positions at Four Phase Systems, a subsidiary of
Motorola, Inc., Fairchild Semiconductor and RCA Technology Center. In
1995, Mr. Reddy was selected as Entrepreneur of the
Year in Northern California, an award sponsored by Inc.
magazine, Ernst and Young, and Merrill Lynch. Mr. Reddy is
a member of the board of directors of two publicly traded companies: eMagin Corporation
and Tower Semiconductor. He holds a B.S. degree in Electrical
Engineering from Osmania University, a M.S. degree in
Electrical Engineering from North Dakota State University and a M.B.A. from
Santa Clara University. N. Damodar Reddy is the brother of C.N. Reddy.

C.N. Reddy is the co-founder of the Company and has served as a director
of the Company since its inception in February 1985. Mr. Reddy served as
Secretary to the Company from February 1985 to October 2000. Beginning in
February 1985, Mr. Reddy served as the Companys Vice President  Engineering.
In May 1993, he was appointed Senior Vice-President  Engineering and
Operations of the Company. In December 1997, he was appointed Executive Vice
President and Chief Operating Officer. In October 2000, Mr. Reddy resigned his
positions as Chief Operating Officer and Secretary, and was appointed Executive
Vice President for Investments. From 1984 to 1985, he served as Director of
Memory Products of Modular Semiconductor, Inc., and from 1983 to 1984, Mr.
Reddy served as a SRAM product line manager for Cypress Semiconductor
Corporation. From 1980 to 1983, Mr. Reddy served as a DRAM development manager
for Texas Instruments, Inc. and, before that, he was a design engineer with
National Semiconductor Corporation for two years. Mr. Reddy holds a M.S. degree
in Electrical Engineering from Utah State University. Mr. Reddy is named
inventor of over 15 patents related to SRAM and DRAM designs. C.N. Reddy is the
brother of N. Damodar Reddy. Mr. Reddy serves on the Board of Directors of
many privately held companies, including several companies in which Alliance
Venture Managements investment funds hold equity interests.

Ronald K. Shelton joined Alliance in April 2002, and was appointed Vice
President, Finance and Administration, and CFO. Mr. Shelton was previously with
empowerTel Networks, a privately held company where he served as CFO from 1999
to 2002. From 1996 to 1999, Mr. Shelton served as CFO of Cirrus Logic, Inc., a
leading supplier of analog and DSP chip solutions for the consumer
entertainment electronics industry. Mr. Shelton was Vice President, Finance and
Administration, and CFO of the Company from 1992 to 1996. Mr. Shelton received
his Bachelors degree in Economics from Stanford University.

Ritu Shrivastava, joined the Company in November 1993, and was appointed
Vice President/General Manager of Technology Development and
Operations in August 1995. Dr. Shrivastava was
designated as an executive officer of the Company in July 1997. Dr. Shrivastava has been responsible for co-developing many generations
of memory technologies and products at various foundries in Taiwan,
Singapore, Japan, and U.S., which supported the Companys leadership
in successful fabless model. Prior to
joining the Company, Dr. Shrivastava worked at Cypress Semiconductor
Corporation for more than 10 years in various technology management positions,
the last one being Director of Technology Development. Prior to
Cypress, Dr. Shrivastava was with Mostek Corporation where he
was responsible for one of the first CMOS in the U.S. for memory and
gate-array applications. Dr. Shrivastava served
on the Electrical Engineering faculty at Louisiana State University where he
also received his Ph.D. Dr. Shrivastava completed his Masters and Bachelors
degrees in Electrical Communication Engineering from Indian Institute of
Science, Bangalore, India and a Bachelors degree in Science from Jabalpur
University, India. Dr. Shrivastava is named inventor in 19 patents related to
various technologies, and is a Fellow of IEEE. He also serves on the editorial
board of IEEE Transactions on Electron Devices as a CMOS editor.




PART II




Item 5.Market for Registrants Common Equity and Related Stockholder Matters

The Companys Common Stock is listed on the NASDAQ National Market under
the symbol ALSC. The Company completed its initial public offering on December
1, 1993. The following table sets forth, for the periods indicated, the high and
low closing sale prices on NASDAQ for the Companys Common Stock.

|            |             |      |   |       |  |  |   |       | 
|----------- | ----------- | ---- | - | ----- |  |  | - | ----- | 
|Fiscal Year |             | High |   | Low  
|            |             |      |   |      
|2002        |             |      |   |       |  |  |   |      
|            | 1st Quarter |      | $ | 14.55 |  |  | $ | 10.00 | 
|            | 2nd Quarter |      |   | 12.51 |  |  |   | 6.69  | 
|            | 3rd Quarter |      |   | 13.00 |  |  |   | 6.66  | 
|            | 4th Quarter |      |   | 13.15 |  |  |   | 9.80  | 
|2003        |             |      |   |       |  |  |   |      
|            | 1st Quarter |      | $ | 11.45 |  |  | $ | 6.52  | 
|            | 2nd Quarter |      |   | 7.19  |  |  |   | 3.67  | 
|            | 3rd Quarter |      |   | 4.82  |  |  |   | 2.85  | 
|            | 4th Quarter |      |   | 4.29  |  |  |   | 2.72  | 

As of June 13, 2003, there were approximately 127 holders of record of the
Companys Common Stock.

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##### Table of Contents



The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain future earnings, if any, for
development of its business and, therefore, does not anticipate that it will
declare or pay cash dividends on its capital stock in the foreseeable future.




Item 6.Selected Consolidated Financial Data

The following table summarizes selected consolidated financial information
for each of the last five fiscal years ended March 31 and should be read in
conjunction with Item 7-Managements Discussion and Analysis of Financial
Condition and Results of Operations and Item 8-Financial Statements and
Supplementary Data.

|                                                                                                                         |                               |   |                                       |        |      |   |          |        |      |   |          |        |   |   |           |        |  |   |         |        |  
|------------------------------------------------------------------------------------------------------------------------ | ----------------------------- | - | ------------------------------------- | ------ | ---- | - | -------- | ------ | ---- | - | -------- | ------ | - | - | --------- | ------ |  | - | ------- | ------ | -
|                                                                                                                         |                               |   | Year Ended March 31,                 
|                                                                                                                         |                               |   |                                      
|                                                                                                                         |                               |   | 2003                                  |        | 2002 |   | 2001     |        | 2000 |   | 1999    
|                                                                                                                         |                               |   |                                       |        |      |   |          |        |      |   |         
|                                                                                                                         |                               |   | (in thousands, except per share data)
|Consolidated Statement of Operations Data:                                                                               |                               |   |                                       |        |      |   |          |        |      |   |          |        |   |   |           |        |  |   |         |       
|Net revenues                                                                                                             |                               | $ | 18,522                                |        |      | $ | 26,547   |        |      | $ | 208,678  |        |   | $ | 89,153    |        |  | $ | 47,783  |       
|                                                                                                                         |                               |   |                                       |        |      |   |          |        |      |   |          |        |   |   |           |        |  |   |         |       
|Income (loss) from operations                                                                                            |                               |   | (63,831                               | )      |      |   | (79,137  | )      |      |   | (12,692  | )      |   |   | 195       |        |  |   | (39,199 | )     
|                                                                                                                         |                               |   |                                       |        |      |   |          |        |      |   |          |        |   |   |           |        |  |   |         |       
|Gain (loss) on investments, write-down of marketable
securities and venture investments, and other income
(expense), net |                               |   | (46,055                               | )      |      |   | (297,356 | )      |      |   | (433,848 | )      |   |   | 1,049,159 |        |  |   | 14,697  |       
|                                                                                                                         |                               |   |                                       |        |      |   |          |        |      |   |          |        |   |   |           |        |  |   |         |       
|Income (loss) before cumulative effect of change in
accounting principle                                                 |                               |   | (106,048                              | )      |      |   | (242,771 | )      |      |   | (272,321 | )      |   |   | 648,100   |        |  |   | (22,043 | )     
|                                                                                                                         |                               |   |                                       |        |      |   |          |        |      |   |          |        |   |   |           |        |  |   |         |       
|Net income (loss)                                                                                                        |                               | $ | (106,048                              | )      |      | $ | (240,716 | )      |      | $ | (272,321 | )      |   | $ | 648,100   |        |  | $ | (22,043 | )     
|                                                                                                                         |                               |   |                                       |        |      |   |          |        |      |   |          |        |   |   |           |        |  |   |         |       
|Income (loss) per share before effect of change in
accounting principle:                                                 |                               |   |                                       |        |      |   |          |        |      |   |          |        |   |   |           |        |  |   |         |       
|                                                                                                                         | Basic income (loss) per share |   | $                                     | (2.85  | )    |   | $        | (5.91  | )    |   | $        | (6.58  | ) |   | $         | 15.49  |  |   | $       | (0.53  | )
|                                                                                                                         | Diluted                       |   | $                                     | (2.85  | )    |   | $        | (5.91  | )    |   | $        | (6.58  | ) |   | $         | 15.07  |  |   | $       | (0.53  | )
|Net income (loss) per share:                                                                                             |                               |   |                                       |        |      |   |          |        |      |   |          |        |   |   |           |        |  |   |         |       
|                                                                                                                         | Basic income (loss) per share |   | $                                     | (2.85  | )    |   | $        | (5.86  | )    |   | $        | (6.58  | ) |   | $         | 15.49  |  |   | $       | (0.53  | )
|                                                                                                                         |                               |   |                                       |        |      |   |          |        |      |   |          |        |   |   |           |        |  |   |         |       
|                                                                                                                         | Diluted                       |   | $                                     | (2.85  | )    |   | $        | (5.86  | )    |   | $        | (6.58  | ) |   | $         | 15.07  |  |   | $       | (0.53  | )
|                                                                                                                         |                               |   |                                       |        |      |   |          |        |      |   |          |        |   |   |           |        |  |   |         |       
|Weighted average number of common shares:                                                                                |                               |   |                                       |        |      |   |          |        |      |   |          |        |   |   |           |        |  |   |         |       
|                                                                                                                         | Basic                         |   |                                       | 37,160 |      |   |          | 41,078 |      |   |          | 41,376 |   |   |           | 41,829 |  |   |         | 41,378 |  
|                                                                                                                         | Diluted                       |   |                                       | 37,160 |      |   |          | 41,078 |      |   |          | 41,376 |   |   |           | 42,992 |  |   |         | 41,378 |  

|                                 |  |                |         |      |  |      |         |      |  |      |         |  |  |   |           |  |  |   |         | 
|-------------------------------- |  | -------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | --------- |  |  | - | ------- | 
|                                 |  | March 31,     
|                                 |  |               
|                                 |  | 2003           |         | 2002 |  | 2001 |         | 2000 |  | 1999
|                                 |  |                |         |      |  |      |         |      |  |     
|                                 |  | (in thousands)
|Consolidated Balance Sheet Data: |  |                |         |      |  |      |         |      |  |      |         |  |  |   |           |  |  |   |         | 
|Working capital                  |  | $              | 83,707  |      |  | $    | 323,791 |      |  | $    | 319,289 |  |  | $ | 615,937   |  |  | $ | 22,102  | 
|Total assets                     |  |                | 245,181 |      |  |      | 682,570 |      |  |      | 853,243 |  |  |   | 1,520,442 |  |  |   | 193,557 | 
|Stockholders equity             |  |                | 159,220 |      |  |      | 451,255 |      |  |      | 547,289 |  |  |   | 963,955   |  |  |   | 163,570 | 
|Long-term obligations            |  |                | 1,326   |      |  |      | 4,808   |      |  |      | 12,568  |  |  |   | 2,714     |  |  |   | 578     | 

The following table summarizes selected consolidated financial information
(unaudited) for the fiscal quarters for each of the last two fiscal years ended
March 31, 2003 and 2002, respectively:

|                                                                                                                 |  |   |                                       |   |                  |   |          |   |          |   |          |   |          |   |          |   |          |   |         |   |  |   |         |   |  |   |          |   |  |   |         |   | 
|---------------------------------------------------------------------------------------------------------------- |  | - | ------------------------------------- | - | ---------------- | - | -------- | - | -------- | - | -------- | - | -------- | - | -------- | - | -------- | - | ------- | - |  | - | ------- | - |  | - | -------- | - |  | - | ------- | - | 
|                                                                                                                 |  |   | Fiscal Year 2003                      |   | Fiscal Year 2002
|                                                                                                                 |  |   |                                       |   |                 
|                                                                                                                 |  |   | 4th Qtr.                              |   | 3rd Qtr.         |   | 2nd Qtr. |   | 1st Qtr. |   | 4th Qtr. |   | 3rd Qtr. |   | 2nd)Qtr. |   | 1st Qtr.
|                                                                                                                 |  |   |                                       |   |                  |   |          |   |          |   |          |   |          |   |          |   |         
|                                                                                                                 |  |   | (In thousands, except per share data)
|Operating Summary:                                                                                               |  |   |                                       |   |                  |   |          |   |          |   |          |   |          |   |          |   |          |   |         |   |  |   |         |   |  |   |          |   |  |   |         |  
|Net revenues                                                                                                     |  | $ | 5,065                                 |   |                  | $ | 5,062    |   |          | $ | 4,096    |   |          | $ | 4,299    |   |          | $ | 3,021   |   |  | $ | 6,347   |   |  | $ | 5,111    |   |  | $ | 12,068  |  
|                                                                                                                 |  |   |                                       |   |                  |   |          |   |          |   |          |   |          |   |          |   |          |   |         |   |  |   |         |   |  |   |          |   |  |   |         |  
|Gross profit (loss)                                                                                              |  |   | 1,207                                 |   |                  |   | (748     | ) |          |   | (10,965  | ) |          |   | (10,716  | ) |          |   | (20,096 | ) |  |   | (4,695  | ) |  |   | (17,517  | ) |  |   | (5,112  | )
|                                                                                                                 |  |   |                                       |   |                  |   |          |   |          |   |          |   |          |   |          |   |          |   |         |   |  |   |         |   |  |   |          |   |  |   |         |  
|Loss from operations                                                                                             |  |   | (10,933                               | ) |                  |   | (11,008  | ) |          |   | (22,108  | ) |          |   | (19,782  | ) |          |   | (32,583 | ) |  |   | (10,315 | ) |  |   | (24,051  | ) |  |   | (12,188 | )
|                                                                                                                 |  |   |                                       |   |                  |   |          |   |          |   |          |   |          |   |          |   |          |   |         |   |  |   |         |   |  |   |          |   |  |   |         |  
|Gain on investments, write-down of marketable
securities and venture
investments and other
income (expense), net |  |   | ($1,834                               | ) |                  |   | (37,153  | ) |          |   | (7,332   | ) |          |   | 264      |   |          |   | 10,678  |   |  |   | (2,963  | ) |  |   | (300,488 | ) |  |   | (4,583  | )
|                                                                                                                 |  |   |                                       |   |                  |   |          |   |          |   |          |   |          |   |          |   |          |   |         |   |  |   |         |   |  |   |          |   |  |   |         |  
|Loss before
cumulative effect of
change
in accounting principle                                                  |  |   | (25,476                               | ) |                  |   | (43,630  | ) |          |   | (21,679  | ) |          |   | (15,263  | ) |          |   | (18,271 | ) |  |   | (11,019 | ) |  |   | (200,447 | ) |  |   | (13,034 | )
|                                                                                                                 |  |   |                                       |   |                  |   |          |   |          |   |          |   |          |   |          |   |          |   |         |   |  |   |         |   |  |   |          |   |  |   |         |  
|Net loss                                                                                                         |  | $ | (25,476                               | ) |                  | $ | (43,630  | ) |          | $ | (21,679  | ) |          | $ | (15,263  | ) |          | $ | (18,271 | ) |  | $ | (11,019 | ) |  | $ | (200,447 | ) |  | $ | (10,979 | )
|                                                                                                                 |  |   |                                       |   |                  |   |          |   |          |   |          |   |          |   |          |   |          |   |         |   |  |   |         |   |  |   |          |   |  |   |         |  
|Loss before
cumulative effect of
change
in accounting principle
per
share:                                       |  |   |                                       |   |                  |   |          |   |          |   |          |   |          |   |          |   |          |   |         |   |  |   |         |   |  |   |          |   |  |   |         |  

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|                                          |         |  |                                       |        |                  |  |          |        |          |  |          |        |          |  |          |        |          |  |   |        |   |  |   |        |   |  |   |        |   |  |   |        |  
|----------------------------------------- | ------- |  | ------------------------------------- | ------ | ---------------- |  | -------- | ------ | -------- |  | -------- | ------ | -------- |  | -------- | ------ | -------- |  | - | ------ | - |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                          |         |  | Fiscal Year 2003                      |        | Fiscal Year 2002
|                                          |         |  |                                       |        |                 
|                                          |         |  | 4th Qtr.                              |        | 3rd Qtr.         |  | 2nd Qtr. |        | 1st Qtr. |  | 4th Qtr. |        | 3rd Qtr. |  | 2nd)Qtr. |        | 1st Qtr.
|                                          |         |  |                                       |        |                  |  |          |        |          |  |          |        |          |  |          |        |         
|                                          |         |  | (In thousands, except per share data)
|                                          | Basic   |  | $                                     | (0.72  | )                |  | $        | (1.21  | )        |  | $        | (0.58  | )        |  | $        | (0.38  | )        |  | $ | (0.44  | ) |  | $ | (0.27  | ) |  | $ | (4.85  | ) |  | $ | (0.31  | )
|                                          |         |  |                                       |        |                  |  |          |        |          |  |          |        |          |  |          |        |          |  |   |        |   |  |   |        |   |  |   |        |   |  |   |       
|                                          | Diluted |  | $                                     | (0.72  | )                |  | $        | (1.21  | )        |  | $        | (0.58  | )        |  | $        | (0.38  | )        |  | $ | (0.44  | ) |  | $ | (0.27  | ) |  | $ | (4.85  | ) |  | $ | (0.31  | )
|                                          |         |  |                                       |        |                  |  |          |        |          |  |          |        |          |  |          |        |          |  |   |        |   |  |   |        |   |  |   |        |   |  |   |       
|Net loss per
share:                       |         |  |                                       |        |                  |  |          |        |          |  |          |        |          |  |          |        |          |  |   |        |   |  |   |        |   |  |   |        |   |  |   |       
|                                          | Basic   |  | $                                     | (0.72  | )                |  | $        | (1.21  | )        |  | $        | (0.58  | )        |  | $        | (0.38  | )        |  | $ | (0.44  | ) |  | $ | (0.27  | ) |  | $ | (4.85  | ) |  | $ | (0.26  | )
|                                          |         |  |                                       |        |                  |  |          |        |          |  |          |        |          |  |          |        |          |  |   |        |   |  |   |        |   |  |   |        |   |  |   |       
|                                          | Diluted |  | $                                     | (0.72  | )                |  | $        | (1.21  | )        |  | $        | (0.58  | )        |  | $        | (0.38  | )        |  | $ | (0.44  | ) |  | $ | (0.27  | ) |  | $ | (4.85  | ) |  | $ | (0.26  | )
|                                          |         |  |                                       |        |                  |  |          |        |          |  |          |        |          |  |          |        |          |  |   |        |   |  |   |        |   |  |   |        |   |  |   |       
|Weighted average number
of common shares: |         |  |                                       |        |                  |  |          |        |          |  |          |        |          |  |          |        |          |  |   |        |   |  |   |        |   |  |   |        |   |  |   |       
|                                          | Basic   |  |                                       | 35,480 |                  |  |          | 36,089 |          |  |          | 37,292 |          |  |          | 39,871 |          |  |   | 41,321 |   |  |   | 41,311 |   |  |   | 41,293 |   |  |   | 41,483 |  
|                                          |         |  |                                       |        |                  |  |          |        |          |  |          |        |          |  |          |        |          |  |   |        |   |  |   |        |   |  |   |        |   |  |   |       
|                                          | Diluted |  |                                       | 35,480 |                  |  |          | 36,089 |          |  |          | 37,292 |          |  |          | 39,871 |          |  |   | 41,321 |   |  |   | 41,311 |   |  |   | 41,293 |   |  |   | 41,483 |  
|                                          |         |  |                                       |        |                  |  |          |        |          |  |          |        |          |  |          |        |          |  |   |        |   |  |   |        |   |  |   |        |   |  |   |       




Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the
Consolidated Financial Statements, including the related notes, included in
Item 8-Financial Statements and Supplemental Data. This discussion contains
forward-looking statements that involve risks and uncertainties. Our actual
results may differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including, but not limited to, those
described in the section entitled Factors Affecting Future Results. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which reflect our present expectations and analysis and are inherently
susceptible to uncertainty and changes in circumstances. We assume no
obligation to update these forward-looking statements to reflect actual results
or changes in factors or assumptions affecting such forward-looking statements.

Overview

|                           |  |                                       |          |      |  |      |          |   |  |   |          |  
|-------------------------- |  | ------------------------------------- | -------- | ---- |  | ---- | -------- | - |  | - | -------- | -
|                           |  | Year Ended March 31,                 
|                           |  |                                      
|                           |  | 2003                                  |          | 2002 |  | 2001
|                           |  |                                       |          |      |  |     
|                           |  | (In thousands, except per share data)
|Net revenues               |  | $                                     | 18,522   |      |  | $    | 26,547   |   |  | $ | 208,678  |  
|Net loss                   |  | $                                     | (106,048 | )    |  | $    | (240,716 | ) |  | $ | (272,321 | )
|Net loss per share-diluted |  | $                                     | (2.85    | )    |  | $    | (5.86    | ) |  | $ | (6.58    | )

The Company designs and develops high performance SRAM and DRAM memory,
mixed signal and system solutions for the networking, wireless, consumer and
computing markets. Through its integrated business units, Alliance provides
leading OEMs with synchronous and fast asynchronous SRAMs and super low power
pseudo SRAMs, high-speed chip-to-chip interconnects based on HyperTransport
technology and mixed signal products for Electromagnetic Interference (EMI)
management. The Companys business strategy has been to be a supplier of these
products, operating on a fabless basis by utilizing independent manufacturing
facilities.

The Company recorded net revenues of approximately $18.5 million for
fiscal 2003, a decrease of 30% from fiscal 2002. Fiscal 2003 was another
challenging year characterized by a fundamental slowdown in end customer demand
in all the markets the Companys products serve. More specifically, the
Companys performance in fiscal 2003 was adversely affected by severe declines
in end user demand for its memory products and average selling prices of all
products.

During fiscal 2003, DRAM products accounted for approximately 34% of net
revenues, SRAM products accounted for approximately 41% of net revenues, Mixed
Signal products accounted for approximately 16% of net revenues and System
Solutions products accounted for approximately 9% of net revenues. This
compares to 48%, 50% and less than 2% (Mixed Signal and System Solutions
combined) of net revenues, respectively, for fiscal 2002. During fiscal 2003,
the Company evaluated all of its marketable securities for potential
other-than-temporary declines in their fair value and recorded a write-down
of $16.9 million, compared to a write-down of $288.5 million during fiscal
2002. During the third quarter of fiscal 2003, the Company recorded
a pre-tax, non-operating loss of $14.1 million on its long-term
investment in Tower shares.

Critical Accounting Policies

The U.S. Securities and Exchange Commission (SEC) has issued Financial
Reporting Release No. 60, Cautionary Advice Regarding Disclosure About
Critical Accounting Policies (FRR 60), suggesting that companies provide
additional disclosure and commentary on their most critical accounting
policies. In FRR 60, the SEC defined the most critical accounting policies as
the ones that are most important to the portrayal of a companys financial
condition and operating results, and require management to make its most
difficult and subjective judgments, often as a result of the need to make
estimates of matters that are inherently uncertain. On an ongoing basis, we
evaluate our judgments and estimates including those related to inventory
valuation, marketable securities,

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valuation of Alliance Venture and Solar investments, and revenue
recognition. The methods, estimates, and judgments we use in applying these
most critical accounting policies have a significant impact on the results we
report in our financial statements.

Inventory Valuation

Our policy is to value inventory at the lower of cost or market on a
part-by-part basis. This policy requires us to make estimates regarding the
market value of our inventory, including an assessment of excess or obsolete
inventory. We determine excess and obsolete inventory based on an estimate of
the future demand for our products within a specified time horizon, generally
12 months. The estimates we use for demand are also used for near-term capacity
planning and inventory purchasing and are consistent with our revenue
forecasts. If our demand forecast is greater than our actual demand, we may be
required to take additional excess inventory charges, which will decrease gross
margin and net operating results in the future. The Company recorded charges
relating to inventory write-downs of $6.3 million, $30.4 million and $53.9
million in fiscal 2003, 2002 and 2001, respectively.

Marketable Securities

Marketable securities held by the Company are generally valued at market
prices with unrealized gains or losses recognized in other comprehensive
income (loss) in the balance sheet. However, management evaluates its investment in marketable securities
for potential other than temporary declines in value. Such evaluation
includes researching commentary from industry experts, analysts and other
companies, current and forecasted business conditions and any other information
deemed necessary in the evaluation process. The Company recorded pre-tax,
non-operating write-downs of $673,000 and $16.2 million during the second and
third quarters of fiscal 2003, respectively. The Company also recorded
pre-tax, non-operating write-downs of $288.5 million and $506.8 million in
fiscal 2002 and 2001, respectively.

Valuation of Alliance and Solar Venture Investments

We enter into certain equity investments for the promotion of business and
strategic objectives. Our policy is to value these investments at our
historical cost. In addition, our policy requires us to periodically review
these investments for impairment. For these investments, an impairment analysis
requires significant judgment, including an assessment of the investees
financial condition, viability and valuation of subsequent rounds of financing
and the impact of any contractual preferences, as well as the investees
historical results, projected results and prospects for additional financing.
If the actual outcomes for the investees are significantly different from our
estimates, our recorded impairments may be understated, and we may incur
additional charges in future periods. As a result of managements analysis of
these venture investments, the Company recorded pre-tax, non-operating
impairment charges of $19.0 million and $5.8 million related to Alliance
Ventures and Solar Venture Partners, respectively, during fiscal 2003. The
Company also recorded impairment charges of $7.3 million and $2.6 million
related to Alliance Ventures investments during fiscal 2002 and 2001,
respectively, and $1.0 million related to Solar Venture Partners investments
during fiscal 2002.

Revenue Recognition

We recognize revenue in accordance with SEC Staff Accounting Bulletin No.
101 Revenue Recognition in Financial Statements (SAB 101). SAB 101 requires
that four basic criteria be met before revenue can be recognized: 1) evidence
an arrangement exists; 2) delivery has occurred; 3) the fee is fixed or
determinable; and 4) collectability is reasonably assured. We recognize revenue
upon determination that all criteria for revenue recognition have been met. The
criteria are usually met at the time of product shipment. We record reductions
to revenue for estimated allowances such as returns and competitive pricing
programs. If actual returns or pricing adjustments exceed our estimates,
additional reductions to revenue would result.

Results of Operations

The percentage of net revenues represented by certain line items in the
Companys consolidated statements of operations for the years indicated, is
set forth in the table below.

|                    |  |  |                                                     |   |      |  |        |   |  |  |       |   | 
|------------------- |  |  | --------------------------------------------------- | - | ---- |  | ------ | - |  |  | ----- | - | 
|                    |  |  | Percentage of Net Revenues for Year Ended March 31,
|                    |  |  |                                                    
|                    |  |  | 2003                                                |   | 2002 |  | 2001  
|                    |  |  |                                                     |   |      |  |       
|Net revenues        |  |  | 100.0                                               | % |      |  | 100.0  | % |  |  | 100.0 | %
|Cost of revenues    |  |  | 214.6                                               |   |      |  | 278.6  |   |  |  | 90.1  |  
|                    |  |  |                                                     |   |      |  |        |   |  |  |       |  
|Gross profit (loss) |  |  | (114.6                                              | ) |      |  | (178.6 | ) |  |  | 9.9   |  
|Operating expenses: |  |  |                                                     |   |      |  |        |   |  |  |       |  

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|                                                                                                                                                               |                                                  |  |                                                     |       |      |  |          |      |  |  |        |     | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------ |  | --------------------------------------------------- | ----- | ---- |  | -------- | ---- |  |  | ------ | --- | 
|                                                                                                                                                               |                                                  |  | Percentage of Net Revenues for Year Ended March 31,
|                                                                                                                                                               |                                                  |  |                                                    
|                                                                                                                                                               |                                                  |  | 2003                                                |       | 2002 |  | 2001    
|                                                                                                                                                               |                                                  |  |                                                     |       |      |  |         
|                                                                                                                                                               | Research and development                         |  |                                                     | 123.8 |      |  |          | 39.3 |  |  |        | 6.6 | 
|                                                                                                                                                               | Selling, general and administrative              |  |                                                     | 97.5  |      |  |          | 76.8 |  |  |        | 9.4 | 
|                                                                                                                                                               | Write-off of in-process research and development |  |                                                     | 8.7   |      |  |          | 3.4  |  |  |        |    | 
|                                                                                                                                                               |                                                  |  |                                                     |       |      |  |          |      |  |  |        |    
|Loss from operations                                                                                                                                           |                                                  |  | (344.6                                              | )     |      |  | (298.1   | )    |  |  | (6.1   | )  
|Gain on investments                                                                                                                                            |                                                  |  | 76.4                                                |       |      |  | 18.0     |      |  |  | 36.3   |    
|Write-down of marketable securities and venture investments                                                                                                    |                                                  |  | (301.2                                              | )     |      |  | (1,118.2 | )    |  |  | (244.1 | )  
|Other income (expense), net                                                                                                                                    |                                                  |  | (23.8                                               | )     |      |  | (19.9    | )    |  |  | (0.1   | )  
|                                                                                                                                                               |                                                  |  |                                                     |       |      |  |          |      |  |  |        |    
|Loss before income taxes, minority interest in consolidated
subsidiaries,
equity in loss of investees, and cumulative effect of change in
accounting principle |                                                  |  | (593.2                                              | )     |      |  | (1,418.2 | )    |  |  | (214.0 | )  
|Benefit for income taxes                                                                                                                                       |                                                  |  | (61.0                                               | )     |      |  | (537.5   | )    |  |  | (86.2  | )  
|                                                                                                                                                               |                                                  |  |                                                     |       |      |  |          |      |  |  |        |    
|Loss before minority interest in consolidated subsidiaries, equity
in loss
of investees and cumulative effect of change in accounting principle                |                                                  |  | (532.2                                              | )     |      |  | (880.7   | )    |  |  | (127.8 | )  
|Minority interest in consolidated subsidiaries                                                                                                                 |                                                  |  | 17.9                                                |       |      |  | 2.0      |      |  |  |       |    
|Equity in loss of investees                                                                                                                                    |                                                  |  | (58.2                                               | )     |      |  | (35.8    | )    |  |  | (2.7   | )  
|Cumulative effect of change in accounting principle                                                                                                            |                                                  |  |                                                    |       |      |  | 7.7      |      |  |  |       |    
|                                                                                                                                                               |                                                  |  |                                                     |       |      |  |          |      |  |  |        |    
|Net loss                                                                                                                                                       |                                                  |  | (572.5                                              | )%    |      |  | (906.8   | )%   |  |  | (130.5 | )% 
|                                                                                                                                                               |                                                  |  |                                                     |       |      |  |          |      |  |  |        |    

Net Revenues

|                 |  |                      |        |                   |  |      |        |              |  |              |         |  |  |  |         |    |  |  |       |   
|---------------- |  | -------------------- | ------ | ----------------- |  | ---- | ------ | ------------ |  | ------------ | ------- |  |  |  | ------- | -- |  |  | ----- | --
|                 |  | Year Ended March 31, |        | Percentage Change
|                 |  |                      |        |                  
|                 |  | 2003                 |        | 2002              |  | 2001 |        | 2003 to 2002 |  | 2002 to 2001
|                 |  |                      |        |                   |  |      |        |              |  |             
|SRAM             |  | $                    | 7,600  |                   |  | $    | 13,356 |              |  | $            | 90,549  |  |  |  | (43.1   | )% |  |  | (85.2 | )%
|DRAM             |  |                      | 6,334  |                   |  |      | 12,786 |              |  |              | 117,938 |  |  |  | (50.5   | )% |  |  | (89.2 | )%
|Mixed Signal     |  |                      | 2,948  |                   |  |      | 160    |              |  |              |        |  |  |  | 1,742.5 | %  |  |  |      |   
|System Solutions |  |                      | 1,640  |                   |  |      |       |              |  |              |        |  |  |  |        |    |  |  |      |   
|Other            |  |                      |       |                   |  |      | 245    |              |  |              | 191     |  |  |  | (100.0  | )% |  |  | 28.3  | % 
|                 |  |                      |        |                   |  |      |        |              |  |              |         |  |  |  |         |    |  |  |       |   
|Net Revenues     |  | $                    | 18,522 |                   |  | $    | 26,547 |              |  | $            | 208,678 |  |  |  | (30.2   | )% |  |  | (87.3 | )%
|                 |  |                      |        |                   |  |      |        |              |  |              |         |  |  |  |         |    |  |  |       |   

In fiscal 2003, the Companys net revenues fell by $8.0 million or 30%
to $18.5 million from $26.5 million in fiscal 2002. This decrease was due to a
$12.2 million decrease in revenue from memory products offset by a $4.4 million
increase in revenue from the Companys mixed signal and system solutions
products. Revenues generated by the Companys Mixed Signal business unit
resulted from the acquisition of PulseCore during fiscal 2002. Revenues
generated by the Companys System Solutions business unit resulted primarily
from products incorporating technology from an API license purchased during
fiscal 2003. The decrease in memory revenue resulted from a decrease in unit
sales of 25% combined with a decrease in average selling prices ASPs of
29%. We believe these decreases were due to the continued overall slowdown
in the semiconductor industry. The Companys net revenues in fiscal 2002 fell
by $182.1 million or 87% to $26.5 million from $208.7 million in fiscal 2001
due to a 70% decrease in unit volume combined with a 35% decrease in ASPs.
This decrease was primarily due to a reduction in memory product
revenue. During fiscal 2001, total net revenues increased to
$208.7 million from $89.2 million in fiscal 2000. This
increase resulted from a 76% increase in unit sales combined with a
33% increase in blended ASPs across both the SRAM and DRAM
product lines.

The
Companys DRAM net revenues for fiscal 2003 were $6.3 million or
approximately 34% of total net revenues compared to $12.8 million or
approximately 48% of total net revenues in fiscal 2002. This represents a
decrease of $6.5 million or 51% from fiscal 2002 and resulted
from a 27%
decrease in unit sales combined with a 32.2% decrease in ASPs. DRAM net
revenues for fiscal 2001 were $117.9 million or approximately 57% of total net
revenues. In fiscal 2002, DRAM net revenues decreased $105.2 million from fiscal
2001 due to a 70.6% decrease in unit sales combined with a 63% decrease in
ASPs.

The
Companys SRAM net revenues for fiscal 2003 were $7.6 million or
approximately 41% of total net revenues compared to $13.4 million or
approximately 50% of total net revenues in fiscal 2002. This represents a
decrease of $5.8 million or 43% from fiscal 2002 and resulted from a 23%
decrease in unit sales combined with a 26% decrease in ASPs. SRAM net
revenues for fiscal 2001 were $90.5 million or approximately 43% of total net
revenues. In fiscal 2002, SRAM revenue decreased $77.2 million from fiscal 2001
due to a 71% decrease in unit sales combined with a 46% decrease in ASPs.

The
Companys Mixed Signal net revenues for fiscal 2003 were $2.9 million
or approximately 16% of total net revenues compared to $160,000 or less than 1%
of total net revenues in fiscal 2002. This represents an increase of
approximately $2.8 million from fiscal 2002 and resulted primarily from an
increase in unit sales of 6.2 million. Revenue generated by this business unit
resulted from the acquired business of PulseCore in fiscal 2002. The Companys
System Solutions net revenues for fiscal 2003 were $1.6 million or approximately
9% of total net revenues. There was no revenue generated from this business in
fiscal 2002.

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The Company continues to focus its efforts in selling to the non-PC
market. Sales to non-PC segments of the market, such as telecommunications,
networking, datacom and consumer in fiscal 2003 accounted for approximately
83% of the Companys net revenues compared to approximately 72% during fiscal
2002 and 73% in fiscal 2001. The trend away from the PC market is due to the
Companys customer and market diversification efforts as well as continued
weakness in the PC markets.

International net revenues in fiscal 2003 were $12.7 million or
approximately 69% of net revenues. This was a decrease of approximately 35%
from fiscal 2002. International net revenues in fiscal 2002 were $19.6 million
which represented an 85% decrease compared to fiscal 2001. International net
revenues are derived mainly from customers in Asia and Europe. Net revenues to
Asia accounted for approximately 43% and Europe accounted for 23% of net
revenues for the Company for fiscal year 2003.

Generally, the markets for the Companys products are characterized by
volatile supply and demand conditions, numerous competitors, rapid
technological change, and product obsolescence. These conditions could require
the Company to make significant shifts in its product mix in a relatively short
period of time. These changes involve several risks, including, among others,
constraints or delays in timely deliveries of products from the Companys
suppliers, lower than anticipated wafer manufacturing yields, lower than
expected throughput from assembly and test suppliers, and less than anticipated
demand and reduced selling prices. The occurrence of any problems resulting
from these risks could have a material adverse effect on the Companys results
of operations.

Cost of Revenues

Cost of revenues were $39.7 million, $74.0 million and $187.9 million for
fiscal 2003, 2002, and 2001, respectively. Cost of revenues as a percentage of
revenue were 215%, 279% and 90% for fiscal 2003, 2002, and 2001,
respectively. The gross loss was caused by additional inventory write-downs,
decreases in unit shipments, decreases in unit ASPs, and the write-down of
certain prepaid wafer credits from Tower Semiconductor. The inventory
write-downs in fiscal 2003, 2002, and 2001 are the result of reduced unit
shipments, reduced forecasted unit demand, and reductions in actual and
forecasted ASPs, all of which are primarily related to the Companys memory
business and products.

During fiscal 2003, the Company took pre-tax charges of $6.3 million, or
34% of net revenues, for inventory write-downs due to a significant decrease
in unit sales and ASPs for its memory products. This compares with $30.4
million, or 114% of net revenues, in fiscal 2002 and
$53.9 million, or 26%
of net revenues, for fiscal 2001. During fiscal 2003, the Company released
reserves of $35.7 million as a result of selling previously reserved product
and the scrapping of $20.9 million of product during the fourth quarter of
fiscal 2003. During the second quarter of fiscal 2003, the Company wrote off $9.5 million of
prepaid wafer credits resulting from its investment in Tower Semiconductor.
The Company had determined that the value of these credits will not be realized
given the Companys sales forecast of products to be manufactured at Tower.

The Company is subject to a number of factors that may have an adverse
impact on gross profit, including the availability and cost of products from
the Companys suppliers; increased competition and related decreases in unit
average selling prices; changes in the mix of product sold; and the timing of
new product introductions and volume shipments. In addition, the Company may
seek to add additional foundry suppliers and transfer existing and newly
developed products to more advanced manufacturing processes. The commencement
of manufacturing at a new foundry is often characterized by lower yields as the
manufacturing process needs to be refined. There can be no assurance that the
commencement of such manufacturing will not have a material adverse effect on
the Companys cost of revenues in future periods.

Research and Development

|                                    |  |                       |        |                   |  |      |        |              |  |              |         |   |  |  |       |    |  |  |       |   
|----------------------------------- |  | --------------------- | ------ | ----------------- |  | ---- | ------ | ------------ |  | ------------ | ------- | - |  |  | ----- | -- |  |  | ----- | --
|                                    |  | Years Ended March 31, |        | Percentage Change
|                                    |  |                       |        |                  
|                                    |  | 2003                  |        | 2002              |  | 2001 |        | 2002 to 2003 |  | 2001 to 2002
|                                    |  |                       |        |                   |  |      |        |              |  |             
|Net revenues                        |  | $                     | 18,522 |                   |  | $    | 26,547 |              |  | $            | 208,678 |   |  |  | (30.2 | )% |  |  | (87.3 | )%
|                                    |  |                       |        |                   |  |      |        |              |  |              |         |   |  |  |       |    |  |  |       |   
|Research and development            |  | $                     | 22,933 |                   |  | $    | 10,435 |              |  | $            | 13,766  |   |  |  | 119.8 | %  |  |  | (24.2 | )%
|                                    |  |                       |        |                   |  |      |        |              |  |              |         |   |  |  |       |    |  |  |       |   
|R&D as a percentage of net revenues |  |                       | 123.8  | %                 |  |      | 39.3   | %            |  |              | 6.6     | % |  |  | 215.0 | %  |  |  | 495.9 | % 
|                                    |  |                       |        |                   |  |      |        |              |  |              |         |   |  |  |       |    |  |  |       |   

Research and development (R&D) expenses consist primarily of salaries
and benefits for engineering design personnel, facilities costs, equipment and
software depreciation, amortization and maintenance costs, masks, prototype
wafers and finished goods, tooling, consulting, and license fees.

Research
and development expenses were $22.9 million or 124% of net
revenues for fiscal 2003 as compared to $10.4 million or 39% of net revenues
for fiscal 2002 and $13.8 million or 7% of net revenues for fiscal 2001. The
increase in spending during

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fiscal 2003 compared to fiscal 2002 was due primarily to increased
headcount resulting from the acquisitions of PulseCore, SiPackets, and Chip
Engines, increased depreciation as the result of additional CAD software
investments, the amortization of technology licenses, and the impact of the
consolidation of investee companies. The increase in R&D expenses as a
percentage of net revenues from fiscal 2002 to 2003 is due to the
aforementioned spending increases combined with a 30% decrease in
net revenues. The decrease in spending from fiscal 2002 to 2001 was due
to decreased compensation expenses associated with temporary pay reductions,
lower mask and tooling charges, and a reduction in depreciation expense.

The Company believes that investments in research and development are
necessary to remain competitive in the marketplace. Research and development
expenses may increase in absolute dollars in future periods due to additional
personnel the Company may acquire as it attempts to diversify its product
portfolio through the acquisition of new companies and/or technologies.

Selling, General and Administrative

|                                     |  |                      |        |                   |  |      |        |              |  |              |         |   |  |  |       |    |  |  |       |   
|------------------------------------ |  | -------------------- | ------ | ----------------- |  | ---- | ------ | ------------ |  | ------------ | ------- | - |  |  | ----- | -- |  |  | ----- | --
|                                     |  | Year Ended March 31, |        | Percentage Change
|                                     |  |                      |        |                  
|                                     |  | 2003                 |        | 2002              |  | 2001 |        | 2002 to 2003 |  | 2001 to 2002
|                                     |  |                      |        |                   |  |      |        |              |  |             
|Net revenues                         |  | $                    | 18,522 |                   |  | $    | 26,547 |              |  | $            | 208,678 |   |  |  | (30.2 | )% |  |  | (87.3 | )%
|                                     |  |                      |        |                   |  |      |        |              |  |              |         |   |  |  |       |    |  |  |       |   
|Selling, general and administration  |  | $                    | 18,066 |                   |  | $    | 20,377 |              |  | $            | 19,691  |   |  |  | (11.3 | )% |  |  | (3.5  | )%
|                                     |  |                      |        |                   |  |      |        |              |  |              |         |   |  |  |       |    |  |  |       |   
|SG&A as a percentage of net revenues |  |                      | 97.5   | %                 |  |      | 76.8   | %            |  |              | 9.4     | % |  |  | 27.0  | %  |  |  | 713.5 | % 
|                                     |  |                      |        |                   |  |      |        |              |  |              |         |   |  |  |       |    |  |  |       |   

Selling, general and administrative (SG&A) expenses include salaries and
benefits for sales, support, marketing, administrative, and executive
personnel, insurance, audit and tax preparation costs, legal fees, facilities
costs, maintenance, equipment and software depreciation and amortization,
commissions, outside marketing costs, and travel.

SG&A
expenses in fiscal 2003 were $18.1 million or 98% of net revenues
compared with $20.4 million or 77% of net revenues in fiscal 2002. The
decrease from fiscal 2002 to 2003 was due to lower legal and tax consulting
fees as well as lower commissions resulting from a 30% decrease in net
revenues. The increase in SG&A expenses from fiscal 2001 to 2002 was due to
increased legal fees associated with the Investment Company Act of
1940 and higher tax
consulting fees offset by lower commission expense as a result of an 87%
decrease in net revenues. The increase in SG&A expenses as a percentage of net
revenues from fiscal 2002 to 2003 was due to a 30% decrease in net revenues.

Selling, general and administrative expenses may increase in absolute
dollars and may fluctuate as a percentage of net revenues in the future due to
changes in commission expense, which moves up or down depending on the level of
net revenues, D&O insurance premiums, and administrative costs related to
complying with the requirements of Sarbanes-Oxley legislation.

Gain on Investments

During fiscal 2003, the Company recorded a gain on the sale of 112.2
million shares of UMC common stock of $24.7 million, a loss on the sale of 1.6
million shares of Chartered ADSs of $5.8 million, a loss on the sale of 924,000
shares of Adaptec common stock of $5.4 million, a loss on the sale of 143,000
shares of Vitesse common stock of $912,000, a loss on the sale of 68,000 shares
of PMC-Sierra common stock of $274,000, a gain on the sale of 75,000 shares of
Broadcom common stock of $1.4 million, and a gain on the sale of 360,244 shares
of Magma common stock of $1.2 million. The Company recorded a net gain of $6.9
million on its derivative contracts, offset by the change in value of the
hedged shares of Vitesse, Broadcom and Adaptec common stock of $7.7 million
during fiscal 2003. All of these gains and losses were pre-tax, non-operating
gains and losses.

In fiscal 2002, the Company recognized a pre-tax gain of $28.1 million on
its investment in Platys Communications when it was sold to Adaptec. The
Company sold 77.8 million shares of UMC and recorded a pre-tax loss on this
sale of $20.8 million. The Company also sold 125,000 shares of Common Stock of
Broadcom and recorded a pre-tax gain of $1.6 million as well as 100,000 shares
of Common Stock of Adaptec and recorded a pre-tax gain of $403,000. In fiscal
2002, the Company recorded a pre-tax loss on hedged marketable securities of
$8.7 million, offset by a pre-tax gain of $3.4 million on hedging instruments.

Gain on investments during fiscal 2001 was largely attributed to the sale
of Chartered and Broadcom securities. The Company sold 500,000 shares of
Chartered and recorded a pre-tax gain of $33.5 million and sold 287,522 shares
of Broadcom Common Stock and recorded a pre-tax gain $31.3 million.
Furthermore, in June 2000 Malleable Technologies, Inc. completed its merger
with PMC-Sierra, resulting in the Companys exchanging its ownership interest
in Malleable for 68,000 shares of PMC-Sierra Common Stock. Upon completion of
the transaction, the Company recorded a pre-tax gain of $11.0 million.

Write-Down of Marketable Securities and Venture Investments

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The Company has had and continues to hold significant investments in
marketable securities part of which are classified as non-current due to
certain restrictions on its ability to dispose of these shares within the next
twelve months. During fiscal 2003, certain investments in marketable
securities held by the Company experienced declines in market value as a result
of the continued economic slowdown in the semiconductor industry and declines
in the stock market in general. As a result, the Company recorded other than
temporary write-downs in these investments. During the second and third
quarters of fiscal 2003, the Company recorded pre-tax, non-operating losses of
$673,000 and $16.2 million on three of its investments. During
the third quarter of fiscal 2003, the Company recorded a pre-tax,
non-operating loss of $14.1 million on its long-term investment
in Tower shares. At March 31, 2003, a portion of the
Companys investment in Tower shares was classified as long-term.

During the first six months of fiscal 2002, marketable securities held by
the Company experienced significant declines in market value. As a result, the
Company recorded a pre-tax, non-operating loss of $288.5 million during the
second quarter of fiscal 2002. During the last nine months of fiscal 2001,
marketable securities held by the Company experienced significant declines in
market value. As a result, the Company recorded a pre-tax, non-operating loss
of $506.8 million during the fourth quarter of fiscal 2001.

The Company wrote down several of its Alliance and Solar Ventures
investments recognizing pre-tax, non-operating losses of approximately $24.8
million, $8.3 million and $2.6 million for fiscal 2003, 2002 and 2001,
respectively.

Other Income (Expense), Net

Other Income (Expense), Net represents interest income from short-term
investments, interest expense on short and long-term obligations, disposal of
fixed assets and bank fees. In fiscal 2003, Other Expense, Net was
approximately $4.4 million compared to Other Expense, Net of approximately $5.3
million in fiscal 2002. The decrease in expense as compared to fiscal 2002 is
due to a reduction in interest expense.

Benefit for Income Taxes

The Companys effective tax rate for fiscal 2003, 2002, and 2001, was
10.3%, 37.9%, and 40.3%, respectively.

During fiscal 2003, 2002 and 2001, the Company recorded a benefit for
income taxes of approximately $11.3 million, $142.7 million, and $180.0
million, respectively, primarily as a result of the write-down of marketable
securities and other investments of $55.8, $296.8 and $509.4 million,
respectively.

Equity in Loss of Investees

Several of the Alliance Ventures and Solar Venture Partners investments
are accounted for under the equity method due to the Companys ability to
exercise significant influence on the operations of investees resulting from
ownership interest and/or board representation. The equity in the losses of the
investees of Alliance Ventures and Solar Venture Partners was approximately
$10.8 million, $9.5 million, and $5.7 million, all net of tax, for fiscal 2003,
2002, and 2001, respectively.

Factors That May Affect Future Results

In addition to the factors discussed elsewhere in this Form 10-K, the
following are important factors which could cause actual results or events to
differ materially from those contained in any forward looking statements made
by or on behalf of the Company.

We are affected by a general
pattern of product price decline and fluctuations, which has harmed,
and may continue to harm, our business.

The
markets for our products are characterized by rapid technological
change, evolving industry standards, product obsolescence, and
significant price competition and, as a result, are subject to
decreases in average selling prices. During eleven of the past twelve
quarters, our business has been characterized by a fundamental
slowdown in end-customer demand in all the markets our products
serve. More specifically, our performance has been adversely affected
by severe declines in end user demand for our memory products and
average selling prices of all of our products. Our net revenues
decreased in fiscal 2003 by 30% compared to fiscal 2002, and
decreased in fiscal 2002 by 87% compared to fiscal 2001.
Historically, average selling prices for semiconductor products have
declined and we expect that average selling prices will decline in
the future. Declining average selling prices will also adversely
affect the Companys gross margin. Accordingly, our ability to
maintain or increase revenues will be highly dependent on our ability
to increase unit sales volume and reduce the per unit cost of our
existing products and to successfully develop, introduce and sell new
products. There can be no assurance that the Company will be able to
increase unit sales volumes of existing products, develop, introduce
and sell new products or significantly reduce its cost per unit.
There also can be no assurance that even if we were to increase unit
sales volumes and sufficiently reduce our costs per unit, we would be
able to maintain or increase revenues or gross margin.

Our financial results could be
adversely impacted if we fail to successfully develop, introduce, and
sell new product and we have had limited success in doing so.

Like
many semiconductor companies which frequently operate in a highly
competitive, quickly changing environment marked by rapid
obsolescence of existing products, our future success depends on our
ability to develop and introduce new products that customers choose
to buy. During eleven of the past twelve quarters, our business has
been characterized by a fundamental slowdown in end customer demand
in all the markets our products serve. More specifically, the
Companys performance in both fiscal 2003 and fiscal 2002 was
adversely affected by severe declines in end user demand for SRAM and
DRAM memory products, which have traditionally represented the core
of our business, and severe declines in average selling prices of all products. Although
the Company has recently developed and sold mixed signal and systems
solutions to supplement the Companys traditional memory product
offerings, the Company has a limited operating history in these
markets and has had limited success. If we fail to introduce new
products in a timely manner or are unable to successfully manufacture
such products, or if our customers do not successfully introduce new
systems or products incorporating ours, or market demand for our new
products does not exist as anticipated, our business, financial
condition and results of operations could be seriously harmed.

A significant portion of our
assets consists of securities that we have a limited ability to sell
and which have experienced significant declines in value.

We have
held, and continue to hold, significant investments in securities
that we have limited ability to dispose of. Our investment in UMC
represents our largest single asset. Of the 245.0 million shares
of UMC common stock owned by us at March 31, 2003, approximately
56.7 million shares are subject to a lock-up or
no-trade provision,
and we have pledged 145 million shares of UMC common stock to
secure a loan with Chinatrust Commercial Bank, Ltd. In addition,
contractual restrictions limit our ability to transfer the
significant majority our investment in Tower Semiconductor Ltd.
Further, through Alliance Venture Managements investment funds
and Solar Ventures we invest in start-up companies that are not
traded on public markets. During the past several years, the
investments in securities held by us experienced declines in market
value as a result of the continued economic slowdown in the
semiconductor industry and declines in the stock market in general.
For example, during the second and third quarters of fiscal 2003, we
recorded pre-tax, non-operating losses of $673,000 and
$16.2 million on three of our investments. During the third
quarter of fiscal 2003, the Company recorded a pre-tax, non-operating loss of
$14.1 million on its long-term investment in Tower shares. At
March 31, 2003, a portion of the Companys investment in Tower
shares was classified as long-term. In addition, during the fist six
months of fiscal 2002, marketable securities held by us experienced
significant declines in market value, and the Company recorded a
pre-tax, non-operating loss of $288.5 million during the second
quarter of fiscal 2002. During the last nine months of fiscal 2001,
marketable securities held by us also experienced significant
declines in market value and we recorded a pre-tax, non-operating
loss of $506.8 million during the fourth quarter of fiscal 2001.
In addition, we wrote down several of our Alliance Venture Management
and Solar Ventures investments recognizing pre-tax, non-operating
losses of approximately $24.8 million, $8.3 million and
$2.6 million for fiscal 2003, 2002 and 2001, respectively. There
can be no assurances that the Companys investment in these
securities will not decline further in value. See Item 7A.
Quantitative and Qualitative Disclosures About Market
Risk  Investment Risk.

Our future results are likely to
fluctuate.

The Companys quarterly and annual results of operations have historically
been, and will continue to be, subject to quarterly and other fluctuations due
to a variety of factors, including; general economic conditions; changes in
pricing policies by the Company, its competitors or its suppliers; anticipated
and unanticipated decreases in unit average selling prices of the Companys
products; fluctuations in manufacturing yields, availability and cost of
products from the Companys suppliers; the timing of new product announcements
and introductions by the Company or its competitors; changes in the mix of
products sold; the cyclical nature of the semiconductor industry; the gain or
loss of significant customers; increased research and development expenses
associated with new product introductions; market acceptance of new or enhanced
versions of the Companys products; seasonal customer demand; and the timing of
significant orders. Results of operations could also be adversely affected by
economic conditions generally or in various geographic areas, other conditions
affecting the timing of customer orders and capital spending, a continued
downturn in the market for electronic products, or order cancellations or
rescheduling. Additionally, because the Company is continuing to increase its

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operating expenses for personnel and new product development in order to create
more sales opportunities and increase sales levels, the Companys results of
operations will be adversely affected if such increased sales levels are not
achieved.

We are exposed to the risks associated with the slowdown in the U.S. and
world-wide economy.

Among other factors, decreased consumer confidence and spending and
reduced corporate profits and capital spending have resulted in a downturn in
the U.S. economy generally and in the semiconductor industry in particular. As
a result of these unfavorable economic conditions, we have experienced a
significant slowdown in customer orders across nearly all of our memory product
lines during fiscal 2002 and fiscal 2003. In addition, we experienced
corresponding decreases in revenues and average selling prices across all
product lines during fiscal 2002 and fiscal 2003 and expect continued pressure
on average selling prices in the future. If the adverse economic conditions
continue or worsen, additional restructuring of operations may be required, and
our business, financial condition and results of operations may be seriously
harmed.



| | Our results of operations and financial condition could be harmed by efforts to
comply with, or penalties associated with, the Investment Company Act of 1940.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------

In August 2000, the Company applied to the SEC for an order under section
3(b)(2) of the Act confirming its non-investment company status. In March
2002, the staff of the SEC informed the Company that the staff could not
support the granting of the requested exemption. Since that time, the Company
has been working diligently to resolve its status under the Act and has
recommenced informal discussions with the staff of the SEC to assess various
means to achieve that goal. No assurances can be given that the SEC will agree
that the Company is not currently deemed to be an unregistered investment
company in violation of the Act. If the SEC takes the view that the Company
has operated and continues to operate as an unregistered investment company in
violation of the Act, and does not provide the Company with a sufficient period
to either register as an investment company or divest itself of investment
securities and/or acquire non-investment securities, the Company may be subject
to significant potential penalties.

In the absence of exemptions granted by the SEC (which are discretionary
in nature and require the SEC to make certain findings), the Company would be
required either to register as a closed-end investment company under the Act,
or, in the alternative, to divest itself of sufficient investment securities
and/or to acquire sufficient non-investment assets so as not to be regarded as
an investment company under the Act. Either registering as a closed-end
investment company under the Act, or divesting itself of sufficient investment
securities and/or acquiring sufficient non-investment assets so as not to be
regarded as an investment company under the Act, could result in a material
adverse effect on the Companys results of operations and financial condition.
See Item 1  Business  The Investment Company Act of 1940.

We face periods of industry-wide semiconductor over-supply that harm our
results.

The semiconductor industry has historically been characterized by wide
fluctuations in the demand for, and supply of, semiconductors. These
fluctuations have helped produce many occasions when supply and demand for
semiconductors have not been in balance and that situation exists today. In
the past, these industry-wide fluctuations in demand have seriously harmed our
operating results and we have recently experienced declining average selling
prices for our products. In some cases, industry downturns with these
characteristics have lasted more than a year. Prior experience has shown that
a restructuring of operations, resulting in significant restructuring charges,
may become necessary if an industry downturn persists. When these cycles occur,
they will likely seriously harm our business, financial condition, and results
of operations and we may need to take further action to respond to them.

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We must build products based on demand forecasts; if such forecasts are
inaccurate, we may incur significant losses.

The cyclical nature of the semiconductor industry periodically results in
shortages of advanced process wafer fabrication capacity such as the Company
has experienced from time to time. The Companys ability to maintain adequate
levels of inventory is primarily dependent upon the Company obtaining
sufficient supply of products to meet future demand, and any inability of the
Company to maintain adequate inventory levels may adversely affect its
relations with its customers. In addition, the Company must order products and
build inventory substantially in advance of products shipments, and there is a
risk that because demand for the Companys products is volatile and subject to
rapid technology and price change, the Company will forecast incorrectly and
produce excess or insufficient inventories of particular products. This
inventory risk is heightened because certain of the Companys key customers
place orders with short lead times. The Companys customers ability to
reschedule or cancel orders without significant penalty could adversely affect
the Companys liquidity, as the Company may be unable to adjust its purchases
from its independent foundries to match such customer changes and
cancellations. The Company has in the past produced excess quantities of
certain products, which has had a material adverse effect on the Companys
results of operations. In fiscal 2003, 2002 and 2001, the Company recorded
pre-tax charges totaling approximately $6.3 million, $30.4 million, and $53.9
million, respectively, primarily to reflect an excess and a decline in market
value of certain inventory. There can be no assurance that the Company in the
future will not produce excess quantities of any of its products. To the
extent the Company produces excess or insufficient inventories of particular
products, the Companys results of operations could be adversely affected.

We face additional problems and uncertainties associated with international
operations that could seriously harm us.

The Company conducts a significant portion of its business internationally
and is subject to a number of risks resulting from such operations. Such risks
include political and economic instability and changes in diplomatic and trade
relationships, foreign currency fluctuations, unexpected changes in regulatory
requirements, delays resulting from difficulty in obtaining export licenses for
certain technology, tariffs and other barriers and restrictions, and the
burdens of complying with a variety of foreign laws. There can be no assurance
that such factors will not adversely impact the Companys results of operations
in the future or require the Company to modify its current business practices.

We may fail to integrate successfully businesses that we acquire.

In the past, the Company has acquired other companies such as PulseCore
and Chip Engines and we may continue to acquire additional companies in the
future. If the Company fails to integrate these businesses successfully, or
properly, its quarterly and annual results may be seriously harmed. Integrating
businesses is expensive, time-consuming and a great strain on the Companys
resources. Some specific difficulties in the integration process may include
failure to successfully develop acquired in-process technology, the difficulty
of integrating acquired technology or products, unanticipated expenses related
to technology integration and the potential unknown liabilities associated with
acquired businesses.

We may not be able to compete successfully in a highly competitive industry.

The Company faces intense competition, and many of its principal
competitors and potential competitors have substantially greater financial,
technical, marketing, distribution and other resources, broader product lines
and longer-standing relationships with customers than does the Company, any of
which factors may place such competitors and potential competitors in a
stronger competitive position than the Company.

Quarterly shipments are typically weighted to the end of a quarter.

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The Company usually ships more product in the third month of each quarter
than in either of the first two months of the quarter, with shipments in the
third month higher at the end of the month. This pattern, which is common in
the semiconductor industry, is likely to continue. The concentration of sales
in the last month of the quarter may cause the Companys quarterly results of
operations to be more difficult to predict. Moreover, a disruption in the
Companys production or shipping near the end of a quarter could materially
reduce the Companys net sales for that quarter. The Companys reliance on
outside foundries and independent assembly and testing houses reduces the
Companys ability to control, among other things, delivery schedules.

We rely on third parties to perform manufacturing; problems in their
performance can seriously harm our financial results.

The Company currently relies on independent foundries to manufacture all
of the Companys products. Reliance on these foundries involves several risks,
including constraints or delays in timely delivery of the Companys products,
reduced control over delivery schedules, quality assurance and costs and loss
of production due to seismic activity, weather conditions and other factors. In
addition, as a result of the rapid growth of the semiconductor industry based
in the Hsin-Chu Science-Based Industrial Park, severe constraints have been
placed on the water and electricity supply in that region. Any shortages of
water or electricity could adversely affect the Companys foundries ability to
supply the Companys products, which could have a material adverse effect on
the Companys results of operations or financial condition. Although the
Company continuously evaluates sources of supply and may seek to add additional
foundry capacity, there can be no assurance that such additional capacity can
be obtained at acceptable prices, if at all. The occurrence of any supply or
other problem resulting from these risks could have a material adverse effect
on the Companys results of operations. The Company also relies on domestic
and offshore subcontractors for die assembly and testing of products, and is
subject to risks of disruption in adequate supply of such services and quality
problems with such services.

Increases in raw materials prices may significantly harm our results.

Our semiconductor manufacturing operations require raw materials that must
meet exacting standards. We generally have more than one source available for
these materials, but there are only a limited number of suppliers capable of
delivering certain raw materials that meet our standards. There is an ongoing
risk that the suppliers of wafer fabrication, wafer sort, assembly and test
services to the Company may increase the price charged to the Company for the
services they provide, to the point that the Company may not be able to
profitably have its products produced by such suppliers. The occurrence of
such price increases could have a material adverse affect on the Companys
results of operations.

Our operations could be severely harmed by natural disasters or other
disruptions to the foundries at which it subcontracts manufacturing.

The Companys corporate headquarters are located near major earthquake
faults, and the Company is subject to the risk of damage or disruption in the
event of seismic activity. In addition, the Company subcontracts its
manufacturing to independent foundries. The Company has in the past experience
disruption of the operations at its foundries, and any future disruptions for
any reason, including work stoppages, an outbreak of Severe Acute Respiratory
Syndrome (SARS), fire, earthquakes, or other natural disasters could have a
material adverse affect on the Companys results of operations. One of the
Companys major foundry relationships is with UMC in the Hsin-Chu Science-Based
Industrial Park in Taiwan. In 1997, a fire caused extensive damage to one of
UMCs foundries, not used by the Company, in the Hsin-Chu Science-Based
Industrial Park. There have been at least two other fires at semiconductor
manufacturing facilities in the Hsin-Chu Science-Based Industrial Park. There
can be no assurance that any of the foregoing factors will not materially
adversely affect the Companys results of operations. If a major earthquake or
other natural disaster occurs, we may require significant amounts of time and
money to resume operations and we could suffer damages that could seriously
harm our business and results of operation.

We have invested in startup companies that are high risk, illiquid investments
and may not recoup our investment.

The Company, through Alliance Venture Management and Solar, invests in
startup, pre-IPO (initial public offering) companies. These types of
investments are inherently risky and many venture funds have a large percentage
of investments decrease in value or fail. Most of these startup companies
fail, and the investors lose their entire investment. It is possible that the
downturn in the success of these types of investments will continue in the
future and the Company will suffer significant diminished success in these
investments. There can be no assurance, and in fact it is likely, that many or
maybe all of the Companys venture type investments may fail, resulting in the
complete loss of most or all the money the Company invested.

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We may be unable to defend our intellectual property rights and may face significant expenses as a result of ongoing or future litigation.

The semiconductor industry is characterized by frequent claims and
litigation regarding patent and other intellectual property rights. The Company
has from time to time received, and believes that it likely will in the future
receive, notices alleging that the Companys products, or the processes used to
manufacture the Companys products, infringe the intellectual property rights
of third parties. The Company is currently defending such a claim and remains
subject to the risk that it may become party to litigation involving similar
claims in the future. In the event of litigation to determine the validity of
any third-party claims such as the current patent litigation, or claims against
the Company for indemnification related to such third-party claims, such
litigation, whether or not determined in favor of the Company, could result in
significant expense to the Company and divert the efforts of the Companys
technical and management personnel from other matters. In the event of an
adverse ruling in such litigation, the Company might be required to cease the
manufacture, use and sale of infringing products, discontinue the use of
certain processes, expend significant resources to develop non-infringing
technology or obtain licenses to the infringing technology. In addition,
depending upon the number of infringing products and the extent of sales of
such products, the Company could suffer significant monetary damages. In the
event of a successful claim against the Company and the Companys failure to
develop or license a substitute technology, the Companys results of operations
could be materially adversely affected.

We may have limited ability to
raise additional funds to finance strategic acquisitions and other
general corporate needs.

In order to finance strategic acquisitions and other general corporate
needs, we may rely on the debt and equity markets to provide liquidity.
Historically, we have been able to access debt and equity markets, but this
does not necessarily guarantee that we will be able to access these markets in
the future or at terms that are acceptable to us. The availability of capital
in these markets is affected by several factors, including geopolitical risk,
the interest rate environment and the condition of the economy as a whole. In
addition, our own operating performance, capital structure and expected future
performance impacts our ability to raise capital. We believe that our current
cash, cash equivalents, short-term investments and future cash provided by
operations will be sufficient to fund our needs in the foreseeable future.
However, if our operating performance falls below expectations, we may need
additional funds.

Liquidity and Capital Resources

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At March 31, 2003, the Company had approximately $7.4 million in cash and
cash equivalents, a decrease of $16.2 million from March 31, 2002; and
approximately $83.7 million in net working capital, a decrease of approximately
$240.1 million from approximately $323.8 million at March 31, 2002.

The Company had short-term investments in marketable securities whose fair
value at March 31, 2003 was $148.7 million. A portion of these short-term
investments are used as collateral against the Companys short-term borrowings.
The Company has pledged 145 million shares of its UMC holdings as collateral
against a $45.0 million bank credit facility of which $38.6 million was
outstanding at March 31, 2003.

During fiscal 2003, operating activities used $33.7 million. This
resulted from a net loss offset by the impact of non-cash items such as
depreciation, amortization, losses from the write-down of marketable securities
and venture investments, the equity in losses from investees, and inventory and
prepaid wafer credits write-downs. During fiscal 2002, operating activities
used $69.3 million. This resulted from a net loss, the impact of non-cash
items such as depreciation, amortization, and the write-down of marketable
securities and venture investments, and reductions in inventory offset by a
reduction in accounts payable and deferred taxes. During fiscal 2001,
operating activities used $57.4 million. This resulted from a net loss, the
impact of non-cash items such as depreciation, amortization and the write-down
of investments, an increase in inventory, and a decrease in deferred taxes.
These items were offset by an increase in accounts payable.

During fiscal 2003, investing activities provided $71.6 million. This
resulted from proceeds of marketable security sales of $116.1 million offset by
additional investments in Tower of $26.0 million, additional venture
investments of $11.7 million, and capital equipment and license expenditures of
$7.3 million. During fiscal 2002, investing activities provided $55.3 million.
This resulted from proceeds of marketable security sales of $89.4 million
offset by additional investments in Tower of $11.0 million and additional
venture investments of $21.5 million. During fiscal 2001, investing activities
used $16.9 million. This resulted from proceeds of marketable security sales
of $84.5 million offset by investments in Tower of $31.0 million and
investments in venture companies of $66.0 million, and capital expenditures of
$4.4 million.

During fiscal 2003, financing activities used $54.1 million. This
resulted from $38.1 million of stock repurchases and $22.6 million of
short-term debt repayment offset by a $6.4 million reduction in restricted
cash. During fiscal 2002, financing activities provided $31.5 million. This
resulted from a net increase in short-term borrowings of $39.7 million offset
by stock repurchases of $7.7 million. During fiscal 2001, financing activities
provided $45.6 million. This resulted from proceeds of short and long-term
borrowings of $53.3 million and proceeds from common stock of $2.4 million
offset by stock repurchases of $10.3 million.

At March 31, 2003, the Company had total short-term borrowings of $43.6
million.

During fiscal 2001, the Company borrowed approximately $22.2 million from
a brokerage firm. The loan was secured by 1.6 million shares of Chartered
common stock. At March 31, 2002, the outstanding balance of the loan was $16.2
million. During fiscal 2003, the Company sold all of its Chartered shares and
repaid the entire outstanding balance of the loan.

During the first quarter of fiscal 2002, the Company entered into a
secured loan agreement with Citibank, N.A. to borrow up to $60.0 million. On
November 16, 2001, the Company paid off its loan in full with Citibank for an
aggregate sum of $17.3 million, and the loan was terminated.

During the second quarter of fiscal 2002, the Company converted an account
payable of $14.4 million to UMC and a subsidiary of UMC, to a secured loan that
matured in August 2002. The loan accrued interest at a rate of 7.5%, and was
collateralized by 16.7 million shares of UMC. The Company paid off all
outstanding principal and interest on February 6, 2002, for an aggregate sum of
$16.4 million.

In the third quarter of fiscal 2002, the Company entered into a secured
loan agreement with Chinatrust Commercial Bank, Ltd (Chinatrust) to borrow up
to $30 million. In January 2002, the Company increased the principal amount it
could borrow under the loan agreement to $46.0 million. At that time, the loan
was secured by UMC stock held by the Company with the aggregate value at least
250% of the outstanding loan balance. At that time, the loan earned interest
at LIBOR plus 2.5% and matured on January 21, 2003. Prior to the original
maturation date, the Company and Chinatrust agreed to extend the loan until
March 4, 2003. At that time, both the Company and Chinatrust agreed to extend
the loan until March 2, 2004 (the Maturity Date) and reduced the principal
amount the Company may borrow to $45.0 million. The principal is due on the
Maturity Date and interest is payable every three months for the term of the
loan. In the revised loan agreement, the provision for funds to be held in
escrow as collateral for accrued interest was eliminated. The loan continues
to be secured by shares of UMC common stock held by the Company with a minimum

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aggregate value of 230% of the outstanding loan balance. The loan now accrues
interest at LIBOR plus 2.0%. As of March 31, 2003, the Company had an
outstanding loan balance of $38.6 million, had pledged 145 million shares of
UMC against the loan balance, and had no funds held in escrow that were
classified as restricted cash on the balance sheet. The loan requires
compliance with certain restrictive covenants with which the Company was in
compliance as of March 31, 2003. The outstanding loan balance was $45.7
million as of March 31, 2002.

In the fourth quarter of fiscal 2002, the Company issued a $4.8 million
promissory note in connection with the acquisition of PulseCore. The note was
non-interest bearing and matured on March 29, 2003. Discount on the note of
$609,000 was calculated based on an imputed interest rate of 12%. The
outstanding balance on the promissory note, net of unamortized discount, was
approximately $4.8 million and $4.3 million at March 31, 2003 and 2002,
respectively. On April 11, 2003, the Company paid $4.8 million to settle the
promissory note.

On May 20, 2002, the Board of Directors approved, by unanimous written
consent, an increase in the number of shares of the Companys Common Stock that
may be repurchased by the Company from four million to nine million shares.
During fiscal 2003, the Company repurchased 6,034,600 of its own shares for
$38.1 million. Through March 31, 2003, the Company has repurchased 8,155,007
of its own shares for $68.5 million.

Management believes these sources of liquidity and financing will be
sufficient to meet the Companys projected working capital and other cash
requirements for the foreseeable future. However, it is possible that we may
need to raise additional funds to finance our activities beyond the next year
or to consummate acquisitions of other businesses, products, wafer capacity or
technologies. We could raise such funds by selling some of our short-term
investments, selling more stock to the public or to selected investors, or by
borrowing money. We may not be able to obtain additional funds on terms that
would be favorable to our stockholders and us, or at all. If we raise
additional funds by issuing additional equity, the ownership percentages of
existing stockholders would be reduced.

In order to obtain an adequate supply of wafers, especially wafers
manufactured using advanced process technologies, the Company has entered into
and will continue to consider various possible transactions, including equity
investments in or loans to foundries in exchange for guaranteed production
capacity, the formation of joint ventures to own and operate foundries, as was
the case with Chartered Semiconductor, UMC or Tower, or the usage of take or
pay contracts that commit the Company to purchase specified quantities of
wafers over extended periods. Manufacturing arrangements such as these may
require substantial capital investments, which may require the Company to seek
additional equity or debt financing. There can be no assurance that such
additional financing, if required, will be available when needed or, if
available, will be on satisfactory terms. Additionally, the Company has entered
into and will continue to enter into various transactions, including the
licensing of its integrated circuit designs in exchange for royalties, fees or
guarantees of manufacturing capacity.

The following table summarizes our contractual obligations at March 31, 2003
and the effect such obligations are expected to have on our liquidity and cash
flow in future periods:

Contractual Obligations
Balance Sheet
(in thousands)

|                                               |  |             |        |       |  |       |       |         |  |       |    |  |  |   |   |  |  |   |        | 
|---------------------------------------------- |  | ----------- | ------ | ----- |  | ----- | ----- | ------- |  | ----- | -- |  |  | - | - |  |  | - | ------ | 
|                                               |  | Less than 1 |        | 1-3   |  | 4-5   |       | After 5 |  |       |    | 
|                                               |  | Year        |        | Years |  | Years |       | Years   |  | Total
|                                               |  |             |        |       |  |       |       |         |  |      
|Short-term Debt                                |  | $           | 43,560 |       |  | $     |      |         |  | $     |   |  |  | $ |  |  |  | $ | 43,560 | 
|Capital Lease Obligations (including interest) |  |             | 317    |       |  |       | 49    |         |  |       |   |  |  |   |  |  |  |   | 366    | 
|Long-term Obligations                          |  |             | 2,213  |       |  |       | 1,244 |         |  |       | 34 |  |  |   |  |  |  |   | 3,491  | 
|                                               |  |             |        |       |  |       |       |         |  |       |    |  |  |   |   |  |  |   |        | 
|                                               |  | $           | 46,090 |       |  | $     | 1,293 |         |  | $     | 34 |  |  | $ |  |  |  | $ | 47,417 | 
|                                               |  |             |        |       |  |       |       |         |  |       |    |  |  |   |   |  |  |   |        | 

Off-Balance Sheet

|                              |       |   |             |        |       |   |       |       |         |   |       |     |  |   |   |   |  |   |        |        | 
|----------------------------- | ----- | - | ----------- | ------ | ----- | - | ----- | ----- | ------- | - | ----- | --- |  | - | - | - |  | - | ------ | ------ | 
|                              |       |   | Less than 1 |        | 1-3   |   | 4-5   |       | After 5 |   |       |     | 
|                              |       |   | Year        |        | Years |   | Years |       | Years   |   | Total
|                              |       |   |             |        |       |   |       |       |         |   |      
|Operating Leases              |       | $ | 2,139       |        |       | $ | 3,764 |       |         | $ | 183   |     |  | $ |  |   |  | $ | 6,086  |       
|Commitment to invest in Tower |       |   | 11,000      |        |       |   |      |       |         |   |      |     |  |   |  |   |  |   | 11,000 |       
|                              |       |   |             |        |       |   |       |       |         |   |       |     |  |   |   |   |  |   |        |       
|                              |       |   | 13,139      |        |       |   | 3,764 |       |         |   | 183   |     |  |   |  |   |  |   | 17,086 |       
|                              |       |   |             |        |       |   |       |       |         |   |       |     |  |   |   |   |  |   |        |       
|                              | TOTAL |   | $           | 59,229 |       |   | $     | 5,057 |         |   | $     | 217 |  |   | $ |  |  |   | $      | 64,503 | 
|                              |       |   |             |        |       |   |       |       |         |   |       |     |  |   |   |   |  |   |        |       

Trading Activities Involving Non-Exchange Traded Contracts Accounted for at
Fair Value

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The Company uses derivative financial instruments to manage the market
risk of certain of its short-term investments. The Company does not use
derivatives for trading or speculative purposes.

All derivatives are recognized on the balance sheet at fair value and are
reported in short-term investments and long-term obligations. Classification of
each derivative as current or non current is based upon whether the maturity of
each instrument is less than or greater than 12 months. To qualify for hedge
accounting in accordance with SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, the Company requires that the instruments
are effective in reducing the risk exposure that they are designated to hedge.
Instruments that meet established accounting criteria are formally designated
as hedges at the inception of the contract. These criteria demonstrate that the
derivative is expected to be highly effective at offsetting changes in fair
value of the underlying exposure both at inception of the hedging relationship
and on an ongoing basis. The assessment for effectiveness is formally
documented at hedge inception and reviewed at least quarterly throughout the
designated hedge period.

The Company applies hedge accounting in accordance with SFAS No. 133,
whereby the Company designates each derivative as a hedge of the fair value of
a recognized asset (fair value hedge). Changes in the value of a derivative,
along with offsetting changes in fair value of the underlying hedged exposure,
are recorded in earnings each period. Changes in the value of derivatives that
do not offset the underlying hedged exposure throughout the designated hedge
period (collectively, ineffectiveness), are recorded in earnings each period.

In determining fair value of its financial instruments, the Company uses
dealer quotes as well as methods and assumptions that are based on market
conditions and risks existing at each balance sheet date. All methods of
assessing fair value result in a general approximation of value, and such value
may never actually be realized.

Effective Transactions with Related and Certain Other Parties

N. Damodar Reddy, the Chairman of the Board, President and Chief Executive
Officer of the Company, is a director and investor in Infobrain, Inc.
(Infobrain) an entity which provides the following services to the Company:
intranet and internet web site development and support, migration of Oracle
applications from version 10.7 to 11i; MRP software design implementation and
training, automated entry of manufacturing data, and customized application
enhancements in support of the Companys business processes. The Company paid
Infobrain approximately $306,000 and $234,000 in fiscal 2003 and 2002,
respectively. Mr. Reddy is not involved in the operations of Infobrain.

In October 1999, the Company formed Alliance Venture Management LLC,
(Alliance Venture Management), a California limited
liability company, to
manage and act as the general partner in the investment funds the Company
intended to form. Alliance Venture Management does not directly invest in the
investment funds with the Company, but is entitled to receive (i) a management fee out of
the net profits of the investment funds and (ii) a commitment fee
based on the amount of capital committed to each partnership, each as
described more fully below. This structure was
created to provide incentives to the individuals who participate in the
management of the investment funds, which includes N. Damodar Reddy and C.N.
Reddy.

Each of the owners of the Series A, B, C, D and E member units (Preferred
Member Units) paid the initial carrying value for their shares of the
Preferred Member Units. While the Company owns 100% of the common units in
Alliance Venture Management, it does not hold any Preferred Member Units and
does not participate in the management fees generated by the management of the
investment funds. N. Damodar Reddy and C.N. Reddy, who are directors of the
Company and members of the Companys senior management, each hold 48,000
Preferred Member Units, respectively, of the 162,152 total Preferred Member
Units outstanding and 172,152 total Member Units outstanding.

Annually,
Alliance Venture Management earns 0.5% of the total fund commitment
of Alliance I, II, III, IV and V. In fiscal 2003, the Company
incurred $875,000 of commitment fees. This amount was offset in its
entirety by expenses incurred by the Company on behalf of Alliance
Venture Management of $875,000. Neither N. Damodar Reddy nor C. N.
Reddy received any commitment fees during fiscal 2003.

Alliance
Venture Management receives 15% - 16% of the realized gains of
the venture funds. No distribution of cash and/or marketable securities was
made to the partners of Alliance Venture Management during fiscal 2003. During
fiscal 2002, the Company made distributions of cash and marketable securities
to the partners of Alliance Venture Management totaling $5.2 million. Details
of the distributions are as follows (in thousands):

|                       |  |                   |       |             |  |               |       |  |  |   |       | 
|---------------------- |  | ----------------- | ----- | ----------- |  | ------------- | ----- |  |  | - | ----- | 
|                       |  | Market Value of   |       | Cash        |  | Total        
|Officer/Employee       |  | Stock Distributed |       | Distributed |  | Distributions
|                       |  |                   |       |             |  |              
|N. Damodar Reddy       |  | $                 | 995   |             |  | $             | 571   |  |  | $ | 1,566 | 
|C.N. Reddy             |  |                   | 995   |             |  |               | 571   |  |  |   | 1,566 | 
|Non-executive employee |  |                   | 1,175 |             |  |               | 686   |  |  |   | 1,861 | 
|Former employee        |  |                   | 126   |             |  |               | 76    |  |  |   | 202   | 
|                       |  |                   |       |             |  |               |       |  |  |   |       | 
|Totals                 |  | $                 | 3,291 |             |  | $             | 1,904 |  |  | $ | 5,195 | 
|                       |  |                   |       |             |  |               |       |  |  |   |       | 

N. Damodar Reddy and C.N. Reddy have formed private venture funds, Galaxy
Venture Partners, L.L.C., Galaxy Venture Partners II, L.L.C. and Galaxy Venture
Partners III, L.L.C., which have invested in 23 of the 37 total
companies invested in by Alliance Venture Managements Investment funds.

C.N.
Reddy is a general partner of Solar and participates in running its
daily operations. Furthermore,
certain of the Companys directors, officers and employees, including
C.N. Reddy and Jon Minnis, have also invested in Solar. Solar has
invested in 14 of the 37 total companies in which Alliance Venture
Managements funds have invested. See Part III  Item 13  Certain Relationships and Related
Transactions.

On May 18, 1998, the Company provided loans to C.N. Reddy and N. Damodar
Reddy and one other director, Sanford Kane, aggregating $1.7 million. The Reddys loans were
used for the payment of taxes resulting from the gain on the exercise of
non-qualified stock options. The loan to Sanford Kane was used for the exercise
of stock options. Under these loans, both principal and accrued interest were
due on

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December 31, 1999, with accrued interest at rates ranging from 5.50% to
5.58% per annum. The loan to Sanford Kane was repaid in full at December 31, 1999. In
1999, 2000, and 2001, the loans to N. Damodar
Reddy and C.N. Reddy were extended such that they became due on December 31, 2002. The
loan to C.N. Reddy was repaid in full as of March 31, 2003. As of March 31,
2003, $820,000 in principal was outstanding under the loan to N. Damodar Reddy with accrued
interest of $237,000. Subsequent to March 31, 2003, the loan to N. Damodar
Reddy was repaid in full.




Item 7A.Quantitative and Qualitative Disclosures About Market Risk

The Company has exposure to the impact of foreign currency fluctuations
and changes in market values of its investments. The entities in which we hold
investments operate in markets that have experienced significant market price
fluctuations during the year-ended March 31, 2003. These entities, in which
the Company holds varying percentage interests, operate and sell their products
in various global markets; however, the majority of their sales are denominated
in U.S. dollars thus mitigating much of the foreign currency risk. The Company
does not hold any derivative financial instruments for trading purposes at
March 31, 2003.

Investment Risk

As of March 31, 2003, the Companys short-term investment portfolio
consisted of marketable equity securities in UMC, Vitesse Semiconductor,
Adaptec, Inc., and Tower Semiconductor. All of these securities are subject to
market fluctuations. As of March 31, 2002, the Companys short-term investment
portfolio consisted of marketable equity securities in Chartered, UMC, Vitesse,
Adaptec, PMC-Sierra, Magma, and Broadcom. The Company also had a hedge
instrument on the Broadcom shares that was classified as a short-term
investment. During fiscal 2003, the Company liquidated its positions in
Chartered, PMC-Sierra, Magma, and Broadcom and settled the Broadcom hedge
instrument. The Company also reclassified 1,111,321 ordinary shares of Tower
from long-term to short-term in the fourth quarter of fiscal 2003 and is
recording this investment as an available-for-sale marketable security in
accordance with SFAS 115.

During the last nine months of fiscal 2001, the first six months of fiscal
2002, and the first nine months of fiscal 2003, marketable securities held by
the Company have experienced declines in their market values due to the
downturn in the semiconductor industry and general market conditions.
Management evaluated its investments in marketable securities for potential
other-than-temporary declines in their fair value and determined that
write-downs were necessary on December 31, 2002, September 30, 2002, September
30, 2001, and March 31, 2001. As a result, the Company recorded pre-tax,
non-operating losses of $16.2 million, $673,000, $288.5 million, and $506.8
million in the third and second quarters of fiscal 2003, the second quarter of
fiscal 2002, and the fourth quarter of fiscal 2001, respectively.

The Company also has an investment in the ordinary shares of Tower that is
classified as a long-term investment and is recorded at cost. As of March 31,
2003, the Company has 4,955,779 shares that are recorded as long-term. The
Company reviews its long-term investments periodically to determine if any
impairment has occurred and subsequent write-down is required. During the
third quarter of fiscal 2003 and the second quarter of fiscal 2002, the Company
recorded pre-tax, non-operating losses of $14.1 and $20.6 million,
respectively, on its Tower investment. During the second quarter of fiscal
2003, the Company wrote off a portion of its investment in wafer credits
recognizing a pre-tax, non-operating loss of approximately $9.5 million. The
Company determined, at that time, that the value of these credits will not be
realized given the Companys sales forecast of product to be manufactured at
Tower. There can be no assurances that the Companys investment in Tower
shares and wafer credits will not decline further in value.

Short and long-term investments are subject to declines in the market as
well as risk associated with the underlying investment. The Company
periodically evaluates its investments in terms of credit risk since a
substantial portion of its assets are now in the form of investments, not all
of which are liquid, and may enter into full or partial hedging strategies
involving financial derivative instruments to minimize market risk. During
fiscal 2002 and 2001, the Company entered into indexed debt transactions to
partially hedge its investments in Adaptec and Vitesse. During the fourth
quarter of fiscal 2003, the Company settled its derivative contract on the
Vitesse investment by delivering 490,000 shares to the brokerage firm holding
the contract. The Company has not entered into any additional hedging
transactions during fiscal 2003 but may do so in the future.

Foreign Currency Risk

Almost all of the Companys semiconductor business transactions are
conducted in US dollars thus mitigating effects from adverse foreign currency
fluctuations.

As of March 31, 2003, the Company owned approximately 245.0 million shares
of UMC, a publicly traded Company in Taiwan. Since these shares are not
tradable in the United States they are subject to foreign currency risk. The
market value of these holdings on

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March 31, 2003, based on the price per share
in NTD and the NTD/US dollar exchange rate of NTD 34.78 per US$ was US$142.3
million. The value of these investments could be impacted by foreign currency
fluctuations and thus could have a material impact on the financial condition,
results of operations, and cash flows of the Company in the future.




Item 8.Consolidated Financial Statements and Supplementary Data

The index to the Companys Consolidated Financial Statements and Schedule,
and the reports of the independent accountants, appear in Part III of this Form
10-K. Selected consolidated quarterly financial data appears in Item 6 above.




Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.




PART III




Item 10.Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act

Other
than the information required pursuant to Items 401(a) and (i) and 405 of
Regulation S-K, the information required by this Item 10 concerning executive
officers of the Company is set forth in Part I of this Form 10-K after Item 4
and below. The information required by this item with respect to directors is
incorporated by reference to the section captioned Election of Directors in
the proxy statement.




Item 11.Executive Compensation

The information required by this Item 11 is incorporated by reference to
the section captioned Executive Compensation contained in the Proxy
Statement.




Item 12.Security Ownership of Certain Beneficial Owners and Management

Additional information required by Item 12 is incorporated by reference to
the section captioned Security Ownership of Certain Beneficial Owners and
Management contained in the Proxy Statement.




Item 13.Certain Relationships and Related Transactions

The information required by this Item 13 is incorporated by reference to
the section captioned Certain Transactions contained in the Proxy Statement.




Item 14.Controls and Procedures



| | (a) |  | Evaluation of disclosure controls and procedures. Our chief
executive officer and our chief financial officer, after evaluating the
effectiveness of the Companys disclosure controls and procedures (as
defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and
15-d-14(c)) as of a date (the Evaluation Date) within 90 days before
the filing date of this annual report, have concluded that as of the
Evaluation Date, our disclosure controls and procedures were effective,
subject to the improvement of our internal controls described in Item
14(b) below.                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Changes in internal controls. In connection with their audit of the
Companys financial statements as of and for the year ended
March 31,
2003, our independent accountants advised the Company that they had
identified certain deficiencies in the Companys internal control
procedures that they considered to be a reportable condition under
standards established by the American Institute of Certified Public
Accountants. The independent accountants advised the Audit Committee in
a letter dated April 28, 2003 that they identified certain deficiencies
in the Companys accounting and financial reporting infrastructure
including the timeliness and quality of financial information from
investment management and investee companies and the accounting for
current and deferred income taxes. These matters have been discussed
with the Audit Committee of the Board of Directors of the Company. To
address the weakness, the Company has made
certain additional operational reforms.

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Item 15.Principal Accountant Fees and Services

The information required by this Item 15 is incorporated by reference to
the section captioned Principal Accountant Fees and Services contained in the
Proxy Statement.




Item 16.Exhibits, Financial Statements, Financial Statement Schedules and Reports on Form 8-K

(a)(1) Financial Statements See Index to Consolidated Financial
Statements on page F-1 of this Form 10-K Annual Report.

(2) Report of Independent Accountants See Index to Consolidated
Financial Statements on F-1 of this Form 10-K Annual Report.

Schedule II: Valuation and Qualifying Accounts See Index to Consolidated
Financial Statements on F-1 of this Form 10-K Annual Report.

(3) Exhibits See Exhibit Index on page 33 of this Form 10-K Annual
Report.

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EXHIBIT INDEX

|          |  |                                                                                                                                                                                                       
|--------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit   |  |                                                                                                                                                                                                       
|Number    |  | Document Description                                                                                                                                                                                  
|          |  |                                                                                                                                                                                                       
|3.01(A)   |  | Registrants Certificate of Incorporation                                                                                                                                                             
|          |  |                                                                                                                                                                                                       
|3.02(A)   |  | Registrants Certificate of Elimination of Series A Preferred Stock                                                                                                                                   
|          |  |                                                                                                                                                                                                       
|3.03(F)   |  | Registrants Certificate of Amendment of Certificate of Incorporation                                                                                                                                 
|          |  |                                                                                                                                                                                                       
|3.04(A)   |  | Registrants Bylaws                                                                                                                                                                                   
|          |  |                                                                                                                                                                                                       
|4.01(A)   |  | Specimen of Common Stock Certificate of Registrant                                                                                                                                                    
|          |  |                                                                                                                                                                                                       
|10.01     |  | Registrants Stock Option Plan adopted by Registrant on April 7, 1992 and amended through September
19, 1996, and related documents (superceded by Exhibit 10.51)                                     
|          |  |                                                                                                                                                                                                       
|10.02(A) |  | Registrants Directors Stock Option Plan adopted by Registrant on October 1, 1993 and related documents                                                                                               
|          |  |                                                                                                                                                                                                       
|10.03(A) |  | Form of Indemnity Agreement used between Registrant and certain of its officers and directors                                                                                                         
|          |  |                                                                                                                                                                                                       
|10.04(K) |  | Form of Indemnity Agreement used between the Registrant and certain of its officers                                                                                                                   
|          |  |                                                                                                                                                                                                       
|10.05(B)  |  | Sublease Agreement dated February 1994 between Registrant and Fujitsu America, Inc.                                                                                                                   
|          |  |                                                                                                                                                                                                       
|10.06(B)  |  | Net Lease Agreement dated February 1, 1994 between Registrant and Realtec Properties I L.P.                                                                                                           
|          |  |                                                                                                                                                                                                       
|10.07*(I) |  | Subscription Agreement dated February 17, 1995, by and among Registrant, Singapore Technology Pte.
Ltd. and Chartered Semiconductor Manufacturing Pte. Ltd.                                           
|          |  |                                                                                                                                                                                                       
|10.8*(I)  |  | Manufacturing Agreement dated February 17, 1995, between Registrant and Chartered Semiconductor
Manufacturing Pte. Ltd.                                                                               
|          |  |                                                                                                                                                                                                       
|10.9(D)   |  | Supplemental Subscription Agreement dated March 15, 1995, by and among Registrant, Singapore
Technology Pte. Ltd. and Chartered Semiconductor Manufacturing Pte. Ltd.                                 
|          |  |                                                                                                                                                                                                       
|10.10*(D) |  | Supplemental Manufacturing Agreement dated March 15, 1995, between Registrant and Chartered
Semiconductor Manufacturing Pte. Ltd.                                                                     
|          |  |                                                                                                                                                                                                       
|10.11*(E) |  | Foundry Venture Agreement dated July 8, 1995, by and among Registrant, S3 Incorporated and United
Microelectronics Corporation                                                                        
|          |  |                                                                                                                                                                                                       
|10.12*(E) |  | Foundry Capacity Agreement dated July 8, 1995, by and among Registrant, Fabco, S3 Incorporated and
United Microelectronics Corporation                                                                
|          |  |                                                                                                                                                                                                       
|10.13*(F) |  | Foundry Venture Agreement dated September 29, 1995, between Registrant and United Microelectronics
Corporation                                                                                        
|          |  |                                                                                                                                                                                                       
|10.14*(F) |  | Foundry Capacity Agreement dated September 29, 1995, by and among Registrant, FabVen and United
Microelectronics Corporation                                                                          
|          |  |                                                                                                                                                                                                       
|10.15*(F) |  | Written Assurances Re: Foundry Venture Agreement dated September 29, 1995 by and among Registrant,
FabVen and United Microelectronics Corporation                                                     
|          |  |                                                                                                                                                                                                       
|10.16*(G) |  | Letter Agreement dated June 26, 1996 by and among Registrant, S3 Incorporated and United
Microelectronics Corporation                                                                                 
|          |  |                                                                                                                                                                                                       
|10.17(H)  |  | Stock Purchase Agreement dated as of June 30, 1996 by and among Registrant, S3 Incorporated, United
Microelectronics Corporation and United Semiconductor Corporation                                 
|          |  |                                                                                                                                                                                                       
|10.18*(H) |  | Amendment to Fabco Foundry Capacity Agreement dated as of July 3, 1996 by and among Registrant, S3
Incorporated, United Microelectronics Corporation and United Semiconductor Corporation             
|          |  |                                                                                                                                                                                                       
|10.19(H)  |  | Side Letter dated July 11, 1996 by and among Registrant, S3 Incorporated, United Microelectronics
Corporation and United Semiconductor Corporation                                                    
|          |  |                                                                                                                                                                                                       
|10.20(I) |  | 1996 Employee Stock Purchase Plan                                                                                                                                                                     
|          |  |                                                                                                                                                                                                       
|10.21(J)  |  | Letter Agreement dated December 23, 1996 by and among Registrant, S3 Incorporated, United
Microelectronics Corporation and United Semiconductor Corporation                                           
|          |  |                                                                                                                                                                                                       
|10.22(K)  |  | Trademark License Agreement dated as of October 17, 1996 between Registrant and Alliance Semiconductor
International Corporation, a Delaware corporation, as amended through May 31, 1997             
|          |  |                                                                                                                                                                                                       
|10.23(K)  |  | Restated Amendment to FabCo Foundry Venture Agreement dated as of February 28, 1997 by and among
Registrant, S3 Incorporated, United Microelectronics Corporation and United Semiconductor Corporation

33



---



##### Table of Contents



|          |  |                                                                                                                                                                                                                            
|--------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit   |  |                                                                                                                                                                                                                            
|Number    |  | Document Description                                                                                                                                                                                                       
|          |  |                                                                                                                                                                                                                            
|10.24(K)  |  | Letter Agreement dated April 25, 1997 by and among Registrant, S3 Incorporated, United
Microelectronics Corporation and United Semiconductor Corporation                                                                   
|          |  |                                                                                                                                                                                                                            
|10.25*(K) |  | Restated DRAM Agreement dated as of February 28, 1996 between Registrant and United Microelectronics
Corporation                                                                                                           
|          |  |                                                                                                                                                                                                                            
|10.26*(K) |  | First Amendment to Restated DRAM Agreement dated as of March 26, 1996 between Registrant and United
Microelectronics Corporation                                                                                           
|          |  |                                                                                                                                                                                                                            
|10.27*(K) |  | Second Amendment to Restated DRAM Agreement dated as of July 10, 1996 between Registrant and United
Microelectronics Corporation                                                                                           
|          |  |                                                                                                                                                                                                                            
|10.28(K)  |  | Promissory Note and Security Agreement dated March 28, 1997 between Registrant and Matrix Funding
Corporation                                                                                                              
|          |  |                                                                                                                                                                                                                            
|10.29*(L) |  | Sale and Transfer Agreement dated as of March 4, 1998                                                                                                                                                                      
|          |  |                                                                                                                                                                                                                            
|10.30(M)  |  | Alliance Venture Management, LLC Limited Liability Company Operating Agreement dated October 15, 1999                                                                                                                      
|          |  |                                                                                                                                                                                                                            
|10.31(M)  |  | Alliance Venture Management, LLC Amended Limited Liability Company Operating Agreement dated February
28, 2000                                                                                                             
|          |  |                                                                                                                                                                                                                            
|10.32(M)  |  | Alliance Ventures I, LP Agreement of Limited Partnership dated November 12, 1999                                                                                                                                           
|          |  |                                                                                                                                                                                                                            
|10.33(M)  |  | Alliance Ventures II, LP Agreement of Limited Partnership dated November 12, 1999                                                                                                                                          
|          |  |                                                                                                                                                                                                                            
|10.34(M)  |  | Alliance Ventures III, LP Agreement of Limited Partnership dated February 28, 2000                                                                                                                                         
|          |  |                                                                                                                                                                                                                            
|10.35(N)  |  | Share Purchase Agreement, dated as of July 4, 2000, by and between SanDisk Corporation and Tower
Semiconductor Ltd.                                                                                                        
|          |  |                                                                                                                                                                                                                            
|10.36(N)  |  | Additional Purchase Obligation Agreement, dated as of July 4, 2000, by and between SanDisk Corporation
and Tower Semiconductor Ltd.                                                                                        
|          |  |                                                                                                                                                                                                                            
|10.37(N)  |  | Registration Rights Agreement, dated as of January 18, 2001, by and between Tower Semiconductor Ltd.,
SanDisk Corporation, The Israel Corporation, Registrant, Macronix International Co., Ltd. and
QuickLogic Corporation.
|          |  |                                                                                                                                                                                                                            
|10.38(N)  |  | Consolidated Shareholders Agreement, dated as of January 18, 2001 by and among SanDisk Corporation,
The Israel Corporation, Registrant and Macronix International Co., Ltd.                                                
|          |  |                                                                                                                                                                                                                            
|10.39(N)  |  | Alliance/Tower Joinder Agreement, dated August 29, 2000, by and between Registrant and Tower
Semiconductor Ltd.                                                                                                            
|          |  |                                                                                                                                                                                                                            
|10.40(N)  |  | Alliance/TIC Joinder Agreement, dated August 29, 2000, by and between Registrant and The Israel
Corporation                                                                                                                
|          |  |                                                                                                                                                                                                                            
|10.41(O)  |  | Alliance Venture Management, LLC Amended Limited Liability Company Operating Agreement dated January
23, 2001                                                                                                              
|          |  |                                                                                                                                                                                                                            
|10.42(O)  |  | Alliance Ventures IV, LP Agreement of Limited Partnership dated January 23, 2001                                                                                                                                           
|          |  |                                                                                                                                                                                                                            
|10.43(O)  |  | Alliance Ventures V, LP Agreement of Limited Partnership dated January 23, 2001                                                                                                                                            
|          |  |                                                                                                                                                                                                                            
|10.44(O)  |  | Loan Agreement dated May 17, 2001, by and between Registrant and Citibank, N.A.                                                                                                                                            
|          |  |                                                                                                                                                                                                                            
|10.45(O)  |  | Share Pledge Agreement dated May 17, 2001, by and between Registrant and Citibank, N.A.                                                                                                                                    
|          |  |                                                                                                                                                                                                                            
|10.46(P)  |  | Credit Agreement dated November 15, 2001, by and between Registrant and Chinatrust Commercial Bank,
Ltd.                                                                                                                   
|          |  |                                                                                                                                                                                                                            
|10.47(P)  |  | Pledge Agreement dated November 15, 2001, by and between Registrant and Chinatrust Commercial Bank,
Ltd.                                                                                                                   
|          |  |                                                                                                                                                                                                                            
|10.48(P)  |  | Amended and Restated Credit Agreement dated January 21, 2002, by and between Registrant and Chinatrust
Commercial Bank, Ltd.                                                                                               
|          |  |                                                                                                                                                                                                                            
|10.49(P)  |  | Supplemental Pledge Agreement dated January 21, 2002, by and between Registrant and Chinatrust
Commercial Bank, Ltd.                                                                                                       
|          |  |                                                                                                                                                                                                                            
|10.50(P)  |  | Asset Purchase Agreement dated January 17, 2002 by and between Registrant and PulseCore, Inc.                                                                                                                              
|          |  |                                                                                                                                                                                                                            
|10.51 (Q) |  | Registrants 2002 Stock Option Plan                                                                                                                                                                                        
|          |  |                                                                                                                                                                                                                            
|10.52     |  | Amendment to Credit Agreement dated March 3, 2003, by and between Registrant and Chinatrust
Commercial Bank, Ltd.                                                                                                          
|          |  |                                                                                                                                                                                                                            
|10.53     |  | Amendment to Pledge Agreement dated March 3, 2003, by and between Registrant and Chinatrust Commercial
Bank, Ltd.                                                                                                          

34



---



##### Table of Contents



|        |  |                                                                                                                                                                
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                
|Number  |  | Document Description                                                                                                                                           
|        |  |                                                                                                                                                                
|21.01   |  | Subsidiaries of Registrant                                                                                                                                     
|        |  |                                                                                                                                                                
|23.01   |  | Consent of PricewaterhouseCoopers LLP (San Jose, California)                                                                                                   
|        |  |                                                                                                                                                                
|99.01   |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Companys Chief Executive Officer                                               
|        |  |                                                                                                                                                                
|99.02   |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Companys Chief Financial Officer                                               
|        |  |                                                                                                                                                                
|99.03   |  | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 of the Companys Chief Executive Officer
|        |  |                                                                                                                                                                
|99.04   |  | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 of the Companys Chief Financial Officer



---

|   |  | Management contract or compensatory plan or arrangement required to be
filed as an Exhibit to this Form 10-K.                                                                                       
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|*   |  | Confidential treatment has been granted with respect to certain portions
of this document.                                                                                                          
|   
|**  |  | Confidential treatment has been requested with respect to certain
portions of this document.                                                                                                        
|   
|(A) |  | The document referred to is hereby incorporated by reference from
Registrants Registration Statement on Form SB-2 (File No. 33-69956-LA)
declared effective by the Commission on November 30, 1993.
|   
|(B) |  | The document referred to is hereby incorporated by reference from
Registrants Annual Report on Form 10-KSB filed with the Commission on
June 29, 1994.                                             
|   
|(C) |  | The document referred to is hereby incorporated by reference from
Registrants Registration Statement on Form SB-2 (File No. 33-90346-LA)
declared effective by the Commission on March 28, 1995.   
|   
|(D) |  | The document referred to is hereby incorporated by reference from
Registrants Current Report on Form 8-K filed with the Commission on April
28, 1995.                                              
|   
|(E) |  | The document referred to is hereby incorporated by reference from
Registrants Current Report on Form 8-K filed with the Commission on July
24, 1995.                                               
|   
|(F) |  | The document referred to is hereby incorporated by reference from
Registrants Current Report on Form 8-K filed with the Commission on
October 23, 1995.                                            
|   
|(G) |  | The document referred to is hereby incorporated by reference from
Registrants Quarterly Report on Form 10-Q filed with the Commission on
August 13, 1996.                                          
|   
|(H) |  | The document referred to is hereby incorporated by reference from
Registrants Quarterly Report on Form 10-Q filed with the Commission on
November 12, 1996.                                        
|   
|(I) |  | The document referred to is hereby incorporated by reference from
Registrants Registration Statement on Form S-8 (File No. 333-13461) filed
with the Commission on October 4, 1996.                
|   
|(J) |  | The document referred to is hereby incorporated by reference from
Registrants Quarterly Report on Form 10-Q filed with the Commission on
February 11, 1997.                                        
|   
|(K) |  | The document referred to is hereby incorporated by reference from
Registrants Annual Report on Form 10-K filed with the Commission on June
27, 1997.                                               
|   
|(L) |  | The document referred to is hereby incorporated by reference from
Registrants Current Report on Form 8-K filed with the Commission on March
19, 1998.                                              
|   
|(M) |  | The document referred to is hereby incorporated by reference from
Registrants Annual Report on Form 10-K filed with the Commission on June
30, 2000.                                               

35



---



##### Table of Contents



|(N) |  | The document referred to is hereby incorporated by reference from
Registrants Quarterly Report on Form 10-Q filed with the Commission on
February 13, 2000.      
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(O) |  | The document referred to is hereby incorporated by reference from
Registrants Annual Report on Form 10-K filed with the Commission on June
29, 2001.             
|   
|(P) |  | The document referred to is filed hereby incorporated by reference from
Registrants Quarterly Report on Form 10-Q filed with the Commission on
February 12, 2002.
|   
|(Q) |  | The document referred to is hereby incorporated by reference from
Registrants Annual Report on Form 10-K filed with the Commission on July
15, 2002.             

36



---



##### Table of Contents






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.

| |                                    |                                     
| | ---------------------------------- | ------------------------------------
| | ALLIANCE SEMICONDUCTOR CORPORATION
| |                                    |                                     
| | By:                                | /s/                 N. DAMODAR REDDY
| |                                    | N. Damodar Reddy                    
| |                                    | Chairman of the Board, President,   
| |                                    | Chief Executive Officer             
| |                                    | (Principal Executive Officer)       

June 27, 2003

| |     |                                              
| | --- | ---------------------------------------------
| | By: | /s/                 RONALD K. SHELTON        
| |     | Ronald K. Shelton                            
| |     | Vice President Finance and Administration and
| |     | Chief Financial Officer                      
| |     | (Principal Financial and Accounting Officer) 

June 27, 2003

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints N. Damodar Reddy and Ronald K. Shelton or either
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and re-substitution, for him and in his name, place and stead, in
any and all capacities to sign any and all amendments to this Report on Form
10-K, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or either of them, or their or his
substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report on Form 10-K has been signed by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.

|                                      |  |                                                                     |  |              
|------------------------------------- |  | ------------------------------------------------------------------- |  | -------------
|Signature                             |  | Title                                                               |  | Date         
|                                      |  |                                                                     |  |              
|/s/ N. DAMODAR REDDY
N. Damodar Reddy |  | Director, Chairman of the Board, President,
Chief Executive Officer |  | June 27, 2003
|                                      |  |                                                                     |  |              
|/s/ C. N. REDDY
C. N. Reddy           |  | Director, Executive Vice President for Investments                  |  | June 27, 2003
|                                      |  |                                                                     |  |              
|/s/ JUAN A. BENITEZ
Juan A. Benitez   |  | Director                                                            |  | June 27, 2003
|                                      |  |                                                                     |  |              
|/s/ SANFORD L. KANE
Sanford L. Kane   |  | Director                                                            |  | June 27, 2003
|                                      |  |                                                                     |  |              
|/s/ JON B. MINNIS
Jon B. Minnis       |  | Director                                                            |  | June 27, 2003

37



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##### Table of Contents



ALLIANCE SEMICONDUCTOR CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                   |                                                                                                    |  |       |      | 
|---------------------------------- | -------------------------------------------------------------------------------------------------- |  | ----- | ---- | 
|                                   |                                                                                                    |  | Pages
|                                   |                                                                                                    |  |      
|Consolidated Financial Statements: |                                                                                                    |  |       |     
|                                   | Report of Independent Accountants                                                                  |  |       | F-2  | 
|                                   | Consolidated Balance Sheets as of March 31, 2003 and 2002                                          |  |       | F-3  | 
|                                   | Consolidated Statements of Operations for the years ended March 31, 2003, 2002, and 2001           |  |       | F-4  | 
|                                   | Consolidated Statements of Stockholders Equity for the years ended March 31, 2003, 2002, and 2001 |  |       | F-5  | 
|                                   | Consolidated Statements of Cash Flows for the years ended March 31, 2003, 2002, and 2001           |  |       | F-6  | 
|                                   | Notes to Consolidated Financial Statements                                                         |  |       | F-8  | 
|Financial Statement Schedule:      |                                                                                                    |  |       |     
|                                   | Report of Independent Accountants                                                                  |  |       | F-33 | 
|                                   | Schedule II  Valuation and Qualifying Accounts                                                    |  |       | F-34 | 

F-1



---



##### Table of Contents



REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Alliance Semiconductor
Corporation:

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders equity and of
cash flows present fairly, in all material respects, the financial position of
Alliance Semiconductor Corporation and its subsidiaries at March 31, 2003 and
2002, and the results of their operations and their cash flows for each of the
three years in the period ended March 31, 2003 in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Companys management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

As discussed in Note 4 to the consolidated financial statements, the
Company changed its method of accounting for derivative instruments effective
April 1, 2001 to comply with Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities.



| | /s/ PRICEWATERHOUSECOOPERS LLP
| | ------------------------------

San Jose, California
April 28, 2003

F-2



---



##### Table of Contents



ALLIANCE SEMICONDUCTOR CORPORATION

CONSOLIDATED BALANCE SHEETS
(in thousands)

|                                                                                                                                                                            |                                                 |                                            |                                      |         |         |           |        |         |         |  |  | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------- | ------------------------------------------ | ------------------------------------ | ------- | ------- | --------- | ------ | ------- | ------- |  |  | 
|                                                                                                                                                                            |                                                 |                                            |                                      |         |         | March 31,
|                                                                                                                                                                            |                                                 |                                            |                                      |         |         |          
|                                                                                                                                                                            |                                                 |                                            |                                      |         |         | 2003      |        | 2002   
|                                                                                                                                                                            |                                                 |                                            |                                      |         |         |           |        |        
|                                                                                                                                                                            |                                                 |                                            |                                      | ASSETS  |         |           |        |         |         |  |  | 
|Current assets:                                                                                                                                                             |                                                 |                                            |                                      |         |         |           |        |        
|                                                                                                                                                                            | Cash and cash equivalents                       |                                            | $                                    | 7,358   |         |           | $      | 23,560  |        
|                                                                                                                                                                            | Restricted cash                                 |                                            |                                      | 1,284   |         |           |        | 8,014   |        
|                                                                                                                                                                            | Short-term investments                          |                                            |                                      | 148,711 |         |           |        | 466,986 |        
|                                                                                                                                                                            | Accounts receivable, net                        |                                            |                                      | 2,058   |         |           |        | 2,891   |        
|                                                                                                                                                                            | Inventory                                       |                                            |                                      | 2,862   |         |           |        | 19,636  |        
|                                                                                                                                                                            | Related party receivables                       |                                            |                                      | 1,282   |         |           |        | 2,394   |        
|                                                                                                                                                                            | Other current assets                            |                                            |                                      | 3,872   |         |           |        | 10,519  |        
|                                                                                                                                                                            |                                                 |                                            |                                      |         |         |           |        |         |        
|                                                                                                                                                                            |                                                 | Total current assets                       |                                      |         | 167,427 |           |        |         | 534,000 | 
|Property and equipment, net                                                                                                                                                 |                                                 |                                            | 8,205                                |         |         |           | 8,214  |        
|Investment in United Microelectronics Corp. (excluding short-term portion)                                                                                                  |                                                 |                                            |                                     |         |         |           | 43,750 |        
|Investment in Tower Semiconductor Ltd. (excluding short-term portion)                                                                                                       |                                                 |                                            | 15,822                               |         |         |           | 16,278 |        
|Alliance Ventures and other investments                                                                                                                                     |                                                 |                                            | 38,319                               |         |         |           | 72,575 |        
|Other assets                                                                                                                                                                |                                                 |                                            | 6,565                                |         |         |           | 4,294  |        
|Goodwill and intangible assets                                                                                                                                              |                                                 |                                            | 8,843                                |         |         |           | 3,459  |        
|                                                                                                                                                                            |                                                 |                                            |                                      |         |         |           |        |         |        
|                                                                                                                                                                            |                                                 | Total assets                               |                                      | $       | 245,181 |           |        | $       | 682,570 | 
|                                                                                                                                                                            |                                                 |                                            |                                      |         |         |           |        |         |        
|                                                                                                                                                                            |                                                 |                                            | LIABILITIES AND STOCKHOLDERS EQUITY |         |         |           |        |         |         |  | 
|Current liabilities:                                                                                                                                                        |                                                 |                                            |                                      |         |         |           |        |        
|                                                                                                                                                                            | Short-term borrowings                           |                                            | $                                    | 43,560  |         |           | $      | 66,173  |        
|                                                                                                                                                                            | Accounts payable                                |                                            |                                      | 4,298   |         |           |        | 2,893   |        
|                                                                                                                                                                            | Accrued liabilities                             |                                            |                                      | 5,053   |         |           |        | 6,178   |        
|                                                                                                                                                                            | Income taxes payable                            |                                            |                                      | 4,520   |         |           |        | 22,087  |        
|                                                                                                                                                                            | Deferred income taxes                           |                                            |                                      | 23,840  |         |           |        | 107,495 |        
|                                                                                                                                                                            | Current portion of long-term obligations        |                                            |                                      | 2,213   |         |           |        | 4,796   |        
|                                                                                                                                                                            | Current portion of capital lease obligation     |                                            |                                      | 236     |         |           |        | 587     |        
|                                                                                                                                                                            |                                                 |                                            |                                      |         |         |           |        |         |        
|                                                                                                                                                                            |                                                 | Total current liabilities                  |                                      |         | 83,720  |           |        |         | 210,209 | 
|Long-term obligations                                                                                                                                                       |                                                 |                                            | 1,278                                |         |         |           | 4,742  |        
|Long-term capital lease obligation                                                                                                                                          |                                                 |                                            | 48                                   |         |         |           | 66     |        
|Deferred income taxes                                                                                                                                                       |                                                 |                                            |                                     |         |         |           | 12,827 |        
|                                                                                                                                                                            |                                                 |                                            |                                      |         |         |           |        |         |        
|                                                                                                                                                                            |                                                 | Total liabilities                          |                                      |         | 85,046  |           |        |         | 227,844 | 
|                                                                                                                                                                            |                                                 |                                            |                                      |         |         |           |        |         |        
|Commitments and contingencies (Notes 17 and 21)                                                                                                                             |                                                 |                                            |                                      |         |         |           |        |        
|Minority interest in subsidiary companies                                                                                                                                   |                                                 |                                            | 915                                  |         |         |           | 3,471  |        
|                                                                                                                                                                            |                                                 |                                            |                                      |         |         |           |        |         |        
|Stockholders equity:                                                                                                                                                       |                                                 |                                            |                                      |         |         |           |        |        
|Preferred stock, $0.01 par value; 5,000 shares authorized; none issued and outstanding                                                                                      |                                                 |                                            |                                     |         |         |           |       |        
|Common stock, $0.01 par value; 100,000 shares authorized; 43,132 and 42,967 shares issued and
34,977 and 40,847 shares outstanding at March 31, 2003 and 2002, respectively |                                                 |                                            | 432                                  |         |         |           | 430    |        
|                                                                                                                                                                            | Additional paid-in capital                      |                                            |                                      | 199,699 |         |           |        | 199,200 |        
|                                                                                                                                                                            | Treasury stock (8,155 and 2,120 shares at cost) |                                            |                                      | (68,524 | )       |           |        | (30,430 | )      
|                                                                                                                                                                            | Retained earnings                               |                                            |                                      | 25,510  |         |           |        | 131,558 |        
|                                                                                                                                                                            | Accumulated other comprehensive income          |                                            |                                      | 2,103   |         |           |        | 150,497 |        
|                                                                                                                                                                            |                                                 |                                            |                                      |         |         |           |        |         |        
|                                                                                                                                                                            |                                                 | Total stockholders equity                 |                                      |         | 159,220 |           |        |         | 451,255 | 
|                                                                                                                                                                            |                                                 |                                            |                                      |         |         |           |        |         |        
|                                                                                                                                                                            |                                                 | Total liabilities and stockholders equity |                                      | $       | 245,181 |           |        | $       | 682,570 | 
|                                                                                                                                                                            |                                                 |                                            |                                      |         |         |           |        |         |        

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

F-3



---



##### Table of Contents



ALLIANCE SEMICONDUCTOR CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

|                                                                                                                                                               |                                                           |   |                      |         |      |   |          |         |   |   |          |        |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------- | - | -------------------- | ------- | ---- | - | -------- | ------- | - | - | -------- | ------ | -
|                                                                                                                                                               |                                                           |   | Year Ended March 31,
|                                                                                                                                                               |                                                           |   |                     
|                                                                                                                                                               |                                                           |   | 2003                 |         | 2002 |   | 2001    
|                                                                                                                                                               |                                                           |   |                      |         |      |   |         
|Net revenues                                                                                                                                                   |                                                           | $ | 18,522               |         |      | $ | 26,547   |         |   | $ | 208,678  |       
|Cost of revenues                                                                                                                                               |                                                           |   | 39,744               |         |      |   | 73,966   |         |   |   | 187,913  |       
|                                                                                                                                                               |                                                           |   |                      |         |      |   |          |         |   |   |          |       
|                                                                                                                                                               | Gross profit (loss)                                       |   |                      | (21,222 | )    |   |          | (47,419 | ) |   |          | 20,765 |  
|Operating expenses:                                                                                                                                            |                                                           |   |                      |         |      |   |          |         |   |   |          |       
|                                                                                                                                                               | Research and development                                  |   |                      | 22,933  |      |   |          | 10,435  |   |   |          | 13,766 |  
|                                                                                                                                                               | Selling, general and administrative                       |   |                      | 18,066  |      |   |          | 20,377  |   |   |          | 19,691 |  
|                                                                                                                                                               | Write-off of acquired in-process research and development |   |                      | 1,610   |      |   |          | 906     |   |   |          |       |  
|                                                                                                                                                               |                                                           |   |                      |         |      |   |          |         |   |   |          |       
|Loss from operations                                                                                                                                           |                                                           |   | (63,831              | )       |      |   | (79,137  | )       |   |   | (12,692  | )     
|Gain on investments                                                                                                                                            |                                                           |   | 14,143               |         |      |   | 4,777    |         |   |   | 75,801   |       
|Write-down of marketable securities and venture investments                                                                                                    |                                                           |   | (55,792              | )       |      |   | (296,846 | )       |   |   | (509,449 | )     
|Other income (expense), net                                                                                                                                    |                                                           |   | (4,406               | )       |      |   | (5,287   | )       |   |   | (200     | )     
|                                                                                                                                                               |                                                           |   |                      |         |      |   |          |         |   |   |          |       
|Loss before income taxes, minority interest in consolidated subsidiaries, equity in
loss of investees, and cumulative effect of change in accounting principle |                                                           |   | (109,886             | )       |      |   | (376,493 | )       |   |   | (446,540 | )     
|Benefit for income taxes                                                                                                                                       |                                                           |   | (11,303              | )       |      |   | (142,701 | )       |   |   | (179,956 | )     
|                                                                                                                                                               |                                                           |   |                      |         |      |   |          |         |   |   |          |       
|Loss before minority interest in consolidated subsidiaries, equity in loss of
investees, and cumulative effect of change in accounting principle               |                                                           |   | (98,583              | )       |      |   | (233,792 | )       |   |   | (266,584 | )     
|Minority interest in consolidated subsidiaries                                                                                                                 |                                                           |   | 3,322                |         |      |   | 533      |         |   |   |         |       
|Equity in loss of investees                                                                                                                                    |                                                           |   | (10,787              | )       |      |   | (9,512   | )       |   |   | (5,737   | )     
|                                                                                                                                                               |                                                           |   |                      |         |      |   |          |         |   |   |          |       
|Loss before cumulative effect of change in accounting principle                                                                                                |                                                           |   | (106,048             | )       |      |   | (242,771 | )       |   |   | (272,321 | )     
|Cumulative effect of change in accounting principle                                                                                                            |                                                           |   |                     |         |      |   | 2,055    |         |   |   |         |       
|                                                                                                                                                               |                                                           |   |                      |         |      |   |          |         |   |   |          |       
|Net loss                                                                                                                                                       |                                                           | $ | (106,048             | )       |      | $ | (240,716 | )       |   | $ | (272,321 | )     
|                                                                                                                                                               |                                                           |   |                      |         |      |   |          |         |   |   |          |       
|Loss per share before cumulative effect of change in accounting principle:                                                                                     |                                                           |   |                      |         |      |   |          |         |   |   |          |       
|                                                                                                                                                               | Basic                                                     |   | $                    | (2.85   | )    |   | $        | (5.91   | ) |   | $        | (6.58  | )
|                                                                                                                                                               |                                                           |   |                      |         |      |   |          |         |   |   |          |       
|                                                                                                                                                               | Diluted                                                   |   | $                    | (2.85   | )    |   | $        | (5.91   | ) |   | $        | (6.58  | )
|                                                                                                                                                               |                                                           |   |                      |         |      |   |          |         |   |   |          |       
|Cumulative effect of change in accounting principle per share:                                                                                                 |                                                           |   |                      |         |      |   |          |         |   |   |          |       
|                                                                                                                                                               | Basic                                                     |   | $                    |        |      |   | $        | 0.05    |   |   | $        |       |  
|                                                                                                                                                               |                                                           |   |                      |         |      |   |          |         |   |   |          |       
|                                                                                                                                                               | Diluted                                                   |   | $                    |        |      |   | $        | 0.05    |   |   | $        |       |  
|                                                                                                                                                               |                                                           |   |                      |         |      |   |          |         |   |   |          |       
|Net loss per share:                                                                                                                                            |                                                           |   |                      |         |      |   |          |         |   |   |          |       
|                                                                                                                                                               | Basic                                                     |   | $                    | (2.85   | )    |   | $        | (5.86   | ) |   | $        | (6.58  | )
|                                                                                                                                                               |                                                           |   |                      |         |      |   |          |         |   |   |          |       
|                                                                                                                                                               | Diluted                                                   |   | $                    | (2.85   | )    |   | $        | (5.86   | ) |   | $        | (6.58  | )
|                                                                                                                                                               |                                                           |   |                      |         |      |   |          |         |   |   |          |       
|Weighted average number of common shares:                                                                                                                      |                                                           |   |                      |         |      |   |          |         |   |   |          |       
|                                                                                                                                                               | Basic                                                     |   |                      | 37,160  |      |   |          | 41,078  |   |   |          | 41,376 |  
|                                                                                                                                                               |                                                           |   |                      |         |      |   |          |         |   |   |          |       
|                                                                                                                                                               | Diluted                                                   |   |                      | 37,160  |      |   |          | 41,078  |   |   |          | 41,376 |  
|                                                                                                                                                               |                                                           |   |                      |         |      |   |          |         |   |   |          |       

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

F-4



---



##### Table of Contents



ALLIANCE SEMICONDUCTOR CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(in thousands)

|                                                    |  |              |        |            |  |          |     |               |  |               |         |               |  |        |         |   |  |             |          |   |  |   |          |   |  |   |          |  
|--------------------------------------------------- |  | ------------ | ------ | ---------- |  | -------- | --- | ------------- |  | ------------- | ------- | ------------- |  | ------ | ------- | - |  | ----------- | -------- | - |  | - | -------- | - |  | - | -------- | -
|                                                    |  |              |        |            |  |          |     |               |  |               |         |               |  |        |         |   |  | Accumulated |          |   |  |   |          |   |  |  
|                                                    |  | Common Stock |        | Additional |  |          |     |               |  | Other         |         | Retained      |  | Total 
|                                                    |  |              |        | Paid-In    |  | Treasury |     | Comprehensive |  | Earnings      |         | Stockholders
|                                                    |  | Shares       |        | Amount     |  | Capital  |     | Stock         |  | Income (Loss) |         | (Deficit)     |  | Equity
|                                                    |  |              |        |            |  |          |     |               |  |               |         |               |  |       
|Balances at March 31, 2000                          |  |              | 42,406 |            |  | $        | 424 |               |  | $             | 193,260 |               |  | $      | (12,468 | ) |  | $           | 138,144  |   |  | $ | 644,595  |   |  | $ | 963,955  |  
|Issuance of common stock under employee
stock plans |  |              | 319    |            |  |          | 3   |               |  |               | 2,349   |               |  |        |        |   |  |             |         |   |  |   |         |   |  |   | 2,352    |  
|Repurchase of common stock(1)                       |  |              |       |            |  |          |    |               |  |               |        |               |  |        | (10,294 | ) |  |             |         |   |  |   |         |   |  |   | (10,294  | )
|Tax benefit on exercise of stock options            |  |              |       |            |  |          |    |               |  |               | 1,741   |               |  |        |        |   |  |             |         |   |  |   |         |   |  |   | 1,741    |  
|Unrealized loss on investments                      |  |              |       |            |  |          |    |               |  |               |        |               |  |        |        |   |  |             | (138,144 | ) |  |   |         |   |  |   |          |  
|Net loss                                            |  |              |       |            |  |          |    |               |  |               |        |               |  |        |        |   |  |             |         |   |  |   | (272,321 | ) |  |   |          |  
|Total comprehensive loss                            |  |              |       |            |  |          |    |               |  |               |        |               |  |        |        |   |  |             |         |   |  |   |         |   |  |   | (410,465 | )
|                                                    |  |              |        |            |  |          |     |               |  |               |         |               |  |        |         |   |  |             |          |   |  |   |          |   |  |   |          |  
|Balances at March 31, 2001                          |  |              | 42,725 |            |  |          | 427 |               |  |               | 197,350 |               |  |        | (22,762 | ) |  |             |         |   |  |   | 372,274  |   |  |   | 547,289  |  
|Issuance of common stock under employee
stock plans |  |              | 242    |            |  |          | 3   |               |  |               | 1,448   |               |  |        |        |   |  |             |         |   |  |   |         |   |  |   | 1,451    |  
|Repurchase of common stock(1)                       |  |              |       |            |  |          |    |               |  |               |        |               |  |        | (7,668  | ) |  |             |         |   |  |   |         |   |  |   | (7,668   | )
|Tax benefit on exercise of stock options            |  |              |       |            |  |          |    |               |  |               | 402     |               |  |        |        |   |  |             |         |   |  |   |         |   |  |   | 402      |  
|Unrealized gain on investments                      |  |              |       |            |  |          |    |               |  |               |        |               |  |        |        |   |  |             | 150,497  |   |  |   |         |   |  |   |          |  
|Net loss                                            |  |              |       |            |  |          |    |               |  |               |        |               |  |        |        |   |  |             |         |   |  |   | (240,716 | ) |  |   |          |  
|Total comprehensive loss                            |  |              |       |            |  |          |    |               |  |               |        |               |  |        |        |   |  |             |         |   |  |   |         |   |  |   | (90,219  | )
|                                                    |  |              |        |            |  |          |     |               |  |               |         |               |  |        |         |   |  |             |          |   |  |   |          |   |  |   |          |  
|Balances at March 31, 2002                          |  |              | 42,967 |            |  |          | 430 |               |  |               | 199,200 |               |  |        | (30,430 | ) |  |             | 150,497  |   |  |   | 131,558  |   |  |   | 451,255  |  
|Issuance of common stock under employee
stock plans |  |              | 165    |            |  |          | 2   |               |  |               | 499     |               |  |        |        |   |  |             |         |   |  |   |         |   |  |   | 501      |  
|Repurchase of common stock(1)                       |  |              |       |            |  |          |    |               |  |               |        |               |  |        | (38,094 | ) |  |             |         |   |  |   |         |   |  |   | (38,094  | )
|Unrealized loss on investments                      |  |              |       |            |  |          |    |               |  |               |        |               |  |        |        |   |  |             | (148,394 | ) |  |   |         |   |  |   |          |  
|Net loss                                            |  |              |       |            |  |          |    |               |  |               |        |               |  |        |        |   |  |             |         |   |  |   | (106,048 | ) |  |   |          |  
|Total comprehensive loss                            |  |              |       |            |  |          |    |               |  |               |        |               |  |        |        |   |  |             |         |   |  |   |         |   |  |   | (254,442 | )
|                                                    |  |              |        |            |  |          |     |               |  |               |         |               |  |        |         |   |  |             |          |   |  |   |          |   |  |   |          |  
|Balances at March 31, 2003                          |  |              | 43,132 |            |  | $        | 432 |               |  | $             | 199,699 |               |  | $      | (68,524 | ) |  | $           | 2,103    |   |  | $ | 25,510   |   |  | $ | 159,220  |  
|                                                    |  |              |        |            |  |          |     |               |  |               |         |               |  |        |         |   |  |             |          |   |  |   |          |   |  |   |          |  



---



|(1) |  | At March 31, 2001, 2002 and 2003, the Company held 1,285, 2,120, and
8,155 shares in treasury, which have not been retired. After taking into
account these treasury shares, the net outstanding shares at March 31,
2001, 2002 and 2003 were 41,440, 40,847, and 34,977, respectively.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

F-5



---



##### Table of Contents



ALLIANCE SEMICONDUCTOR CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

|                                                                            |                                          |                                                                               |                           |          |                      |         |         |          |         |          |         |          |         |          |  
|--------------------------------------------------------------------------- | ---------------------------------------- | ----------------------------------------------------------------------------- | ------------------------- | -------- | -------------------- | ------- | ------- | -------- | ------- | -------- | ------- | -------- | ------- | -------- | -
|                                                                            |                                          |                                                                               |                           |          | Year Ended March 31,
|                                                                            |                                          |                                                                               |                           |          |                     
|                                                                            |                                          |                                                                               |                           |          | 2003                 |         | 2002    |          | 2001   
|                                                                            |                                          |                                                                               |                           |          |                      |         |         |          |        
|Cash flows from operating activities:                                       |                                          |                                                                               |                           |          |                      |         |         |          |         |          |         |         
|                                                                            | Net loss                                 |                                                                               | $                         | (106,048 | )                    |         | $       | (240,716 | )       |          | $       | (272,321 | )      
|Adjustments to reconcile net loss to net cash used in operating activities: |                                          |                                                                               |                           |          |                      |         |         |          |         |          |         |         
|                                                                            |                                          | Depreciation and amortization                                                 |                           |          | 5,837                |         |         |          | 2,935   |          |         |          | 4,202   |         
|                                                                            |                                          | Minority interest in subsidiary companies, net of tax                         |                           |          | (3,322               | )       |         |          | (533    | )        |         |          |        |         
|                                                                            |                                          | Write down of in-process research and development                             |                           |          | 1,610                |         |         |          | 906     |          |         |          |         |         
|                                                                            |                                          | Equity in loss of investees, net of tax                                       |                           |          | 10,787               |         |         |          | 9,512   |          |         |          | 5,737   |         
|                                                                            |                                          | Gain on investments                                                           |                           |          | (14,143              | )       |         |          | (3,470  | )        |         |          | (75,801 | )       
|                                                                            |                                          | Other income (expense)                                                        |                           |          | 457                  |         |         |          | (1,407  | )        |         |          |        |         
|                                                                            |                                          | Write-down of marketable securities and venture investments                   |                           |          | 55,792               |         |         |          | 296,846 |          |         |          | 509,449 |         
|                                                                            |                                          | Inventory write-down                                                          |                           |          | 6,338                |         |         |          | 30,352  |          |         |          | 53,945  |         
|                                                                            |                                          | Write-down of other assets                                                    |                           |          | 9,479                |         |         |          |        |          |         |          |        |         
|                                                                            |                                          | Cumulative effect of change in accounting principle, net of tax               |                           |          |                     |         |         |          | (2,055  | )        |         |          |        |         
|                                                                            |                                          | Changes in assets and liabilities:                                            |                           |          |                      |         |         |          |         |          |         |          |         |         
|                                                                            |                                          |                                                                               | Accounts receivable       |          |                      | 833     |         |          |         | 15,177   |         |          |         | (2,143   | )
|                                                                            |                                          |                                                                               | Inventory                 |          |                      | 10,436  |         |          |         | 35,253   |         |          |         | (101,303 | )
|                                                                            |                                          |                                                                               | Related party receivables |          |                      | 1,112   |         |          |         | (25      | )       |          |         | (591     | )
|                                                                            |                                          |                                                                               | Other assets              |          |                      | (4,128  | )       |          |         | (402     | )       |          |         | 993      |  
|                                                                            |                                          |                                                                               | Accounts payable          |          |                      | 1,405   |         |          |         | (73,244  | )       |          |         | 48,997   |  
|                                                                            |                                          |                                                                               | Accrued liabilities       |          |                      | 757     |         |          |         | 1,206    |         |          |         | (4,973   | )
|                                                                            |                                          |                                                                               | Deferred income taxes     |          |                      | 6,667   |         |          |         | (158,952 | )       |          |         | (221,877 | )
|                                                                            |                                          |                                                                               | Income tax payable        |          |                      | (17,567 | )       |          |         | 19,274   |         |          |         | (1,685   | )
|                                                                            |                                          |                                                                               |                           |          |                      |         |         |          |         |          |         |          |        
|Net cash used in operating activities                                       |                                          |                                                                               | (33,698                   | )        |                      |         | (69,343 | )        |         |          | (57,371 | )       
|                                                                            |                                          |                                                                               |                           |          |                      |         |         |          |         |          |         |          |        
|Cash flows from investing activities:                                       |                                          |                                                                               |                           |          |                      |         |         |          |         |          |         |         
|                                                                            |                                          | Purchase of property and equipment                                            |                           |          | (4,126               | )       |         |          | (729    | )        |         |          | (4,395  | )       
|                                                                            |                                          | Purchase of technology license                                                |                           |          | (3,150               | )       |         |          |        |          |         |          |        |         
|                                                                            |                                          | Proceeds from sale of securities of UMC                                       |                           |          | 95,459               |         |         |          | 66,740  |          |         |          |        |         
|                                                                            |                                          | Proceeds from sale of securities of Broadcom Corp.                            |                           |          | 2,793                |         |         |          | 5,249   |          |         |          | 38,965  |         
|                                                                            |                                          | Proceeds from sale of securities of Adaptec, Inc.                             |                           |          | 4,911                |         |         |          | 1,541   |          |         |          |        |         
|                                                                            |                                          | Proceeds from sale of securities of Chartered Semiconductor
Manufacturing Ltd |                           |          | 6,323                |         |         |          |        |          |         |          | 45,500  |         
|                                                                            |                                          | Proceeds from sale of securities of Vitesse Semiconductor Corporation         |                           |          | 195                  |         |         |          |        |          |         |          |        |         
|                                                                            |                                          | Proceeds from sale of securities of Magma Design Automation                   |                           |          | 5,979                |         |         |          |        |          |         |          |        |         
|                                                                            |                                          | Proceeds from sale of securities of PMC-Sierra Corporation                    |                           |          | 432                  |         |         |          |        |          |         |          |        |         
|                                                                            |                                          | Proceeds from sale of Alliance Venture and other investments                  |                           |          | 500                  |         |         |          | 15,897  |          |         |          |        |         
|                                                                            |                                          | Investment in Tower Semiconductor Ltd.                                        |                           |          | (25,976              | )       |         |          | (11,001 | )        |         |          | (31,001 | )       
|                                                                            |                                          | Acquisition of PulseCore                                                      |                           |          |                     |         |         |          | (948    | )        |         |          |        |         
|                                                                            |                                          | Purchase of Alliance Venture and other investments                            |                           |          | (11,699              | )       |         |          | (21,461 | )        |         |          | (66,007 | )       
|                                                                            |                                          |                                                                               |                           |          |                      |         |         |          |         |          |         |          |        
|Net cash provided by (used in) investing activities                         |                                          |                                                                               | 71,641                    |          |                      |         | 55,288  |          |         |          | (16,938 | )       
|                                                                            |                                          |                                                                               |                           |          |                      |         |         |          |         |          |         |          |        
|Cash flows from financing activities:                                       |                                          |                                                                               |                           |          |                      |         |         |          |         |          |         |         
|                                                                            |                                          | Net proceeds from the issuance of common stock                                |                           |          | 501                  |         |         |          | 1,451   |          |         |          | 2,352   |         
|                                                                            |                                          | Principal payments on lease obligation                                        |                           |          | (369                 | )       |         |          | (891    | )        |         |          | (558    | )       
|                                                                            |                                          | Repurchase of common stock                                                    |                           |          | (38,094              | )       |         |          | (7,668  | )        |         |          | (10,294 | )       
|                                                                            |                                          | Repayments of short-term borrowings                                           |                           |          | (22,613              | )       |         |          | (78,850 | )        |         |          |        |         
|                                                                            |                                          | Proceeds from short-term borrowings                                           |                           |          |                     |         |         |          | 118,533 |          |         |          | 22,234  |         
|                                                                            |                                          | Restricted cash                                                               |                           |          | 6,430                |         |         |          | (6,089  | )        |         |          | 879     |         
|                                                                            |                                          | Proceeds from long-term obligations                                           |                           |          |                     |         |         |          | 5,020   |          |         |          | 31,035  |         
|                                                                            |                                          |                                                                               |                           |          |                      |         |         |          |         |          |         |          |        
|Net cash provided by (used in) financing activities                         |                                          |                                                                               | (54,145                   | )        |                      |         | 31,506  |          |         |          | 45,648  |         
|                                                                            |                                          |                                                                               |                           |          |                      |         |         |          |         |          |         |          |        
|Net increase (decrease) in cash and cash equivalents                        |                                          |                                                                               | (16,202                   | )        |                      |         | 17,451  |          |         |          | (28,661 | )       
|Cash and cash equivalents at beginning of the period                        |                                          |                                                                               | 23,560                    |          |                      |         | 6,109   |          |         |          | 34,770  |         
|                                                                            |                                          |                                                                               |                           |          |                      |         |         |          |         |          |         |          |        
|Cash and cash equivalents at end of the period                              |                                          | $                                                                             | 7,358                     |          |                      | $       | 23,560  |          |         | $        | 6,109   |         
|                                                                            |                                          |                                                                               |                           |          |                      |         |         |          |         |          |         |          |        
|Supplemental disclosures of cash flow information:                          |                                          |                                                                               |                           |          |                      |         |         |          |         |          |         |         
|                                                                            | Cash paid for taxes                      |                                                                               | $                         | 42       |                      |         | $       | 3,017    |         |          | $       | 29,501   |        
|                                                                            |                                          |                                                                               |                           |          |                      |         |         |          |         |          |         |          |        
|                                                                            | Cash paid for interest                   |                                                                               | $                         | 2,103    |                      |         | $       | 3,091    |         |          | $       | 733      |        
|                                                                            |                                          |                                                                               |                           |          |                      |         |         |          |         |          |         |          |        
|                                                                            | Receivable related to sale of UMC shares |                                                                               | $                         |         |                      |         | $       | 7,906    |         |          | $       |         |        
|                                                                            |                                          |                                                                               |                           |          |                      |         |         |          |         |          |         |          |        

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

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##### Table of Contents



ALLIANCE SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. The Company and Its Significant Accounting Policies

Alliance Semiconductor Corporation (the Company or Alliance), a
Delaware corporation, is a worldwide provider of memory, mixed signal and
system solutions for the networking, wireless, consumer and computing markets.
Through these integrated business units, Alliance provides leading OEMs with
mixed signal products for Electromagnetic Interference (EMI) management, high
speed chip-to-chip interconnects based on HyperTransport() technology, as
well as synchronous and fast asynchronous static random access memory
(SRAMs), super low power pseudo SRAMs and dynamic random access memory
(DRAMs).

Principles of Consolidation

The consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America and
include the accounts of the Company and its direct and indirect subsidiaries.
All significant inter-company accounts and transactions have been eliminated.

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 period.
Actual results could differ from those estimates.

Basis of Presentation

For purposes of presentation, the Company has indicated its fiscal years
as ending on March 31, whereas the Companys fiscal year actually ends on the
Saturday nearest the end of March. The fiscal years ended March 31, 2003, 2002
and 2001 contained 52 weeks.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on deposit and highly liquid
money market instruments with banks and financial institutions. The Company
considers all highly liquid investments with maturity from the date of purchase
of three months or less to be cash equivalents.

Restricted Cash

Restricted cash is comprised of funds deposited with financial
institutions. They cannot be accessed by the Company until certain events have
transpired or until liabilities have been met.

Short-Term Investments

The Company accounts for its short-term investments in accordance with
Statement of Financial Accounting Standard (SFAS) No. 115, Accounting for
Certain Investments in Debt and Equity Securities. Management determines the
appropriate categorization of investment securities at the time of purchase and
reevaluates such designation as of each balance sheet date. At March 31, 2003
and 2002, all short-term equity securities were designated as
available-for-sale in accordance with SFAS 115.

Available-for-sale securities are carried at fair value using available
market information. Unrealized gains and losses are generally reported in
accumulated other comprehensive income (loss) in the balance sheet.

Derivatives

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The Company uses derivative financial instruments to manage the market
risk of certain of its short-term investments. The Company does not use
derivatives for trading or speculative purposes.

All derivatives are recognized on the balance sheet at fair value and are
reported in short-term investments and long-term obligations. Classification of
each derivative as current or non current is based upon whether the maturity of
each instrument is less than or greater than 12 months. To qualify for hedge
accounting in accordance with SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, the Company requires that the instruments
are effective in reducing the risk exposure that they are designated to hedge.
Instruments that meet established accounting criteria are formally designated
as hedges at the inception of the contract. These criteria demonstrate that the
derivative is expected to be highly effective at offsetting changes in fair
value of the underlying exposure both at inception of the hedging relationship
and on an ongoing basis. The assessment for effectiveness is formally
documented at hedge inception and reviewed at least quarterly throughout the
designated hedge period.

The Company applies hedge accounting in accordance with SFAS No. 133,
whereby the Company designates each derivative as a hedge of the fair value of
a recognized asset (fair value hedge). Changes in the value of a derivative,
along with offsetting changes in fair value of the underlying hedged exposure,
are recorded in earnings each period. Changes in the value of derivatives that
do not offset the underlying hedged exposure throughout the designated hedge
period (collectively, ineffectiveness), are recorded in earnings each period.

In determining fair value of its financial instruments, the Company uses
dealer quotes as well as methods and assumptions that are based on market
conditions and risks existing at each balance sheet date. All methods of
assessing fair value result in a general approximation of value, and such value
may never actually be realized.

Inventory

Inventory is stated at the lower of standard cost (which approximates
actual cost on a first-in, first-out basis) or market. Market is based on the
estimated net realizable value or current replacement cost. The Company also
evaluates its open purchase order commitments on an on-going basis and accrues
for any expected loss if appropriate.

Investments in Non Publicly Traded Companies

The
Company invests in various non publicly traded high-technology companies. These
investments are included in Alliance Ventures and other investments. If an
investment in the voting stock and other factors give Alliance the ability to
exercise significant influence over the operating and financial policies of the
investee, the investment is accounted for under the equity method. Investments
which do not give Alliance the ability to exercise significant influence over
the operating and financial policies of the investee are accounted for under
the cost method. For investments accounted for under the equity method, the
Company includes its share of the earnings or losses of the investee in its
results of operations based on financial information of the investee on a one
quarter lag. The Company reviews the investments for impairment when
circumstances or events indicate that the carrying value of the investments may
not be recoverable.

Property and Equipment

Property and equipment are stated at cost and depreciated on a
straight-line basis over the estimated economic useful lives of the assets,
which range from three to seven years. Upon disposal, the cost of the asset and
related accumulated depreciation are removed from the accounts and any
resulting gain or loss is included in the results of operations.

Long-Lived Assets

Long-lived assets held by the Company are reviewed for impairment whenever
events or circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability is measured by comparison of carrying amounts to
future net cash flows an asset is expected to generate. If an asset is
considered to be impaired, the impairment to be recognized is measured by the
amount to which the carrying amount of the assets exceeds the projected
discounted future cash flows arising from the asset.

Revenue Recognition

Revenue from product sales, including sales to distributors, is recognized
upon shipment, net of accruals for estimated sales returns and allowances.

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Research and Development Costs

Costs incurred in the research and development of semiconductor devices
are expensed as incurred, including the cost of prototype wafers and new
production mask sets.

Goodwill and Intangible Assets

The Company accounts for goodwill and intangible assets acquired in
business combinations after June 30, 2001, pursuant to SFAS No. 141, Business
Combinations and the non-amortization provisions of SFAS No. 142, Goodwill
and Other Intangible Assets. Recorded goodwill is not amortized but is
reviewed periodically for impairment. Intangible assets with definite lives are
amortized over the estimated useful life, generally three years.

Advertising Costs

Advertising costs are expensed as incurred.

Income Taxes

The Company accounts for its deferred income taxes in accordance with the
liability method. Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial statement and income
tax bases of the assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized.

Concentration of Risks

Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and cash equivalents,
short and long-term investments and accounts receivable.

Cash is deposited with one major bank in the United States while cash
equivalents are deposited with several major financial institutions in the
United States. The Company attempts to limit its exposure to these investments
by placing such investments with several financial institutions and performs
periodic evaluations of these institutions.

Short and long-term investments are subject to declines in market as well
as risk associated with the underlying investment. The Company evaluates its
investments from time to time in terms of credit risk since a substantial
portion of its assets are now in the form of investments, not all of which are
liquid, and may enter into full or partial hedging strategies involving
financial derivative instruments to minimize market risk. During fiscal years
2000, 2001 and 2002, the Company entered into a number of cashless collar and
covered call option transactions to hedge its holdings in Broadcom
Corporation. In addition, during fiscal 2001 and 2002, the Company entered into
indexed debt transactions to partially hedge its holdings in Vitesse
Semiconductor Corporation and Adaptec, Inc. The Company may enter into other
similar transactions in the future.

Since UMC, Vitesse, Adaptec, and Tower are in the semiconductor business,
as is the Company, they may be subject to the same fluctuations in market value
as is the Company, and may experience downturns in value at the same time the
Company is experiencing such downturns. Many of the risks that the Company may
experience as a semiconductor company are also applicable to these companies.
In addition, because they are semiconductor manufacturers, they are subject to
additional risks, such as fires and other disasters, excess fabrication
capacity, and other risks known to semiconductor manufacturers. There can be no
assurances that the Companys investment in these companies will increase in
value or even maintain their value. Because of the cyclical nature of the
semiconductor industry, it is possible that these investments, like the
Company, will experience a significant business downturn in the future, which
will significantly depress the value of these stocks. Additionally, the Company
is dependent on its investments in UMC and Tower because these investments
provide the Company with wafer production capacity rights which are essential
to the Companys operations.

The Company sells its products to original equipment manufacturers and
distributors throughout the world. The Company performs ongoing credit
evaluations of its customers and, on occasion, may require letters of credit
from its non-US customers. Sales to the Companys customers are typically made
pursuant to specific purchase orders, which may be canceled by the customer
without enforceable penalties. For fiscal 2003, 2002 and 2001, no single
customer accounted for 10% or more of the Companys net revenues.

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The Company conducts the majority of its business in U.S. dollars and
foreign currency transaction gains and losses have not been material in any
one-year. International sales accounted for approximately $12.7 million, $19.6
million, and $131.6 million of net revenues for fiscal 2003, 2002, and 2001,
respectively.

Stock-Based Compensation

At March 31, 2003, the Company has three stock-based employee compensation
plans, which are described more fully in Note 19. The Company accounts for
those plans under the recognition and measurement principles of APB Opinion No.
25, Accounting for Stock Issued to Employees, and related Interpretations. No
stock-based employee compensation cost is reflected in net income, as all
options granted under those plans had an exercise price equal to the market
value of the underlying common stock on the date of grant. Had the Company
recorded compensation expense based on the estimated grant date fair value, as
defined by SFAS 123, for awards granted under the Plan, the Directors Plan and
its ESPP, the Companys pro forma net income (loss) and pro forma net income
(loss) per share for the years ended March 31, 2003, 2002, and 2001, would have
been as follows (in thousands, except per share data):

|                                                                                                                                            |                       |   |           |       |      |   |          |       |   |   |          |       |  
|------------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | - | --------- | ----- | ---- | - | -------- | ----- | - | - | -------- | ----- | -
|                                                                                                                                            |                       |   | March 31,
|                                                                                                                                            |                       |   |          
|                                                                                                                                            |                       |   | 2003      |       | 2002 |   | 2001    
|                                                                                                                                            |                       |   |           |       |      |   |         
|Net loss, as reported                                                                                                                       |                       | $ | (106,048  | )     |      | $ | (240,716 | )     |   | $ | (272,321 | )    
|Deduct: Total
stock-based employee
compensation expense
determined under fair
value based method
for all awards, net
of related tax
effects |                       |   | (1,665    | )     |      |   | (2,043   | )     |   |   | (2,314   | )    
|                                                                                                                                            |                       |   |           |       |      |   |          |       |   |   |          |      
|Pro forma net loss:                                                                                                                         |                       | $ | (107,713  | )     |      | $ | (242,759 | )     |   | $ | (274,635 | )    
|                                                                                                                                            |                       |   |           |       |      |   |          |       |   |   |          |      
|Earnings per share:                                                                                                                         |                       |   |           |       |      |   |          |       |   |   |          |      
|                                                                                                                                            | Basic  as reported   |   | $         | (2.85 | )    |   | $        | (5.86 | ) |   | $        | (6.58 | )
|                                                                                                                                            |                       |   |           |       |      |   |          |       |   |   |          |      
|                                                                                                                                            | Basic  pro forma     |   | $         | (2.90 | )    |   | $        | (5.91 | ) |   | $        | (6.64 | )
|                                                                                                                                            |                       |   |           |       |      |   |          |       |   |   |          |      
|                                                                                                                                            | Diluted  as reported |   | $         | (2.85 | )    |   | $        | (5.86 | ) |   | $        | (6.58 | )
|                                                                                                                                            |                       |   |           |       |      |   |          |       |   |   |          |      
|                                                                                                                                            | Diluted  pro forma   |   | $         | (2.90 | )    |   | $        | (5.91 | ) |   | $        | (6.64 | )
|                                                                                                                                            |                       |   |           |       |      |   |          |       |   |   |          |      

Net Loss Per Share

Basic earnings per share, (EPS) is computed by dividing net income
available to common stockholders by the weighted average number of common
shares outstanding during the period. Diluted EPS gives effect to all dilutive
potential common shares outstanding during the period including stock options,
using the treasury stock method. In computing diluted EPS, the average stock
price for the period is used in determining the number of shares assumed to be
purchased from the proceeds obtained upon exercise of stock options.

Following is a reconciliation of the numerators and denominators used in
the Basic and Diluted EPS computations for the periods presented below:

|                                                     |         |   |                      |       |      |   |          |       |   |   |          |       |  
|---------------------------------------------------- | ------- | - | -------------------- | ----- | ---- | - | -------- | ----- | - | - | -------- | ----- | -
|                                                     |         |   | Year Ended March 31,
|                                                     |         |   |                     
|                                                     |         |   | 2003                 |       | 2002 |   | 2001    
|                                                     |         |   |                      |       |      |   |         
|Net loss available to common stockholders            |         | $ | (106,048             | )     |      | $ | (240,716 | )     |   | $ | (272,321 | )    
|                                                     |         |   |                      |       |      |   |          |       |   |   |          |      
|Weighted average common shares outstanding (basic)   |         |   | 37,160               |       |      |   | 41,078   |       |   |   | 41,376   |      
|Effect of dilutive options                           |         |   |                     |       |      |   |         |       |   |   |         |      
|                                                     |         |   |                      |       |      |   |          |       |   |   |          |      
|Weighted average common shares outstanding (diluted) |         |   | 37,160               |       |      |   | 41,078   |       |   |   | 41,376   |      
|                                                     |         |   |                      |       |      |   |          |       |   |   |          |      
|Net loss per share:                                  |         |   |                      |       |      |   |          |       |   |   |          |      
|                                                     | Basic   |   | $                    | (2.85 | )    |   | $        | (5.86 | ) |   | $        | (6.58 | )
|                                                     |         |   |                      |       |      |   |          |       |   |   |          |      
|                                                     | Diluted |   | $                    | (2.85 | )    |   | $        | (5.86 | ) |   | $        | (6.58 | )
|                                                     |         |   |                      |       |      |   |          |       |   |   |          |      

At
March 31, 2003, 2002 and 2001, there were 2,559,862, 2,480,487, and
2,374,362 options outstanding to purchase common stock that were excluded from
the diluted loss per share computations because their effect would have been
anti-dilutive. The weighted average purchase prices of these options were
$9.16, $10.66, and $11.11 for fiscal 2003, 2002 and 2001, respectively.

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Comprehensive Income

In 1999, the Company adopted SFAS 130, Reporting Comprehensive Income,
which requires an enterprise to report, by major components and as a single
total, the change in net assets during the period from non-owner sources.
Comprehensive loss for fiscal 2003, 2002, and 2001 was $254.4 million, $90.2
million, and $410.5 million, respectively. The components of comprehensive
income (loss) are shown in the Consolidated Statements of Stockholders Equity.

Segment Reporting

In 1999, the Company adopted SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information which establishes annual and interim
reporting standards for an enterprises business segments and related
disclosures about its products, services, geographic areas and major customers.
The Company has one operating segment, which is to design, develop,
and market high-performance memory, mixed signal, and system
solutions products.

Recently Issued Accounting Standards

In June 2002, the FASB issued SFAS No. 146, Accounting for Exit or
Disposal Activities (SFAS 146). SFAS 146 addresses significant issues
regarding the recognition, measurement, and reporting of costs that are
associated with exit and disposal activities, including restructuring
activities that are currently accounted for under EITF No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring). The scope
of SFAS 146 also includes costs related to terminating a contract that is not a
capital lease and termination benefits that employees who are involuntarily
terminated receive under the terms of a one-time benefit arrangement that is
not an ongoing benefit arrangement or an individual deferred-compensation
contract. SFAS 146 will be effective for exit or disposal activities that are
initiated after December 31, 2002 and early application is encouraged. We have
adopted SFAS 146 during the fourth quarter of fiscal 2003. The provisions of
EITF No. 94-3 shall continue to apply for an exit activity initiated under an
exit plan that met the criteria of EITF No. 94-3 prior to the adoption of SFAS
146. The adoption of SFAS 146 did not have a material impact on the Companys
financial statements.

In November 2002, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 45 (FIN45), Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others. FIN 45 requires that a liability be recorded in the guarantors
balance sheet upon issuance of a guarantee. In addition, FIN 45 requires
disclosures about the guarantees that an entity has issued, including a
reconciliation of changes in the entitys product warranty liabilities. The
initial recognition and initial measurement provisions of FIN 45 were
applicable on a prospective basis to guarantees issued or modified after
December 31, 2002, irrespective of the guarantors fiscal year-end. The
disclosure requirements of FIN 45 were effective for financial statements of
interim or annual periods ending after December 15, 2002. The adoption of this
standard did not have a material impact on the Companys financial statements.

In November 2002, the Emerging Issues Task Force (EITF) reached a
consensus on Issue No. 00-21, Revenue Arrangements with Multiple
Deliverables. EITF Issue No. 00-21 provides guidance on how to account for
arrangements that involve the delivery or performance of multiple products,
services and/or rights to use assets. The provisions of EITF Issue No. 00-21
will apply to revenue arrangements entered into in fiscal periods beginning
after June 15, 2003. The Company believes that the adoption of this standard
will have no material impact on its financial statements.

In December 2002, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 148, Accounting for Stock-Based Compensation,
Transition and Disclosure. SFAS No. 148 provides alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. SFAS No. 148 also required that
disclosures of the pro forma effect of using the fair value method of
accounting for stock-based employee compensation be displayed more prominently
and in a tabular format. Additionally, SFAS No. 148 requires disclosure of the
pro forma effect in interim financial statements. The transition and annual
disclosure requirements of SFAS No. 148 are effective for fiscal years ended
after December 15, 2002. The interim disclosure requirements are effective for
interim periods beginning after December 15, 2002. The adoption of this
standard did not have a material impact on the Companys financial statements.

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective immediately for all new variable interest entities created or
acquired after January 31, 2003. For variable interest
entities

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##### Table of Contents



created or acquired prior to February 1, 2003, the provisions of FIN 46
must be applied for the first interim or annual period beginning after June 15,
2003. The Company is evaluating the impact that the adoption of this standard
will have on its financial statements.

In May 2003, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. This Statement establishes
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. It requires
that an issuer classifies a financial instrument that is within its scope as a
liability (or an asset in some circumstances). Many of those instruments were
previously classified as equity. The Statement is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003. It is to be implemented by reporting the cumulative effect of a change
in an accounting principle for financial instruments created before the
issuance date of the Statement and still existing at the beginning of the
interim period of adoption. Restatement is not permitted. The Company
believes that the adoption of this standard will have no material impact on its
financial statements.

Note 2. Balance Sheet Components

Restricted Cash

|                                   |  |                |       |      |  |   |       | 
|---------------------------------- |  | -------------- | ----- | ---- |  | - | ----- | 
|                                   |  | March 31,     
|                                   |  |               
|                                   |  | 2003           |       | 2002
|                                   |  |                |       |     
|                                   |  | (In thousands)
|Deposit against anti-dumping order |  | $              |      |      |  | $ | 1,743 | 
|Interest escrow                    |  |                |      |      |  |   | 1,763 | 
|Escrow on sale of Platys           |  |                | 1,284 |      |  |   | 4,508 | 
|                                   |  |                |       |      |  |   |       | 
|                                   |  | $              | 1,284 |      |  | $ | 8,014 | 
|                                   |  |                |       |      |  |   |       | 

Short-Term Investments

Short-term investments include the following available-for-sale securities
and derivatives at March 31, 2003 and 2002 (in thousands):

|                                           |  |                |         |                |  |           |         |        |  |  |         |  |  |   |         | 
|------------------------------------------ |  | -------------- | ------- | -------------- |  | --------- | ------- | ------ |  |  | ------- |  |  | - | ------- | 
|                                           |  | March 31, 2003 |         | March 31, 2002
|                                           |  |                |         |               
|                                           |  | Number of      |         | Market         |  | Number of |         | Market
|                                           |  | Shares         |         | Value          |  | Shares    |         | Value 
|                                           |  |                |         |                |  |           |         |       
|United Microelectronics Corporation        |  |                | 244,959 |                |  | $         | 142,268 |        |  |  | 256,474 |  |  | $ | 385,142 | 
|Adaptec Inc.                               |  |                | 517     |                |  |           | 3,157   |        |  |  | 1,441   |  |  |   | 19,266  | 
|Tower Semiconductor Ltd.                   |  |                | 1,111   |                |  |           | 3,067   |        |  |  |        |  |  |   |        | 
|Vitesse Semiconductor Corporation          |  |                | 95      |                |  |           | 219     |        |  |  | 728     |  |  |   | 7,137   | 
|Chartered Semiconductor Manufacturing Ltd. |  |                |        |                |  |           |        |        |  |  | 1,642   |  |  |   | 44,181  | 
|Magma Design Automation                    |  |                |        |                |  |           |        |        |  |  | 360     |  |  |   | 7,010   | 
|Broadcom Corporation                       |  |                |        |                |  |           |        |        |  |  | 75      |  |  |   | 2,693   | 
|PMC-Sierra Corporation                     |  |                |        |                |  |           |        |        |  |  | 68      |  |  |   | 1,110   | 
|Broadcom hedge                             |  |                |         |                |  |           |        |        |  |  |         |  |  |   | 447     | 
|                                           |  |                |         |                |  |           |         |        |  |  |         |  |  |   |         | 
|Total                                      |  |                |         |                |  | $         | 148,711 |        |  |  |         |  |  | $ | 466,986 | 
|                                           |  |                |         |                |  |           |         |        |  |  |         |  |  |   |         | 

Long-Term Investments

At March 31, 2003 and 2002, the Companys long-term investments were as
follows (in thousands):

|                                    |  |                  |       |                |  |                  |        |            |  |  |        |  |  |   |         | 
|----------------------------------- |  | ---------------- | ----- | -------------- |  | ---------------- | ------ | ---------- |  |  | ------ |  |  | - | ------- | 
|                                    |  | March 31, 2003   |       | March 31, 2002
|                                    |  |                  |       |               
|                                    |  | Number of Shares |       | Cost Basis     |  | Number of Shares |        | Cost Basis
|                                    |  |                  |       |                |  |                  |        |           
|Tower Semiconductor Ltd.            |  |                  | 4,956 |                |  | $                | 15,822 |            |  |  | 2,856  |  |  | $ | 16,278  | 
|United Microelectronics Corporation |  |                  |      |                |  |                  |       |            |  |  | 56,671 |  |  |   | 43,750  | 
|Alliance Venture investments        |  |                  |       |                |  |                  | 34,131 |            |  |  |        |  |  |   | 62,322  | 
|Solar Venture investments           |  |                  |       |                |  |                  | 4,188  |            |  |  |        |  |  |   | 10,253  | 
|                                    |  |                  |       |                |  |                  |        |            |  |  |        |  |  |   |         | 
|Total                               |  |                  |       |                |  | $                | 54,141 |            |  |  |        |  |  | $ | 132,603 | 
|                                    |  |                  |       |                |  |                  |        |            |  |  |        |  |  |   |         | 

Accounts Receivable

F-13



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##### Table of Contents



|                     |                                                                  |   |                |        |      |   |       |        |  
|-------------------- | ---------------------------------------------------------------- | - | -------------- | ------ | ---- | - | ----- | ------ | -
|                     |                                                                  |   | March 31,     
|                     |                                                                  |   |               
|                     |                                                                  |   | 2003           |        | 2002
|                     |                                                                  |   |                |        |     
|                     |                                                                  |   | (In thousands)
|Accounts receivable: |                                                                  |   |                |        |      |   |       |       
|                     | Trade receivables                                                |   | $              | 3,839  |      |   | $     | 4,739  |  
|                     | Less: allowance for doubtful accounts and sales related
reserves |   |                | (1,781 | )    |   |       | (1,848 | )
|                     |                                                                  |   |                |        |      |   |       |       
|                     |                                                                  | $ | 2,058          |        |      | $ | 2,891 |       
|                     |                                                                  |   |                |        |      |   |       |        |  

Inventory

|           |                 |   |                |       |      |   |        |        | 
|---------- | --------------- | - | -------------- | ----- | ---- | - | ------ | ------ | 
|           |                 |   | March 31,     
|           |                 |   |               
|           |                 |   | 2003           |       | 2002
|           |                 |   |                |       |     
|           |                 |   | (In thousands)
|Inventory: |                 |   |                |       |      |   |        |       
|           | Work in process |   | $              | 1,721 |      |   | $      | 10,718 | 
|           | Finished goods  |   |                | 1,141 |      |   |        | 8,918  | 
|           |                 |   |                |       |      |   |        |       
|           |                 | $ | 2,862          |       |      | $ | 19,636 |       
|           |                 |   |                |       |      |   |        |        | 

Other Current Assets

|                                   |  |                |       |      |  |   |        | 
|---------------------------------- |  | -------------- | ----- | ---- |  | - | ------ | 
|                                   |  | March 31,     
|                                   |  |               
|                                   |  | 2003           |       | 2002
|                                   |  |                |       |     
|                                   |  | (In thousands)
|Receivable from sale of securities |  | $              |      |      |  | $ | 7,906  | 
|Prepaids                           |  |                | 3,872 |      |  |   | 2,613  | 
|                                   |  |                |       |      |  |   |        | 
|                                   |  | $              | 3,872 |      |  | $ | 10,519 | 
|                                   |  |                |       |      |  |   |        | 

Property and Equipment

|                               |  |                |         |      |  |   |         |  
|------------------------------ |  | -------------- | ------- | ---- |  | - | ------- | -
|                               |  | March 31,     
|                               |  |               
|                               |  | 2003           |         | 2002
|                               |  |                |         |     
|                               |  | (In thousands)
|Engineering and test equipment |  | $              | 18,002  |      |  | $ | 17,286  |  
|Computers and software         |  |                | 14,989  |      |  |   | 11,941  |  
|Furniture and office equipment |  |                | 933     |      |  |   | 661     |  
|Leasehold improvements         |  |                | 1,469   |      |  |   | 1,458   |  
|Land                           |  |                | 274     |      |  |   | 288     |  
|Automobiles                    |  |                | 14      |      |  |   |        |  
|                               |  |                |         |      |  |   |         |  
|                               |  |                | 35,681  |      |  |   | 31,634  |  
|Less: Accumulated depreciation |  |                | (27,476 | )    |  |   | (23,420 | )
|                               |  |                |         |      |  |   |         |  
|                               |  | $              | 8,205   |      |  | $ | 8,214   |  
|                               |  |                |         |      |  |   |         |  

Depreciation expense for fiscal 2003, 2002, and 2001 was $4.1 million,
$2.8 million, and $4.2 million, respectively.

Property and equipment includes $2.2 million and $2.1 million of assets
under capital leases at March 31, 2003 and 2002, respectively. Accumulated
depreciation of assets under capital leases totaled $1.0 million and $1.7

million at March 31, 2003 and 2002, respectively.

Goodwill and Intangible Assets

March 31, 2003

F-14



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##### Table of Contents



|                     |  |      |        |              |  |             |        |            |  |     |       | 
|-------------------- |  | ---- | ------ | ------------ |  | ----------- | ------ | ---------- |  | --- | ----- | 
|                     |  |      |        |              |  |             |        |            |  | Net
|                     |  |      |        |              |  | Accumulated |        | Intangible
|                     |  | Cost |        | Amortization |  | Assets     
|                     |  |      |        |              |  |            
|Developed technology |  | $    | 1,592  |              |  | $           | (641   | )          |  | $   | 951   | 
|Technology license   |  |      | 3,150  |              |  |             | (787   | )          |  |     | 2,363 | 
|Acquired workforce   |  |      | 2,975  |              |  |             | (248   | )          |  |     | 2,727 | 
|Tradename            |  |      | 109    |              |  |             | (44    | )          |  |     | 65    | 
|Patents              |  |      | 1,403  |              |  |             | (204   | )          |  |     | 1,199 | 
|Goodwill             |  |      | 1,538  |              |  |             |       |            |  |     | 1,538 | 
|                     |  |      |        |              |  |             |        |            |  |     |       | 
|                     |  | $    | 10,767 |              |  | $           | (1,924 | )          |  | $   | 8,843 | 
|                     |  |      |        |              |  |             |        |            |  |     |       | 

March 31, 2002

|                     |  |      |       |              |  |             |      |            |  |     |       | 
|-------------------- |  | ---- | ----- | ------------ |  | ----------- | ---- | ---------- |  | --- | ----- | 
|                     |  |      |       |              |  |             |      |            |  | Net
|                     |  |      |       |              |  | Accumulated |      | Intangible
|                     |  | Cost |       | Amortization |  | Assets     
|                     |  |      |       |              |  |            
|Developed technology |  | $    | 1,592 |              |  | $           | (110 | )          |  | $   | 1,482 | 
|Tradename            |  |      | 109   |              |  |             | (8   | )          |  |     | 101   | 
|Patents              |  |      | 363   |              |  |             | (25  | )          |  |     | 338   | 
|Goodwill             |  |      | 1,538 |              |  |             |     |            |  |     | 1,538 | 
|                     |  |      |       |              |  |             |      |            |  |     |       | 
|                     |  | $    | 3,602 |              |  | $           | (143 | )          |  | $   | 3,459 | 
|                     |  |      |       |              |  |             |      |            |  |     |       | 

Amortization expense for intangible assets is summarized as follows (in
thousands):

|                     |  |                      |       |      |  |      |     |  |  |   |   | 
|-------------------- |  | -------------------- | ----- | ---- |  | ---- | --- |  |  | - | - | 
|                     |  | Year Ended March 31,
|                     |  |                     
|                     |  | 2003                 |       | 2002 |  | 2001
|                     |  |                      |       |      |  |     
|Developed technology |  | $                    | 531   |      |  | $    | 110 |  |  | $ |  | 
|Technology license   |  |                      | 787   |      |  |      |    |  |  |   |  | 
|Acquired workforce   |  |                      | 248   |      |  |      |    |  |  |   |  | 
|Tradename            |  |                      | 36    |      |  |      | 8   |  |  |   |  | 
|Patents              |  |                      | 179   |      |  |      | 25  |  |  |   |  | 
|                     |  |                      |       |      |  |      |     |  |  |   |   | 
|                     |  | $                    | 1,781 |      |  | $    | 143 |  |  | $ |  | 
|                     |  |                      |       |      |  |      |     |  |  |   |   | 

Intangible assets are being amortized over estimated useful lives of two
to three years. Estimated future amortization expense is as follows (in
thousands):

|           |  |   |       | 
|---------- |  | - | ----- | 
|2004       |  | $ | 3,572 | 
|2005       |  |   | 3,182 | 
|2006       |  |   | 551   | 
|Thereafter |  |   |      | 
|           |  |   |       | 
|Total      |  | $ | 7,305 | 
|           |  |   |       | 

Accrued Liabilities

|                         |  |           |       |      |  |   |       | 
|------------------------ |  | --------- | ----- | ---- |  | - | ----- | 
|                         |  | March 31,
|                         |  |          
|                         |  | 2003      |       | 2002
|                         |  |           |       |     
|Accrued compensation     |  | $         | 1,193 |      |  | $ | 279   | 
|Accrued interest payable |  |           | 93    |      |  |   | 674   | 
|Accrued other            |  |           | 3,767 |      |  |   | 5,225 | 
|                         |  |           |       |      |  |   |       | 
|                         |  | $         | 5,053 |      |  | $ | 6,178 | 
|                         |  |           |       |      |  |   |       | 

Accumulated Other Comprehensive Income

March 31, 2003

|                                    |  |             |       |            |  |             |        |                |  |   |       |  
|----------------------------------- |  | ----------- | ----- | ---------- |  | ----------- | ------ | -------------- |  | - | ----- | -
|                                    |  | Unrealized  |       |            |  |             |        | Net Unrealized
|                                    |  | Gain/(Loss) |       | Tax Effect |  | Gain/(Loss)
|                                    |  |             |       |            |  |            
|United Microelectronics Corporation |  | $           | 2,795 |            |  | $           | (1,126 | )              |  | $ | 1,669 |  
|Tower Semiconductor Ltd.            |  |             | (481  | )          |  |             | 194    |                |  |   | (287  | )
|Vitesse Semiconductor Corporation   |  |             | 153   |            |  |             | (62    | )              |  |   | 91    |  
|Adaptec, Inc.                       |  |             | 1,056 |            |  |             | (426   | )              |  |   | 630   |  
|                                    |  |             |       |            |  |             |        |                |  |   |       |  
|                                    |  | $           | 3,523 |            |  | $           | (1,420 | )              |  | $ | 2,103 |  
|                                    |  |             |       |            |  |             |        |                |  |   |       |  

F-15



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##### Table of Contents



March 31, 2002

|                                           |  |                 |         |            |  |                     |          |   |  |   |         | 
|------------------------------------------ |  | --------------- | ------- | ---------- |  | ------------------- | -------- | - |  | - | ------- | 
|                                           |  | Unrealized Gain |         | Tax Effect |  | Net Unrealized Gain
|                                           |  |                 |         |            |  |                    
|United Microelectronics Corporation        |  | $               | 226,521 |            |  | $                   | (91,288  | ) |  | $ | 135,233 | 
|Chartered Semiconductor Manufacturing Ltd. |  |                 | 15,860  |            |  |                     | (5,800   | ) |  |   | 10,060  | 
|Broadcom Corporation                       |  |                 | 1,358   |            |  |                     | (548     | ) |  |   | 810     | 
|Vitesse Semiconductor Corporation          |  |                 | 489     |            |  |                     | (197     | ) |  |   | 292     | 
|PMC-Sierra Corporation                     |  |                 | 401     |            |  |                     | (130     | ) |  |   | 271     | 
|Adaptec, Inc.                              |  |                 | 4,203   |            |  |                     | (1,694   | ) |  |   | 2,509   | 
|Magma Design Automation                    |  |                 | 2,215   |            |  |                     | (893     | ) |  |   | 1,322   | 
|                                           |  |                 |         |            |  |                     |          |   |  |   |         | 
|                                           |  | $               | 251,047 |            |  | $                   | (100,550 | ) |  | $ | 150,497 | 
|                                           |  |                 |         |            |  |                     |          |   |  |   |         | 

Short-Term Borrowings

At March 31, 2003, the Company had total short-term borrowings of $43.6
million.

During fiscal 2001, the Company borrowed approximately $22.2 million from
a brokerage firm. The loan was secured by 1.6 million shares of Chartered
common stock. At March 31, 2002, the outstanding balance of the loan was $16.2
million. During fiscal 2003, the Company sold all of its Chartered shares and
repaid the entire outstanding balance of the loan.

During the first quarter of fiscal 2002, the Company entered into a
secured loan agreement with Citibank, N.A. to borrow up to $60.0 million. On
November 16, 2001, the Company paid off its loan in full with Citibank for an
aggregate sum of $17.3 million, and the loan was terminated.

During the second quarter of fiscal 2002, the Company converted an account
payable of $14.4 million to UMC and a subsidiary of UMC, to a secured loan that
matured in August 2002. The loan accrued interest at a rate of 7.5%, and was
collateralized by 16.7 million shares of UMC. The Company paid off all
outstanding principal and interest on February 6, 2002, for an aggregate sum of
$16.4 million.

In the third quarter of fiscal 2002, the Company entered into a secured
loan agreement with Chinatrust Commercial Bank, Ltd (Chinatrust) to borrow up
to $30 million. In January 2002, the Company increased the principal amount it
could borrow under the loan agreement to $46.0 million. At that time, the loan
was secured by UMC stock held by the Company with the aggregate value at least
250% of the outstanding loan balance. At that time, the loan earned interest
at LIBOR plus 2.5% and matured on January 21, 2003. Prior to the original
maturation date, the Company and Chinatrust agreed to extend the loan until
March 4, 2003. At that time, both the Company and Chinatrust agreed to extend
the loan until March 2, 2004 (the Maturity Date) and reduced the principal
amount the Company may borrow to $45.0 million. The principal is due on the
Maturity Date and interest is payable every three months for the term of the
loan. In the revised loan agreement, the provision for funds to be held in
escrow as collateral for accrued interest was eliminated. The loan continues
to be secured by shares of UMC common stock held by the Company with a minimum
aggregate value of 230% of the outstanding loan balance. The loan now accrues
interest at LIBOR plus 2.0%. As of March 31, 2003, the Company had an
outstanding loan balance of $38.6 million, had pledged 145 million shares of
UMC against the loan balance, and had no funds held in escrow that were
classified as restricted cash on the balance sheet. The loan requires
compliance with certain restrictive covenants with which the Company was in
compliance as of March 31, 2003. The outstanding loan balance was $45.7
million as of March 31, 2002.

In the fourth quarter of fiscal 2002, the Company issued a $4.8 million
promissory note in connection with the acquisition of PulseCore. The note was
non-interest bearing and matured on March 29, 2003. Discount on the note of
$609,000 was calculated based on an imputed interest rate of 12%. The
outstanding balance on the promissory note, net of unamortized discount, was
approximately $4.8 million and $4.3 million at March 31, 2003 and 2002,
respectively. On April 11, 2003, the Company paid $4.8 million to settle the
promissory note.

Note 3. Write-Down of Marketable Securities and Venture Investments

Marketable securities held by the Company have experienced significant
declines in their market value primarily due to the downturn in the
semiconductor and technology sectors and general market conditions. Management
evaluates the marketable
F-16Table of Contentssecurities for potential other-than-temporary declines in their value.
Such evaluation includes researching commentary from industry experts, analysts
and other companies. Based on the continuing depression in the investments
stock prices from those originally used to record the investment, and the
expectation that the stock prices will not significantly recover in the next 6
to 9 months due to unfavorable business conditions for the companies and in the
semiconductor industry in general, management determined that a write down was
necessary at December 31, 2002, September 30, 2002, and September 30, 2001. As
a result, the Company recorded pre-tax, non-operating losses of approximately
$16.2 million, $673,000, and $288.5 million during the third and second quarter
of fiscal 2003 and the second quarter of fiscal 2002, respectively, based on
the quoted price of the respective marketable securities. During the
third quarter of fiscal 2003, the Company also recorded a pre-tax,
non-operating loss of $14.1 million on its long-term investment
in Tower shares. During fiscal 2003,
the Company wrote down its investments in Alliance Ventures and Solar Ventures
and recognized a pre-tax, non-operating loss of approximately $24.8 million.
During fiscal 2002, the Company wrote down several of its investments in
Alliance Ventures and recognized a pre-tax, non-operating loss of approximately
$8.3 million. Total write-down of marketable securities and other investments
during fiscal 2003, 2002, and 2001 was recorded as follows (in thousands):

|                                            |  |             |        |             |  |             |         |  |  |   |         | 
|------------------------------------------- |  | ----------- | ------ | ----------- |  | ----------- | ------- |  |  | - | ------- | 
|                                            |  | Fiscal 2003 |        | Fiscal 2002 |  | Fiscal
2001
|                                            |  |             |        |             |  |            
|United Microelectronics Corporation         |  | $           |       |             |  | $           | 250,894 |  |  | $ | 460,014 | 
|Vitesse Semiconductor Corporation           |  |             | 673    |             |  |             | 3,845   |  |  |   | 32,298  | 
|PMC-Sierra Corporation                      |  |             |       |             |  |             | 1,048   |  |  |   | 10,777  | 
|Chartered Semiconductor Manufacturing, Ltd. |  |             | 16,212 |             |  |             | 12,155  |  |  |   |        | 
|Broadcom
Corporation                        |  |             |       |             |  |             |        |  |  |   | 3,778   | 
|Tower Semiconductor Ltd.                    |  |             | 14,083 |             |  |             | 20,645  |  |  |   |        | 
|Alliance and Solar Ventures Investments     |  |             | 24,824 |             |  |             | 8,259   |  |  |   |        | 
|Other                                       |  |             |       |             |  |             |        |  |  |   | 2,582   | 
|                                            |  |             |        |             |  |             |         |  |  |   |         | 
|Total                                       |  | $           | 55,792 |             |  | $           | 296,846 |  |  | $ | 509,449 | 
|                                            |  |             |        |             |  |             |         |  |  |   |         | 

Note 4. Cumulative Effect of Change in Accounting Principle  Adoption of
SFAS 133

The Company adopted Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities,as amended by the
Statement of Financial Accounting Standards No. 137, Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133, an amendment of FASB Statement No. 133and Statement of
Financial Accounting Standards No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of FASB Statement No.
133(herein referred to as SFAS 133), on April 1, 2001. In the fourth quarter
of fiscal 2001, the Company entered into two derivative instruments to hedge
its investment in Vitesse Semiconductor common stock. The Company designated
these arrangements as fair value hedges under SFAS 133. In accordance with the
transition provisions of SFAS 133, the Company recorded approximately $2.1
million cumulative effect adjustment in earnings in the quarter ended June 30,
2001.

Note 5. Acquisitions

Chip Engines, Inc.

During fiscal 2003, the Company acquired Chip Engines, Inc. (Chip
Engines), a development stage company that designs semiconductor products for
the networking, communications, cable and storage markets. The Company
acquired Chip Engines to help support its diversification strategy and to add
research and development resources to its System Solutions business unit. The
acquisition was completed in January 2003 and was accounted for as an
acquisition of assets. Chip Engines results of operations
have been included in the accompanying consolidated financial statements from
the date of acquisition.

The Company held a net investment of $4.8 million in Chip Engines prior to
the acquisition in part through its ownership of Alliance Ventures and
investment in Solar Venture. No consideration was given to the Chip Engines
shareholders in connection with the closing of the acquisition; however, the
acquisition agreement provides for contingent consideration of up to $3.7
million upon Chip Engines achieving certain milestones including developing a
product and entering into a non-cancelable written purchase order with certain
customers or being added to such customers published approved vendor list. As
Chip Engines was a company in the development stage, which had not completed a
product at closing of the acquisition, management concluded that the
transaction was an acquisition of assets. The entire purchase price was
allocated to individual assets acquired based on their relative fair values and
no goodwill was recorded as a result of the transaction. The values assigned
to the assets acquired was as follows:

|                      |  |   |                |   |        |          |              |  | 
|--------------------- |  | - | -------------- | - | ------ | -------- | ------------ |  | 
|                      |  |   |                |   |        |          | Amortization
|                      |  |   | Amount         |   | Period
|                      |  |   |                |   |       
|                      |  |   | (In thousands)
|Net assets acquired   |  | $ | (1,080         | ) |        |          |              | 
|In-Process technology |  |   | 1,610          |   |        | Expensed
|Workforce             |  |   | 2,975          |   |        | 2 years 

F-17



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##### Table of Contents



|         |       |  |                |       |        |         |              |  | 
|-------- | ----- |  | -------------- | ----- | ------ | ------- | ------------ |  | 
|         |       |  |                |       |        |         | Amortization
|         |       |  | Amount         |       | Period
|         |       |  |                |       |       
|         |       |  | (In thousands)
|Patents  |       |  | 1,040          |       |        | 3 years
|Licenses |       |  | 250            |       |        | 3 years
|         |       |  |                |       |        |         |              | 
|         | Total |  | $              | 4,795 |        |         |              |  | 
|         |       |  |                |       |        |         |              | 

No supplemental pro forma information is presented due to the immaterial
effect on prior period results of operations.

The allocation of amounts to in-process research and development was
consistent with widely recognized appraisal practices. The Companys analysis
resulted in a $1.6 million charge to acquired in-process research and
development. The acquired in-process technology represents the appraised value
of technologies in the development stage that had yet reached technological
feasibility and do not have alternative future uses. This amount was expensed
as a non-recurring charge upon consummation of the acquisition.

The value assigned to in-process research and development was determined
by identifying research projects in areas for which technological feasibility
had not been established. The Company estimated the expected cash flows from
the projects once commercially viable. The net cash flows were then discounted
back to their present value using discount rates of 30%, which the Company
believes to be appropriate given the business risks inherent in manufacturing
and marketing these products, and a percentage of completion was applied. The
percentage of completion was determined using milestones representing
managements estimate of effort, value added, and degree of difficulty of the
portion of each project completed as of the acquisition date, as compared to
the remaining research and development to be completed to bring each project to
technical feasibility.

If the Company does not successfully develop its research projects as
discussed above, its sales and profitability may be adversely affected in
future periods and the value of other intangible assets acquired may become
impaired. Management believes that the in-process research and development
charge is valued consistently with the SEC staffs current views regarding
valuation methodologies. The Company cannot assure the reader that the SEC
staff will not take issue with any assumptions used in its valuation model and
require it to revise the amount allocated to in-process research and
development. As of March 31, 2003, the Company believes that the projections
used in the valuations with respect to each acquisition are still materially
valid; however, there can be no assurance that the projected results will be
achieved.

On April 20, 2002, the Company entered into an agreement to acquire a
perpetual license from API Networks for $3.2 million. Alliances license of
the HyperTransport technology from API will allow it to be the sole source for
APIs current products, to develop new HyperTransport products, and to
sublicense third parties to use and develop HyperTransport products. This
intangible asset is expensed on a straight-line basis over a period of 36
months, beginning in the second quarter of fiscal 2003.

PulseCore, Inc.

In fiscal 2002, the Company acquired PulseCore Inc. (PulseCore) in order
to diversify its product base. The acquisition was completed in January 2002.
PulseCore provides a diverse mixed-signal product line built around its low
EMI frequency timing technology. The Company paid $5.1 million for acquiring
the net assets of PulseCore. The acquisition was accounted for using the
purchase method in accordance with SFAS 141 and, accordingly, PulseCores
results of operations have been included in the accompanying consolidated
financial statements from the date of acquisition.

No supplemental pro forma information is presented due to the immaterial
effect on prior period results of operations. In connection with this
acquisition, the Company paid $722,000 in cash and cash advances and executed a
$4.2 million note, net of imputed interest of $609,000, in exchange for
PulseCores net assets. The promissory note matured on March 29, 2003, was
non-interest bearing and accordingly, had been discounted to reflect the
implied interest expense. Direct transaction costs relating to the acquisition,
consisting primarily of legal and other professional service fees were
$270,000. The purchase price was allocated to the tangible and intangible
assets acquired and liabilities assumed based in part on an independent
appraisal of their respective fair values. Total consideration paid in
connection with the acquisition was attributable to the following:

|                      |       |   |                |       |        |            |              |  | 
|--------------------- | ----- | - | -------------- | ----- | ------ | ---------- | ------------ |  | 
|                      |       |   |                |       |        |            | Amortization
|                      |       |   | Amount         |       | Period
|                      |       |   |                |       |       
|                      |       |   | (In thousands)
|Developed technology  |       | $ | 1,592          |       |        | 3 years   
|In-Process technology |       |   | 906            |       |        | Expensed  
|Tangible assets       |       |   | 635            |       |        |            |              | 
|Tradename             |       |   | 109            |       |        | 3 years   
|Patents               |       |   | 363            |       |        | 3 years   
|Goodwill              |       |   | 1,538          |       |        | Indefinite
|                      |       |   |                |       |        |            |              | 
|                      | Total |   | $              | 5,143 |        |            |              |  | 
|                      |       |   |                |       |        |            |              | 

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The allocation of amounts to developed technology and in-process research
and development were consistent with widely recognized appraisal practices. The
Companys analysis resulted in a valuation of developed technology at $1.6
million. Developed technology represents technologies that have reached
technological feasibility, and therefore can be capitalized. The Company is
amortizing the developed technology on a straight-line basis over a period of
three years. The Companys analysis also resulted in a $906,000 charge to
acquired in-process research and development. The acquired in-process
technology represents the appraised value of technologies in the development
stage that had not yet reached technological feasibility and do not have
alternative future uses. Such amount was expensed as a non-recurring charge
upon consummation of the acquisition.

The value assigned to in-process research and development was determined
by identifying research projects in areas for which technological feasibility
had not been established. For PulseCore valuations, the Company estimated the
expected cash flows from the projects once commercially viable. The net cash
flows were then discounted back to their present value using discount rates of
35%, which the Company believes to be appropriate given the business risks
inherent in manufacturing and marketing these products, and a percentage of
completion was applied. The percentage of completion was determined using
milestones representing managements estimate of effort, value added, and
degree of difficulty of the portion of each project completed as of the
acquisition date, as compared to the remaining research and development to be
completed to bring each project to technical feasibility.

If the Company does not successfully develop its research projects
discussed above, its sales and profitability may be adversely affected in
future periods and the value of other intangible assets acquired may become
impaired. Management believes that the in-process research and development
charge is valued consistently with the SEC staffs current views regarding
valuation methodologies. The Company cannot assure the reader that the SEC
staff will not take issue with any assumptions used in its valuation model and
require it to revise the amount allocated to in-process research and
development. As of March 31, 2003, the Company believed that the projections
used in the valuations with respect to each acquisition are still materially
valid; however, there can be no assurance that the projected results will be
achieved.

In April 2003, the Company paid $4.8 million to settle the promissory note
issued in conjunction with the acquisition of PulseCore in fiscal 2002.

Note 6. Investment in United Microelectronics Corporation

At March 31, 2003, the Company owned approximately 245.0 million shares of
United Microelectronics Corporation (UMC) common stock, representing
approximately 1.7% ownership. At March 31, 2002, the Company owned
approximately 313.1 million shares of UMC common stock, representing
approximately 2.1% ownership. In May 2000, January 2002, and August 2002, the
Company received an additional 56.6 million, 51.0 million, and 44.0 million
shares of UMC by way of stock dividends.

Of the 245.0 million shares of UMC common stock owned by Alliance at March
31, 2003, approximately 56.7 million shares are subject to a lock-up or no-trade
provision. Of the shares subject to a lock-up, approximately 28.3 million
shares will become available for sale in each of July 2003 and January 2004.
The Company accounts for its investment in UMC as an available-for-sale
marketable security in accordance with SFAS 115. In fiscal 2003, the Company
sold 112.2 million shares of UMC common stock for $87.6 million and recorded a
pre-tax, non-operating gain of $24.7 million. The Company also
collected a $7.9 million receivable from the sale of UMC shares
during fiscal 2002. Total cash receipts during
fiscal 2003 from UMC share sales were $95.5 million.

As of March 31, 2003, the Company had pledged 145 million shares of UMC
common stock to secure a loan with Chinatrust Commercial Bank, Ltd. (See Note
2 of the consolidated financial statements included in this report).

UMCs common stock price has historically experienced significant
fluctuations in market value, and has decreased significantly throughout fiscal
2003. Given the market risk for the UMC common stock held by the Company,
there can be no assurance that the Companys investment in UMC will maintain
its value.

Note 7. Investment in Chartered Semiconductor Manufacturing, Ltd.

In fiscal 2003, the Company sold all of its holdings in Chartered, a total
of 16.4 million ordinary shares or 1.6 million American Depository Shares
(ADSs). The Company received gross proceeds of $6.3 million and recorded a
pre-tax, non-operating loss of $5.8 million. At December 31, 2002, the Company
wrote down its investment in Chartered and recognized a pre-tax, non-operating
loss of approximately $16.2 million.

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Note 8. Investment in Broadcom Corporation

In August 2001, the Company had entered into a cashless collar arrangement
with a brokerage firm with respect to 75,000 shares of Broadcom common stock.
The collar arrangement consisted of a written call option to buy 75,000 shares
of Broadcom common stock at a price of $64.72 and a purchased put option to
sell 75,000 shares at a price of $36.72 through August 2002. On August 5,
2002, the Company exercised its put option and sold all of its holdings in
Broadcom for aggregate proceeds of $2.8 million recognizing a pre-tax,
non-operating gain of $1.4 million.

Note 9. Investment in Vitesse Semiconductor Corporation

At March 31, 2003, the Company owned 95,417 shares of the common stock of
Vitesse Semiconductor Corporation (Vitesse). The Company accounts for its
investment in Vitesse as an available-for-sale marketable security in
accordance with SFAS 115.

In the second quarter of fiscal 2003, the Company sold 142,876 shares of
Vitesse common stock. The Company received gross proceeds of $195,000 and
recorded a pre-tax, non-operating loss of $912,000. At September 30, 2002, the
Company wrote down its investment in Vitesse and recognized a pre-tax,
non-operating loss of approximately $673,000.

Vitesses common stock price has historically experienced significant
fluctuations in market value, and has decreased significantly throughout fiscal
2003. Given the market risk for the Vitesse common stock held by the Company,
there can be no assurance that the Companys investment in Vitesse will
maintain its value.

In January 2001, the Company entered into two derivative contracts
(Derivative Agreements) with a brokerage firm and received aggregate cash
proceeds of approximately $31.0 million. The Derivative Agreements had
repayment provisions that incorporated a collar arrangement with respect to
490,000 shares of Vitesse common stock. The Company, at its option, could
settle the contracts by either delivering shares of Vitesse common stock or
making a cash payment to the brokerage firm in January 2003, the maturity date
of the Derivative Agreements (the Settlement Date). The number of Vitesse
shares to be delivered or the amount of cash to be paid was determined by a
formula in the Derivative Agreements based upon the market price of the Vitesse
shares on the Settlement Date. Under the Derivative Agreements, if the stock
price of Vitesse exceeded the ceiling of the collar on the Settlement Date,
then the settlement amount also increased by an amount determined by a formula
included in the Derivative Agreements (generally equal to the excess of the
value of the stock over the ceiling of the collar.) If the stock price of
Vitesse declined below the floor of the collar on the Settlement Date, then the
settlement amount also decreased by an amount determined by a formula included
in the Derivative Agreements (generally equal to the excess of the floor of the
collar over the value of the stock.) On January 24, 2003, the Company settled
its derivative contract on 300,000 Vitesse shares by delivering the shares to
the brokerage firm holding the contract. On January 30, 2003, the Company
settled its derivative contract on 190,000 Vitesse shares by delivering the
shares to the brokerage firm holding the contract.

Note 10. Investment in PMC-Sierra Corporation

In the second quarter of fiscal 2003, the Company sold all of its holdings
in PMC-Sierra, a total of 68,152 common shares. The Company received gross
proceeds of $432,000 and recorded a pre-tax, non-operating loss of $274,000.

Note 11. Investment in Adaptec, Inc.

At March 31, 2003, the Company owned 516,617 shares of Adaptec. The
Company records its investment in Adaptec as an available-for-sale marketable
security in accordance with SFAS 115.

In December 2001, the Company entered into a derivative contract with a
brokerage firm and received aggregate cash proceeds of $5.0 million. The
contract has repayment provisions that incorporate a collar arrangement with
respect to 362,173 shares of Adaptec common stock. The Company has to deliver
a certain number of Adaptec shares in June 2003, the maturity date of the
contract. The number of Adaptec shares to be delivered is determined by a
formula in the contract based upon the market price of the Adaptec shares on
the settlement date. In June 2003, the Company settled the derivative contract
it had on 362,173 Adaptec shares by delivering those shares to the brokerage
firm holding the contract.

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In the second quarter of fiscal 2003, the Company sold 924,344 shares of
Adaptec common stock. The Company received gross proceeds of $4.9 million and
recorded a pre-tax, non-operating loss of $5.4 million.

Adaptecs common stock price has historically experienced significant
fluctuations in market value, and has decreased significantly throughout fiscal
2003. Given the market risk for the Adaptec common stock held by the Company,
there can be no assurance that the Companys investment in Adaptec will
maintain its value.

Note 12. Investment in Magma Design Automation

In the first quarter of fiscal 2003, the Company sold all of its holdings
in Magma Design Automation (Magma), a total of 360,244 common shares. The
Company received gross proceeds of $6.0 million and recorded a pre-tax,
non-operating gain of $1.2 million.

Note 13. Investment in Tower Semiconductor Ltd.

At March 31, 2003, the Company owned 6,067,100 shares of Tower of which
1,111,321 shares were classified as short-term and accounted for as an
available for sale marketable security in accordance with SFAS 115. A total
of 794,995 of these shares were acquired as part of a Tower rights offering in
which the Company participated during the third quarter of fiscal 2003. These
shares can be transferred at the Companys discretion subject to certain
rights of first refusal which are held by the other participants in the
original Tower Share Purchase Agreement. These rights do not preclude the
Company from being able to transfer these shares at its discretion. As part of
the rights offering, the Company also received warrants to purchase a total of
357,747 ordinary shares of Tower. Each whole warrant entitles the holder to
purchase one ordinary share at an exercise price of $7.50 per share through
October 31, 2006. The remaining 5,272,105 shares were purchased in accordance
with the original Tower Share Purchase Agreement executed in January 2001. A
total of 316,326 of these shares are classified as short-term. The original
Tower Share Purchase Agreement allows for limited share transfers after the
Initial Restricted Period ends in January 2004. During the period between
January 2004 and January 2006 (the Subsequent Restricted Period), the Company
may transfer no more than 6% of its shares in any quarter on a cumulative basis
and no more than 48% of its shares by the end of this period. These
restrictions only apply to shares acquired as part of the original Tower Share
Purchase Agreement.

In the quarter ended December 31, 2002, the Company wrote down its
investment in Tower shares recognizing a pre-tax, non-operating loss of
approximately $14.1 million. In the quarter ended September 30, 2002, the
Company wrote off a portion of its investment in wafer credits recognizing a
pre-tax, operating loss of approximately $9.5 million. The Company had
determined, at that time, that the value of these credits will not be realized
given the Companys sales forecast of product to be manufactured at Tower.
There can be no assurances that the Companys investment in Tower and Tower
wafer credits will not decline further in value.

Note 14. Alliance Venture Management, LLC

In October 1999, the Company formed Alliance Venture Management LLC,
(Alliance Venture Management), a California limited liability company, to
manage and act as the general partner in the investment funds the Company
intended to form. Alliance Venture Management does not directly invest in the
investment funds with the Company, but is entitled to receive
(i) a management fee out of
the net profits of the investment funds and (ii) a commitment fee based on the amount of capital committed to each partnership, each as described more fully below. This structure was
created to provide incentives to the individuals who participate in the
management of the investment funds, which includes N. Damodar Reddy
and C.N. Reddy.

In November 1999, the Company formed Alliance Ventures I, LP (Alliance
Ventures I) and Alliance Ventures II, LP (Alliance Ventures II), both
California limited partnerships. The Company, as the sole limited partner,
owns 100% of limited partnership interests in each partnership. Alliance
Venture Management acts as the general partner of these partnerships and
receives a management fee of 15% based upon investment gains from these partnerships for its
managerial efforts.

At Alliance Venture Managements inception in November 1999, Series A
member units and Series B member units in Alliance Venture Management were
created. The holders of Series A units and Series B units receive management
fees of 15% of investment gains realized by Alliance Ventures I and Alliance
Ventures II, respectively. In February 2000, upon the creation of Alliance
Ventures III, LP (Alliance Ventures III), the management agreement for
Alliance Venture Management was amended to create Series C member units which
are entitled to receive a management fee of 16% of investment gains realized by
Alliance Ventures III. In January 2001, upon the creation of Alliance Ventures
IV, LP (Alliance Ventures IV) and Alliance Ventures V, LP (Alliance Ventures
V), the management agreement for Alliance Venture Management was amended to
create Series D and E member units

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which are entitled to receive a management fee of 15% of investment gains
realized by Alliance Ventures IV and Alliance Ventures V, respectively.

Each of the owners of the Series A, B, C, D and E member units (Preferred
Member Units) paid the initial carrying value for their shares of the
Preferred Member Units. While the Company owns 100% of the common units in
Alliance Venture Management, it does not hold any Preferred Member Units and
does not participate in the management fees generated by the management of the
investment funds. N. Damodar Reddy and C.N. Reddy, who are directors of the
Company and members of the Companys senior management, each hold 48,000
Preferred Member Units, respectively, of the 162,152 total Preferred Member
Units outstanding and 172,152 total Member Units outstanding.

Annually, Alliance Venture Management earns 0.5% of the total fund
commitment of Alliance I, II, III, IV and V. In fiscal 2003, the Company
incurred $875,000 of commitment fees. This amount was offset in its entirety
by expenses incurred by the Company on behalf of Alliance Venture Management of
$875,000. Neither N. Damodar Reddy nor C.N. Reddy received any commitment fees
during fiscal 2003.

After Alliance Ventures I was formed, the Company contributed all its then
current investments, except Chartered, UMC and Broadcom, to Alliance Ventures I
to allow Alliance Venture Management to manage these investments. As of March 31, 2003, Alliance Ventures I, the focus of which is investing in networking
and communication start-up companies, has invested $20.0 million in nine
companies, with a fund allocation of $20.0 million. Alliance Ventures II, the
focus of which is in investing in internet start-up ventures, has invested
approximately $9.1 million in ten companies, with a total fund allocation of
$15.0 million. As of March 31, 2003, Alliance Ventures III, the focus of which
is investing in emerging companies in the networking and communication market
areas, has invested $43.9 million in 13 companies, with a total fund allocation
of $100.0 million. As of March 31, 2003, Alliance Ventures IV, the focus of
which is investing in emerging companies in the semiconductor market areas, has
invested $29.7 million in seven companies, with a total fund allocation of
$40.0 million. As of March 31, 2003, Alliance Ventures V, the focus of which
is investing in emerging companies in the networking and communication market
areas, has invested $21.0 million in nine companies, with a total fund
allocation of $60.0 million.

In fiscal 2003, 2002 and 2001, the Company wrote-down certain of its
investments in Alliance Ventures and recognized pre-tax, non-operating losses
of approximately $19.0 million, $7.3 million and $2.6 million, respectively.
Also, several of the Alliance Venture investments are accounted for under the
equity method due to the Companys ability to exercise significant influence on
the operations of investees resulting from ownership interest and/or board
representation. The total equity in the net losses of Alliance Ventures
investee companies was approximately $9.9 million, $8.4 million and $5.7
million, net of tax, for fiscal 2003, 2002 and 2001, respectively.

Alliance Venture Management generally directs the individual Alliance
funds to invest in startup, pre-IPO (initial public offering) companies. These
types of investments are inherently risky and many venture funds have a large
percentage of investments decrease in value or fail. Most of these startup
companies fail, and the investors lose their entire investment. Successful
investing relies on the skill of the investment managers, but also on market
and other factors outside the control of the managers. The market for these
types of investments has, in the past, been successful and many venture capital
funds have been profitable, and while the Company has been successful in
certain of its past investments, there can be no assurance as to any future or
continued success. It is possible there will be a downturn in the success of
these types of investments in the future, and the Company will suffer
significant diminished success in these investments. It is possible that many
or most, and maybe all of the Companys venture type investments may fail,
resulting in the complete loss of most or all the money the Company has
invested in these types of investments.

N. Damodar Reddy and C.N. Reddy have formed private venture funds, Galaxy
Venture Partners, L.L.C., Galaxy Venture Partners II, L.L.C. and Galaxy Venture
Partners III, L.L.C., which have invested in 23 of the 37 total companies
invested in by Alliance Venture Managements investment funds.

Note 15. Investment in Solar Venture Partners, LP

Through March 31, 2003, the Company has invested $12.5 million in Solar
Venture Partners, LP (Solar), a venture capital partnership that focuses on
investing in early stage companies in the areas of networking,
telecommunications, wireless, software infrastructure enabling efficiencies of
the Web and e-commerce, semiconductors for emerging markets, and design
automation. The Company has a 73% interest in Solar.

Due to the Companys majority interest in Solar, the Company accounts for
Solar under the consolidation method. Some of the investments Solar has made
are accounted for under the equity method due to the Companys ability to
exercise significant influence on the operations of the investees resulting
from ownership interest and/or board representation. In fiscal 2003 and 2002,
the Company recorded an equity in the loss of investees of approximately
$911,000 and $1.1 million, net of tax, and wrote down certain Solar investments
by $5.8 million and $1.0 million, respectively.

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C.N.
Reddy is a general partner of Solar and participates in running its
daily operations. Furthermore, certain
of the Companys directors, officers and employees, including C.N. Reddy
and Jon Minnis, have also invested in Solar. Solar has invested in
14 of the 37 total companies in which Alliance Venture Managements funds have invested.

Note 16. Derivative Instruments and Hedging Activities

During fiscal 2003, the Company had investments in Broadcom, Vitesse, and
Adaptec that were hedged using derivative instruments to help reduce the
potential volatility in fair value of the investments. The Company uses
cashless collars, which are combinations of option contracts and forward sales
contracts, to hedge this risk. As of March 31, 2003, the Company had a
derivative instrument in place to hedge the investment in Adaptec common stock.
The hedge on the Broadcom investment was settled during the second quarter of
fiscal 2003 and the hedge on the Vitesse investment was settled during the
fourth quarter of fiscal 2003.

By using derivative financial instruments to hedge exposures to changes in
share prices, the Company exposes itself to credit risk and market risk.
Credit risk is a risk that the counterparty might fail to fulfill its
performance obligations under the terms of the derivative contract. When the
fair value of a derivative contract is an asset, the counterparty owes the
Company, which creates repayment risk for the Company. When the fair value of
a derivative contract is a liability, the Company owes the counterparty and,
therefore, does not assume any repayment risk. The Company minimizes its
credit (or repayment) risk in derivative instruments by (1) entering into
transactions with high-quality counterparties, (2) limiting the amount of its
exposure to each counterparty, and (3) monitoring the financial condition of
its counterparties.

All derivatives are recognized on the balance sheet at their fair market
value. On the date that the Company enters into a derivative contract, it
designates the derivative as (1) a hedge of the fair value of a recognized
asset or liability, or (2) an instrument that is held for trading or
non-hedging purposes (a trading or non-hedging instrument). Since April 1,
2001, the Company has designated all derivative contracts as a fair value hedge
and has not entered into derivatives for purposes of trading. Changes in the
fair value of a derivative that is highly effective and is designated and
qualifies as a fair value hedge, along with changes in the fair value of the
hedged asset or liability that are attributable to the hedged risk, are
recorded in the current period earnings.

The Company formally documents all relationships between hedging
instruments and hedged items, as well as its risk-management objective and
strategy for undertaking various hedge transactions. This process includes
linking all derivatives that are designated as fair-value hedges to specific
assets on the balance sheet. The Company also formally assesses (both at the
hedges inception and on an ongoing basis) whether the derivatives that are
used in the hedging transactions have been highly effective in offsetting
changes in fair value of the hedged items and whether those derivatives may be
expected to remain highly effective in future periods. When it is determined
that a derivative is not (or has ceased to be) highly effective as a hedge, the
Company discontinues hedge accounting prospectively. The Company discontinues
hedge accounting prospectively when (1) it determines that the derivative is no
longer effective in offsetting changes in the fair value of a hedged item, (2)
that the derivative expires or is sold, terminated or exercised, or (3)
management determines that designating the derivative as a hedging instrument
is no longer appropriate.

In January 2001, the Company entered into two derivative contracts
(Derivative Agreements) with a brokerage firm and received aggregate cash

proceeds of approximately $31.0 million. The Derivative Agreements had
repayment provisions that incorporated a collar arrangement with respect to
490,000 shares of Vitesse common stock. The Company, at its option, could
settle the contracts by either delivering Vitesse shares or making a cash
payment to the brokerage firm in January 2003, the maturity date of the
Derivative Agreements. The number of Vitesse shares to be delivered or the
amount of cash to be paid was determined by a formula in the Derivative
Agreements based upon the market price of the Vitesse shares on the settlement
date. Under the Derivative Agreements, if the stock price of Vitesse exceeded
the ceiling of the collar, then the settlement amount also increased by an
amount determined by a formula included in the Derivative Agreements (generally
equal to the excess of the value of the stock over the ceiling of the collar.)
If the stock price of Vitesse declined below the floor of the collar, then the
settlement amount also decreased by an amount determined by a formula included
in the Derivative Agreements (generally equal to the excess of the floor of the
collar over the value of the stock.) On January 24, 2003, the Company settled
its derivative contract on 300,000 Vitesse shares by delivering the shares to
the brokerage firm holding the contract. On January 30, 2003, the Company
settled its derivative contract on 190,000 Vitesse shares by delivering the
shares to the brokerage firm holding the contract.

In August 2001, the Company entered into a cashless collar arrangement
with a brokerage firm with respect to all 75,000 shares of Broadcom common
stock. The collar arrangement consisted of a written call option to buy 75,000
shares of Broadcom common stock at a price of $64.72 and a purchased put option
to sell 75,000 shares at a price of $36.72 through August 2002. On August 5,
2002,

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the Company exercised its put option and sold all of its holdings in
Broadcom for aggregate proceeds of $2.8 million recognizing a pre-tax,
non-operating gain of $1.4 million.

In December 2001, the Company entered into a derivative contract with a
brokerage firm with respect to 362,173 shares of Adaptec common stock and
received aggregate cash proceeds of $5.0 million. The contract has repayment
provisions that incorporate a collar arrangement with respect to 362,173 shares
of Adaptec common stock. The Company has to deliver a certain number of
Adaptec shares in June 2003, the maturity date of the contract. The number of
Adaptec shares to be delivered is determined by a formula in the contract based
upon the market price of the Adaptec shares on the settlement date. In June
2003, the Company settled the derivative contract it had on 362,173 Adaptec
shares by delivering those shares to the brokerage firm holding the contract.

During fiscal 2003, the Company recorded a gain of $3.7 million relating
to the Vitesse hedge instrument, offset by a loss of $3.7 million on the hedged
Vitesse investment. The Company also recorded a gain of $2.1 million relating
to the Adaptec hedge instrument and a loss of $2.6 million on the hedged
Adaptec investment. Before exercising its put option, the Company recorded a
gain of $1.1 million for the Broadcom derivative offset by a loss of the
Broadcom investment of $1.4 million in fiscal 2003.

During fiscal 2002, the Company recorded a gain of $2.2 million relating
to the Vitesse hedge instrument, offset by a loss of $6.9 million on the
Vitesse investments. The Company recognized a gain of approximately $448,000
for the Broadcom hedge instrument offset by a loss of $832,000, on the Broadcom
investment. The Company also recorded a gain of $680,000 relating to the
Adaptec derivative contract and a loss of $1.0 million on the Adaptec
investments.

In the quarter ended June 30, 2001, the Company adopted Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities, as amended by the Statement of Financial Accounting
Standards No. 137, Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133, an
amendment of FASB Statement No. 133and Statement of Financial Accounting
Standards No. 138, Accounting for Certain Derivative Instruments and Certain
Hedging Activities, an amendment of FASB Statement No. 133(referred to
hereafter as SFAS 133), on April 1, 2001. In accordance with the transition
provisions of SFAS 133, the Company recorded an approximate $2.1 million
cumulative effect adjustment in earnings as of April 1, 2001.

Note 17. Leases, Commitments and Contingencies

Operating Leases

The Company leases its headquarters facility under an operating lease that
expires in June 2006. Under the terms of the lease, the Company is required to
pay property taxes, insurance and maintenance costs. In addition, the Company
also leases sales and design center offices under operating leases, which
expire between 2002 and 2007.

Future minimum fiscal rental payments under non-cancelable operating
leases are as follows:

|               |      |                |       |       | 
|-------------- | ---- | -------------- | ----- | ----- | 
|Fiscal Year    |      | (In thousands)
|               |      |               
|               | 2003 |                | $     | 2,139 | 
|               | 2004 |                |       | 1,763 | 
|               | 2005 |                |       | 1,817 | 
|               | 2006 |                |       | 184   | 
|               | 2007 |                |       | 183   | 
|               |      |                |       |      
|Total payments |      | $              | 6,086 |      
|               |      |                |       |      

Rent expense for fiscal 2003, 2002, and 2001, was $2.5 million, $2.2
million and $1.8 million, respectively.

Capital Leases

At March 31, 2003, equipment under capital leases amounted to
approximately $2.2 million compared to $2.1 million at March 31, 2002. The
original lease terms ranged from three to five years.

The following is a schedule of future minimum fiscal lease payments under
capital leases:

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|                                      |  |                |      |  
|------------------------------------- |  | -------------- | ---- | -
|Fiscal Year                           |  | (In thousands)
|                                      |  |               
|2003                                  |  | $              | 317  |  
|2004                                  |  |                | 49   |  
|                                      |  |                |      |  
|Total payments minimum lease payments |  |                | 366  |  
|Amount representing interest          |  |                | (82  | )
|                                      |  |                |      |  
|                                      |  |                | 284  |  
|Less current portion                  |  |                | (236 | )
|                                      |  |                |      |  
|Long-term capital lease obligations   |  | $              | 48   |  
|                                      |  |                |      |  

Certificate of Deposit

At March 31, 2002, the Company held one certificate of deposit secured by
restricted cash in the amount of $1.7 million, which expired on April 1, 2002.

Investment Company Act of 1940

Because of the success over the past few years of the Companys
investments, including its strategic wafer manufacturing investments, the
Company believes that it could be viewed as holding a much larger portion of
its assets in investment securities than is presumptively permitted by the Act
for a company that is not registered under it. In August 2000, the Company
applied to the SEC for an order under section 3(b)(2) of the Act confirming its
non-investment-company status. In March 2002, the staff of the SEC informed
the Company that the staff could not support the granting of the requested
exemption. Since that time, the Company has been working diligently to resolve
its status under the Act and has recommenced informal discussions with the
staff of the SEC to assess various means to achieve that goal. No assurances
can be given that the SEC will agree that the Company is not currently deemed
to be an unregistered investment company in violation of the Act. If the SEC
takes the view that the Company has been operating and continues to operate as
an unregistered investment company in violation of the Act, and does not
provide the Company with a sufficient period to either register as an
investment company or divest itself of investment securities and/or acquire
non-investment securities, the Company may be subject to significant potential
penalties.

In the absence of exemptions granted by the SEC (which are discretionary
in nature and require the SEC to make certain findings), the Company would be
required either to register as a closed-end investment company under the Act,
or, in the alternative, to divest itself of sufficient investment securities
and/or to acquire sufficient non-investment assets so as not to be regarded as
an investment company under the Act.

If the Company elects to register as a closed-end investment company under
the Act, a number of significant requirements will be imposed upon the Company.
These would include, but not be limited to, a requirement that at least 40% of
the Companys board of directors not be interested persons of the Company as
defined in the Act and that those directors be granted certain special rights
with respect to the approval of certain kinds of transactions (particularly
those that pose a possibility of giving rise to conflicts of interest);
prohibitions on the grant of stock options that would be outstanding for more
than 120 days and upon the use of stock for compensation (which could be highly
detrimental to the Company in view of the competitive circumstances in which it
seeks to attract and retain qualified employees); and broad prohibitions on
affiliate transactions, such as the compensation arrangements applicable to the
management of Alliance Venture Management, many kinds of incentive compensation
arrangements for management employees and joint investment by persons who
control the Company in entities in which the Company is also investing (which
could require the Company to abandon or significantly restructure its
management arrangements, particularly with respect to its investment
activities). While the Company could apply for individual exemptions from these
restrictions, there could be no guarantee that such exemptions would be
granted, or granted on terms that the Company would deem practical.
Additionally, the Company would be required to report its financial results in
a different form from that currently used by the Company, which would have the
effect of turning the Companys Statement of Operations upside down by
requiring that the Company report its investment income and the results of its
investment activities, instead of its operations, as its primary sources of
revenue.

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If the Company elects to divest itself of sufficient investment securities
and/or to acquire sufficient non-investment assets so as not to be regarded as
an investment company under the Act, the Company would need to ensure that the
value of investment securities (excluding the value of U.S. Government
securities and securities of certain majority-owned subsidiaries) does not
exceed forty percent (40%) of the Companys total assets (excluding the value
of U.S. Government securities and cash items) on an unconsolidated basis. In
seeking to meet this requirement, the Company might choose to divest itself of
assets that it considers strategically significant for the conduct of its
operations or to acquire additional operating assets that would have a material
effect on the Companys operations. There can be no assurance that the Company
could identify such operating assets to acquire or could successfully acquire
such assets. Any such acquisition could result in the Company issuing
additional shares that may dilute the equity of the Companys existing
stockholders, and/or result in the Company incurring additional indebtedness,
which could have a material impact on the Companys balance sheet and results
of operations. Were the Company to acquire any additional businesses, there
would the additional risk that the Companys acquired and previously-existing
businesses could be disrupted while the Company attempted to integrate the
acquired business, as well as risks associated with the Company attempting to
manage a new business with which it was not familiar. Any of the above risks
could result in a material adverse effect on the Companys results of
operations and financial condition.

Commitments and Contingencies

Alliance applies the disclosure provisions of FIN 45 to its agreements
that contain guarantee or indemnification clauses. These disclosure provisions
expand those required by SFAS No 5 Accounting for Contingencies, by requiring
that guarantors disclose certain types of guarantees, even if the likelihood of
requiring the guarantors performance is remote. The following is a
description of significant arrangements in which Alliance is a guarantor.

Indemnification Obligations

Alliance
is a party to a variety of agreements pursuant to which it may be
obligated to indemnify the other party with respect to certain matters.
Typically, these obligations arise in the context of contracts entered into by
Alliance, under which Alliance customarily agrees to hold the other party
harmless against losses arising from a breach of representations and covenants
related to such matters as title to assets sold, certain intellectual property
rights, and certain income taxes. Generally, payment by
Alliance is conditioned on the other party making a claim pursuant to the
procedures specified in the particular contract, which procedures typically
allow Alliance to challenge the other partys claims. Further, Alliances
obligations under these agreements may be limited in terms of time and/or
amount, and in some instances, Alliance may have recourse against third parties
for certain payments made by it under these agreements.

It is not possible to predict the maximum potential amount of future
payments under these or similar agreements due to the conditional nature of
Alliances obligations and the unique facts and circumstances involved in each
particular agreement. Historically, payments made by Alliance under these
agreements did not have a material effect on its business, financial condition
or results of operations. Alliance believes that if it were to incur a loss in
any of these matters, such loss should not have a material effect on its
business, financial condition, cash flows or results of operations.

Product Warranties

Alliance estimates its warranty costs based on historical warranty claim
experience and applies this estimate to the revenue stream for products under
warranty. Included in Alliances sales reserve are costs for limited
warranties and extended warranty coverage. Future costs for warranties
applicable to revenue recognized in the current period are charged to the
Companys sales reserve. The sales reserve is reviewed quarterly to verify
that it properly reflects the remaining obligations based on the anticipated
expenditures over the balance of the obligation period. Adjustments are made
when actual claim experience differs from estimates. Warranty costs have
historically been insignificant.

Note 18. Benefit for Income Taxes

The provision (benefit) for income taxes is comprised of the following:

|          |                     |                           |         |                      |         |      |          |          |          |   |          |          |          |  
|--------- | ------------------- | ------------------------- | ------- | -------------------- | ------- | ---- | -------- | -------- | -------- | - | -------- | -------- | -------- | -
|          |                     |                           |         | Year Ended March 31,
|          |                     |                           |         |                     
|          |                     |                           |         | 2003                 |         | 2002 |          | 2001    
|          |                     |                           |         |                      |         |      |          |         
|          |                     |                           |         | (In thousands)      
|Current:  |                     |                           |         |                      |         |      |          |          |          |   |          |         
|          | Federal             |                           | $       | (17,644              | )       |      | $        | 14,114   |          |   | $        | 28,969   |         
|          | State               |                           |         | (326                 | )       |      |          | 2,137    |          |   |          | 5,291    |         
|          | Foreign             |                           |         |                     |         |      |          |         |          |   |          | 34       |         
|          |                     |                           |         |                      |         |      |          |          |          |   |          |          |         
|          |                     |                           | (17,970 | )                    |         |      | 16,251   |          |          |   | 34,294   |         
|          |                     |                           |         |                      |         |      |          |          |          |   |          |          |         
|Deferred: |                     |                           |         |                      |         |      |          |          |          |   |          |         
|          | Federal             |                           |         | (28,665              | )       |      |          | (138,048 | )        |   |          | (185,070 | )       
|          | State               |                           |         | (3,474               | )       |      |          | (20,904  | )        |   |          | (29,180  | )       
|          | Valuation allowance |                           |         | 38,806               |         |      |          |         |          |   |          |         |         
|          |                     |                           |         |                      |         |      |          |          |          |   |          |          |         
|          |                     |                           | 6,667   |                      |         |      | (158,952 | )        |          |   | (214,250 | )       
|          |                     |                           |         |                      |         |      |          |          |          |   |          |          |         
|          |                     | Total provision (benefit) |         | $                    | (11,303 | )    |          | $        | (142,701 | ) |          | $        | (179,956 | )
|          |                     |                           |         |                      |         |      |          |          |          |   |          |          |         

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In addition, a net deferred income tax benefit of $4.1 million and $2.8
million was recorded in minority interest in subsidiary companies and equity in
income (loss) of investees in fiscal 2003, and in minority interest in
subsidiary companies, equity in income (loss) of investees, and cumulative
effect of change in accounting principle in fiscal 2002, respectively.

Deferred tax assets (liabilities) comprise the following:

|                              |                           |   |                |         |      |   |          |          |  
|----------------------------- | ------------------------- | - | -------------- | ------- | ---- | - | -------- | -------- | -
|                              |                           |   | March 31,     
|                              |                           |   |               
|                              |                           |   | 2003           |         | 2002
|                              |                           |   |                |         |     
|                              |                           |   | (In thousands)
|Alliance Venture investments  |                           | $ | 26,722         |         |      | $ | 5,646    |         
|Inventory reserves            |                           |   | 14,537         |         |      |   | 26,009   |         
|Investment in Tower           |                           |   | 14,189         |         |      |   | 7,226    |         
|Accrued expenses and reserves |                           |   | 1,383          |         |      |   | 2,763    |         
|Investment in PMC-Sierra      |                           |   |               |         |      |   | 138      |         
|Other                         |                           |   | 1,796          |         |      |   | 510      |         
|                              |                           |   |                |         |      |   |          |         
|                              | Gross deferred tax assets |   |                | 58,627  |      |   |          | 42,292   |  
|Valuation allowance           |                           |   | (38,806        | )       |      |   |         |         
|                              |                           |   |                |         |      |   |          |         
|                              | Net deferred tax assets   |   |                | 19,821  |      |   |          | 42,292   |  
|                              |                           |   |                |         |      |   |          |         
|Investment in UMC             |                           |   | (42,258        | )       |      |   | (150,760 | )       
|Investment in Adaptec         |                           |   | (517           | )       |      |   | (5,659   | )       
|Investment in Vitesse         |                           |   | (31            | )       |      |   | (2,436   | )       
|Investment in Chartered       |                           |   |               |         |      |   | (1,892   | )       
|Investment in Broadcom        |                           |   |               |         |      |   | (1,057   | )       
|Investment in Magma           |                           |   |               |         |      |   | (810     | )       
|Fixed assets                  |                           |   | (855           | )       |      |   |         |         
|                              |                           |   |                |         |      |   |          |         
|                              | Deferred tax liabilities  |   |                | (43,661 | )    |   |          | (162,614 | )
|                              |                           |   |                |         |      |   |          |         
|Net deferred tax liabilities  |                           | $ | (23,840        | )       |      | $ | (120,322 | )       
|                              |                           |   |                |         |      |   |          |         

The provision (benefit) for income taxes differs from the amount obtained
by applying the U.S. federal statutory rate to income before income taxes as
follows:

|                                    |       |   |                                    |         |      |   |          |          |   |   |          |          |  
|----------------------------------- | ----- | - | ---------------------------------- | ------- | ---- | - | -------- | -------- | - | - | -------- | -------- | -
|                                    |       |   | Year Ended March 31,              
|                                    |       |   |                                   
|                                    |       |   | 2003                               |         | 2002 |   | 2001    
|                                    |       |   |                                    |         |      |   |         
|                                    |       |   | (In thousands, except percentages)
|Federal statutory rate              |       |   | 35                                 | %       |      |   | 35       | %        |   |   | 35       | %       
|Tax at federal statutory rate       |       | $ | (38,460                            | )       |      | $ | (131,773 | )        |   | $ | (156,289 | )       
|State taxes, net of federal benefit |       |   | (5,904                             | )       |      |   | (8,358   | )        |   |   | (25,893  | )       
|Change in valuation allowance       |       |   | 38,806                             |         |      |   |         |          |   |   |         |         
|Other, net                          |       |   | (5,745                             | )       |      |   | (2,570   | )        |   |   | 2,226    |         
|                                    |       |   |                                    |         |      |   |          |          |   |   |          |         
|                                    | Total |   | $                                  | (11,303 | )    |   | $        | (142,701 | ) |   | $        | (179,956 | )
|                                    |       |   |                                    |         |      |   |          |          |   |   |          |         

The tax benefit associated with the exercises of non-qualified stock
options and disqualifying dispositions of incentive stock options reduced taxes
currently payable by zero, $402,000 and $1.7 million in fiscal 2003, 2002 and
2001, respectively.

In April 2003, the Company received a tax refund from the Internal Revenue
Service totaling $15.2 million. The refund related to tax and fiscal years 2001 and
2000.

Note 19. Stock Option Plans

1992 Stock Option Plan

In April 1992, the Company adopted the 1992 Stock Option Plan for issuance
of common stock to employees and consultants of the Company. At March 31, 2002,
13,000,000 shares of the Companys Common Stock was reserved under the Plan for
issuance. In April 2002, the 2002 Stock Option Plan (the Plan) was adopted to
replace the expired 1992 Stock Option Plan. The Board of Directors may
terminate the Plan at any time at its discretion.

Incentive stock options may not be granted at less than 100 percent of the
fair value of the Companys common stock at the date of grant and the option
term may not exceed 10 years. Options granted vest over a period of 5 years.
For holders of more than 10 percent of the total combined voting power of all
classes of the Companys stock, options may not be granted at less than 110
percent of the current market price of the common stock at the date of grant
and the option term may not exceed five years.

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Directors Stock Option Plan

On September 30, 1993, the Company adopted its 1993 Directors Stock
Option Plan (Directors Plan), under which 900,000 shares of common stock
have been reserved for issuance. The Directors Plan provides for the automatic
grant to each non-employee director of the Company (but excluding persons on
the Companys Board of Directors in November 1993) of an option to purchase
22,500 shares of common stock on the date of such directors election to the
Companys Board of Directors. Thereafter, such director will receive an
automatic annual grant of an option to purchase 11,250 shares of common stock
on the date of each annual meeting of the Companys stockholders at which such
director is re-elected. The maximum number of shares that may be issued to any
one director under this plan is 90,000. Such options will vest ratably over
four years from their respective dates of grant. No options were granted in
fiscal 2003 under the Directors Plan.

The following table summarizes grant and stock option activity under the
stock option plans for fiscal years 2003, 2002, and 2001:

|                          |                    |  |                     |            |        |  |                         |           |   |   |       |       | 
|------------------------- | ------------------ |  | ------------------- | ---------- | ------ |  | ----------------------- | --------- | - | - | ----- | ----- | 
|                          |                    |  |                     |            |        |  | Options Outstanding    
|                          |                    |  | Options             |            |       
|                          |                    |  | Available for Grant |            | Shares |  | Weighted Average Prices
|                          |                    |  |                     |            |        |  |                        
|Balance at March 31, 2000 |                    |  | 3,080,087           |            |        |  | 2,289,157               |           |   | $ | 8.44  |      
|                          | Options authorized |  |                     | 2,000,000  |        |  |                         |          |   |   |       |       | 
|                          | Options granted    |  |                     | (627,250   | )      |  |                         | 627,250   |   |   | $     | 19.46 | 
|                          | Options canceled   |  |                     | 267,850    |        |  |                         | (267,850  | ) |   | $     | 13.93 | 
|                          | Options exercised  |  |                     |           |        |  |                         | (274,195  | ) |   | $     | 5.51  | 
|                          |                    |  |                     |            |        |  |                         |           |   |   |       |      
|Balance at March 31, 2001 |                    |  | 4,720,687           |            |        |  | 2,374,362               |           |   | $ | 11.11 |      
|                          | Options granted    |  |                     | (1,151,500 | )      |  |                         | 1,151,500 |   |   | $     | 11.81 | 
|                          | Options canceled   |  |                     | 852,050    |        |  |                         | (852,050  | ) |   | $     | 14.68 | 
|                          | Options exercised  |  |                     |           |        |  |                         | (193,325  | ) |   | $     | 5.25  | 
|                          |                    |  |                     |            |        |  |                         |           |   |   |       |      
|Balance at March 31, 2002 |                    |  | 4,421,237           |            |        |  | 2,480,487               |           |   | $ | 10.66 |      
|                          | Options granted    |  |                     | (649,000   | )      |  |                         | 649,000   |   |   | $     | 6.36  | 
|                          | Options canceled   |  |                     | 549,040    |        |  |                         | (549,040  | ) |   | $     | 12.81 | 
|                          | Options exercised  |  |                     |           |        |  |                         | (20,585   | ) |   | $     | 2.81  | 
|                          |                    |  |                     |            |        |  |                         |           |   |   |       |      
|Balance at March 31, 2003 |                    |  | 4,321,277           |            |        |  | 2,559,862               |           |   | $ | 9.16  |      
|                          |                    |  |                     |            |        |  |                         |           |   |   |       |      

As of
March 31, 2003, options to purchase 1,925,862 shares of common stock
were exercisable.

The weighted average estimated fair value at the date of grant, as defined
by SFAS 123, for options granted in fiscal 2003, 2002, and 2001 was $4.54,
$7.38, and $14.69, respectively. The estimated grant date fair value disclosed
above was calculated using the Black-Scholes model. This model, as well as
other currently accepted option valuation models, was developed to estimate the
fair value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Companys stock option
awards. These models also require subjective assumptions, including future
stock price volatility and expected time to exercise, which greatly affect the
calculated values. Significant option groups outstanding at March 31, 2003, and
related weighted average exercise price and contractual life information are as
follows:

Outstanding and Exercisable by Price Range

|                      |  |                |         |                  |  |          |      |                 |  |          |       |               |  |  |         |  |  |   |       | 
|--------------------- |  | -------------- | ------- | ---------------- |  | -------- | ---- | --------------- |  | -------- | ----- | ------------- |  |  | ------- |  |  | - | ----- | 
|                      |  | Number         |         |                  |  |          |      |                 |  |          |       | Number Vested |  |  |         | 
|                      |  | Outstanding as |         | Weighted         |  | Weighted |      | and             |  | Weighted
|                      |  | of             |         | Average          |  | Average  |      | Exercisable     |  | Average 
|Range of              |  | March 31,      |         | Remaining        |  | Exercise |      | as of March 31, |  | Exercise
|Exercise Prices       |  | 2003           |         | Contractual Life |  | Price    |      | 2003            |  | Price   
|                      |  |                |         |                  |  |          |      |                 |  |         
|$  2.0940  $  3.2100 |  |                | 298,780 |                  |  |          | 2.57 |                 |  | $        | 2.64  |               |  |  | 232,280 |  |  | $ | 2.51  | 
|$  3.2500  $  4.8000 |  |                | 283,450 |                  |  |          | 4.39 |                 |  | $        | 3.87  |               |  |  | 87,450  |  |  | $ | 3.48  | 
|$  4.9500  $  7.3750 |  |                | 281,572 |                  |  |          | 3.88 |                 |  | $        | 6.14  |               |  |  | 196,032 |  |  | $ | 6.57  | 
|$  7.4200  $  8.3000 |  |                | 272,350 |                  |  |          | 4.64 |                 |  | $        | 8.17  |               |  |  | 89,350  |  |  | $ | 7.91  | 
|$  8.5000  $10.9400  |  |                | 170,900 |                  |  |          | 4.66 |                 |  | $        | 10.44 |               |  |  | 67,900  |  |  | $ | 10.60 | 
|$10.9600  $11.1880   |  |                | 283,120 |                  |  |          | 2.56 |                 |  | $        | 11.18 |               |  |  | 283,120 |  |  | $ | 11.18 | 
|$11.2500  $11.8400   |  |                | 345,000 |                  |  |          | 4.25 |                 |  | $        | 11.73 |               |  |  | 345,000 |  |  | $ | 11.73 | 
|$11.8900  $12.8125   |  |                | 226,380 |                  |  |          | 3.42 |                 |  | $        | 12.39 |               |  |  | 226,380 |  |  | $ | 12.39 | 

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##### Table of Contents



|                     |  |                |           |                  |  |          |      |                 |  |          |       |               |  |  |           |  |  |   |       | 
|-------------------- |  | -------------- | --------- | ---------------- |  | -------- | ---- | --------------- |  | -------- | ----- | ------------- |  |  | --------- |  |  | - | ----- | 
|                     |  | Number         |           |                  |  |          |      |                 |  |          |       | Number Vested |  |  |           | 
|                     |  | Outstanding as |           | Weighted         |  | Weighted |      | and             |  | Weighted
|                     |  | of             |           | Average          |  | Average  |      | Exercisable     |  | Average 
|Range of             |  | March 31,      |           | Remaining        |  | Exercise |      | as of March 31, |  | Exercise
|Exercise Prices      |  | 2003           |           | Contractual Life |  | Price    |      | 2003            |  | Price   
|                     |  |                |           |                  |  |          |      |                 |  |         
|$12.9000  $13.0200  |  |                | 291,000   |                  |  |          | 4.09 |                 |  | $        | 13.01 |               |  |  | 291,000   |  |  | $ | 13.01 | 
|$13.3800  $27.2500  |  |                | 107,350   |                  |  |          | 3.20 |                 |  | $        | 18.95 |               |  |  | 107,350   |  |  | $ | 18.95 | 
|                     |  |                |           |                  |  |          |      |                 |  |          |       |               |  |  |           |  |  |   |       | 
|$  2.0940  $27.2500 |  |                | 2,559,862 |                  |  |          | 3.78 |                 |  | $        | 9.16  |               |  |  | 1,925,862 |  |  | $ | 10.09 | 
|                     |  |                |           |                  |  |          |      |                 |  |          |       |               |  |  |           |  |  |   |       | 

The following assumptions are used to estimate the fair value for stock
options on the grant date:

|                        |  |            |      |            |  |            |      |   |  |  |      |  
|----------------------- |  | ---------- | ---- | ---------- |  | ---------- | ---- | - |  |  | ---- | -
|                        |  | 2003       |      | 2002       |  | 2001      
|                        |  |            |      |            |  |           
|Expected life           |  | 5.00 years |      | 5.00 years |  | 5.00 years
|Risk-free interest rate |  |            | 2.9  | %          |  |            | 4.9  | % |  |  | 4.8  | %
|Volatility              |  |            | 83.8 | %          |  |            | 87.6 | % |  |  | 87.6 | %
|Dividend yield          |  |            | 0.0  | %          |  |            | 0.0  | % |  |  | 0.0  | %

Employee Stock Purchase Plan

In September 1996, the Company and its stockholders approved an Employee
Stock Purchase Plan (ESPP), which allows eligible employees of the Company
and its designated subsidiaries to purchase shares of common stock through
payroll deductions. The ESPP consists of a series of 12-month offering periods
composed of two consecutive 6-month purchase periods. The purchase price per
share is 85% of the fair market value of the common stock, at the date of
commencement of the offering period, or at the last day of the respective
6-month purchase period, whichever is lower. Purchases are limited to 10% of
an eligible employees compensation, subject to a maximum annual employee
contribution and limited to a $25,000 fair market value. Of the 750,000 shares
of common stock authorized under the ESPP, 144,822, 48,550, and 45,051 shares
were issued during fiscal 2003, 2002, and 2001, respectively. At March 31,
2003, there were 87,207 shares available under the ESPP.

Compensation costs (included in pro forma net income (loss) and pro forma
net income (loss) per share amounts) for the grant date fair value, as defined
by SFAS 123, of the purchase rights granted under the ESPP, were calculated
using the Black-Scholes model. The following weighted average assumptions are
included in the estimated grant date fair value calculations for rights to
purchase stock under the ESPP:

|                        |  |          |      |          |  |          |      |   |  |  |      |  
|----------------------- |  | -------- | ---- | -------- |  | -------- | ---- | - |  |  | ---- | -
|                        |  | 2003     |      | 2002     |  | 2001    
|                        |  |          |      |          |  |         
|Expected life           |  | 6 months |      | 6 months |  | 6 months
|Risk-free interest rate |  |          | 1.2  | %        |  |          | 2.8  | % |  |  | 3.6  | %
|Volatility              |  |          | 74.6 | %        |  |          | 57.2 | % |  |  | 87.6 | %
|Dividend yield          |  |          | 0.0  | %        |  |          | 0.0  | % |  |  | 0.0  | %

The weighted average estimated grant date fair value, as defined by SFAS
123, of rights to purchase common stock under the ESPP granted in fiscal 2003,
2002, and 2001 was $2.40, $4.51, and $8.43 per share, respectively.

Note 20. 401(k) Salary Savings Plan

Effective May 1992, the Company adopted the Salary Savings Plan (the
Savings Plan) pursuant to Section 401(k) of the Internal Revenue Code (the
Code), whereby eligible employees may contribute up to 15% of their earnings,
not to exceed amounts allowed under the Code. Effective April 1999, the
Company agreed to match up to 50% of the first 6% of the employee contribution
to a maximum of two thousand dollars annually per employee. The Companys
matching contribution vests over five years. In fiscal 2003, 2002, and 2001,
the Company contributed approximately $156,600, $117,600, and $115,000,
respectively.

Note 21. Legal Matters

In February 1997, Micron Technology, Inc. filed an antidumping petition
with the United States International Trade Commission (ITC) and United States
Department of Commerce (DOC), alleging that SRAMs fabricated in Taiwan were
being sold in the United States at less than fair value, and that the United
States industry producing SRAMs was materially injured or threatened with
material injury by reason of imports of SRAMs fabricated in Taiwan. After a
final affirmative DOC determination of dumping and a final affirmative ITC
determination of injury, DOC issued an antidumping duty order in April 1998.
Under that order, the Companys imports into the United States on or after
approximately April 16, 1998 of SRAMs fabricated in Taiwan were subject to a
cash deposit in the amount of 50.15% (the Antidumping Margin) of the entered
value of such SRAMs. (The Company posted a bond in the amount of 59.06% (the
preliminary margin) with respect to its importation, between approximately
October 1997 and April 1998, of SRAMs fabricated in Taiwan.) In May 1998, the
Company and others filed an appeal in the United States Court of International
F-29Table of ContentsTrade (the CIT), challenging the determination by the ITC that imports of
Taiwan-fabricated SRAMs were causing material injury
to the U.S. industry. Following two remands from the CIT, the ITC, on
June 12, 2000, reversed its original determination that Taiwan-fabricated SRAMs
were causing material injury to the U.S. industry. The CIT affirmed the ITCs
negative determination on August 29, 2000, and Micron appealed to the U.S.
Court of Appeals for the Federal Circuit (CAFC). On September 21, 2001, the
CAFC affirmed the ITCs negative injury determination. The Company had made
cash deposits in the amount of $1.7 million and had posted a bond secured by a
letter of credit in the amount of approximately $1.7 million relating to the
Companys importation of Taiwan-manufactured SRAMs. The balances remained
unchanged at December 31, 2001. In January 2002, the decision of the CIT was
made final and the DOC revoked the order and instructed the U.S. Customs
Service to refund the Companys cash deposits with interest. The Company
received a refund of $2.6 million, including interest of approximately $515,000
from its deposits during the quarter ended March 31, 2002. In the first
quarter of fiscal 2003, the Company received approximately $262,000, including
interest of approximately $56,000; also, the cash deposit of $1.7 million at
March 31, 2002 has been released and became unrestricted in April 2002. In the
second quarter of fiscal 2003, the Company received approximately $195,000,
including interest of approximately $1,000. No refund was received during the
third or fourth quarters of fiscal 2003. The Company believes that it
will not receive any additional proceeds related to this action.In July 1998, the Company learned that a default judgment was entered
against it in Canada, in the amount of approximately $170 million (USD), in a
case filed in 1985 captioned Prabhakara Chowdary Balla and TritTek Research
Ltd. v. Fitch Research Corporation, et al., British Columbia Supreme Court No.
85-2805 (Victoria Registry). The Company, which had previously not
participated in the case, believes that it never was properly served with
process in this action, and that the Canadian court lacks jurisdiction over the
Company in this matter. In addition to jurisdictional and procedural arguments,
the Company also believes it may have grounds to argue that the claims against
the Company should be deemed discharged by the Companys bankruptcy in 1991.
In February 1999, the court set aside the default judgment against the Company.
In April 1999, the plaintiffs were granted leave by the Court to appeal this
judgment. Oral arguments were made before the Court of Appeals in June 2000. In
July 2000, the Court of Appeals instructed the lower Court to allow the parties
to take depositions regarding the issue of service of process, while also
setting aside the default judgment against the Company. The plaintiffs
appealed the setting aside of the default judgment against the Company to the
Canadian Supreme Court. In June 2001, the Canadian Supreme Court refused to
hear the appeal of the setting aside of the default judgment against the
Company. The Company believes the resolution of this matter will not have a
material adverse effect on its financial conditions and its results of
operations.In November 2001, Amstrad plc (Amstrad) filed suit against the Company
in England in the amount of approximately $1.5 million. This claim is based on
allegations that a batch of 15,000 parts supplied by the Company, and which
were incorporated into Amstrad products, were defective. The Company prepared
and filed a detailed defense to Amstrads suit in February 2002. The Company
reached a settlement on November 14, 2002 with Amstrad.On December 3, 2002, the Company and its then Vice President of Sales were
sued in Santa Clara Superior Court by plaintiff SegTec Ltd., an Israeli company
and former sales representative of the Company. In its complaint, SegTec
alleges that the Company terminated an oral sales agreement (Agreement) and
had failed to pay commissions due to SegTec in an amount in excess of $750,000.
SegTec also alleges that the Companys termination of the Agreement was
without cause and that the Company has materially breached the Agreement, and
certain other matters, including misappropriation of trade secrets. Plaintiff
seeks compensatory, incidental, and consequential damages for the
aforementioned allegations, punitive damages for the fraud allegations
specifically, and payment for the value of services rendered. Plaintiff served
the complaint on the Company and its former Vice President of Sales on December
9, 2002. Plaintiff then served two amended complaints on March 13 and on April
15. On May 22, 2003, the former Vice President of Sales was successfully
dismissed from the lawsuit in his individual capacity, and the entire case
against Alliance was successfully ordered to arbitration before the American
Arbitration Association to resolve the commissions dispute. All remaining
causes of action unrelated to the commission dispute have been stayed pending
the resolution of the arbitration proceedings. No schedule for the arbitration
proceedings has yet been set.On February 24, 2003, a stockholder of the Company filed a putative
derivative action entitled Fritsche v. Reddy, et al, and Alliance Semiconductor
Corporation (case no. CV 814996) in Santa Clara County Superior Court. This
action, purportedly brought on behalf of the Company, names as defendants
certain current and former officers and directors of the Company. The Company
is named as a nominal defendant. Plaintiffs generally allege that the
Companys equity investments in venture funds managed by Alliance Venture
Management, LLC, and related transactions by certain current and former
officers and directors of the Company, give rise to claims against the
defendants for breach of fiduciary duties, abuse of control, gross
mismanagement, waste of corporate assets, and alleged violations of Cal. Corp.
Code §25402. Plaintiffs seek, purportedly on behalf of the Company,
declaratory, injunctive and other equitable relief, and compensatory, statutory
and punitive damages. On May 20, 2003, the defendants and the Company demurred
to the complaint on the grounds that plaintiff lacked standing to bring the
action because he had not made a demand on the Companys board of directors. A
hearing on the demurrers is currently scheduled for August 5, 2003. Due to the
earlyF-30Table of Contentsstage of the litigation, the Company cannot determine what, if any, effect
resolution of this matter will have on its financial condition and results of
operations.In addition, the Company is party to various legal proceedings and claims,
either asserted or unasserted, which arise in the ordinary course of business.
While the outcome of these claims cannot be predicted with certainty, the
Company does not believe that the outcome of any of these or any of the above
mentioned legal matters will have a material adverse effect on the Companys
consolidated financial position, results of operations or cash flows.Note 22. Related Party TransactionsN. Damodar Reddy, the Chairman of the Board, President and Chief Executive
Officer of the Company, is a director and investor in Infobrain, Inc.
(Infobrain) an entity which provides the following services to the Company:
intranet and internet web site development and support, migration of Oracle
applications from version 10.7 to 11i; MRP software design implementation and
training, automated entry of manufacturing data, and customized application
enhancements in support of the Companys business processes. The Company paid
Infobrain approximately $306,000 and $234,000 in fiscal 2003 and 2002,
respectively. Mr. Reddy is not involved in the operations of Infobrain.In October 1999, the Company formed Alliance Venture Management LLC,
(Alliance Venture Management), a California limited
liability company, to
manage and act as the general partner in the investment funds the Company
intended to form. Alliance Venture Management does not directly invest in the
investment funds with the Company, but is entitled to receive (i) a management fee out of
the net profits of the investment funds and (ii) a commitment fee
based on the amount of capital committed to each partnership, each as
described more fully below. This structure was
created to provide incentives to the individuals who participate in the
management of the investment funds, which includes N. Damodar Reddy and C.N.
Reddy.Each of the owners of the Series A, B, C, D and E member units (Preferred
Member Units) paid the initial carrying value for their shares of the
Preferred Member Units. While the Company owns 100% of the common units in
Alliance Venture Management, it does not hold any Preferred Member Units and
does not participate in the management fees generated by the management of the
investment funds. N. Damodar Reddy and C.N. Reddy, who are directors of the
Company and members of the Companys senior management, each hold 48,000
Preferred Member Units, respectively, of the 162,152 total Preferred Member
Units outstanding and 172,152 total Member Units outstanding.Annually, Alliance
Venture Management earns 0.5% of the total fund commitment of
Alliance I, II, III, IV and V. In fiscal 2003, the Company incurred $875,000 of
commitment fees. This amount was offset in its entirety by expenses incurred by the Company on behalf of
Alliance Venture Management of $875,000. Neither N. Damodar
Reddy nor C.N. Reddy received any commitment fees during fiscal 2003.Alliance
Venture Management receives 15% - 16% of the realized gains of
the venture funds. No distribution of cash and/or marketable securities was
made to the partners of Alliance Venture Management during fiscal 2003. During
fiscal 2002, the Company made distributions of cash and marketable securities
to the partners of Alliance Venture Management totaling $5.2 million. Details
of the distributions are as follows (in thousands):

|                       |  |                   |       |             |  |               |       |  |  |   |       | 
|---------------------- |  | ----------------- | ----- | ----------- |  | ------------- | ----- |  |  | - | ----- | 
|                       |  | Market Value of   |       | Cash        |  | Total        
|Officer/Employee       |  | Stock Distributed |       | Distributed |  | Distributions
|                       |  |                   |       |             |  |              
|N. Damodar Reddy       |  | $                 | 995   |             |  | $             | 571   |  |  | $ | 1,566 | 
|C.N. Reddy             |  |                   | 995   |             |  |               | 571   |  |  |   | 1,566 | 
|Non-executive employee |  |                   | 1,175 |             |  |               | 686   |  |  |   | 1,861 | 
|Former employee        |  |                   | 126   |             |  |               | 76    |  |  |   | 202   | 
|                       |  |                   |       |             |  |               |       |  |  |   |       | 
|Totals                 |  | $                 | 3,291 |             |  | $             | 1,904 |  |  | $ | 5,195 | 
|                       |  |                   |       |             |  |               |       |  |  |   |       | 

N. Damodar Reddy and C.N. Reddy have formed private venture funds, Galaxy
Venture Partners, L.L.C., Galaxy Venture Partners II, L.L.C. and Galaxy Venture
Partners III, L.L.C., which have invested in 23 of the 37 total companies
invested in by as Alliance Venture Managements investment funds.

C.N.
Reddy is a general partner of Solar and participates in running its
daily operations. Furthermore,
certain of the Companys directors, officers and employees, including
C.N. Reddy and Jon Minnis, have also invested in Solar. Solar has
invested in 14 of the 37 total companies in which Alliance Venture
Managements funds have invested. See Part III  Item 13  Certain Relationships and Related
Transactions.

On May 18, 1998, the
Company provided loans to C.N. Reddy and N. Damodar Reddy and one other director, Sanford Kane,
aggregating $1.7 million. The Reddys loans were
used for the payment of taxes resulting from the gain on the exercise of
non-qualified stock options. The loan to Sanford Kane was used for the exercise
of stock options. Under these loans, both principal and accrued interest were
due on December 31, 1999, with accrued interest at rates ranging from 5.50% to
5.58% per annum. The loan to Sanford Kane was repaid in full at
December 31, 1999. In 1999, 2000 and 2001, the loans to N. Damodar
Reddy and C.W. Reddy were extended such that they became due on December 31, 2002. The
loan to C.N. Reddy was repaid as of March 31, 2003. As of March 31,
2003, $820,000 in principal was outstanding under the loan to N. Damodar Reddy with accrued
interest of $237,000. Subsequent to March 31, 2003, the loan to N. Damodar Reddy was repaid in full.

Note 23. Segment and Geographic Information

The Company has one operating segment, which is to design, develop, and
market high-performance memory, mixed signal, and system solutions products.

The following illustrates revenues by geographic locations. Revenues are
attributed to countries based on the customers location.

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|                               |       |   |                      |        |      |   |       |        |  |   |        |         | 
|------------------------------ | ----- | - | -------------------- | ------ | ---- | - | ----- | ------ |  | - | ------ | ------- | 
|                               |       |   | Year Ended March 31,
|                               |       |   |                     
|                               |       |   | 2003                 |        | 2002 |   | 2001 
|                               |       |   |                      |        |      |   |      
|                               |       |   | (In thousands)      
|United States of America       |       | $ | 5,814                |        |      | $ | 6,968 |        |  | $ | 77,114 |        
|Taiwan                         |       |   | 1,904                |        |      |   | 3,894 |        |  |   | 35,666 |        
|Japan                          |       |   | 2,257                |        |      |   | 2,603 |        |  |   | 36,775 |        
|Asia (except Taiwan and Japan) |       |   | 3,740                |        |      |   | 4,044 |        |  |   | 19,069 |        
|Europe (except UK)             |       |   | 2,538                |        |      |   | 3,735 |        |  |   | 18,724 |        
|UK                             |       |   | 1,690                |        |      |   | 4,981 |        |  |   | 20,363 |        
|Rest of world                  |       |   | 579                  |        |      |   | 322   |        |  |   | 967    |        
|                               |       |   |                      |        |      |   |       |        |  |   |        |        
|                               | Total |   | $                    | 18,522 |      |   | $     | 26,547 |  |   | $      | 208,678 | 
|                               |       |   |                      |        |      |   |       |        |  |   |        |        

International net revenues in fiscal 2003 decreased by 35% over fiscal
2002. International net revenues are derived from customers outside the United
States of America. The largest decrease in international net revenues was to
customers in the UK, which decreased approximately 66% over fiscal 2002. This
decrease was due to an overall decrease in product demand and lower average
selling prices during the fiscal year. International revenues decreased 85% in
fiscal 2002 compared to fiscal 2001. The largest decrease in international net
revenues was to customers in Japan, which decreased approximately 93% over
fiscal 2001. This decrease was attributable to a decrease in product demand and
lower average selling prices.

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REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE

To the Board of Directors
of Alliance Semiconductor Corporation:

Our audits of the consolidated financial statements referred to in our
report dated April 28, 2003, appearing in this Annual Report on Form 10-K also
included an audit of the Financial Statement Schedule listed in Item
16(a)(2) of this Form 10-K. In our opinion, this Financial Statement
Schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.

| |                               
| | ------------------------------
| | /s/ PRICEWATERHOUSECOOPERS LLP

San Jose, California
April 28, 2003

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ALLIANCE SEMICONDUCTOR CORPORATIONSCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
(In thousands)

|                          |                                                                                            |                                                                                            |   |            |       |            |   |               |        |  |   |         |         |            |   |        |        | 
|------------------------- | ------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------ | - | ---------- | ----- | ---------- | - | ------------- | ------ |  | - | ------- | ------- | ---------- | - | ------ | ------ | 
|                          |                                                                                            |                                                                                            |   | Balance at |       |            |   |               |        |  |   |         |         | Balance at
|Description               |                                                                                            | Beginning of Period                                                                        |   | Additions  |       | Reductions |   | End of Period
|                          |                                                                                            |                                                                                            |   |            |       |            |   |              
|Year ended March 31, 2003 |                                                                                            |                                                                                            |   |            |       |            |   |               |        |  |   |         |         |            |   |       
|                          | Allowance for doubtful accounts and sales-related reserves                                 |                                                                                            | $ | 1,848      |       |            | $ | 2,833         |        |  | $ | (2,900  | )       |            | $ | 1,781  |       
|                          | Inventory related reserves for excess and obsolescence; and
lower of cost or market issues |                                                                                            | $ | 66,757     |       |            | $ | 6,338         |        |  | $ | (35,686 | )       |            | $ | 37,409 |       
|Year ended March 31, 2002 |                                                                                            |                                                                                            |   |            |       |            |   |               |        |  |   |         |         |            |   |       
|                          | Allowance for doubtful accounts and sales-related reserves                                 |                                                                                            | $ | 3,581      |       |            | $ | 8,209         |        |  | $ | (9,942  | )       |            | $ | 1,848  |       
|                          | Inventory related reserves for excess and obsolescence; and
lower of cost or market issues |                                                                                            | $ | 37,940     |       |            | $ | 30,352        |        |  | $ | (1,535  | )       |            | $ | 66,757 |       
|Year ended March 31, 2001 |                                                                                            |                                                                                            |   |            |       |            |   |               |        |  |   |         |         |            |   |       
|                          | Allowance for doubtful accounts and sales-related reserves                                 |                                                                                            | $ | 954        |       |            | $ | 3,310         |        |  | $ | (683    | )       |            | $ | 3,581  |       
|                          |                                                                                            | Inventory related reserves for excess and obsolescence; and
lower of cost or market issues |   | $          | 8,270 |            |   | $             | 53,945 |  |   | $       | (24,275 | )          |   | $      | 37,940 | 

F-34