##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549





FORM 10-Q





(Mark One)

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

For the quarterly period ended September 27, 2009

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: 0-51532





IKANOS COMMUNICATIONS, INC.

(Exact name of
registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 73-1721486                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

47669 Fremont Boulevard

Fremont, CA 94538

(Address of principal executive
office and zip code)

(510) 979-0400

(Registrants telephone number including area code)





Indicate by check mark whether
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) had been subject to such filing requirements for the past 90 days.    Yes  x    No   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

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



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

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

The number of shares outstanding of the Registrants Common Stock, $ 0.001 par value, was 53,831,734 as of October 28, 2009.









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##### Table of Contents

IKANOS COMMUNICATIONS, INC.

FORM 10-Q

TABLE OF CONTENTS



|         |  |                                                                                                                               |  |         
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------- |  | --------
|         |  |                                                                                                                               |  | Page No.
|PART I:  |  | FINANCIAL INFORMATION                                                                                                         |  |         
|         |  |                                                                                                                              
|Item 1.  |  | Financial Statements (unaudited)                                                                                              |  | 3       
|         |  |                                                                                                                              
|         |  | Condensed Consolidated Balance Sheets as of September 27, 2009 and December 28, 2008                                          |  | 3       
|         |  |                                                                                                                              
|         |  | Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 27, 2009 and September 28, 2008 |  | 4       
|         |  |                                                                                                                              
|         |  | Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 27, 2009 and September 28, 2008           |  | 5       
|         |  |                                                                                                                              
|         |  | Notes to Unaudited Condensed Consolidated Financial Statements                                                                |  | 6       
|         |  |                                                                                                                              
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                         |  | 17      
|         |  |                                                                                                                              
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                                                                    |  | 24      
|         |  |                                                                                                                              
|Item 4.  |  | Controls and Procedures                                                                                                       |  | 25      
|         |  |                                                                                                                              
|PART II: |  | OTHER INFORMATION                                                                                                             |  |         
|         |  |                                                                                                                              
|Item 1.  |  | Legal Proceedings                                                                                                             |  | 25      
|         |  |                                                                                                                              
|Item 1A. |  | Risk Factors                                                                                                                  |  | 26      
|         |  |                                                                                                                              
|Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                   |  | 41      
|         |  |                                                                                                                              
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                                           |  | 42      
|         |  |                                                                                                                              
|Item 6.  |  | Exhibits                                                                                                                      |  | 42      
|         |  |                                                                                                                              
|         |  | Signatures                                                                                                                    |  | 42      



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##### Table of Contents

PART I: FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

IKANOS COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands and unaudited)



|                                          |  |                   |         |                  |   |        
|----------------------------------------- |  | ----------------- | ------- | ---------------- | - | -------
|                                          |  | September 27,2009 |         | December 28,2008
|Assets                                    |  |                   |         |                  |   |        
|                                          |  |                  
|Current assets:                           |  |                   |         |                  |   |        
|Cash and cash equivalents                 |  | $                 | 17,908  |                  | $ | 27,219 
|Short-term investments                    |  |                   | 19,925  |                  |   | 36,120 
|Accounts receivable                       |  |                   | 17,888  |                  |   | 12,360 
|Inventory                                 |  |                   | 34,532  |                  |   | 12,489 
|Prepaid expenses and other current assets |  |                   | 2,555   |                  |   | 1,744  
|                                          |  |                   |         |                  |   |        
|Total current assets                      |  |                   | 92,808  |                  |   | 89,932 
|Long-term investments                     |  |                   | 1,034   |                  |   | 1,034  
|Property and equipment, net               |  |                   | 8,033   |                  |   | 9,597  
|Intangible assets, net                    |  |                   | 29,468  |                  |   | 6,290  
|Goodwill                                  |  |                   | 8,633   |                  |   |       
|Other assets                              |  |                   | 1,145   |                  |   | 580    
|                                          |  |                   |         |                  |   |        
|                                          |  | $                 | 141,121 |                  | $ | 107,433
|                                          |  |                   |         |                  |   |        
|                                          |  |                  
|Liabilities and Stockholders Equity      |  |                   |         |                  |   |        
|                                          |  |                  
|Current liabilities:                      |  |                   |         |                  |   |        
|Accounts payable                          |  | $                 | 17,521  |                  | $ | 9,237  
|Accrued liabilities                       |  |                   | 15,594  |                  |   | 8,680  
|                                          |  |                   |         |                  |   |        
|Total current liabilities                 |  |                   | 33,115  |                  |   | 17,917 
|Long-term liabilities                     |  |                   | 3,448   |                  |   |       
|                                          |  |                   |         |                  |   |        
|Total liabilities                         |  |                   | 36,563  |                  |   |       
|Commitments and contingencies (Note 11)   |  |                   |         |                  |   |        
|Stockholders equity                      |  |                   | 104,558 |                  |   | 89,516 
|                                          |  |                   |         |                  |   |        
|                                          |  | $                 | 141,121 |                  | $ | 107,433
|                                          |  |                   |         |                  |   |        

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



3



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IKANOS COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data, and unaudited)



|                                                      |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|----------------------------------------------------- |  | ------------------ | ------- | - | ----------------- | - | ------- | ----------------- |  | - | ----------------- | - |  | - | ------- | -
|                                                      |  | Three Months Ended |         |   | Nine Months Ended |  
|                                                      |  | September 27,2009  |         |   | September 28,2008 |   |         | September 27,2009 |  |   | September 28,2008 |  
|Revenue                                               |  | $                  | 29,334  |   |                   | $ | 24,178  |                   |  | $ | 72,497            |   |  | $ | 83,730  |  
|Cost of revenue (1)                                   |  |                    | 19,036  |   |                   |   | 14,212  |                   |  |   | 44,429            |   |  |   | 48,265  |  
|                                                      |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|Gross profit                                          |  |                    | 10,298  |   |                   |   | 9,966   |                   |  |   | 28,068            |   |  |   | 35,465  |  
|                                                      |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|Operating expenses:                                   |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|Research and development (2)                          |  |                    | 13,290  |   |                   |   | 10,282  |                   |  |   | 31,744            |   |  |   | 33,516  |  
|Selling, general and administrative (3)               |  |                    | 9,615   |   |                   |   | 8,142   |                   |  |   | 21,295            |   |  |   | 20,282  |  
|Operating asset impairments                           |  |                    | 2,460   |   |                   |   | 12,496  |                   |  |   | 2,460             |   |  |   | 12,496  |  
|Restructuring charges                                 |  |                    | 502     |   |                   |   |        |                   |  |   | 1,048             |   |  |   |        |  
|                                                      |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|Total operating expenses                              |  |                    | 25,867  |   |                   |   | 30,920  |                   |  |   | 56,547            |   |  |   | 66,294  |  
|                                                      |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|Loss from operations                                  |  |                    | (15,569 | ) |                   |   | (20,954 | )                 |  |   | (28,479           | ) |  |   | (30,829 | )
|Investment impairment                                 |  |                    |        |   |                   |   | (6,166  | )                 |  |   |                  |   |  |   | (6,166  | )
|Interest income, net                                  |  |                    | 146     |   |                   |   | 427     |                   |  |   | 603               |   |  |   | 1,669   |  
|                                                      |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|Loss before provision for (benefit from) income taxes |  |                    | (15,423 | ) |                   |   | (26,693 | )                 |  |   | (27,876           | ) |  |   | (35,326 | )
|Provision for (benefit from) income taxes             |  |                    | 31      |   |                   |   | (27     | )                 |  |   | 111               |   |  |   | 97      |  
|                                                      |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|Net loss                                              |  | $                  | (15,454 | ) |                   | $ | (26,666 | )                 |  | $ | (27,987           | ) |  | $ | (35,423 | )
|                                                      |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|Basic and diluted net loss per share                  |  | $                  | (0.40   | ) |                   | $ | (0.93   | )                 |  | $ | (0.86             | ) |  | $ | (1.22   | )
|                                                      |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|Weighted average number of shares, basic and diluted  |  |                    | 38,802  |   |                   |   | 28,565  |                   |  |   | 32,466            |   |  |   | 29,139  |  
|                                                      |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|                                                     
|                                                      | 
|Includes stock-based compensation expense as follows: |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|(1) Cost of revenue                                   |  | $                  | 60      |   |                   | $ | (7      | )                 |  | $ | 209               |   |  | $ | 230     |  
|(2) Research and development                          |  |                    | 895     |   |                   |   | 1,185   |                   |  |   | 2,314             |   |  |   | 4,227   |  
|(3) Selling, general and administrative               |  |                    | 612     |   |                   |   | 2,035   |                   |  |   | 1,897             |   |  |   | 4,189   |  

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



4



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IKANOS COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands and unaudited)



|                                                                            |  |                   |         |   |                   |   |          |  
|--------------------------------------------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | -------- | -
|                                                                            |  | Nine Months Ended |        
|                                                                            |  | September 27,2009 |         |   | September 28,2008 |  
|Cash flows from operating activities:                                       |  |                   |         |   |                   |   |          |  
|Net loss                                                                    |  | $                 | (27,987 | ) |                   | $ | (35,423  | )
|Adjustments to reconcile net loss to net cash used by operating activities: |  |                   |         |   |                   |   |          |  
|Depreciation and amortization                                               |  |                   | 3,956   |   |                   |   | 4,996    |  
|Stock-based compensation expense                                            |  |                   | 4,420   |   |                   |   | 8,646    |  
|Impairments of assets and in-process research and development               |  |                   | 2,460   |   |                   |   | 18,972   |  
|Amortization of intangible assets and acquired technology                   |  |                   | 4,099   |   |                   |   | 5,018    |  
|Changes in assets and liabilities, net of effect of acquisitions:           |  |                   |         |   |                   |   |          |  
|Accounts receivable                                                         |  |                   | (5,528  | ) |                   |   | 3,325    |  
|Inventories                                                                 |  |                   | (1,498  | ) |                   |   | (600     | )
|Prepaid expenses and other assets                                           |  |                   | (1,376  | ) |                   |   | 78       |  
|Accounts payable and accrued liabilities                                    |  |                   | 12,150  |   |                   |   | (5,192   | )
|                                                                            |  |                   |         |   |                   |   |          |  
|Net cash used by operating activities                                       |  |                   | (9,304  | ) |                   |   | (180     | )
|                                                                            |  |                   |         |   |                   |   |          |  
|Cash flows from investing activities:                                       |  |                   |         |   |                   |   |          |  
|Purchases of property and equipment                                         |  |                   | (411    | ) |                   |   | (913     | )
|Purchases of investments                                                    |  |                   | (6,610  | ) |                   |   | (321,862 | )
|Maturities and sales of investments                                         |  |                   | 22,672  |   |                   |   | 313,398  |  
|Acquisitions                                                                |  |                   | (54,440 | ) |                   |   | (11,918  | )
|                                                                            |  |                   |         |   |                   |   |          |  
|Net cash used by investing activities                                       |  |                   | (38,789 | ) |                   |   | (21,295  | )
|                                                                            |  |                   |         |   |                   |   |          |  
|Cash flows from financing activities:                                       |  |                   |         |   |                   |   |          |  
|Net proceeds from private stock offerings                                   |  |                   | 38,782  |   |                   |   |         |  
|Repurchases of common stock                                                 |  |                   |        |   |                   |   | (5,205   | )
|Net proceeds from issuances of common stock and exercise of stock options   |  |                   |        |   |                   |   | 713      |  
|                                                                            |  |                   |         |   |                   |   |          |  
|Net cash provided (used) by financing activities                            |  |                   | 38,782  |   |                   |   | (4,492   | )
|                                                                            |  |                   |         |   |                   |   |          |  
|Net decrease in cash and cash equivalents                                   |  |                   | (9,311  | ) |                   |   | (25,967  | )
|Cash and cash equivalents at beginning of period                            |  |                   | 27,219  |   |                   |   | 65,126   |  
|                                                                            |  |                   |         |   |                   |   |          |  
|Cash and cash equivalents at end of period                                  |  | $                 | 17,908  |   |                   | $ | 39,159   |  
|                                                                            |  |                   |         |   |                   |   |          |  

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



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IKANOS COMMUNICATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1  Ikanos and Summary of Significant Accounting Policies

The Company

Ikanos Communications, Inc. (Ikanos or the Company) was incorporated in the State of California in April 1999 and
reincorporated in the State of Delaware in September 2005. The Company is a provider of silicon and software for interactive triple-play broadband. The Company develops and markets end-to-end products for the last mile and the digital home,
which enable carriers to offer enhanced triple play services, including voice, video and data. The Company has developed programmable, scalable chip architectures, which form the foundation for deploying and delivering triple play services. Flexible
network processor architecture with wire-speed packet processing capabilities enables high-performance residential gateways for distributing advanced services in the home. These products thus support carriers triple play deployment plans to
the digital home while keeping their capital and operating expenditures low and have been deployed by carriers in Asia, Europe and North America.

Since its inception, the Company has only been profitable in the third and fourth quarters of 2005. The Company incurred net losses of $15.5 million and $28.0 million for the three and nine months ended
September 27, 2009 and had an accumulated deficit of $211.8 million as of September 27, 2009. To achieve consistent profitability, the Company will need to generate and sustain higher revenue, while maintaining cost and expense levels
appropriate and necessary for its business.

The Companys fiscal year ends on the Sunday closest to December 31.
The Companys fiscal quarters end on the Sunday closest to the end of the applicable calendar quarter, except in a 53-week fiscal year, in which case the additional week falls into the fourth quarter of that fiscal year. There will be 53 weeks
in the current fiscal year 2009.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and all of its subsidiaries. All intercompany transactions and balances have been eliminated in
consolidation.

The accompanying unaudited condensed consolidated financial statements have been prepared without audit in
accordance with the rules and regulations of the Securities and Exchange Commission (the SEC). Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in
the United States (GAAP) have been condensed or omitted in accordance with these rules and regulations. The information in this report should be read in conjunction with our audited financial statements and notes thereto included in our Annual
Report on Form 10-K filed with the SEC on March 11, 2009.

In the opinion of management, the accompanying unaudited
condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary to state fairly our financial position, results of operations and cash flows for the interim periods presented. The
operating results for the three and nine month periods ended September 27, 2009 are not necessarily indicative of the results that may be expected for the year ending January 3, 2010 or for any other future period.

References in this Quarterly Report on Form 10-Q to authoritative guidance are to the Accounting Standards Codification issued
by the Financial Accounting Standards Board (FASB) in June 2009.

In addition, in connection with the preparation of the
condensed consolidated financial statements and in accordance with the FASBs recently issued authoritative guidance on subsequent events, the Company evaluated subsequent events after the balance sheet date of September 27, 2009 through
November 5, 2009, the date of issuance of the financial statements.

Use of Estimates

The preparation of the Companys consolidated financial statements in conformity with GAAP requires management to make certain
estimates, judgments and assumptions. The Company believes that the estimates, judgments and assumptions upon which it relies are reasonable based upon information available to it at the time that these estimates, judgments and assumptions are made.
These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenue and expenses during the periods presented. To the extent there
are material differences between these estimates and actual results, the Companys financial statements would have been affected. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not
require managements judgment in its application. There are also areas in which managements judgment in selecting any available alternative would not produce a materially different result.



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Summary of Significant Accounting Policies

Our significant accounting policies are described in Note 1 to our audited Consolidated Financial Statements for the fiscal year ended
December 28, 2008, included in our Annual Report on Form 10-K. These accounting policies have not significantly changed with the exception of those discussed below.

Concentration of Credit Risk

Financial instruments that potentially
subject the Company to significant concentrations of credit risk consist of cash, cash equivalents, investments and accounts receivable. Cash and cash equivalents are held with a limited number of financial institutions. Deposits held with these
financial institutions may exceed the amount of insurance provided on such deposits. Management believes that the financial institutions that hold the Companys investments are credit worthy and, accordingly, minimal credit risk exists
with respect to those investments. Short-term investments include a diversified portfolio of commercial paper and government agency bonds. Long-term investments are comprised of auction rate securities. All investments are classified as
available-for-sale. The Company does not hold or issue financial instruments for trading purposes.

Credit risk with respect
to accounts receivable is concentrated due to the number of large orders placed by a small number of customers in any particular reporting period. One customer represented 27% of accounts receivable at September 27, 2009. Three customers
represented 43%, 19% and 11% of accounts receivable at December 28, 2008. Three customers accounted for 19%, 17%, and 13% of revenue for the three months ended September 27, 2009. Three customers accounted for 25%, 16%, and 15% of revenue
for the nine months ended September 27, 2009. Three customers accounted for 29%, 28%, and 21% of revenue for the three months ended September 28, 2008. Four customers accounted for 25%, 24%, 18% and 12% of revenue for the nine months ended
September 28, 2008

Concentration of Suppliers

The Company subcontracts all of the manufacture, assembly and tests of its products to third-parties located primarily in Asia. As a result of this geographic concentration, a disruption in the
manufacturing process resulting from a natural disaster or other unforeseen event could have a material adverse effect on the Companys financial position and results of operations. Additionally, a small number of sources manufacture, assemble
and test the Companys products, with which the Company has no long-term contracts. Also, each product generally has only one foundry and one assembly and test provider. An inability to obtain these products and services in the amounts needed
and on a timely basis or at commercially reasonable prices could results in delays in product introductions, interruptions in product shipments or increases in product costs, which could have a material adverse effect on the Companys financial
position and results of operations.

Concentration of Other Risk

The semiconductor industry is characterized by rapid technological change, competitive pricing pressures and cyclical market patterns. The
Companys results of operations are affected by a wide variety of factors, including general economic conditions; economic conditions specific to the semiconductor industry; demand for the Companys products; the timely introduction of new
products; implementation of new manufacturing technologies; manufacturing capacity; the availability of materials and supplies; competition; the ability to safeguard patents and intellectual property in a rapidly evolving market; and reliance on
assembly and wafer fabrication subcontractors and on independent distributors and sales representatives. As a result, the Company may experience substantial period-to-period fluctuations in future periods due to the factors mentioned above,
factors described in the section titled Item 1A. Risk Factors or other factors.

Comprehensive Loss

Comprehensive loss is defined as the change in equity of a business during a period from transactions and other events and circumstances from
non-owner sources. The components of comprehensive loss are as follows (in thousands):



|                                                                  |  |                   |         |   |                   |   |         |  
|----------------------------------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | -
|                                                                  |  | Nine Months Ended |        
|                                                                  |  | September 27,2009 |         |   | September 28,2008 |  
|Net loss                                                          |  | $                 | (27,987 | ) |                   | $ | (35,423 | )
|Other comprehensive lossunrealized loss on marketable securities |  |                   | (133    | ) |                   |   | (73     | )
|                                                                  |  |                   |         |   |                   |   |         |  
|                                                                  |  | $                 | (28,120 | ) |                   | $ | (35,496 | )
|                                                                  |  |                   |         |   |                   |   |         |  



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Net Loss per Share

FASB authoritative guidance requires that basic net loss per share should be computed using the weighted-average number of common shares outstanding during the period. Potentially dilutive securities
should be excluded from the computation of diluted net loss per share if their inclusion is anti-dilutive. The calculation of basic and diluted net loss per share is as follows (in thousands, except per share amounts):



|                                                                 |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|---------------------------------------------------------------- |  | ------------------ | ------- | - | ----------------- | - | ------- | ----------------- |  | - | ----------------- | - |  | - | ------- | -
|                                                                 |  | Three Months Ended |         |   | Nine Months Ended |  
|                                                                 |  | September 27,2009  |         |   | September 28,2008 |   |         | September 27,2009 |  |   | September 28,2008 |  
|Net loss                                                         |  | $                  | (15,454 | ) |                   | $ | (26,666 | )                 |  | $ | (27,987           | ) |  | $ | (35,423 | )
|                                                                 |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|Weighted average number of shares, basic and diluted outstanding |  |                    | 38,802  |   |                   |   | 28,565  |                   |  |   | 32,466            |   |  |   | 29,139  |  
|                                                                 |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  
|                                                                 |  | $                  | (0.40   | ) |                   | $ | (0.93   | )                 |  | $ | (0.86             | ) |  | $ | (1.22   | )
|                                                                 |  |                    |         |   |                   |   |         |                   |  |   |                   |   |  |   |         |  

The following potential common shares have been excluded from the calculation of
diluted net loss per share as their effect would have been anti-dilutive (in thousands):



|                                                  |  |                    |  |                   |  |                   |  |                  
|------------------------------------------------- |  | ------------------ |  | ----------------- |  | ----------------- |  | -----------------
|                                                  |  | Three Months Ended |  | Nine Months Ended
|                                                  |  | September 27,2009  |  | September 28,2008 |  | September 27,2009 |  | September 28,2008
|Anti-dilutive securities:                         |  |                    |  |                   |  |                   |  |                  
|Weighted average restricted stock units           |  | 2,549              |  | 1,585             |  | 2,289             |  | 1,594            
|Weighted-average options to purchase common stock |  | 2,532              |  | 2,542             |  | 2,174             |  | 2,244            
|                                                  |  |                    |  |                   |  |                   |  |                  
|                                                  |  | 5,081              |  | 4,127             |  | 4,463             |  | 3,838            
|                                                  |  |                    |  |                   |  |                   |  |                  

Recent Accounting Pronouncements

In March 2009, the Financial Accounting Standards Board (FASB) unanimously voted for theFASB Accounting Standards Codification (the
Codification) to be effective July 1, 2009. Other than resolving certain minor inconsistencies in current GAAP, the Codification is not supposed to change GAAP, but is intended to make it easier to find and research GAAP applicable
to particular transactions or specific accounting issues. The Codification is a new structure which takes accounting pronouncements and organizes them by approximately ninety accounting topics. Once approved, the Codification will be the single
source of authoritative GAAP. All guidance included in the Codification will be considered authoritative at that time, even guidance that comes from what is currently deemed to be a non-authoritative section of a standard. Once the Codification
becomes effective, all non-grandfathered, non-SEC accounting literature not included in the Codification will become non-authoritative.

In April 2009, the FASB provided guidelines for making fair value measurements more consistent with the principles already in effect. The guidance relates to determining fair values when there is no
active market or where the price inputs being used represent distressed sales. It reaffirms that the objective of fair value measurement is to reflect how much an asset would be sold for in an orderly transaction (as opposed to a distressed or
forced transaction) at the date of the financial statements under current market conditions. Specifically, it reaffirms the need to use judgment to ascertain if a formerly active market has become inactive and in determining fair values when markets
have become inactive. The authoritative guidance, effective beginning with the Companys interim reporting period ending on June 28, 2009, had no impact on the Companys consolidated financial position, results of operations or cash
flows.

In April 2009, the FASB issued authoritative guidance to enhance consistency in financial reporting by increasing the
frequency of fair value disclosures. The authoritative guidance relates to fair value disclosures for any financial instruments that are not currently reflected in a companys balance sheet at fair value. Prior to this guidance, fair values for
these assets and liabilities have only been disclosed once a year. The authoritative guidance requires these disclosures on a quarterly basis, thereby providing qualitative and quantitative information about fair value estimates for all those
financial instruments not measured on the balance sheet at fair value. The disclosure requirement was effective for the Companys interim reporting period ending on June 28, 2009. The implementation this guidance had no impact on the
Companys consolidated financial position, results of operations or cash flows.

In April 2009, the FASB provided
additional guidance designed to create greater clarity and consistency in accounting and presenting impairment losses on securities. The guidance brought greater consistency to the timing of impairment recognition, and provided greater clarity to
investors about the credit and noncredit components of impaired debt securities that are not expected to be sold. The measure of impairment in comprehensive income remains fair value. This authoritative guidance also requires increased and more
timely disclosures regarding expected cash flows, credit losses, and an aging of securities with unrealized losses. The guidance was effective beginning with the Companys interim reporting period ending on June 28, 2009. The
implementation had no impact on the Companys consolidated financial position, results of operations or cash flows.

In
September 2009, the FASB issued authoritative guidance related to revenue recognition for certain revenue arrangements that include software elements. Previously, companies that sold tangible products with more than incidental software
were required to apply software revenue recognition guidance. This guidance often delayed revenue recognition for the



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delivery of the tangible product. Under the new guidance, tangible products that have software components that are essential to the functionality of the tangible product will be
excluded from the software revenue recognition guidance. The new guidance is to be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with earlier
application permitted. The authoritative guidance will have no effect on our consolidated financial position, results of operations or cash flows.

Note 2  Acquisition of Broadband Access Product Line of Conexant

On August 24, 2009, the Company
acquired the Broadband Access product line (the BBA) of Conexant Systems, Inc. (Conexant), which includes the product-related intellectual property, patents, fixed assets and inventory of the product line for a total purchase
price of $53.1 million in cash and the assumption of approximately $6.4 million in employee and lease related liabilities. Adding the Broadband Access products and engineers to Ikanos existing portfolio of VDSL solutions has doubled the size
of the Company, expanded its reach into new geographic and product markets and added new research and development capabilities to the existing engineering team. The addition of the BBA is expected to allow the Company to develop semiconductor and
software products for new markets within the digital home in addition to serving the Companys Broadband DSL and Communications Processors businesses.

The following is a summary of the assets acquired and liabilities assumed by Ikanos as of August 24, 2009 (acquisition date) reconciled to the consideration paid (in thousands):



|                                   |  |   |        |  
|---------------------------------- |  | - | ------ | -
|Inventory                          |  | $ | 20,545 |  
|Property and equipment, net        |  |   | 1,982  |  
|Intangible assets                  |  |   | 28,302 |  
|                                   |  |   |        |  
|Total identifiable assets acquired |  |   | 50,829 |  
|                                   |  |   |        |  
|Employee related liabilities       |  |   | (3,293 | )
|Real estate lease liabilities      |  |   | (3,102 | )
|                                   |  |   |        |  
|Total liabilities assumed          |  |   | (6,395 | )
|                                   |  |   |        |  
|Net identifiable assets acquired   |  |   | 44,434 |  
|Goodwill                           |  |   | 8,633  |  
|                                   |  |   |        |  
|Net assets acquired                |  | $ | 53,067 |  
|                                   |  |   |        |  

Tangible assets acquired consisted of inventory totaling $20.5 million and property
and equipment $2.0 million and were assigned a fair value as of the date of acquisition based on the expected selling price and replacement value, respectively. As discussed further below, the identified intangible assets acquired were assigned fair
values in accordance with the FASBs authoritative guidance. The Company believes that these identified intangible assets have no residual value. The identifiable intangible assets acquired are as follows (in thousands):



|                                            |  |                    |        |                    |         
|------------------------------------------- |  | ------------------ | ------ | ------------------ | --------
|Acquired Intangible Assets:                 |  | EstimatedFairValue |        | ExpectedUsefulLife
|Existing technologies                       |  | $                  | 13,390 |                    | 3 years 
|In-process research and development (IPR&D) |  |                    | 4,935  |                    | *       
|Customer relationships                      |  |                    | 8,216  |                    | 4 years 
|Order backlog                               |  |                    | 1,761  |                    | 0.5 year
|                                            |  |                    |        |                    |         
|                                            |  | $                  | 28,302 |                    |         
|                                            |  |                    |        |                    |         



|* | Technical feasibility of the IPR&D has not been reached and, therefore, a useful life has not been determined
|- | -------------------------------------------------------------------------------------------------------------

Existing Technology: The existing technology comprises products that have reached technological feasibility and consists primarily of
the BBAs SHDSL, ADSL and VDSL products. The Company valued the existing technology using the income approach and a discounted cash flow (DCF) model, which uses forecasts of future revenue and expense related to the intangible asset. The
Company utilized a discount rate of 22% for existing technology and is amortizing the intangible assets on a straight-line basis over their estimated useful life of three years.

Acquired IPR&D:Acquired IPR&D relates to projects that as of the acquisition date have not been completed. IPR&D assets
are initially recognized at fair value and have indefinite useful lives until the successful completion or abandonment of the associated research and development efforts. Accordingly, during the development period after the acquisition date, these
assets will not be amortized into results of operations; instead these assets will be subject to periodic impairment testing. Upon successful completion of the development process for an IPR&D project, determination as to the useful life of the
asset will be made; at that point in time, the asset would then be considered as having a finite-life and Ikanos would begin to amortize the asset into earnings. The Company valued the IPR&D using the income approach and a DCF model with a
discount rate of 22%.

IPR&D comprised mainly of two projects in process as of the acquisition date. The two projects were
next generation VDSL solutions, one for the access line of business and the other for the gateway line. After reviewing the two projects, it was determined that further development of the access project was not required and was abandoned.
Accordingly, the Company recorded an operating asset impairment charge of $2.5 million.



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The gateway project will continue to be developed and is expected to come to market in the
second half of 2010. At that time, the expected useful life will be determined. However, based on the Companys experience with similar gateway products, it is expected that the useful life will be approximately three years.

Customer Relationships: The customer-relationships asset relates to the ability to sell existing and future versions of products to
existing customers and has been estimated using the income method. The Company valued customer relationships utilizing a DCF model and a discount rate of 20% and is amortizing this intangible asset on a straight-line basis over its estimated useful
life of four years.

Order Backlog: The order backlog asset represents the value of the sales and marketing costs
required to establish the order backlog and was valued using the income approach and a DCF model with a discount rate of 8%. The order backlog has an estimated useful life of six months.

Goodwill represents the excess of the purchase price over the fair value of the identifiable intangible assets and fixed assets acquired.
Goodwill of $8.6 million was assigned to Ikanos single segment reporting structure. Goodwill of approximately $4.9 million is expected to be deductible for income tax purposes.

The liabilities assumed of $6.4 million comprised of personnel liabilities totaling $3.3 million, excess lease liabilities of $2.9 million
and other liabilities totaling $0.2 million. Personnel liabilities are comprised of assumed vacation and foreign statutory pension costs as well as reimbursement to Conexant of severance costs for employees associated with the BBA, but did not
transfer on Day 1 of the acquisition. The excess lease liability is a combination of unfavorable rent rates and excess space at a couple of assumed leased properties. The liability will be amortized over the reaming lease term of up two years.

The amounts of the BBAs revenue and earnings included in Ikanos condensed consolidated income statement for the
nine months ended September 27, 2009 is $5.2 million and a loss of $2.9 million, respectively.

The unaudited pro forma
revenue, net loss and net loss per share give effect to the BBA acquisition as if it occurred at the beginning of each of the periods presented below. Adjustments were made for the amortization of BBA acquisition related intangible assets and for
excess lease costs as if the BBA acquisition had occurred at the beginning of each period reported.

Pro forma consolidated
results for the nine months ended 2009 and 2008 are as follows (in thousands, except per share data):



|                                                                |  |                           |         |   |                   |   |          |  
|--------------------------------------------------------------- |  | ------------------------- | ------- | - | ----------------- | - | -------- | -
|                                                                |  | For the Nine Months Ended |        
|                                                                |  | September 27,2009         |         |   | September 28,2008 |  
|Pro forma revenue                                               |  | $                         | 157,099 |   |                   | $ | 209,202  |  
|Pro forma net loss                                              |  | $                         | (50,711 | ) |                   | $ | (185,180 | )
|Pro forma basic and diluted net loss per share                  |  | $                         | (0.95   | ) |                   | $ | (3.48    | )
|Pro forma weighted average basic and diluted outstanding shares |  |                           | 53,389  |   |                   |   | 53,139   |  

The following is a reconciliation of reported weighted average basic and diluted
outstanding shares to pro forma weighted average basic and diluted outstanding shares (thousands):



|                                                                                                                     |  |                           |   |  |                  
|-------------------------------------------------------------------------------------------------------------------- |  | ------------------------- | - |  | -----------------
|                                                                                                                     |  | For the Nine Months Ended
|                                                                                                                     |  | September 27,2009         |   |  | September 28,2008
|Weighted average basic and diluted outstanding shares as reported                                                    |  | 32,466                    |   |  | 29,139           
|Excluding effect of Tallwood investment on reported weighted average shares (see Note 10)                            |  | (3,077                    | ) |  |                 
|Weighted average number of shares issued to Tallwood Investors as if issued at the beginning of the reporting
period |  | 24,000                    |   |  | 24,000           
|                                                                                                                     |  |                           |   |  |                  
|Pro forma weighted average basic and diluted shares                                                                  |  | 53,389                    |   |  | 53,139           
|                                                                                                                     |  |                           |   |  |                  



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Note 3  Investments and Fair Value Measurements

The following is a summary of short-term investments (in thousands):



|                                                |  |                    |        |                            |   |                    |  |   |       
|----------------------------------------------- |  | ------------------ | ------ | -------------------------- | - | ------------------ |  | - | ------
|                                                |  | September 27, 2009
|                                                |  | Cost               |        | GrossUnrealizedGain/(Loss) |   | EstimatedFairValue
|U.S. government agencies                        |  | $                  | 17,610 |                            | $ | 137                |  | $ | 17,747
|Corporate bonds and notes                       |  |                    | 2,156  |                            |   | 22                 |  |   | 2,178 
|                                                |  |                    |        |                            |   |                    |  |   |       
|Total short-term investments                    |  | $                  | 19,766 |                            | $ | 159                |  | $ | 19,925
|                                                |  |                    |        |                            |   |                    |  |   |       
|Long-term investments - auction rate securities |  | $                  | 1,034  |                            | $ |                   |  | $ | 1,034 
|                                                |  |                    |        |                            |   |                    |  |   |       
|                                                | 
|                                                |  | December 28, 2008 
|                                                |  | Cost               |        | GrossUnrealizedGain/(Loss) |   | EstimatedFairValue
|U.S. government agencies                        |  | $                  | 25,570 |                            | $ | 252                |  | $ | 25,822
|Corporate bonds and notes                       |  |                    | 10,258 |                            |   | 40                 |  |   | 10,298
|                                                |  |                    |        |                            |   |                    |  |   |       
|Total short-term investments                    |  | $                  | 35,828 |                            | $ | 292                |  | $ | 36,120
|                                                |  |                    |        |                            |   |                    |  |   |       
|Long-term investments - auction rate securities |  | $                  | 1,034  |                            | $ |                   |  | $ | 1,034 
|                                                |  |                    |        |                            |   |                    |  |   |       

Marketable securities are classified as available-for-sale as of the balance sheet
date and are reported at fair value with unrealized gains and losses reported as a separate component of accumulated other comprehensive income (loss) in stockholders equity. Realized gains and losses and permanent declines in value, if any,
on available-for-sale securities are reported in other income or expense as incurred. Estimated fair values were determined for each individual security in the investment portfolio. The declines in value of these investments are primarily related to
changes in interest rates and are considered to be temporary in nature.

A portion of the Companys available-for-sale
U.S. government agencies and corporate bonds and notes have maturity dates greater than one year from the date of purchase. Even though the stated maturity dates of these investments may be one year or more beyond the balance sheet dates, the
Company has classified these securities as short-term investments. In accordance with authoritative guidance related to working capitalCurrent Assets and Current Liabilities, the Company views its available-for-sale portfolio as
available for use in its current operations. Based upon historical experience in the financial markets as well as the Companys specific experience with these investments, the Company believes there is a reasonable expectation that the
investments will be realized in cash or sold during the next year.

Our marketable securities portfolio as of
September 27, 2009 was $33.0 million and approximately 3.1% of the portfolio are auction rate securities. Auction rate securities are securities that are structured with short-term interest rate reset dates of generally less than ninety days
but with contractual maturities that can be well in excess of ten years. At the end of each reset period, which occurs every seven to thirty-five days, investors can sell or continue to hold the securities at par. These securities are subject to
fluctuations in fair value depending on the supply and demand at each auction. The portfolio includes $7.2 million (at original cost) invested in non-guaranteed auction rate securities all of which are currently associated with failed auctions and
have been in a loss position for over 12 months. During the third quarter of 2008, the Company recorded an other-than-temporary impairment loss of approximately $6.2 million on auction rate securities that was recognized as credit related
impairments in earnings. Authoritative guidance requires entities to separate an other-than-temporary impairment of a debt security into two components (credit and non-credit losses) when there are losses associated with the impaired debt security
for which management asserts that it does not have the intent to sell the security, and it is more likely than not that it will not be required to sell the security before recovery of its cost basis. The funds associated with the securities for
which auctions have failed will not be accessible until a successful auction occurs, a buyer is found outside of the auction process or the underlying securities have matured. These investments have maturities from 2025 to 2050. It is unlikely that
the Company will be able to hold these securities until recovery of the original cost basis of these securities. Therefore, this other than temporary loss was considered to be a 100% credit-related loss associated with the impaired security. As the
underlying securities are not expected to be held until recovery, authoritative guidance does not require the separation of this loss. The implementation of this guidance had no impact the Companys consolidated financial position, results of
operations or cash flows.

Fair Value Measurements

Authoritative guidance clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, authoritative
guidance establishes a three-tier value hierarchy, which



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prioritizes the inputs used in measuring fair value as follows: observable inputs such as quoted prices in active markets (Level 1); inputs other than the quoted prices in active markets
that are observable either directly or indirectly (Level 2); and unobservable inputs in which there is little or no market data, which require the Company to develop its own assumptions (Level 3). This hierarchy requires the Company to use
observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. On a recurring basis, the Company measures certain financial assets, mainly comprised of marketable securities, at fair value.

The Companys cash and investment instruments are classified within all three levels of the fair value hierarchy. The
types of Level 1 instruments, valued based on quoted market prices in active markets, include money market securities. Level 2 types of instruments, valued based on other observable inputs, include investment-grade U.S. government agencies,
commercial paper and corporate bonds and notes. Level 3 types of instruments, valued based on unobservable inputs in which there is little or no market data, which require the Company to develop its own assumptions, include auction rate securities.
The fair value hierarchy of our marketable securities as of September 27, 2009 and December 28, 2008 is (in thousands):



|                          |  |                    |        |         |   |         |  |       |       |  |   |       
|------------------------- |  | ------------------ | ------ | ------- | - | ------- |  | ----- | ----- |  | - | ------
|                          |  | September 27, 2009
|                          |  | Level 1            |        | Level 2 |   | Level 3 |  | Total
|Money market funds (1)    |  | $                  | 12,090 |         | $ |        |  | $     |      |  | $ | 12,090
|U.S. government agencies  |  |                    |       |         |   | 17,747  |  |       |      |  |   | 17,747
|Corporate bonds and notes |  |                    |       |         |   | 2,178   |  |       |      |  |   | 2,178 
|Auction rate securities   |  |                    |       |         |   |        |  |       | 1,034 |  |   | 1,034 
|                          |  |                    |        |         |   |         |  |       |       |  |   |       
|                          |  | $                  | 12,090 |         | $ | 19,925  |  | $     | 1,034 |  | $ | 33,049
|                          |  |                    |        |         |   |         |  |       |       |  |   |       
|                          | 
|                          |  | December 28, 2008 
|                          |  | Level 1            |        | Level 2 |   | Level 3 |  | Total
|Money market funds (1)    |  | $                  | 10,047 |         | $ |        |  | $     |      |  | $ | 10,047
|Commercial paper (1)      |  |                    |       |         |   | 13,988  |  |       |      |  |   | 13,988
|U.S. government agencies  |  |                    |       |         |   | 25,822  |  |       |      |  |   | 25,822
|Corporate bonds and notes |  |                    |       |         |   | 10,298  |  |       |      |  |   | 10,298
|Auction rate securities   |  |                    |       |         |   |        |  |       | 1,034 |  |   | 1,034 
|                          |  |                    |        |         |   |         |  |       |       |  |   |       
|                          |  | $                  | 10,047 |         | $ | 50,108  |  | $     | 1,034 |  | $ | 61,189
|                          |  |                    |        |         |   |         |  |       |       |  |   |       



|(1) | Commercial paper and money market funds are classified as cash equivalents.
|--- | ---------------------------------------------------------------------------

There have been no changes in our Level 3 securities during the three and nine months ended September 27, 2009.

Note 4  Inventory

Inventory consisted of the following (in
thousands):



|                                  |  |                   |        |                  |   |       
|--------------------------------- |  | ----------------- | ------ | ---------------- | - | ------
|                                  |  | September 27,2009 |        | December 28,2008
|Finished goods                    |  | $                 | 11,923 |                  | $ | 4,482 
|Work-in-process                   |  |                   | 20,588 |                  |   | 7,480 
|Purchased parts and raw materials |  |                   | 2,021  |                  |   | 527   
|                                  |  |                   |        |                  |   |       
|                                  |  | $                 | 34,532 |                  | $ | 12,489
|                                  |  |                   |        |                  |   |       

Note 5  Property and Equipment

Property and equipment consisted of the following (in thousands):



|                                                |  |                   |         |   |                  |   |         |  
|----------------------------------------------- |  | ----------------- | ------- | - | ---------------- | - | ------- | -
|                                                |  | September 27,2009 |         |   | December 28,2008 |  
|Machinery and equipment                         |  | $                 | 19,356  |   |                  | $ | 17,630  |  
|Software                                        |  |                   | 10,742  |   |                  |   | 10,641  |  
|Computer equipment                              |  |                   | 4,217   |   |                  |   | 3,770   |  
|Furniture and fixtures                          |  |                   | 864     |   |                  |   | 886     |  
|Leasehold improvements                          |  |                   | 824     |   |                  |   | 838     |  
|Not yet placed in service                       |  |                   | 219     |   |                  |   | 418     |  
|                                                |  |                   |         |   |                  |   |         |  
|                                                |  |                   | 36,222  |   |                  |   | 34,183  |  
|Less: Accumulated depreciation and amortization |  |                   | (28,189 | ) |                  |   | (24,586 | )
|                                                |  |                   |         |   |                  |   |         |  
|                                                |  | $                 | 8,033   |   |                  | $ | 9,597   |  
|                                                |  |                   |         |   |                  |   |         |  

Depreciation and amortization expense for property and equipment was $1.2 million and
$1.6 million for the three months ended September 27, 2009 and September 28, 2008, respectively. Depreciation and amortization expense for property and equipment was $4.0 million and $5.0 million for the nine months ended
September 27, 2009 and September 28, 2008, respectively.



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Note 6  Intangible Assets

The carrying value of intangible assets as of September 27, 2009 is as follows (in thousands):



|                                    |  |                      |        |                         |   |         |           |  |                                   |        |  |    
|----------------------------------- |  | -------------------- | ------ | ----------------------- | - | ------- | --------- |  | --------------------------------- | ------ |  | ---
|                                    |  | Gross CarryingAmount |        | AccumulatedAmortization |   |         | NetAmount |  | WeightedAverageuseful life(Years)
|Existing technology                 |  | $                    | 23,184 |                         | $ | (9,135  | )         |  | $                                 | 14,049 |  | 3  
|Customer relationships              |  |                      | 13,946 |                         |   | (3,858  | )         |  |                                   | 10,088 |  | 4  
|Order backlog                       |  |                      | 1,761  |                         |   | (340    | )         |  |                                   | 1,421  |  | 0.5
|In-process research and development |  |                      | 3,910  |                         |   |        |           |  |                                   | 3,910  |  | *  
|                                    |  |                      |        |                         |   |         |           |  |                                   |        |  |    
|                                    |  | $                    | 42,801 |                         | $ | (13,333 | )         |  | $                                 | 29,468 |  |    
|                                    |  |                      |        |                         |   |         |           |  |                                   |        |  |    



|* | Technical feasibility of the IPR&D has not been reached and, therefore, a useful life has not been determined
|- | -------------------------------------------------------------------------------------------------------------

The carrying amount of intangible assets as of December 28, 2008 is as follows (in thousands):



|                       |  |                      |        |                         |   |        |           |  |                                   |       |  |  
|---------------------- |  | -------------------- | ------ | ----------------------- | - | ------ | --------- |  | --------------------------------- | ----- |  | -
|                       |  | Gross CarryingAmount |        | AccumulatedAmortization |   |        | NetAmount |  | Weightedaverageuseful life(Years)
|Existing technology    |  | $                    | 9,795  |                         | $ | (6,664 | )         |  | $                                 | 3,131 |  | 4
|Customer relationships |  |                      | 5,730  |                         |   | (2,571 | )         |  |                                   | 3,159 |  | 5
|                       |  |                      |        |                         |   |        |           |  |                                   |       |  |  
|                       |  | $                    | 15,525 |                         | $ | (9,235 | )         |  | $                                 | 6,290 |  |  
|                       |  |                      |        |                         |   |        |           |  |                                   |       |  |  

For the three months ended September 27, 2009 and September 28, 2008, the
amortization of intangible assets was $1.9 million and $1.5 million, respectively. For the nine months ended September 27, 2009 and September 28, 2008, the amortization of intangible assets was $4.1 million and $5.0 million, respectively.
The estimated future amortization of purchased intangible assets as of September 27, 2009 is $3.7 million for the remainder of 2009, $9.2 million in 2010, $8.0 million in 2011, 6.3 million in 2012 and $2.3 million in 2013.

The carrying value of goodwill increased $8.6 million as of September 27, 2009 due to the acquisition of the Conexant BBA product line.

Note 7  Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):



|                                  |  |                   |        |                  |   |      
|--------------------------------- |  | ----------------- | ------ | ---------------- | - | -----
|                                  |  | September 27,2009 |        | December 28,2008
|Compensation and related benefits |  | $                 | 6,446  |                  | $ | 3,826
|Excess lease liability            |  |                   | 1,537  |                  |   |     
|Royalties                         |  |                   | 940    |                  |   | 654  
|Rebates                           |  |                   | 701    |                  |   | 918  
|Warranty                          |  |                   | 480    |                  |   | 745  
|Restructuring charges             |  |                   | 426    |                  |   | 190  
|Other accrued liabilities         |  |                   | 5,064  |                  |   | 2,347
|                                  |  |                   |        |                  |   |      
|                                  |  | $                 | 15,594 |                  | $ | 8,680
|                                  |  |                   |        |                  |   |      

The following table summarizes the activity related to warranty (in thousands):



|                                         |  |                   |      |   |                   |   |       |  
|---------------------------------------- |  | ----------------- | ---- | - | ----------------- | - | ----- | -
|                                         |  | Nine Months Ended |     
|                                         |  | September 27,2009 |      |   | September 28,2008 |  
|Balance, beginning of period             |  | $                 | 745  |   |                   | $ | 1,055 |  
|Accrual for warranties during the period |  |                   | 182  |   |                   |   | 609   |  
|Usage during the period                  |  |                   | (447 | ) |                   |   | (759  | )
|                                         |  |                   |      |   |                   |   |       |  
|Balance, end of period                   |  | $                 | 480  |   |                   | $ | 869   |  
|                                         |  |                   |      |   |                   |   |       |  

Note 8  Long-term Liabilities

Long-term liabilities consist of the following (in thousands):



|                       |  |                   |       |                  |   |  
|---------------------- |  | ----------------- | ----- | ---------------- | - | -
|                       |  | September 27,2009 |       | December 28,2008
|Vendor payable         |  | $                 | 2,201 |                  | $ | 
|Excess lease liability |  |                   | 1,247 |                  |   | 
|                       |  |                   |       |                  |   |  
|                       |  | $                 | 3,448 |                  | $ | 
|                       |  |                   |       |                  |   |  



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Note 9  Restructuring Charges

During the first quarter of 2009, the Company implemented a restructuring plan to combine design centers in India and to reduce its cost
structure in North America. Restructuring charges of $0.3 million related to the termination of 30 persons, 13 of whom were located in India and 17 in the United States. In addition, the Company relocated the remaining personnel and equipment from
Hyderabad, India to Bangalore, India during the second quarter of 2009. During the third quarter of 2009, the Company incurred $0.5 million of personnel expenses bringing restructuring charges to $1.0 million for the year. A summary of the
restructuring activity follows (in thousands):



|                                 |  |                      |       |   |               |   |      |       |  |   |       |  
|-------------------------------- |  | -------------------- | ----- | - | ------------- | - | ---- | ----- |  | - | ----- | -
|                                 |  | SeveranceandBenefits |       |   | SoftwareTools |   |      | Total | 
|Balance as of December 28, 2008  |  | $                    |      |   |               | $ | 190  |       |  | $ | 190   |  
|Restructuring charges            |  |                      | 1,048 |   |               |   |     |       |  |   | 1,048 |  
|Cash payments                    |  |                      | (622  | ) |               |   | (190 | )     |  |   | (812  | )
|                                 |  |                      |       |   |               |   |      |       |  |   |       |  
|Balance as of September 27, 2009 |  | $                    | 426   |   |               | $ |     |       |  | $ | 426   |  
|                                 |  |                      |       |   |               |   |      |       |  |   |       |  

Note 10  Tallwood Investment

In order to complete the BBA acquisition, the Company negotiated a $42.0 million cash investment by Tallwood III, L.P. Tallwood III Annex,
L.P. and certain of their affiliates (collectively, the Tallwood Investors) pursuant to which the Company sold to the Tallwood Investors (i) 24 million shares of Ikanos common stock, par value $0.001 per share (the Common
Stock), and (ii) warrants to purchase up to 7.8 million shares of Common Stock (the Warrants). The transaction was completed on August 24, 2009, and the purchase price of each share of Common Stock and the exercise
price of each warrant to purchase a share of Common Stock under the securities purchase agreement was $1.75. In addition, the Company issued to the Tallwood Investors one share (the Voting Share) of Series A Preferred Stock, which
provides the Tallwood Investors certain voting rights solely with respect to election of a minority of the members of the Board of Directors but does not share in the economics of Ikanos. The 24 million shares of Common Stock, Warrants and the
Voting Share collectively are referred to as the Tallwood Investment.

The net proceeds for the Tallwood Investment were $38.8
million after capitalizing transaction-related costs of $3.2 million. The $3.2 million in transaction related costs consisted of investment banker, legal and accounting fees.

The value attributed to the Warrants was $7.6 million and was estimated as of August 24, 2009 using the Black-Scholes option pricing
model with the assumptions of an expected volatility of 62.5%, expected term of five years, no expected dividends and a risk free interest rate of 2.5%. The expected volatility is based on a blend of the volatility of the Companys peer group
in the industry in which it does business and the Companys historical volatility. The expected term is five years which is equal to the life of the Warrants. The risk free interest rate is the yield on zero-coupon U.S. treasury securities for
a period that is commensurate with the expected term assumption.

Assuming the exercise of the Warrants and the shares
outstanding as of September 27, 2009, the Tallwood Investors would own 52% of the Companys outstanding common stock post closing. However, through a stockholder agreement, the Tallwood Investors voting rights are restricted to 35%.

The issuance of the securities (described above) to the Tallwood Investors caused a change in ownership within the meaning of
Internal Revenue Code Section 382 and limits all unutilized net operating loss carryforwards.

Note 11  Commitments and
Contingencies

Lease Obligations

The Company leases office facilities under non-cancelable operating leases with various expiration dates through 2014. Rent expense for the three months ended September 27, 2009 and
September 28, 2008 was $0.5 million and $0.3 million, respectively. Rent expense for the nine months ended September 27, 2009 and September 28, 2008 was $1.0 million and $1.0 million, respectively. The terms of the facility leases
provide for rental payments on a graduated scale. The Company recognizes rent expense on a straight-line basis over the lease period and has accrued for rent expense incurred but not paid. Future minimum lease payments as of September 27, 2009
under non-cancelable leases with original terms in excess of one year are $1.0 million for the remainder of 2009, $4.0 million in 2010 and $2.3 million in 2011, $0.5 million in 2012, and 0.8 million in 2013 and thereafter.



14



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##### Table of Contents

Purchase Commitments

The Company has entered into three software license agreements that require aggregate payments of $6.4 million, to be paid as follows: $1.2 million during the remainder of 2009, $2.6 million in 2010, $1.9
million in 2011 and $0.7 million in 2012. In addition, the Company entered into a technology access agreement with payments scheduled for $0.5 million in 2009. As of September 27, 2009, the Company had $7.6 million of inventory purchase
obligations with various suppliers.

Indemnities, Commitments and Guarantees

During its normal course of business, the Company has made certain indemnities, commitments and guarantees under which it may be required to
make payments in relation to certain transactions. These indemnities include intellectual property indemnities to the Companys customers in connection with the sales of its products, indemnities for liabilities associated with the infringement
of other parties technology based upon the Companys products, and indemnities to various lessors in connection with facility leases for certain claims arising from such facility or lease. The duration of these indemnities, commitments
and guarantees varies, and in certain cases, is indefinite. The majority of these indemnities, commitments and guarantees do not provide for any limitation of the maximum potential future payments that the Company could be obligated to make. The
Company believes its internal development processes and other policies and practices limit its exposure related to the indemnification provisions of the various agreements that include indemnity provisions. In addition, the Company requires its
employees to sign a proprietary information and inventions agreement, which assigns the rights to its employees development work to the Company. The Company has not recorded any liability for these indemnities, commitments and guarantees in
the accompanying consolidated balance sheets. The Company does, however, accrue for losses for any known contingent liability, including those that may arise from indemnification provisions, when future payment is probable and the amount of the loss
can be reasonably estimated, in accordance with the FASBs authoritative guidance.

In addition, the Company indemnifies
its officers and directors under the terms of indemnity agreements entered into with them, as well as pursuant to its certificate of incorporation, bylaws and applicable Delaware law. To date, the Company has not incurred any costs related to these
indemnifications.

Litigation

In November 2006, three putative class action lawsuits were filed in the United States District Court for the Southern District of New York against the Company, its directors and two former executive
officers, as well as the lead underwriters for its initial and secondary public offerings. The lawsuits were consolidated and an amended complaint was filed on April 24, 2007. The amended complaint sought unspecified damages for
certain alleged material misrepresentations and omissions made by the Company in connection with both its initial public offering in September 2005 and its follow-on offering in March 2006. The Court dismissed the case with prejudice on
March 10, 2008. On March 25, 2008, plaintiffs filed a motion for reconsideration, and on June 12, 2008, the District Court denied the motion for reconsideration. On October 15, 2008, plaintiffs appealed the District Courts
dismissal of the amended complaint and denial of its motion for reconsideration to the United States Court of Appeals for the Second Circuit. On September 17, 2009, the Second Circuit issued a summary order, vacating the District Courts
denial of plaintiffs motion for reconsideration, and remanding the case to the District Court for further consideration. The District Court has taken no action since September 17, 2009; however, an adverse result in the litigation could
have a material effect on its financial statements.

Additionally, from time to time, the Company is a party to various legal
proceedings and claims arising from the normal course of business activities. Based on current available information, the Company does not expect that the ultimate outcome of any currently pending unresolved matters, individually or in the
aggregate, will have a material adverse effect on its financial position, results of operations or cash flows.

Note 12  Significant
Customer Information and Segment Reporting

Authoritative guidance concerning disclosures about segments of an enterprise
establishes standards for the manner in which public companies report information about operating segments in annual and interim financial statements. It also establishes standards for related disclosures about products and services, geographic
areas and major customers. The method for determining the information to report is based on the way management organizes the operating segments within the Company for making operating decisions and assessing financial performance.

The Companys chief operating decision-maker is considered to be the Chief Executive Officer. The Chief Executive Officer reviews
financial information presented on a consolidated basis, accompanied by disaggregated information about revenue by geographic region for purposes of making operating decisions and assessing financial performance. On this basis, the Company is
organized and operates in a single segment: the design, development, marketing and sale of semiconductors.



15



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##### Table of Contents

The following table summarizes revenue by geographic region, based on the country in which
the customers headquarters office is located (in thousands):



|              |  |                    |        |                   |   |                   |  |                   |        |  |   |       
|------------- |  | ------------------ | ------ | ----------------- | - | ----------------- |  | ----------------- | ------ |  | - | ------
|              |  | Three Months Ended |        | Nine Months Ended
|              |  | September 27,2009  |        | September 28,2008 |   | September 27,2009 |  | September 28,2008
|Asia          |  | $                  | 19,003 |                   | $ | 15,393            |  | $                 | 37,910 |  | $ | 51,528
|Europe        |  |                    | 7,884  |                   |   | 5,703             |  |                   | 27,469 |  |   | 26,317
|North America |  |                    | 2,447  |                   |   | 3,082             |  |                   | 7,118  |  |   | 5,885 
|              |  |                    |        |                   |   |                   |  |                   |        |  |   |       
|              |  | $                  | 29,334 |                   | $ | 24,178            |  | $                 | 72,497 |  | $ | 83,730
|              |  |                    |        |                   |   |                   |  |                   |        |  |   |       

The Company divides its products into the following markets: Broadband DSL,
Communication Processor and Other.

Broadband DSL consists of the Companys central office products, DSL modem-only
customer premise equipment products and the DSL value of the Companys integrated devices. Communications Processors includes the Companys stand alone processors and the processor-only value of the Companys integrated devices. Other
includes products that do not fall into the other two segments. Revenue by product market is as follows (in thousands):



|                          |  |                    |        |                   |   |                   |  |                   |        |  |   |       
|------------------------- |  | ------------------ | ------ | ----------------- | - | ----------------- |  | ----------------- | ------ |  | - | ------
|                          |  | Three Months Ended |        | Nine Months Ended
|                          |  | September 27,2009  |        | September 28,2008 |   | September 27,2009 |  | September 28,2008
|Broadband DSL             |  | $                  | 20,809 |                   | $ | 20,633            |  | $                 | 52,347 |  | $ | 71,785
|Communications Processors |  |                    | 7,108  |                   |   | 3,545             |  |                   | 18,733 |  |   | 11,945
|Other                     |  |                    | 1,417  |                   |   |                  |  |                   | 1,417  |  |   |      
|                          |  |                    |        |                   |   |                   |  |                   |        |  |   |       
|                          |  | $                  | 29,334 |                   | $ | 24,178            |  | $                 | 72,497 |  | $ | 83,730
|                          |  |                    |        |                   |   |                   |  |                   |        |  |   |       

The distribution of long-lived assets (excluding goodwill, intangible assets and
other assets) is as follows (in thousands):



|              |  |                   |       |                  |   |      
|------------- |  | ----------------- | ----- | ---------------- | - | -----
|              |  | September 27,2009 |       | December 28,2008
|United States |  | $                 | 5,280 |                  | $ | 5,792
|Asia          |  |                   | 2,658 |                  |   | 3,678
|Other         |  |                   | 95    |                  |   | 127  
|              |  |                   |       |                  |   |      
|              |  | $                 | 8,033 |                  | $ | 9,597
|              |  |                   |       |                  |   |      



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##### Table of Contents

|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

This discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, risks and uncertainties, including the risk factors set forth
in this discussion, as more fully described in Part II, Item 1.A Risk Factors in this quarterly report on Form 10-Q. Generally, the words anticipate, expect, intend, believe and
similar expressions identify forward-looking statements. These forward-looking statements include, without limitation, our expectation that a small number of OEMs will continue to account for a substantial portion of our revenue; our existing and
expected cash, cash equivalents and cash flows will be sufficient to meet our anticipated cash needs for at least the next twelve months; our belief in the effectiveness of our internal controls; our expectation that significant customer
concentration in a small number of OEM customers will continue for the foreseeable future; our expectation that our foreign currency exposure will increase as our operations in India and other countries expand; and future costs and expenses and
financing requirements. The forward-looking statements made in this Form 10-Q are made as of the filing date with the Securities and Exchange Commission and future events or circumstances could cause results that differ significantly from the
forward-looking statements included here. Accordingly, we caution readers not to place undue reliance on these statements and, except as required by law, we assume no obligation to update any such forward-looking statements.

The following discussion and analysis should be read in conjunction with the condensed financial statements and notes thereto in Part I,
Item 1 above and with our financial statements and notes thereto for the year ended December 28, 2008, contained in our Annual Report on Form 10-K filed on March 11, 2009.

Overview

We are a leading
global provider of high-performance silicon and software for interactive broadband. We develop and market end-to-end products for the last mile and the digital home, which enable carriers to offer enhanced triple play services, including voice,
video and data. Our products power DSLAMs, ONTs, concentrators, CPE, modems and RGs for leading OEMs. Our products have been deployed by carriers in Asia, Europe and North America. We believe that we can offer advanced products by continuing to push
existing limits in silicon, systems and software. We have developed programmable, scalable chip architectures, which form the foundation for deploying and delivering triple play services. Expertise in the creation and integration of unique DSP
algorithms with advanced digital, mixed signal and analog semiconductors enables us to offer high-performance, high-density and low power VDSL products. Flexible network processor architecture with wire-speed packet processing capabilities enables
high-performance residential gateways for distributing advanced services in the home. These industry-leading products thus support carriers triple play deployment plans to the digital home while keeping their capital and operating expenditures
low.

We outsource all of our semiconductor fabrication, assembly and test functions, which enable us to focus on design,
development, sales and marketing of our products and reduce the level of our capital investment. Our customers consist primarily of ODMs, CMs and OEMs, who, in turn, sell our semiconductors as part of their solutions to carriers. We also sell
to distributors, who in turn sell to ODMs, CMs and OEMs. From time to time we utilize sales representatives to market and distribute our products. We were incorporated in April 1999, and through December 31, 2001, we were engaged
principally in research and development. We began commercial shipment of our products in the fourth quarter of 2002. Over the last three years, our revenue was $134.7 million in 2006, $107.5 million in 2007, $106.5 million in 2008 and $72.5 million
in the first nine months of 2009.

Quarterly revenue fluctuations are characteristic of our industry and affect our business,
especially due the concentration of our revenue among a few customers. For instance, in the fourth quarter of 2006, our revenue declined by $15.7 million, or 43%, from the third quarter of 2006. In the third quarter of 2008, our revenue declined by
$5.7 million, or 19% from the second quarter of 2008. These quarterly fluctuations can result from a mismatch of supply and demand. Specifically, carriers purchase equipment based on planned deployment. However, carriers may deploy equipment more
slowly than initially planned, while OEMs continue for a time to manufacture equipment at rates higher than the rate at which equipment is deployed. As a result, periodically and usually without significant notice, carriers will reduce orders with
OEMs for new equipment, and OEMs in turn will reduce orders for our products, which will adversely impact the quarterly demand for our products, even when deployment rates may be increasing.

Furthermore, our future revenue growth depends upon new carriers beginning to deploy new platforms with our products, among other factors.
It is inherently difficult to predict if and when platforms will pass qualification, when carriers will begin to deploy the equipment and at what rate (because we do not control the qualification criteria or process), and the systems manufacturers
and carriers do not always share all of the information available to them regarding qualification and deployment decisions.



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##### Table of Contents

On August 24, 2009, we acquired the Broadband Access product line (the BBA)
of Conexant Systems, Inc. (Conexant), which includes the product-related intellectual property, patents, fixed assets and inventory of the product line for a total purchase price of $53.1 million in cash and the assumption of
approximately $6.4 million in employee and lease related liabilities. Adding the Broadband Access products and engineers to Ikanos existing portfolio of VDSL solutions has doubled our size, expanded our reach into new geographic and product
markets and added new research and development capabilities to the existing engineering team. The addition of the BBA is expected to allow us to develop semiconductor and software products for new markets within the digital home in addition to
serving our Broadband DSL and Communications Processors businesses and to reduce costs through economies of scale.

In
connection with the BBA acquisition, we negotiated a $42.0 million cash investment by Tallwood III, L.P. Tallwood III Annex, L.P. and certain of their affiliates (collectively, the Tallwood Investors) pursuant to which the Company sold
to the Tallwood Investors (i) 24 million shares of Ikanos common stock, par value $0.001 per share (the Common Stock), and (ii) warrants to purchase up to 7.8 million shares of Common Stock (the Warrants). The
net proceeds for the Tallwood Investment were $38.8 million after capitalizing transaction-related costs of $3.2 million. Assuming full exercise of the Warrants, as of September 27, 2009 Tallwood Investors own approximately 52% of the
outstanding shares of Ikanos Common Stock.

Critical Accounting Policies and Estimates

In preparing our condensed consolidated financial statements, we make assumptions, judgments and estimates that may have a significant impact
on amounts reported in our consolidated financial statements. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ
materially from these estimates under different assumptions or conditions. On a regular basis, we evaluate our assumptions, judgments and estimates and make changes accordingly. We also discuss our critical accounting estimates with the Audit
Committee of the Board of Directors. We believe that the assumptions, judgments and estimates involved in the accounting for revenue, cost of revenue, marketable securities, accounts receivable, inventories, warranty, income taxes, impairment of
goodwill and related intangibles, acquisitions and stock-based compensation expense have the greatest potential impact on our consolidated financial statements, so we consider these to be our critical accounting policies. Historically, our
assumptions, judgments and estimates relative to our critical accounting policies have not differed materially from actual results.

The critical accounting policies, are described in Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended December 28,
2008, and have not changed materially as of September 27, 2009.

Results of Operations

Revenue

Our revenue
is derived from sales of our semiconductor products. Revenue from product sales is generally recognized upon shipment, net of sales returns, rebates and allowances. Revenue from product sales to distributors is recognized when the distributor has
sold through to the end customer. As is typical in our industry, the selling prices of our products generally decline over time. Therefore, our ability to increase revenue is dependent upon our ability to increase unit sales volumes of existing
products and to introduce and sell new products in greater quantities. Our ability to increase unit sales volume is dependent primarily upon our ability to increase and fulfill current customer demand and obtain new customers. We believe that the
current worldwide recession has affected the businesses of service providers around the world, causing them to re-evaluate how they employ capital. Consequently the rate at which broadband infrastructure is upgraded may slow or new broadband
programs could be delayed.

Revenue increased by $5.2 million, or 21%, to $29.3 million in the three months ended
September 27, 2009 from $24.2 million in the three months ended September 28, 2008. The increase was directly attributable to the BBA revenue of $5.2 million. Excluding BBA revenue, our revenue for the third quarter of 2009 remained flat
versus the 2008 third quarter sales results. Revenue in Japan has increased substantially from the second quarter of 2009, but still lags the third quarter of 2008. Korean sales are marginally better than the second quarter of 2009, but are
considerably ahead of the third quarter of 2008. Increased sales to China and Europe in the third quarter of 2009 offset the effects of Japan and Korea.

Revenue for the nine months ending September 27, 2009 was $72.5 million, a reduction of $11.2 million or 13%, from $83.7 million for the nine months ended September 28, 2008. Excluding BBA
revenue, our sales declined by $16.4 million or 20% for the nine month period. The majority of the Ikanos core business decrease for the nine months ended September 27, 2009 as compared to the same period in the prior year relates to a decrease
in units shipped. The reduction reflects continuing



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##### Table of Contents

lower revenue from Korea and Japan, offset partially by an increase in Taiwan. Revenue from Korea was down as OEMs continued to reduce purchases due to the relative weakness of the value of the
Korean Won against the U.S. dollar. Japanese revenue declines reflect the worldwide economic slowdown and a slower rate of capital investment in VDSL access.

We generally sell our products to OEMs through a combination of our direct sales force and third-party sales representatives. Sales are generally made under short-term, non-cancelable purchase
orders. We also have volume purchase agreements, and certain customers who provide us with non-binding forecasts. Although certain OEM customers may provide us with rolling forecasts, our ability to predict future sales in any given period is
limited and subject to change based on demand for our OEM customers systems and their supply chain decisions. Historically, a small number of OEM customers, the composition of which has varied over time, have accounted for a substantial
portion of our revenue, and we expect that significant customer concentration will continue for the foreseeable future, but it may diversify across more carrier customers as we expect more carriers world-wide to begin deployments of broadband
solutions and Gateway products. The following direct customers each accounted for more than 10% of our revenue for the years indicated. Sales made to OEMs are based on information that we receive at the time of ordering.



|                           |  |                              |                   |                    |   |                   |                   |   |                   |    |   |                   |    |   |  | 
|-------------------------- |  | ---------------------------- | ----------------- | ------------------ | - | ----------------- | ----------------- | - | ----------------- | -- | - | ----------------- | -- | - |  | 
|                           |  | OEM Customer                 |                   | Three Months Ended |   |                   | Nine Months Ended |  
|Our Direct Customer        |  |                              | September 27,2009 |                    |   | September 28,2008 |                   |   | September 27,2009 |    |   | September 28,2008 |   
|Paltek Corporation         |  | Sumitomo Electric Industries |                   | 19                 | % |                   | 28                | % |                   | 15 | % |                   | 25 | %
|Sagem                      |  | Sagem                        |                   | 17                 |   |                   | 21                |   |                   | 25 |   |                   | 18 |  
|NEC Corporation of America |  | NEC Corporation (Magnus)     |                   | 13                 |   |                   | 29                |   |                   | 16 |   |                   | 24 |  
|Alcatel-Lucent and its CMs |  | Alcatel-Lucent               |                   | *                  |   |                   | *                 |   |                   | *  |   |                   | 12 |  



|* | Less than 10%
|- | -------------

Revenue by Region as a
Percentage of Total Revenue



|              |  |                    |   |  |                   |   |  |                   |   |  |                   |  
|------------- |  | ------------------ | - |  | ----------------- | - |  | ----------------- | - |  | ----------------- | -
|              |  | Three Months Ended |   |  | Nine Months Ended |  
|              |  | September 27,2009  |   |  | September 28,2008 |   |  | September 27,2009 |   |  | September 28,2008 |  
|Asia          |  | 65                 | % |  | 64                | % |  | 52                | % |  | 62                | %
|Europe        |  | 27                 |   |  | 23                |   |  | 38                |   |  | 31                |  
|North America |  | 8                  |   |  | 13                |   |  | 10                |   |  | 7                 |  

The table above reflects sales to our direct customers based on where they are
headquartered. It does not necessarily reflect carrier deployment of our products as we do not sell directly to them. Revenue from Asia has decreased in absolute dollars for both the three and nine months ended September 27, 2009 and decreased
as a percentage of total revenue for the nine months ended September 27, 2009 as compared to the same periods in the prior year due to the decrease in volume. Revenue from Europe increased as a percentage of total revenue for the three and nine
months ended September 27, 2009 as compared to the prior year as sales declines in Europe were not as great as declines in Asia. Revenue in Asia increased due to higher sales to Greater China offsetting declines in Japan.

Revenue by Product Family as a Percentage of Total Revenue



|                          |  |                    |   |  |                   |   |  |                   |   |  |                   |  
|------------------------- |  | ------------------ | - |  | ----------------- | - |  | ----------------- | - |  | ----------------- | -
|                          |  | Three Months Ended |   |  | Nine Months Ended |  
|                          |  | September 27,2099  |   |  | September 28,2008 |   |  | September 27,2009 |   |  | September 28,2008 |  
|Broadband DSL             |  | 71                 | % |  | 85                | % |  | 72                | % |  | 86                | %
|Communications Processors |  | 24                 |   |  | 15                |   |  | 26                |   |  | 14                |  
|Other                     |  | 5                  |   |  |                  |   |  | 2                 |   |  |                  |  

We divide our products into the following markets: Broadband DSL, Communications
Processors and Other. Broadband DSL consists of our central office products, DSL modem-only customer premise equipment products and the DSL value of our integrated devices. Communications Processors includes our stand alone processors and the
processor-only value of our integrated devices. Other includes products that do not fall into the other two segments. The change in mix is primarily attributable to decreased revenue of our Broadband DSL products in Japan and Korea while
Communication Processor improvement as a percentage of revenue reflects greater European sales.



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##### Table of Contents

Cost and Operating Expenses



|                                  |  |                    |        |                   |                   |         |  |    |                   |  |                   |        |         |   |        |  |    |   
|--------------------------------- |  | ------------------ | ------ | ----------------- | ----------------- | ------- |  | -- | ----------------- |  | ----------------- | ------ | ------- | - | ------ |  | -- | --
|                                  |  | Three Months Ended |        |                   | Nine Months Ended |        
|                                  |  | September 27,2009  |        | September 28,2008 |                   | %Change |  |    | September 27,2009 |  | September 28,2008 |        | %Change |  
|Cost of revenue                   |  | $                  | 19,036 |                   | $                 | 14,212  |  | 34 | %                 |  | $                 | 44,429 |         | $ | 48,265 |  | (8 | )%
|Research and development          |  |                    | 13,290 |                   |                   | 10,282  |  | 29 |                   |  |                   | 31,744 |         |   | 33,516 |  | (5 | ) 
|Sales, general and administrative |  |                    | 9,615  |                   |                   | 8,142   |  | 18 |                   |  |                   | 21,295 |         |   | 20,282 |  | 5  |   
|Operating asset impairments       |  |                    | 2,460  |                   |                   | 12,496  |  | nm |                   |  |                   | 2,460  |         |   | 12,496 |  | nm |   
|Restructuring charges             |  |                    | 502    |                   |                   |        |  | nm |                   |  |                   | 1,048  |         |   |       |  | nm |   

nmNot meaningful

Cost and Operating Expenses as a Percentage of Total Revenue:



|                                  |  |                    |   |  |                   |   |  |              |   |  |                   |  
|--------------------------------- |  | ------------------ | - |  | ----------------- | - |  | ------------ | - |  | ----------------- | -
|                                  |  | Three Months Ended |   |  | Nine Months Ended |  
|                                  |  | September 27,2009  |   |  | September 28,2008 |   |  | June 28,2009 |   |  | September 28,2008 |  
|Cost of revenue                   |  | 65                 | % |  | 59                | % |  | 61           | % |  | 58                | %
|Research and development          |  | 45                 |   |  | 43                |   |  | 44           |   |  | 40                |  
|Sales, general and administrative |  | 33                 |   |  | 34                |   |  | 29           |   |  | 24                |  
|Operating asset impairments       |  | 8                  |   |  | 52                |   |  | 3            |   |  | 15                |  
|Restructuring charges             |  | 2                  |   |  |                  |   |  | 1            |   |  |                  |  

Cost of Revenue

Our cost of revenue consists primarily of cost of silicon wafers purchased from third-party foundries and third-party costs associated with
assembling, testing and shipping of our semiconductors. Because we do not have formal, long-term pricing agreements with our outsourcing partners, our wafer costs and services are subject to price fluctuations based on the cyclical demand for
semiconductors among other factors. In addition, after we purchase wafers from foundries, we also incur yield loss related to manufacturing these wafers into usable die. Manufacturing yield is the percentage of acceptable product resulting from the
manufacturing process, as identified when the product is tested. When our manufacturing yields decrease, our cost per unit increases. Such increased costs could have a significant adverse impact on our cost of revenue. Cost of revenue also includes
accruals for actual and estimated warranty obligations and write-downs of excess and obsolete inventories, payroll and related personnel costs, licensed third-party intellectual property, depreciation of equipment, stock-based compensation expenses
and amortization of acquisition-related intangibles.

For the three months ended September 27, 2009, cost of revenue,
including BBA costs of $3.2 million, were $19.0 million, an increase of $4.8 million, or 33%, compared to $14.2 million for the three months ended September 28, 2008. Excluding BBA costs of $3.2 million, Ikanos core costs were $15.9 million, an
increase of $1.7 million, or 12%, over the third quarter of 2008. The increase is attributable to higher amortization of intangibles of $0.3 million and the amortization of the adjustment of the fair value of inventory acquired of $1.1 million in
the third quarter of 2009 versus the comparable 2008 period.

Cost of revenue decreased $3.8 million, or 8%, to $44.4 million
for the nine months ended September 27, 2009 compared to $48.3 million for the nine months ended September 28, 2008. Excluding BBA costs of $3.2 million, cost of revenue declined $7.0 million, or 15%, from the comparable 2008 nine months.
The lower cost of revenue for the nine month period ended September 27, 2009 compared to the same period last year is attributable to our reduced sales volume in 2009.

Our gross margins were 35% for the three months ended September 27, 2009 as compared to 41% for the year ago period. Our gross margins
were 39% for the nine months ended September 27, 2009 as compared to 42% for the year ago period. For both the three and nine months ended September 27, 2009, the decrease in gross margins was mainly attributable to the amortization of the
fair value adjustment related to the inventory acquired in the BBA acquisition.

Research and Development Expenses

All research and development (R&D) expenses are expensed as incurred and generally consist of compensation and associated expenses of
employees engaged in research and development; contractors; tape-out expenses; reference board development; development testing, evaluation kits and tools; stock based compensation expenses and depreciation expense. Before releasing new products, we
incur charges for mask sets, amortization of acquisition-related intangibles, prototype wafers, mask set revisions, bring-up boards and other qualification materials, which we refer to as tape-out expenses. These tape-out expenses may cause our
research and development expenses to fluctuate because they are not incurred uniformly throughout the year.

For the three
months ended September 27, 2009, R&D expenses were $13.3 million, an increase of $3.0 million, or 29%, from $10.3 million for the comparable 2008 period. The increase is directly attributable to $4.0 million of BBA, predominantly payroll
and employee-related expenses. Excluding the BBA expenses of $4.0 million, R&D expenses decreased $1.0 million, or



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10%, to $9.3 million for the three months ended September 27, 2009 as compared to $10.3 million for the three months ended September 28, 2008. The change was primarily attributed to a
decrease in personnel expenses of $0.6 million, a decrease in stock based compensation of $0.3 million, a decline in depreciation and intangible amortization of $0.4 million and other general reductions. These were partially offset by software and
license expenses of $0.8 million.

For the nine months ended September 27, 2009, R&D expenses were $31.7 million, a
decrease of $1.8 million or 5%, from $33.5 million for the comparable 2008 period. Excluding the BBA expenses of $4.0 million, R&D expenses decreased $5.8 million, or 17%, to $27.7 million for the nine months ended September 27, 2009 as
compared to $33.5 million for the nine months ended September 28, 2008. The change was primarily attributed to a decrease in personnel expenses of $1.8 million, a decrease in stock based compensation $1.9 million, a reduction in depreciation
and intangible amortization expenses of $1.1 million and other general cost reductions. These were partially offset by higher design and tapeout expenses of $0.5 million.

Our R&D personnel are located in the United States, India, China and France. As of September 27, 2009, we had 507 people engaged in R&D of which 215 were located in India, 220 were located in
the United States and 50 were located in China. Approximately 330 persons were added as a result of the BBA acquisition. As of September 28, 2008, we had 207 people engaged in research and development of whom 103 were located in India and 90
were located in the United States.

Selling, General and Administrative Expenses

Selling, general and administrative (SG&A) expenses generally consist of compensation and related expenses for personnel; public company
expenses; legal, recruiting and auditing fees; and deprecation. For the three months ended September 27, 2009 SG&A expenses were $9.6 million, an increase of $1.5 million, or 18%, from $8.1 million for the comparable 2008 period. BBA
expenses in the third quarter of 2009 were $0.9 million, predominantly payroll and employee related. Excluding BBA expenses, SG&A expenses increased by $0.6 million for the three months ended September 27, 2009, or 6%, to $8.7 million
compared to $8.1 million for the three months ended September 28, 2008. Lower stock based compensation of $1.4 million, lower severance expenses of $0.6 million and lower personnel expenses of $0.5 million were offset by BBA transaction-related
expenses of $2.6 million and other general expenses.

For the nine months ended September 27, 2009 SG&A expenses were
$21.3 million, an increase of $1.0 million, or 5%, from $20.3 million for the comparable 2008 period. Excluding BBA expenses of $0.9 million, SG&A expenses were essentially flat at $20.3 million for the nine months ended September 27, 2009
and September 28, 2008. Lower stock-based compensation of $2.3 million, depreciation and amortization of $0.6 million and salaries of $0.6 million and severance expenses of $0.6 million were offset by transaction-related expenses of $4.0
million and higher intangible expenses of $0.3 million. As of September 27, 2009, SG&A headcount was 127 compared to 95 at September 28, 2008. Approximately 50 people were added as a result of the BBA acquisition.

Operating Asset Impairments

When we acquired the Conexant BBA product line in August 2009, we assigned a value of $4.9 million to in-process research and development. IPR&D comprised mainly of two projects in process as of the acquisition date. The two projects
were next generation VDSL solutions, one for the access line of business and the other for the gateway line. After reviewing the two projects, it was determined that further development of the access project was not required and was abandoned.
Accordingly, the Company recorded an operating asset impairment charge of $2.5 million.

During the third quarter of 2008, as
a result of our market capitalization being significantly lower than the carrying value of our net assets, we recorded a goodwill impairment charge of $7.4 million. Also during the third quarter of 2008, we recorded asset impairment charges related
to prepaid license fees of $4.0 million and acquisition related intangible assets of $1.1 million. The prepaid license fees originated from a vendor that provided memory and input/output interfaces to facilitate the design of semiconductors at a
particular third-party wafer foundry. Payments to this vendor were capitalized until semiconductor mask set was created at this foundry. Based on our planned tape-out decisions for 2009 and the foreseeable future, we concluded that there was no
future economic benefit to the intellectual property and impaired the related prepaid license fees. The impaired intangible assets related to trademarks and patents from our 2006 acquisition of the network processing and ADSL assets and the 2008
purchase of the DSL technology and assets. Based on our review of our business, we concluded that these intangible assets had no future economic benefit. The total combination of the asset impairments during the third quarter of 2008 totaled $12.5
million.

Restructuring

During the first quarter of 2009, we implemented a restructuring plan to combine design centers in India and to reduce our cost structure in the United States. Restructuring charges of $0.3 million
related to the termination of 30 employees, 13 of which were located in India and 17 in the United States. In addition, we relocated our remaining personnel and equipment from Hyderabad, India to Bangalore, India during the second quarter of 2009
incurring expenses of $0.2 million. During the third quarter of 2009, we incurred $0.5 million of severance charges bringing restructuring expenses to $1.0 million for the year.



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Interest Income, Net

Interest income, net consists primarily of interest income earned on our cash, cash equivalents and investments, which is partially offset by
other non-operating expenses. Interest income was $0.1 million for the three months ended September 27, 2009 as compared to $0.4 million for the three months ended September 28, 2008. The decrease was due to lower investment balances and
lower interest rates. Interest income, net decreased to $0.6 million for the nine months ended September 27, 2009 as compared to $1.7 million for the nine months ended September 28, 2008. The decrease was due to a realized loss on the sale
of an investment, lower balance of cash and investments and a decrease in interest rates.

Provision for Income Taxes

Income taxes are comprised mostly of foreign income taxes and state minimum taxes. The Company maintains a full
valuation allowance for its tax assets as a result of recurring losses. The provision for income taxes was immaterial for the three and nine month periods ended September 27, 2009 and September 28, 2008, respectively.

The issuance of the securities (described in Note 10) to the Tallwood Investors caused a change in ownership within the meaning of Internal
Revenue Code Section 382 and limits all unutilized net operating loss carryforwards.

Net Loss

As a result of the above factors, we had a net loss of $15.5 million for the three months ended September 27, 2009 compared to a net
loss of $26.7 million for the three months ended September 28, 2008. We had a net loss of $30.0 million for the nine months ended September 27, 2009 compared to a net loss of $35.4 million for the nine months ended September 28, 2008.

We have incurred net losses for much of our history. Over the past several years, we have taken actions to reduce our
operating expense structure such as consolidating locations, reducing capital expenditures, outsourcing our back-end physical design, reducing the number of development projects and reducing overall headcount. We believe that the greater
scale achieved by acquiring the BBA product line from Conexant Systems has increased, and will continue to substantially increase, our revenue each quarter. In addition, we are taking steps to reduce unit manufacturing
costs by working to achieve better wafer pricing based on higher volumes, consolidating business with vendors and reducing raw materials costs. The BBA product line transaction also provides us the opportunity to reduce redundant functions and
related expenses. As such, we believe expenses as a percentage of revenue will be reduced. It is our expectation that these steps will result in operating income, excluding stock-based compensation and amortization of intangibles, within the
first year after acquiring the BBA product line.

Liquidity and Capital Resources

Since December 28, 2008, cash and investments decreased by $25.5 million to $38.9 million as of September 27, 2009. We have funded
our operations primarily through cash from private and public offerings of our common stock, cash generated from the sale of our products and proceeds from the exercise of stock options and stock purchased under our employee stock purchase plan. Our
uses of cash include payroll and payroll-related expenses, manufacturing costs, purchases of equipment, tools and software and operating expenses, such as tape outs, marketing programs, travel, professional services and facilities and related
expenses. We have used, and intend to continue to use, the net proceeds for working capital and general corporate purposes, which may include the acquisition of businesses, products, product rights or technologies, strategic investments or purchases
of common stock.

As described above, on August 24, 2009, we purchased the BBA product line from Conexant for $53.1
million and the assumption of liabilities of approximately $6.4 million. Also on August 24, 2009, we sold to Tallwood Investors 24 million shares of our common stock and 7.8 million warrants to purchase our common stock in the future
at a share price of $1.75 for $42.0 million. Net of certain banking, accounting and legal fees amounting to $3.2 million, we received $38.8 million.

The following table summarizes our statement of cash flows for the nine months ended September 27, 2009 and September 28, 2008 (in millions):



|                                                 |  |      |       |   |      |   |       |  
|------------------------------------------------ |  | ---- | ----- | - | ---- | - | ----- | -
|                                                 |  | 2009 |       |   | 2008 |  
|Statements of Cash Flows Data:                   |  |      |       |   |      |   |       |  
|Cash and cash equivalents - beginning of year    |  | $    | 27.2  |   |      | $ | 65.1  |  
|Net cash used by operating activities            |  |      | (9.3  | ) |      |   | (0.2  | )
|Net cash used by investing activities            |  |      | (38.8 | ) |      |   | (21.3 | )
|Net cash provided (used) by financing activities |  |      | 38.8  |   |      |   | (4.5  | )
|                                                 |  |      |       |   |      |   |       |  
|Cash and cash equivalents - end of period        |  | $    | 17.9  |   |      | $ | 39.1  |  
|                                                 |  |      |       |   |      |   |       |  



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Operating Activities

For the nine months ended September 27, 2009, we used $9.3 million of net cash in operating activities, while incurring a net loss of
$28.0 million. Included in the net loss was approximately $14.9 million in various non-cash expenses consisting of depreciation and amortization, stock-based compensation expense, amortization of intangible assets and acquired technology and an
intangible asset impairment of $2.5 million. Operating cash flows also benefited from higher accounts payable and accrued liabilities of $12.1 million. Operating cash flows decreased as a result of increased accounts receivable of $5.5 million,
increased inventory of $1.5 million (net of inventory acquired in the BBA acquisition) and increased prepaid and other assets of $1.4 million.

For the nine months ended September 28, 2008, we used $0.2 million of net cash in operating activities, while incurring a net loss of $35.4 million. Included in the net loss was approximately $37.6
million in various non-cash expenses and charges consisting of depreciation and amortization, stock based compensation expense, asset and investment impairments, amortization of intangible assets and acquired technology and purchased in-process
research and development. Operating cash flows also benefited from a decrease in accounts receivable of $3.3 million and a decrease in prepaid expenses of $0.1 million. The decrease in accounts receivable was primarily due to decreased sales volume
during this past quarter as compared to the three months ended September 30, 2007. These sources of operating cash flows were offset primarily by a decrease in accounts payable and accrued liabilities of $5.2 million and an increase in
inventory of $0.6 million. The decrease in accounts payable and accrued liabilities was primarily due a decrease in our volume of inventory purchases at the end of the quarter as well as various other payments in the ordinary course of business.

Investing Activities

Investing activities used $37.4 million for the nine months ended September 27, 2009, primarily consisting of the net purchase of Conexant BBA of $53.1 million and purchases of short term investments
amounting to $6.6 million offset by sales of short-term investments of $22.7 million. Purchases of property, plant and equipment amounted to $0.4 million. We used net cash in investing activities of $21.3 million for the nine months ended
September 28, 2008, primarily consisting of $11.9 million used in the Centillium DSL acquisition, $8.5 million in net purchases of short-term investments and $0.9 million in purchases of property and equipment.

We have classified our investment portfolio as available for sale, and our investment objectives are to preserve principal and
provide liquidity, while maximizing yields without significantly increasing risk. We may sell an investment at any time if the quality rating of the investment declines; the yield on the investment is no longer attractive; or we are in need of cash.
We have used cash to acquire businesses and technologies that enhance and expand our product offering and, we anticipate that we will continue to do so in the future. The nature of these transactions makes it difficult to predict the amount and
timing of such cash requirements. We anticipate that we will continue to purchase necessary property and equipment in the normal course of our business. The amount and timing of these purchases and the related cash outflows in future periods depend
on a number of factors, including the hiring of employees, the rate of change of computer hardware and software used in our business and our business outlook.

Financing Activities

Our financing activities included $38.8
million for the nine months ended September 27, 2009 as a result of a cash investment by Tallwood Venture Capital marginally offset by certain restricted stock unit transactions in the first nine months. We used net cash in financing activities
totaling $4.5 million for the nine months ended September 28, 2008. We purchased approximately 1.6 million shares of our Company stock for $5.2 million, retiring 1.0 million shares and holding 0.6 million shares as treasury
stock. These purchases were offset by $0.7 million in cash provided from employees exercising stock options.

We believe that
our existing cash, cash equivalents and cash flows expected to be generated from future operations, if any, will be sufficient to meet our anticipated cash needs for at least the next twelve months. Our future capital requirements will depend
upon many factors including the requirements of the current Ikanos business combined with the Broadband Access product line, our rate of revenue growth, our ability to develop future revenue streams, the timing and extent of spending to support
development efforts, the expansion of sales and marketing activities, the timing of introductions of new products and enhancements to existing products, the costs to ensure access to adequate manufacturing capacity and the continuing market
acceptance of our products. Additionally in the future, we may become party to agreements with respect to potential investments in, or acquisitions of, other complementary businesses, products or technologies, which could also require us to seek
additional equity or debt financing. The sale of additional equity securities or convertible debt securities would result in additional dilution to our stockholders. Additional debt would result in increased interest expenses and could result in
covenants that would restrict our operations. We have not made arrangements to obtain debt financing, and there is no assurance that such financing, if required, will be available in amounts or on terms acceptable to us, if at all.



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Contractual Commitments and Off-Balance Sheet Arrangements

We do not use off balance sheet arrangements with unconsolidated entities or related parties, nor do we use other forms of off balance sheet
arrangements such as special purpose entities and research and development arrangements. Accordingly, our liquidity and capital resources are not subject to off balance sheet risks from unconsolidated entities.

We lease certain office facilities, equipment and software under non-cancelable operating leases. The following table summarizes our
contractual obligations as of September 27, 2009, and the effect those obligations are expected to have on our liquidity and cash flow in future periods (in millions):



|                               |  |                       |      |                  |   |              |  |                    |      |  |   |    
|------------------------------ |  | --------------------- | ---- | ---------------- | - | ------------ |  | ------------------ | ---- |  | - | ---
|                               |  | Payment due by period
|                               |  | Total                 |      | Remainderof 2009 |   | 2010 and2011 |  | 2012 andThereafter
|Operating lease payments       |  | $                     | 8.6  |                  | $ | 1.0          |  | $                  | 6.3  |  | $ | 1.3
|Software                       |  |                       | 6.4  |                  |   | 1.2          |  |                    | 4.5  |  |   | 0.7
|Technology access agreement    |  |                       | 0.5  |                  |   | 0.5          |  |                    |     |  |   |   
|Inventory purchase obligations |  |                       | 7.6  |                  |   | 7.6          |  |                    |     |  |   |   
|                               |  |                       |      |                  |   |              |  |                    |      |  |   |    
|                               |  | $                     | 23.1 |                  | $ | 10.3         |  | $                  | 10.8 |  | $ | 2.0
|                               |  |                       |      |                  |   |              |  |                    |      |  |   |    

For the purpose of this table, purchase obligations for the purchase of goods or
services are defined as agreements that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of
the transaction. Our purchase orders are based on our current manufacturing needs and are fulfilled by our vendors within short time horizons. In addition, we have purchase orders that represent authorizations to purchase rather than binding
agreements. We do not have significant agreements for the purchase of raw materials or other goods specifying minimum quantities or set prices that exceed our expected requirements.

In the normal course of business, we provide indemnifications of varying scope to customers against claims of intellectual property
infringement made by third parties arising from the use of our products. Historically, costs related to these indemnification provisions have not been significant, and we are unable to estimate the maximum potential impact of these indemnification
provisions on our future consolidated results of operations.

Recent Accounting Pronouncements

Recent accounting pronouncements are detailed in Note 1 to our Condensed Consolidated Financial Statements.



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

All market risk sensitive instruments were entered into for non-trading purposes. We do not use derivative financial instruments for speculative trading purposes. As of September 27, 2009, we did not
hold derivative financial instruments.

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. We do not use derivative financial
instruments in our investment portfolio. The primary objectives of our investment activities are to preserve principal and meet liquidity needs, while maximizing yields and without significantly increasing risk. Our investment policy specifies
credit quality standards for our investments and limits the amount of credit exposure to any single issue, issuer, or type of investment. Our investments consist primarily of U.S. government notes and bonds, auction rate securities and
commercial paper. All investments are carried at market value.

As of September 27, 2009, we had cash, cash equivalents
and investments totaling $38.9 million. These amounts were invested primarily in money market funds and short-term investments that are held for working capital purposes. We do not enter into investments for trading or speculative purposes. If the
return on our cash equivalents and investments were to change by one hundred basis points, the effect would be to increase/decrease investment income by $0.1 million.

Investment Risk

Our marketable securities portfolio as of
September 27, 2009 was $33.0 million and approximately 3.1% of the portfolio are auction rate securities. Auction rate securities are securities that are structured with short-term interest rate reset dates of generally less than ninety days
but with contractual maturities that can be well in excess of ten years. At the end of each reset period, which occurs every seven to thirty-five days, investors can sell or continue to hold the securities at par. These securities are subject to
fluctuations in fair value depending on the supply and demand at each auction. The portfolio includes $7.2 million (at cost) invested in auction rate securities all of which are currently associated with failed auctions and have been in a loss
position for over 12 months. Based on an analysis of impairment factors, we recorded an other-than-temporary impairment loss of approximately $6.2 million during the third quarter of 2008 related to these auction rate securities. The funds
associated with the securities for which auctions have failed will not be accessible until a successful auction occurs, a buyer is found outside of the auction process or the underlying securities have matured. These investments have maturities from
2025 to 2050.



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We have classified the auction rate securities as Level 3 in accordance with the FASBs
authoritative guidance related to fair value measurements. We valued the auction rate securities using a discounted cash flow model. Assumptions used in valuing each of the auction rate securities include the stated coupon rate and maturity date on
the note and one unobservable input; an estimated discount rate. The discount rate is an estimate of what we believe the security must be discounted to in order to sell today. It is based on a number of factors, including the credit rating of the
issuer and the insurance provider for the security.

Foreign Currency Risk

Our revenue and cost, including subcontractor manufacturing expenses, are predominately denominated in U.S. dollars. An increase of the U.S.
dollar relative to the currencies of the countries in which our customers operate would make our products more expensive to them and increase pricing pressure or reduce demand for our products. We also incur a portion of our expenses in currencies
other than the U.S. dollar, including the Euro, the Japanese yen, Korean won, Indian rupee, Singapore dollar, the Chinese yuan and the Taiwanese dollar. We do not currently enter into forward exchange contracts to hedge exposure denominated in
foreign currencies or any other derivative financial instruments for trading or speculative purposes. We expect that our foreign currency exposure will increase as our operations in India and other countries expand.



|Item 4. | Controls and Procedures
|------- | -----------------------

Evaluation of
disclosure controls and procedures

As of the end of the period covered by this report, an evaluation was performed under
the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer (collectively, our certifying officers), of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as required by Rules 13a-15(b) or 15d-15(b) of the Securities Exchange Act of 1934, as amended. Based on their
evaluation, our certifying officers concluded that these disclosure controls and procedures were effective.

We believe that a
system of internal controls, no matter how well designed and operated, is based in part upon certain assumptions about the likelihood of future events, and can be affected by limitations inherent in all internal controls systems including the
realities that human judgment in decision-making can be faulty, that persons responsible for establishing controls need to consider their relative costs and benefits, that breakdowns can occur because of human failures such as simple error or
mistake, and that controls can be circumvented by collusion of two or more people. Accordingly, we believe that our system of internal controls, while effective, can only provide reasonable, not absolute, assurance that the objectives of the
controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. There was no change in our internal control over financial reporting
during the three months ended September 27, 2009 that our certifying officers concluded materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II: OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

In
November 2006, three putative class action lawsuits were filed in the United States District Court for the Southern District of New York against the Company, its directors and two former executive officers, as well as the lead underwriters for its
initial and secondary public offerings. The lawsuits were consolidated and an amended complaint was filed on April 24, 2007. The amended complaint sought unspecified damages for certain alleged material misrepresentations and
omissions made by the Company in connection with both its initial public offering in September 2005 and its follow-on offering in March 2006. The Court dismissed the case with prejudice on March 10, 2008. On March 25, 2008, plaintiffs
filed a motion for reconsideration, and on June 12, 2008, the District Court denied the motion for reconsideration. On October 15, 2008, plaintiffs appealed the District Courts dismissal of the amended complaint and denial of its
motion for reconsideration to the United States Court of Appeals for the Second Circuit. On September 17, 2009, the Second Circuit issued a summary order, vacating the District Courts denial of plaintiffs motion for reconsideration,
and remanding the case to the District Court for further consideration. The District Court has taken no action since September 17, 2009; however, an adverse result in the litigation could have a material effect on its financial statements.

Additionally, from time to time, the Company is a party to various legal proceedings and claims arising from the normal
course of business activities. Based on current available information, the Company does not expect that the ultimate outcome of any currently pending unresolved matters, individually or in the aggregate, will have a material adverse effect on its
results of operations, cash flows or financial position.



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|Item 1A. | Risk Factors
|-------- | ------------

Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors, as well as the other information in this quarterly report on Form 10-Q, and in our other filings with the SEC, before
deciding whether to invest in shares of our common stock. Additional risks and uncertainties not presently known to us may also affect our business. If any of these known or unknown risks or uncertainties actually occurs with material adverse
effects on us, our business, financial condition and results of operations could be seriously harmed. In that event, the market price for our common stock will likely decline and you may lose all or part of your investment.

Risks Related to Ikanos Acquisition of the BBA Product Line

Benefits anticipated from acquiring the Broadband Access product line from Conexant Systems, Inc may not occur if we are not successful in achieving the synergies expected from integrating the sales,
operations and engineering functions of the two businesses.

We expect to realize a number of synergies from integrating
the Broadband Access product line with Ikanos existing business. We expect the combined revenue to more than double our current revenue levels, on a quarterly and annual basis. We also anticipate gross margin synergies of $4 million to $6
million annually, due to greater wafer volumes, and thus lower pricing, at one of our wafer foundries as well as other supply chain consolidations. Additionally, based upon planned reductions in the headcount, elimination of duplicate overhead and
general and administrative costs in the combined business, we currently plan to reduce overall operating expenses. These synergies are expected to result in the combined company being profitable within the first year after the transaction is closed.
However, our anticipated revenues could be negatively affected by lower-than-expected order rates from our key customers and increased pricing pressure from our larger competitors. It could also take longer than now scheduled for us to reduce
headcount to the levels in our plan. With respect to cost savings from outside vendors including our foundries and packaging subcontractors, those savings are dependent upon negotiations which have not yet been completed, and may not result in the
savings on which our future profitability estimates are based. Furthermore, the Broadband Access product line may not be effectively integrated, may be unable to maintain key pre-acquisition business relationships, may result in the loss of key
personnel, may contribute to increased fixed costs and may expose us to unanticipated liabilities and otherwise harm our operating results.

Ikanos may not be able to realize all the benefits of the acquisition of the assets of the Broadband Access product line of Conexant.

The acquisition by Ikanos of the assets of the Broadband Access product line of Conexant using the proceeds from the sale of the Securities to the Tallwood Investors involves the integration of two
businesses that previously operated independently. The integration of the departments, systems, business units, operating procedures and information technologies of the two businesses presents a significant challenge to management. Ikanos cannot
assure that it will be able to integrate and manage these operations effectively. The failure to successfully integrate in a timely manner, or at all, could have an adverse effect on the results of operations and financial condition of Ikanos. The
difficulties of combining Ikanos with the assets of the Broadband Access product line of Conexant include:



| |  |  | the necessity of coordinating geographically separated organizations;
| | - |  | ---------------------------------------------------------------------



| |  |  | implementing common systems and controls;
| | - |  | -----------------------------------------



| |  |  | integrating personnel with diverse business backgrounds;
| | - |  | --------------------------------------------------------



| |  |  | the challenges in developing new products and services that optimizes the assets and resources of the two businesses;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | integrating the businesses technology and products;
| | - |  | ----------------------------------------------------



| |  |  | combining different corporate cultures;
| | - |  | ---------------------------------------



| |  |  | unanticipated expenses related to integration, including technical and operational integration;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | retaining key employees; and
| | - |  | ----------------------------



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| |  |  | retaining and maintaining relationships with existing customers, as well as needed distributors and other partners.
| | - |  | -------------------------------------------------------------------------------------------------------------------

Also, the process of integrating operations could cause an interruption of, or loss of momentum in the combined companys activities.
The diversion of managements attention and any delays or difficulties encountered in connection with the integration of the operations could have an adverse effect on the business and results of operations of Ikanos.

Risks Related to Ikanos Customers and Markets

Ikanos quarterly operating resultshave fluctuated significantly over time and are likely to continue to do so, principally due to the nature of telecommunication service providers
capital spending cycles, their purchasing practices, the design win process as well as other factors. As a result, Ikanos may fail to meet or exceed its revenue forecasts or the expectations of securities analysts or investors, which could
cause the market price of Ikanos Common Stock to decline.

The telecommunications semiconductor industry is highly cyclical
and subject to rapid change and, from time to time, has experienced significant downturns. These downturns are characterized by decreases in product demand and excess inventories held by Ikanos customers, OEMs, and their customers, the
telecommunications service providers (also called service providers). To respond to these downturns, many service providers slow their capital expenditures, change their purchasing practices to use refurbished rather than new equipment
 thereby reducing the demand for new semiconductors by our direct customers, cancel or delay new developments, reduce their workforces and inventories and take a cautious approach to acquiring new equipment and technologies from OEMs, usually
with very little notice.

Quarterly fluctuations in revenue are characteristic of Ikanos industry. And given the
concentration of Ikanos revenue among a few significant customers and given their buying patterns, Ikanos has experienced, and is likely to experience again, significant quarterly fluctuations of revenue.

Ikanos wins supply relationships by working with OEMs and service providers to have its semiconductors and software designed into systems
that will be deployed by service providers over multiple quarters. At any given time, as is currently the case, Ikanos is competing for one or more of these design wins. If Ikanos is not successful in obtaining these design wins, its revenue results
would be negatively affected. Even when Ikanos is designed into OEMs equipment, service provider deployments can be affected by various factors, including but not limited to the OEMs test and evaluation cycle, demand for DSL-based
broadband services, government regulatory actions and competitors efforts to protect or gain market share. These factors may result in deployment delays from six months to over a year. Ikanos is aware of such deployment delays currently
affecting various customers.

The semiconductor industry also periodically experiences increased demand and production
capacity constraints, which may affect Ikanos ability to ship products. Accordingly, Ikanos operating results may vary significantly as a result of the general conditions in the semiconductor or broadband communications
industry, which could cause the market price of Ikanos Common Stock to decline.

Historically, Ikanos expenses have fluctuated, and
are likely to continue to fluctuate, due to factors including new product releases and acquisitions.

Ikanos expenses
are also subject to quarterly fluctuations resulting from various factors. Fluctuations in Ikanos operating expenses may be due to a number of factors, including, but not limited to, higher expenses associated with new product releases,
costs of design tools, large up-front license fees to third parties for intellectual property integrated into our products, as well as extraordinary expenses related to acquisitions of other businesses, such as the acquisitions of product lines from
Centillium Communications and Conexant Systems in the past two years. Other factors are identified throughout this Risk Factors section. As a result, quarter to quarter comparisons of Ikanos operating expenses and results should not be relied
on as an indicator of future performance. If Ikanos operating results do not meet the expectations of securities analysts or investors for any quarter or other reporting period, the market price of Ikanos Common Stock may decline.

The ongoing worldwide recession could dampen demand for services based upon Ikanos products.

Ikanos business is not directly tied to the reported causes of the on-going recession. However, Ikanos believes that consumer-targeted
broadband services, which are deployed using Ikanos technology, are part of most households discretionary spending. If individual consumers decide not to installor decide to discontinue purchasingbroadband services in their
homes in order to save money in an uncertain economic situation, the resulting drop in demand could cause telecommunications service providers to reduce or stop placing orders for OEM equipment containing Ikanos products. Accordingly, the
OEMs demand for Ikanos products could drop further, potentially having a materially negative effect on Ikanos revenue.



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Ikanos has a history of losses, and future losses may cause the market price of Ikanos Common Stock
to decline. Ikanos may not be able to reduce its expenses or generate sufficient revenue in the future to achieve or sustain profitability.

Since its inception, Ikanos has only been profitable on a GAAP basis in the third and fourth quarter of 2005. Prior to the third quarter of 2005, Ikanos incurred significant net losses, and Ikanos
incurred losses in the past fourteen quarters. Beginning in 2006, accounting rules required Ikanos to report stock-based compensation as an expense, which has comprised a substantial portion of its quarterly and annual losses, as reported on a GAAP
basis. Ikanos incurred a net loss of $15.5 million and $28.0 million for the three and nine months ended September 27, 2009, respectively, and has an accumulated deficit of $211.8 million as of September 27, 2009. To achieve profitability
again, Ikanos will need to generate and sustain higher revenue, while maintaining cost and expense levels appropriate and necessary for its business. Because many of its expenses are fixed in the short term, or are incurred in advance of anticipated
sales, Ikanos may not be able to continue to hold down its costs and expenses in a timely manner to offset any lower-than-forecasted revenue shortfall as Ikanos experienced in the fourth quarter of 2006. Ikanos may not be able to achieve
profitability again and, even if it were able to attain profitability again, Ikanos may not be able to sustain profitability on a quarterly or an annual basis in the future.

The general tightening of the credit market could potentially limit Ikanos access to financial resources.

If Ikanos continues to operate at a loss and the cash on its balance sheet continues to decline, there is a possibility Ikanos could have to seek out and evaluate alternative sources of financing in order
to fund operations. Historically, Ikanos has not had to use debt financing to operate the business. If that situation were to change, Ikanos believes it would be very difficult to borrow funds on terms favorable to it, if at all, due to the
extremely limited availability of credit in the current economic environment. The unavailability of credit along with limits on other financing alternatives could thus negatively impact Ikanos business. Even if Ikanos were able to secure debt
financing, the terms could be unfavorable to Ikanos, and Ikanos may be subject to various restrictive covenants, which could limit Ikanos ability to operate its business.

Ikanos success is dependent upon achieving design wins into commercially successful OEM and ODM systems.

Ikanos products are generally incorporated into its OEM and ODM customers systems at the design stage. As a result, Ikanos relies on OEMs to select its products to be designed into their
systems, which Ikanos refers to as a design win. Ikanos often incurs significant expenditures over multiple fiscal quarters in attempting to obtain a design win without any assurance that an OEM will select its product for design into
its own system. Additionally, in some instances, Ikanos is dependent on third parties to obtain or provide information that it needs to achieve a design win. Some of these third parties may not supply this information to Ikanos on a timely
basis, if at all. Furthermore, even if an OEM designs one of Ikanos products into its system offering, Ikanos cannot be assured that its equipment will be commercially successful or that it will receive any orders and, accordingly, revenue as
a result of that design win. Ikanos OEM customers are typically not obligated to purchase Ikanos products and can choose at any time to stop using them if their own systems are not commercially successful, if they decide to pursue other
systems strategies, or for any other reason. If Ikanos is unable to achieve design wins or if Ikanos OEM customers systems incorporating Ikanos products are not commercially successful, Ikanos revenue would suffer.

If demand for Ikanos semiconductor products declines or does not grow, Ikanos will be unable to increase or sustain its revenue, and
its operating results will be harmed.

Ikanos currently expects its current semiconductor products, including the product
lines that Ikanos acquired from Conexant Systems, to account for substantially all of its revenue for the foreseeable future. If Ikanos is unable to develop new products or to successfully integrate acquired products and technology to meet its
customers demand in a timely manner, if demand for its semiconductors declines or fails to grow, or if the broadband, network processor or other markets addressable by Ikanos products do not materialize as expected, it would harm Ikanos
business. In addition to being affected by global macroeconomic factors, the markets for Ikanos products are characterized by frequent introduction of new semiconductors, short product life cycles and significant price competition. If Ikanos
or its OEM customers are unable to manage product transitions in a timely and cost-effective manner, Ikanos revenue would suffer. In addition, frequent technology changes and introduction of next generation products may result in
inventory obsolescence, which would increase Ikanos cost of revenue and adversely affect its operating performance.

The average
selling prices and gross margins of certain of Ikanos products are subject to declines, which may harm its revenue and profitability.

Ikanos products are subject to rapid declines in average selling prices due to competitive pressures, including lowering average selling prices in order to maintain or increase market share. Ikanos
has lowered its prices significantly at times to gain or maintain market share, and Ikanos expects that it will reduce prices again in the future. Offering reduced prices to one



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customer could likely impact Ikanos average selling prices to all customers. In addition, Ikanos has not been able to reduce its costs of goods sold as rapidly as its prices have declined.
Ikanos financial results will suffer if it is unable to maintain or increase pricing, or is unable to offset any future reductions in Ikanos average selling prices by increasing its sales volumes, by reducing its manufacturing costs or
by developing new or enhanced products that command higher prices or better gross margins on a timely basis.

An OEM customer or a service
provider may decide to cancel, delay or change its product plans, which could cause Ikanos to lose or delay anticipated sales.

Even if an OEM customer selects an Ikanos product to incorporate into its equipment, Ikanos has no assurances that the customer will ultimately market and sell its equipment or that such efforts by the customer will be successful. The
delays inherent in Ikanos lengthy sales cycle increases the risk that an OEM customer or service provider will decide to cancel or change its product plans. From time to time, Ikanos has experienced changes and cancellations in the purchase
plans of its OEM customers. A cancellation or change in plans by an OEM customer or service provider could cause Ikanos to not achieve anticipated revenue and result in volatility of the market price of Ikanos Common Stock. In addition, Ikanos
anticipated sales could be lost or substantially reduced if a significant OEM customer or service provider reduces or delays orders during Ikanos sales cycle or chooses not to release equipment that contains Ikanos products.

Ikanos product sales mix is subject to frequent and unexpected changes, which may impact its revenue and margin.

Ikanos product margins vary widely by product. As a result, a change in the sales mix of Ikanos products could have an impact on
the forecasted revenue and margins for the quarter. Ikanos modem only products within the Gateway product family generally have lower margins as compared to its Access product family. Furthermore, the product margins within Ikanos Access
product line can vary based on the type and performance of deployment being used as customers typically pay higher selling prices for higher performance. While Ikanos makes estimates of what it believes the product mix will be in a given quarter,
actual results can be materially different than its estimates.

Because Ikanos depends on a relatively small number of significant
customers for a substantial portion of its revenue, the loss of any of its key customers, its inability to continue to sell existing and new products to its key customers in significant quantities or its failure to attract new significant customers
could adversely impact its revenue and harm its business.

Ikanos derives a substantial portion of its revenue from sales
to a relatively small number of customers. As a result, the loss of any significant customer or a decline in business with any significant customer would materially and adversely affect Ikanos financial condition and results of operations.

The following customers accounted for more than 10% of Ikanos revenue for any one of the periods indicated. We have
indicated the OEM customer based on information that we receive at the time of ordering.



|                              |  |                              |  |                             |   |  |                             |   |  |                                    |  
|----------------------------- |  | ---------------------------- |  | --------------------------- | - |  | --------------------------- | - |  | ---------------------------------- | -
|Direct Customer               |  | OEM Customer                 |  | Year EndedDecember 30, 2007 |   |  | Year EndedDecember 28, 2008 |   |  | NineMonths EndedSeptember 27, 2009 |  
|Sagem                         |  | Sagem                        |  | 20                          | % |  | 21                          | % |  | 25                                 | %
|NEC Corporation               |  | NEC Corporation              |  | 29                          |   |  | 25                          |   |  | 16                                 |  
|Paltek Corporation            |  | Sumitomo Electric Industries |  | *                           |   |  | 23                          |   |  | 15                                 |  
|Alcatel-Lucent and its CMs(a) |  | Alcatel-Lucent               |  | *                           |   |  | 11                          |   |  | *                                  |  
|Altima Corporation            |  | Sumitomo Electric Industries |  | 12                          |   |  | *                           |   |  | *                                  |  
|Uniquest                      |  | Dasan, Millinet and Ubiquoss |  | 11                          |   |  | *                           |   |  | *                                  |  



|* | Less than 10%
|- | -------------

|(a) | Alcatel and Lucent Technologies, subsequent to their 2007 merger, accounted for a combined 10% of Ikanos revenue in 2007.
|--- | --------------------------------------------------------------------------------------------------------------------------

A small group of OEM customers historically has accounted for a substantial portion of Ikanos revenue; the composition of this group
has varied, and Ikanos expects that it will continue to vary, over time. Further, Ikanos expects that this small group of customers will continue to account for a substantial portion of its revenue for the foreseeable future. Accordingly,
Ikanos future operating results will continue to depend on the success of its largest OEM customers and on its ability to sell existing and new products to these customers in significant quantities. Demand for Ikanos semiconductor
products is based on service provider demand for its OEM customers systems products. Accordingly, a reduction in growth of service provider deployment of product that uses Ikanos semiconductors would adversely affect its product sales
and business.



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In addition, Ikanos relationships with some of its larger OEM customers may also
deter other potential customers who compete with these customers from buying Ikanos products. To attract new customers or retain existing OEM customers, Ikanos has offered and may continue to offer certain customers favorable prices on
its products. If these prices are lower than the prices paid by other existing OEM customers, Ikanos may have to offer the same lower prices to certain of these customers. In that event, Ikanos average selling prices would decline. The
loss of a key customer, a reduction in sales to any major customer, or Ikanos inability to attract new significant customers in the absence of any offsetting sales would harm its business.

Ikanos has historically derived a substantial amount of its revenue from a limited number of geographic markets. If Ikanos fails to successfully
diversify the geographic sources and customer base of its revenue in the future, its operating results could be harmed.

Prior to the acquisition of the BBA product line, a substantial portion of Ikanos revenue was derived from sales into Japan, Korea and France, and its revenue has been heavily dependent on market growth in these countries. The
products added as a result of the BBA acquisition now extend Ikanos geographic reach to China and India, and significantly expand our presence in North America. Even with these new and expanded markets, Ikanos sales are subject to
economic downturns, decrease in demand and overall negative market conditions in a relatively few number of specific economies. For instance, a slowdown in growth of fiber extension over copper and broadband over copper subscribers in Asia has
caused Ikanos revenue in that market to decline, and may prevent that revenue stream from returning to historical levels. While part of its strategy is to continue to diversify the geographic sources and customer base of its revenue,
Ikanos failure to successfully penetrate markets other than those served by its existing customers, and diversify its customer base could harm its business and operating results.

In the past year, Ikanos has experienced a turnover in several senior management positions, and may be unable to attract, retain and motivate key senior management and technical personnel, which could
harm its development of technology and ability to be competitive.

In the current quarter, the Company has added a new
Chief Operating Officer, a new Chief Technology Officer and a new Senior Vice President of Worldwide Sales. In addition, a new Vice President of Operations joined the Company in April 2009. As required, Ikanos seeks out highly-qualified candidates
to fill positions throughout its business. Ikanos will continue to examine ways to improve its processes, productivity and results.

Ikanos future success depends to a significant extent upon the continued service of its senior executives and key technical personnel as well as the integration of new senior executives. Ikanos does not have employment agreements with
any of these executives or any other key employees that govern the length of their service. Changes in the services of senior management or technical personnel could impact Ikanos customer relationships, employee morale, and its ability to
operate in compliance with existing internal controls and regulations and harm its business.

Furthermore, Ikanos future
success depends on its ability to continue to attract, retain and motivate other senior management and qualified technical personnel, particularly software engineers, digital circuit designers, mixed-signal circuit designers and systems and
algorithms engineers. Competition for these employees is intense. Stock options and other forms of incentive equity grants generally comprise a significant portion of Ikanos compensation packages for all employees, and as long as the price of
Ikanos Common Stock remains depressed it may make it more difficult for Ikanos to attract and retain key employees, which could harm its ability to provide technologically competitive products. Additionally, a reduction in staff could negatively
affect employee morale. Ikanos has periodically reduced or reorganized its staff in response to business conditions. Workforce reductions and job reassignments could negatively affect employee morale and make it difficult to motivate and retain the
remaining employees and contractors, which would affect Ikanos ability to deliver its products in a timely fashion and otherwise negatively affect its business.

Because of the rapid technological development in Ikanos industry and the intense competition it faces, Ikanos products tend to become outmoded or obsolete in a relatively short period of time,
which requires it to provide frequent updates and/or replacements to existing products. If Ikanos does not successfully manage the transition process to next generation semiconductor products, its operating results may be harmed.

Ikanos industry is characterized by rapid technological innovation and intense competition. Accordingly,
Ikanos success depends in part on its ability to develop next generation semiconductor products in a timely and cost-effective manner. The development of new semiconductor products is expensive, complex and time consuming. If Ikanos does
not rapidly develop its next generation semiconductor products ahead of its competitors, Ikanos may lose both existing and potential customers to competitors. Further, if a competitor develops a new, less expensive product using a different
technological approach to delivering broadband services over existing networks, Ikanos products would no longer be competitive. Conversely, even if Ikanos is successful in rapidly developing new semiconductor products ahead of competitors and
Ikanos does not cost-effectively manage its inventory levels of existing products when making the transition to the new semiconductor products, Ikanos financial results could be negatively affected by high levels of obsolete inventory. If
any of the foregoing were to occur, then Ikanos operating results would be harmed.



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Risks Related to the Tallwood Investment

Tallwood Investors may exercise significant influence over Ikanos, including through its ability to elect three of seven members of Ikanos Board of
Directors.

The Securities owned by the Tallwood Investors represent approximately 45% of the outstanding shares of Ikanos
Common Stock (excluding the exercise of the Warrants). Assuming the full exercise of the Warrants, the Securities owned by the Tallwood Investors will represent 52% of the outstanding shares of Ikanos Common Stock. Until the third anniversary of the
closing of the issuance of the Securities to the Tallwood Investors, the Tallwood Investors have agreed to vote all of their shares in excess of the shares constituting 35% of the outstanding Common Stock of Ikanos in the same proportion as the
votes cast by all the other Ikanos stockholders. Subject to certain exceptions, the Tallwood Investors are permitted under the terms of the Stockholder Agreement to maintain their ownership interest in Ikanos in subsequent equity offerings by
Ikanos. As a result, the Tallwood Investors may have the ability to significantly influence the outcome of any matter submitted for the vote of Ikanos stockholders. The Certificate of Designation of the Series A Preferred Stock provides that
the Tallwood Investors have the right to designate three out of seven directors to Ikanos Board of Directors while the Tallwood Investors hold at least 35% of the outstanding Ikanos Common Stock, and a number of directors to Ikanos Board
of Directors proportional to the Tallwood Investors ownership position in Ikanos after such time as the Tallwood Investors hold less than 35% of the outstanding Ikanos Common Stock. As a result, the directors elected to Ikanos Board of
Directors by the Tallwood Investors may exercise significant influence on matters considered by Ikanos Board of Directors. The Stockholder Agreement also includes restraints on the ability of Tallwood Investors to transfer and vote their
shares and to acquire additional shares of our Common Stock. The Tallwood Investors may have interests that diverge from, or even conflict with, those of Ikanos and its other stockholders.

The market price of Ikanos Common Stock may decline as a result of future sales of the Securities by the Tallwood Investors.

We are unable to predict the potential effects of the Tallwood Investors ownership of 45% of Ikanos outstanding common on the trading
activity in and market price of Ikanos Common Stock. Pursuant to the Stockholder Agreement, we have granted the Tallwood Investors and their permitted transferees registration rights for the resale of the shares of Ikanos Common Stock and shares of
Ikanos Common Stock underlying the Warrants, in each case, included in the Securities. Under the terms of the registration rights, Ikanos will file a registration statement within 180 days of August 24, 2009, the date the Securities Purchase
Agreement with Tallwood closed. These registration rights will facilitate the resale of such securities into the public market, and any such resale would increase the number of shares of Ikanos Common Stock available for public trading. Sales by the
Tallwood Investors or their permitted transferees of a substantial number of shares of Ikanos Common Stock in the public market, or the perception that such sales might occur, could have a material adverse effect on the price of Ikanos Common Stock.

Holders of Ikanos Common Stock will not be entitled to elect a certain number of directors of Ikanos while the Tallwood Investors control
a voting share of Ikanos Series A Preferred (the Voting Share).

As the holder of the Voting Share, Tallwood
III Partners, L.P., has the right to designate three members out of seven members to Ikanos Board of Directors while the Tallwood Investors hold at least 35% of the outstanding Ikanos Common Stock, and a number of directors to Ikanos
Board of Directors proportional to the Tallwood Investors ownership position in Ikanos after such time as the Tallwood Investors hold less than 35% of the outstanding Ikanos Common Stock. During the time they control the Voting Share, the
Tallwood Investors will be able to exert significant influence over Ikanos and may have interests that diverge from, or even conflict with, those of Ikanos and its other stockholders.

Risks Related to Ikanos Operations and Technology

Ikanos relies on
third-party technologies for the development of its products, and its inability to use such technologies in the future would harm its ability to remain competitive.

Ikanos relies on third parties for technologies that are integrated into some of its products, including its memory cells, input/output cells, hardware interfaces and core processor logic. If Ikanos is
unable to continue to use or license these technologies on reasonable terms, or if these technologies fail to operate properly, Ikanos may not be able to secure alternatives in a timely manner and its ability to remain competitive would be
harmed. For instance, Ikanos has experienced on-going issues with the intellectual property acquired from one of its vendors for one of its products. Ikanos has worked with the vendor as well as with customers who purchase this product to identify
process and design improvements that will ultimately resolve these issues. While Ikanos has not experienced material warranty costs in any period as a result of the issues related to this intellectual property, there can be no assurance that it will
not in the future experience material damages from this or other licensed intellectual property. Failure to use the technologies Ikanos has purchased could also result in unfavorable impairment costs. In addition, if Ikanos is unable to successfully
license technology from third parties to develop future products, it may not be able to develop such products in a timely manner or at all.



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Ikanos is a fabless semiconductor company and may rely on one wafer foundry and one assembly and test
subcontractor to manufacture, package and test each of its products, and its failure to secure and maintain sufficient capacity with these subcontractors, or if a subcontractor ceases operations, or other such developments could impair Ikanos
relationships with customers and decrease sales, which would negatively impact its market share and operating results.

Ikanos is a fabless semiconductor company in that it does not own or operate a fabrication or manufacturing facility. Currently, nine wafer foundries and six outside factory subcontractors, located in Austria, China, Israel, Korea,
Malaysia, Singapore, Thailand, Taiwan, and the United States manufacture, assemble and test all of Ikanos semiconductor devices in current production. While Ikanos works with multiple suppliers, only one foundry and one assembly and test
subcontractor may be used for a single product. Accordingly, Ikanos is greatly dependent on a limited number of suppliers to deliver quality products on time.

In past periods of high demand in the semiconductor market, Ikanos has experienced delays in meeting its capacity demand and as a result was unable to deliver products to its customers on a timely basis.
In addition, Ikanos has experienced similar delays due to technical and quality control problems. Furthermore, Ikanos costs for manufacturing services or components have increased from time to time without significant notice.

In the fall of 2008, Ikanos received notice that one of its subcontractors would close a fabrication facility where two of its products are
made. The fabrication facility has ceased manufacturing products. Accordingly, Ikanos made arrangements for its subcontractor to build an adequate supply of the two products fabricated at this facility sufficient to meet its anticipated demand for
the remaining lifetime of these products.

In the future, if any of these events occur, or if the facilities of any of its
subcontractors suffer any damage, power outages, financial difficulties or any other disruption due to natural disasters, terrorist acts or otherwise, Ikanos may be unable to meet its customer demand on a timely basis, or at all, and we may be
required to incur additional costs and may need to successfully qualify an alternative facility in order to not disrupt its business. Ikanos typically requires several months or more to qualify a new facility or process before it can begin
shipping products. If Ikanos cannot accomplish this qualification in a timely manner, it would experience a significant interruption in supply of the affected products which could in turn cause its costs of revenue to increase and its overall
revenue to decrease. If Ikanos is unable to secure sufficient capacity at its subcontractors existing facilities, or in the event of a closure or significant delay at any of these facilities, its relationships with customers would be harmed
and its market share and operating results would suffer as a result. In addition, Ikanos does not have formal pricing agreements with its subcontractors regarding the pricing for the products and services that they provide. If their pricing for the
products and services they provide increases and Ikanos is unable to pass along such increases to its OEM customers, Ikanos operating results would be adversely affected.

In the event Ikanos seeks to use new wafer foundries to manufacture a portion of its semiconductor products, it may not be able to bring the new foundries on-line rapidly enough and may not
achieve anticipated cost reductions.

As indicated above, Ikanos use of a limited number of independent wafer
foundries to manufacture all of its semiconductor products exposes Ikanos to risks of delay, increased costs and customer dissatisfaction in the event that any of these foundries were unable to provide it with its semiconductor requirements.
Particularly during times when semiconductor manufacturing capacity is limited, Ikanos may seek to qualify additional wafer foundries to meet its requirements. In order to bring these new foundries on-line, Ikanos customers may need
to qualify product from the new facility, which could take several months or more. Once qualified, these new foundries would then require an additional number of months to actually begin producing semiconductors to meet Ikanos needs, by which
time the temporary requirement for additional capacity may have passed or the opportunities previously identified may have been lost to Ikanos competitors. Furthermore, even if these new foundries offer better pricing than existing
manufacturers, if they prove to be less reliable than existing manufacturers, Ikanos would not achieve some or all of the anticipated cost reductions.

When demand for manufacturing capacity is high, Ikanos may take various actions to try to secure sufficient capacity, which may be costly and negatively impact its operating results.

The ability of each of Ikanos subcontractors manufacturing facilities to provide us with semiconductors is limited by its
available capacity and existing obligations. Although Ikanos has purchase order commitments to supply specified levels of products to its OEM customers, Ikanos does not have a guaranteed level of production capacity from any of its
subcontractors facilities that it depends on to produce semiconductors. Facility capacity may not be available when Ikanos needs it or at reasonable prices. Ikanos places its orders on the basis of Ikanos OEM customers
purchase orders or its forecast of customer demand, and Ikanos subcontractors may not be able to meet its requirements in a timely manner. In addition, our subcontractors have also allocated capacity to the production of other
companies products and reduced deliveries to it on short



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notice. It is possible that Ikanos subcontractors other customers that are larger and better financed than Ikanos, or that have long-term agreements with Ikanos subcontractors,
may have induced the subcontractors to reallocate capacity to them. If this reallocation were to occur again, it would impair Ikanos ability to deliver products on a timely basis.

In addition, due to the weak global economy, some of Ikanos subcontractors laid off employees over the past year and/or shortened work
schedules. These reductions in labor and factory operations have resulted in sporadic capacity constraints that could impair Ikanos ability to obtain finished products in time to meet customer demand.

In order to secure sufficient manufacturing facility capacity when demand is high and mitigate the risks described in the foregoing
paragraphs, Ikanos may enter into various arrangements with subcontractors that could be costly and negatively affect its operating results, including:



| |  |  | option payments or other prepayments to a subcontractor;
| | - |  | --------------------------------------------------------



| |  |  | nonrefundable deposits with or loans to subcontractors in exchange for capacity commitments;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | contracts that commit Ikanos to purchase specified quantities of components over extended periods;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | purchase of testing equipment for specific use at subcontractors facilities;
| | - |  | -----------------------------------------------------------------------------



| |  |  | issuance of equity securities to a subcontractor; and
| | - |  | -----------------------------------------------------



| |  |  | other contractual relationships with subcontractors.
| | - |  | ----------------------------------------------------

Ikanos may not be able to make any such arrangements in a timely fashion or at all, and any arrangements may be costly, reduce Ikanos financial flexibility and not be on terms favorable to
Ikanos. Moreover, if Ikanos is able to secure facility capacity, it may be obligated to use all of that capacity or incur penalties. These penalties and obligations may be expensive and could harm Ikanos business.

If Ikanos subcontractors manufacturing facilities do not achieve satisfactory quality or yields, Ikanos relationships with its
customers and its reputation will be harmed, its revenue, gross margin and operating results could decline.

Defects in
Ikanos products may not be always detected by the testing process performed by Ikanos subcontractors or by Ikanos staff. Those defects can result from a variety of causes, including but not limited to manufacturing problems or
intellectual property licensed from third parties. If defects are discovered after it has shipped products, Ikanos has experienced, and could continue to experience, warranty and consequential damages claims from its customers.

Ikanos incorporates third party intellectual property into its products. That intellectual property consists of elements of the
semiconductor, such as the processor core, standard external interfaces, as well as applications that run on Ikanos products. From time to time, Ikanos customers have discovered errors or defects arising from these third party
intellectual property designs. Ikanos and its contract manufacturers attempt to catch these defects in the testing process, but are not always successful. As a result, we have to work with our customers to resolve the issues that they experience
when integrating our products into their systems. If Ikanos is unable to deliver quality products, its reputation would be harmed, which could result in the loss of, future orders and business with its customers. If any of these adverse risks are
realized and Ikanos is not able to offset the lost opportunities, its revenue, margins and operating results would decline.

The fabrication of semiconductors is a complex and technically demanding process. Minor deviations in the manufacturing process can cause substantial decreases in yields, and in some cases, cause production to be stopped or suspended.
Ikanos has experienced difficulties in achieving acceptable yields on some of its products, particularly with new products, which frequently involve newer manufacturing processes and smaller geometry features than previous generations. Maintaining
high numbers of shippable die per wafer is critical to Ikanos operating results, as decreased yields can result in higher per unit cost, shipment delays and increased expenses associated with resolving yield problems.

Although Ikanos works closely with its subcontractors to minimize the likelihood of reduced manufacturing yields, the subcontractors
facilities have from time to time experienced lower than anticipated manufacturing yields that have, in turn, resulted in Ikanos inability to meet its customer demand. Ikanos has been experiencing manufacturing defect rates for one of its
products that are higher than the rates it experiences with its other products. We believe that our operations and quality teams have been able to reduce the defect rate for this product toa normal level. However, if Ikanos experiences these issues
again in the future, its revenues could be materially reduced and its warranty-related costs could be materially higher than currently anticipated.



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It is common for yields in semiconductor fabrication facilities to fluctuate in times of
high demand or due to poor workmanship or operational problems at these facilities. When these events occur, especially simultaneously, as happens from time to time, Ikanos may be unable to supply Ikanos customers demand. Many of
these problems are difficult to detect at an early stage of the manufacturing process and, regardless of when the problems are detected, they may be time consuming and expensive to correct. In addition, because Ikanos purchases wafers,
Ikanos exposure to low wafer yields from Ikanos subcontractors wafer foundries are increased. Poor yields from the wafer foundries or defects, integration issues or other performance problems in Ikanos products could cause
Ikanos significant customer relations and business reputation problems, or force us to sell Ikanos products at lower gross margins and therefore harm Ikanos financial results. Conversely, unexpected yield improvements could result in
Ikanos holding excess inventory that would also increase Ikanos product cost and negatively impact Ikanos profitability.

Ikanos bases orders for inventory on the forecasts of its OEM customers demand and if its forecasts are inaccurate, Ikanos financial condition and liquidity would suffer.

Ikanos places orders with its suppliers based on the forecasts of its OEM customers demand. Ikanos forecasts are based on
multiple assumptions, each of which may introduce errors into Ikanos estimates. In the past, when the demand for its OEM customers products increased significantly, Ikanos was not able to meet demand on a timely basis, and Ikanos
expended a significant amount of time working with its customers to allocate limited supply and maintain positive customer relations As our network of distributors increases, it increases the possibility that the Company may receive orders from
these distributors that have a delivery date sooner than our manufacturing subcontractors can build and deliver product to us. In the past Ikanos has experienced situations in which lead times discussed with customers were shorter than the
manufacturing lead times available for the products ordered by those customers. We have had to work with these customers and our manufacturing subcontractors, to better align our ability to deliver products with our customers expectations.

If Ikanos underestimates or is otherwise surprised by increases in customer demand, it may forego revenue opportunities,
lose market share and damage customer relationships. Conversely, if Ikanos overestimates customer demand, it may allocate resources to manufacturing products that it may not be able to sell. As a result, Ikanos would have excess or
obsolete inventory, resulting in a decline in the value of its inventory, which would increase its cost of revenue and create a drain on Ikanos liquidity. Ikanos failure to accurately manage inventory against demand would adversely
affect its financial results.

To remain competitive, Ikanos needs to continue to reduce the cost of its semiconductor chips, which
includes migrating to smaller geometrical process, and Ikanos failure to do so may harm its business.

Ikanos
periodically evaluates the benefits, on a product-by-product basis, of migrating to smaller geometrical processes, which are measured in microns or nanometers. Ikanos has designed its products to be manufactured in 0.8 micron  0.065 micron
geometry processes. Ikanos may migrate some of its current products to smaller geometry process technologies, and over time, Ikanos is likely to migrate to even smaller geometries. The smaller geometry generally reduces Ikanos production
costs, which may enable it to be competitive in its pricing. The transition to smaller geometries requires Ikanos to work with its subcontractors to modify the manufacturing processes for its products, to develop new and more complex quality
assurance tests and to redesign some products. In the past, Ikanos has experienced some difficulties in shifting to smaller geometry process technologies or new manufacturing processes, which resulted in reduced manufacturing yields, delays in
product deliveries and increased product costs and expenses. Ikanos may face similar difficulties, delays and expenses as it continues to transition its products to smaller geometry processes, all of which could harm Ikanos relationships
with its customers, and its failure to do so would impact its ability to provide competitive prices to customers, which would have a negative impact on Ikanos sales. Additionally, upfront expenses associated with smaller geometry process
technologies such as for masks and tooling can be significantly higher than those for the processes that Ikanos currently uses, and its migration to these newer process technologies can result in significantly higher research and development
expenses.

The complexity of Ikanos products could result in unforeseen delays or expenses and in undetected defects or bugs, which
could damage its reputation with current or prospective customers and adversely affect the market acceptance of new products.

Highly complex products such as those that Ikanos offers frequently contain defects (commonly referred to as bugs), particularly when they are first introduced or as new versions are released. In the past, Ikanos has
experienced, and may in the future experience, defects or bugs in its products. These defects or bugs may originate in third party intellectual property incorporated into Ikanos products as well as in technology or software designed by
its engineers. Some customers do not detect defects that are experienced later by other customers due to variations in how each customer integrates our semiconductors into their equipment. If any of its products contains defects or bugs, or have
reliability, quality or compatibility problems, Ikanos reputation may be damaged; and its OEM customers may be reluctant to buy its products, which could harm Ikanos ability to retain existing customers and attract new
customers. In addition, these defects or bugs could interrupt or delay sales or shipment of Ikanos products to its customers.



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Third-party claims of infringement or other claims against Ikanos could adversely affect its ability to
market its products, require Ikanos to redesign its products or seek licenses from third parties, and harm Ikanos business. In addition, any litigation required to defend such claims could result in significant expenses and diversion of
Ikanos resources.

Companies in the semiconductor industry and intellectual property holding companies (also called
patent trolls) often aggressively protect and pursue their intellectual property rights. From time to time, Ikanos receives, and is likely to continue to receive in the future, notices that claim Ikanos products infringe upon
other parties proprietary rights. We are also aware that Conexant Systems was recently sued by a patent holder that alleges that certain products which were acquired as part of the BBA product line acquisition, infringe a patent held by that
party. At this time, Ikanos has not been named as a party to that litigation. While Ikanos does not believe that it is currently infringing on the proprietary rights of the party in the Conexant litigation, or any other third parties, Ikanos
may in the future be engaged in litigation with parties who claim that it has infringed their patents or misappropriated or misused their trade secrets or who may seek to invalidate one or more of Ikanos patents, and it is possible
that Ikanos would not prevail in any future lawsuits. An adverse determination in any of these types of claims could prevent Ikanos from manufacturing or selling some of its products, could increase its costs of products and could expose Ikanos to
significant liability. Any of these claims could harm Ikanos business. For example, in a patent or trade secret action, a court could issue a preliminary or permanent injunction that would require Ikanos to withdraw or recall certain products
from the market or redesign certain products offered for sale or that are under development. In addition, Ikanos may be liable for damages for past infringement and royalties for future use of the technology and it may be liable for treble
damages if infringement is found to have been willful. Even if claims against Ikanos are not valid or successfully asserted, these claims could result in significant costs and a diversion of management and personnel resources to defend.

Any potential dispute involving Ikanos patents or other intellectual property could also include Ikanos manufacturing subcontractors and
OEM customers and/or service providers using Ikanos products, which could trigger Ikanos indemnification obligations to one or more of them and result in substantial expense to us.

In any potential dispute involving Ikanos patents or other intellectual property, Ikanos manufacturing subcontractors and OEM
customers could also become the target of litigation. Because Ikanos often indemnifies its customers for intellectual property claims made against them for products incorporating Ikanos technology, any litigation could trigger technical
support and indemnification obligations in some of Ikanos license agreements, which could result in substantial expenses such as increased legal expenses, damages for past infringement or royalties for future use. From time to time, Ikanos
receives notices that customers have received potential infringement notices from third parties. While Ikanos has not incurred any indemnification expenses as a result of notices received to date, any future indemnity claim could adversely affect
Ikanos relationships with its OEM customers and result in substantial costs to Ikanos.

Ikanos faces intense competition in the
semiconductor industry and the broadband communications markets, which could reduce its market share and negatively impact its revenue.

The semiconductor industry and the broadband communications markets are intensely competitive. In the VDSL or VDSL-like technology, PON and network processing markets, Ikanos currently competes or expects
to compete with, among others, Aware, Inc., Broadcom Corporation, Broadlight, Cavium Networks, Freescale Semiconductor, Inc., Infineon Technologies A.G., Marvell Technology Group Ltd., PMC-Sierra, Inc., Realtek Semiconductor
Corp, Teknovus and TrendChip Technologies Corp. Ikanos expects competition to continue to increase. Competition has resulted and may continue to result in declining average selling prices for Ikanos products and market share.

Ikanos considers other companies that have access to DMT technology as potential competitors in the future, and Ikanos also
may face competition from newly established competitors, suppliers of products based on new or emerging technologies and customers who choose to develop their own semiconductors. To remain competitive, Ikanos needs to provide products that are
designed to meet its customers needs. Ikanos products must:



| |  |  | achieve optimal product performance;
| | - |  | ------------------------------------



| |  |  | comply with industry standards;
| | - |  | -------------------------------



| |  |  | be cost-effective for its customers use in their systems;
| | - |  | ----------------------------------------------------------



| |  |  | meet functional specifications;
| | - |  | -------------------------------



| |  |  | be introduced timely to the market; and
| | - |  | ---------------------------------------



| |  |  | be supported by a high-level of customer service and support.
| | - |  | -------------------------------------------------------------



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Many of Ikanos competitors may have stronger manufacturing subcontractor relationships
than Ikanos has. In addition, many of Ikanos competitors have extensive technology libraries that could enable them to incorporate broadband or network processing technologies into a more attractive product line than Ikanos. Many of them
also have longer operating histories, greater name recognition, larger customer bases, and significantly greater financial, sales and marketing, manufacturing, distribution, technical and other resources than Ikanos does. These competitors
may be able to adapt more quickly to new or emerging technologies and changes in customer requirements. In addition, current and potential competitors have established or may establish financial or strategic relationships among themselves
or with existing or potential customers, resellers or other third parties. Accordingly, new competitors or alliances among competitors could emerge and rapidly acquire significant market share. Existing or new competitors may also develop
alternative technologies that more effectively address Ikanos markets with products that offer enhanced features and functionality, lower power requirements, greater levels of semiconductor integration or lower cost. Ikanos cannot assure that
it will be able to compete successfully against current or new competitors, in which case Ikanos may lose market share in its existing markets and its revenue may fail to increase or may decline.

Other data transmission technologies and network processing technologies may compete effectively with the service provider services addressed by
Ikanos products, which could adversely affect Ikanos revenue and business.

Ikanos revenue currently is
dependent upon the increase in demand for service provider services that use broadband technology and integrated residential gateways. Besides xDSL and other DMT-based technologies, service providers can decide to deploy PON or fiber. In this case,
fiber is used to connect directly to the residence instead of using the existing copper phone line. As such, if a service provider decides to deploy fiber-to-the-home, Ikanos xDSL products are not required. For example, a major service
provider in Korea announced its intention to use more fiber-to-the-home deployments in the future. Such deployments of fiber may be in lieu of xDSL products. If more service providers decide to use FTTH deployments, it could harm Ikanos
business. Furthermore, residential gateways compete against a variety of different data distribution technologies, including Ethernet routers, set-top boxes provided by cable and satellite providers, wireless (WiFi and WiMax) and emerging power line
and multimedia over coax alliance technologies. If any of these competing technologies proves to be more reliable, faster or less expensive than, or has any other advantages over the broadband technologies Ikanos provides, the demand for
Ikanos products may decrease and Ikanos business would be harmed.

If Ikanos is unable to develop, introduce or to achieve
market acceptance of its new semiconductor products, Ikanos operating results would be adversely affected.

Ikanos future success depends on its ability to develop new semiconductor products and transition to new products, introduce these products in a cost-effective and timely manner and convince OEMs to select its products for design into
their new systems. Ikanos historical quarterly results have been, and Ikanos expects that its future results will continue to be, dependent on the introduction of a relatively small number of new products and the timely completion and delivery
of those products to customers. The development of new semiconductor products is complex, and from time to time Ikanos has experienced delays in completing the development and introduction of new products. Ikanos has in the past invested substantial
resources in emerging technologies that did not achieve the market acceptance that we had expected. In addition, Ikanos has substantially expanded its product line, and the resulting product development and support demands on our engineering
organization, through the recently-completed acquisition of the BBA product line from Conexant Systems.

Ikanos ability
to develop and deliver new semiconductor products successfully will depend on various factors, including its ability to:



| |  |  | successfully integrate certain technologies acquired in acquisitions into its product lines;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | accurately predict market requirements and evolving industry standards;
| | - |  | -----------------------------------------------------------------------



| |  |  | accurately define new semiconductor products;
| | - |  | ---------------------------------------------



| |  |  | timely complete and introduce new product designs or features;
| | - |  | --------------------------------------------------------------



| |  |  | timely qualify and obtain industry interoperability certification of its products and the equipment into which its products will be incorporated;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | ensure that its subcontractors have sufficient foundry capacity and packaging materials and achieve acceptable manufacturing yields;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | shift its products to smaller geometry process technologies to achieve lower cost and higher levels of design integration; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | gain market acceptance of its products and its OEM customers products.
| | - |  | -----------------------------------------------------------------------



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If Ikanos is unable to develop and introduce new semiconductor products successfully and in
a cost-effective and timely manner, it will not be able to attract new customers or retain its existing customers, which would harm Ikanos business.

Ikanos efforts to identify technologies and develop products designed to deliver broadband services inside the home may not ultimately be successful; if this is the case, Ikanos current
long-term strategy would not result in the growth in the revenue it intends to generate, and Ikanos could experience a material negative effect on its business and equity value.

Ikanos has focused its long-term technology strategy on identifying technologies that would be used to deliver services such as
high-definition television over various broadband wireline and wireless media within the home. This so-called Digital Home has received attention from leaders in semiconductors and systems. For instance, an industry organization named
the Home Grid Forum was formed recently by Intel, Texas Instruments, Infineon and Panasonic in order to define the industry standards applicable to Digital Home technologies. Ikanos and several other smaller companies also are founding
participants. If Ikanos is unable to develop products that comply with the standards set by the Home Grid Forum or other industry organizations, and its investments in Digital Home technologies do not result in any commercially viable products,
Ikanos would not realize revenue growth based upon such technologies, and its business and equity value could suffer as a result.

Ikanos products include a significant amount of firmware. If Ikanos is unable to deliver the firmware in a timely manner, it may have to delay revenue recognition at the end of a quarter, which could lead to significant unplanned
fluctuations in Ikanos quarterly revenue. As a result, Ikanos may fail to meet or exceed its forecasts or the expectations of securities analysts or investors, which could cause the market price of Ikanos Common Stock to decline.

In connection with new product introductions in a given market, Ikanos releases production quality code to its OEM customers.
This firmware is required for Ikanos products to function as intended. If the production-ready firmware is not released in a timely manner, Ikanos may have to defer all revenue related to the semiconductors that it may have already shipped
during the quarter, and therefore, cause Ikanos to miss its revenue guidance. In addition, a customer may demand a specific future software feature as part of its order. As such, Ikanos may have to delay recognition on some or all of its revenue
related to that customers order until the future software feature is delivered. Such delays or deferrals in revenue recognition could lead to significant fluctuations in Ikanos quarterly revenue and operating results and cause us to fail
to meet or exceed its quarterly revenue guidance.

Rapidly changing standards and regulations could make Ikanos products obsolete,
which would cause its revenue and operating results to suffer.

Ikanos designs its products to conform to regulations
established by governments and to standards set by industry standards bodies worldwide such as the Committee T1E1.4 (now known as NIPP-NAI) of the ATIS (accredited by ANSI), and worldwide by both the IEEE and the ITU-T. Because Ikanos products
are designed to conform to current specific industry standards, if competing standards emerge that are preferred by its customers, Ikanos would have to make significant expenditures to develop new products. If Ikanos customers adopt new
or competing industry standards with which Ikanos products are not compatible, or the industry groups adopt standards or governments issue regulations with which Ikanos products are not compatible, Ikanos existing products would
become less desirable to its customers, and its revenue and operating results would suffer.

If Ikanos fails to secure or protect its
intellectual property rights, competitors may be able to use Ikanos technologies, which could weaken its competitive position, reduce its revenue or increase its cost.

Ikanos success will depend, in part, on its ability to protect its intellectual property. Ikanos relies on a combination of patent,
copyright, trademark and trade secret laws, confidentiality procedures and licensing arrangements to establish and protect its proprietary rights. Ikanos pending patent applications may not result in issued patents, and its existing and
future patents may not be sufficiently broad to protect its proprietary technologies or may be held invalid or unenforceable in court. While Ikanos is not currently aware of misappropriation of its existing technology, policing
unauthorized use of its technology is difficult and Ikanos cannot be certain that the steps it has taken will prevent the misappropriation or unauthorized use of its technologies, particularly in foreign countries where Ikanos has not applied for
patent protections and, even if such protections were available, the laws may not protect its proprietary rights as fully as United States law. The patents Ikanos has obtained or licensed, or may obtain or license in the future,
may not be adequate to protect its proprietary rights. Ikanos competitors may independently develop or may have already developed technology similar to Ikanos, duplicate its products or design around any patents issued to
Ikanos or its other intellectual property. In addition, Ikanos has been, and may be, required to license its patents as a result of its participation in various standards organizations. If competitors appropriate Ikanos technology and it
is not adequately protected, its competitive position would be harmed, its legal costs would increase and its revenue would be harmed.



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Changes in current or future laws or regulations or the imposition of new laws or regulations by federal
or state agencies or foreign governments could impede the sale of Ikanos products or otherwise harm its business.

The effects of regulation on Ikanos customers or the industries in which they operate may materially and adversely impact its business. For example, the Ministry of Internal Affairs and Communications in Japan, the Ministry of
Communications and Information in Korea, various national regulatory agencies in Europe, as well as the European Commission in the European Union, along with the U.S. Federal Communications Commission have broad jurisdiction over Ikanos target
markets. Although the laws and regulations of these and other federal or state agencies may not be directly applicable to Ikanos products, they do apply to much of the equipment into which its products are incorporated. Governmental regulatory
agencies worldwide may affect the ability of telephone companies to offer certain services to their customers or other aspects of their business, which may in turn impede sales of Ikanos products.

In addition to the laws and regulations specific to telecommunications equipment, other laws and regulations affect Ikanos business.
For instance, changes in tax, employment and import/export laws and regulations, and changes their enforcement, commonly occur in the various countries in which Ikanos operates. If changes in those law and regulations, or in the enforcement of those
laws and regulations, occur in a manner Ikanos did not anticipate, those changes could cause it to have increased operating costs or to pay higher taxes, and thus have a negative effect on its operating results.

Compliance with the requirements imposed by Section 404 of the Sarbanes-Oxley Act, referred to as SOX, could harm Ikanos operating results,
ability to operate its business and its investors view of Ikanos.

If Ikanos does not maintain the adequacy of its
internal controls, as standards are modified, supplemented or amended from time to time, Ikanos may not be able to ensure that it can conclude on an ongoing basis that it has effective internal control over financial reporting in accordance
with Section 404 of SOX. There is a risk that neither Ikanos, nor its independent registered public accounting firm, will be able to conclude that its internal control over financial reporting is effective as required by Section 404 of
SOX. In addition, during the course of Ikanos testing it may identify deficiencies that it may not be able to remediate in time to meet the deadline imposed by SOX for compliance with the requirements of Section 404. Effective
internal controls particularly those related to revenue recognition, valuation of inventory and warranty provisions, are necessary for Ikanos to produce reliable financial reports and are important to helping prevent financial fraud. If Ikanos
cannot provide reliable financial reports or prevent fraud, its business and operating results could be harmed, investors could lose confidence in its reported financial information, and the trading price of Ikanos Common Stock could drop
significantly.

Ikanos is highly dependent on manufacturing, development and sales activities outside of the United States, and as
Ikanos international manufacturing, development and sales operations expand, it will be increasingly exposed to various legal, business, political and economic risks associated with its international operations.

Ikanos currently obtains substantially all of its manufacturing, assembly and testing services from suppliers and subcontractors located
outside the United States, and has a significant portion of its research and development team located in China, India and France. In addition, 90% of Ikanos revenue for the nine months ended September 27, 2009 and 92% of Ikanos
revenue for the year ended December 28, 2008 was derived from sales to customers outside the United States. Ikanos has expanded its international business activities and may open other design and operational centers abroad. International
operations are subject to many other inherent risks, including but not limited to:



| |  |  | political, social and economic instability, including war and terrorist acts;
| | - |  | -----------------------------------------------------------------------------



| |  |  | exposure to different legal standards, particularly with respect to intellectual property;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | trade and travel restrictions;
| | - |  | ------------------------------



| |  |  | the imposition of governmental controls and restrictions or unexpected changes in regulatory requirements;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | burdens of complying with a variety of foreign laws;
| | - |  | ----------------------------------------------------



| |  |  | Import and export license requirements and restrictions of the United States and each other country in which it operates;
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | foreign technical standards;
| | - |  | ----------------------------



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| |  |  | changes in tariffs;
| | - |  | -------------------



| |  |  | difficulties in staffing and managing international operations;
| | - |  | ---------------------------------------------------------------



| |  |  | foreign currency exposure and fluctuations in currency exchange rates;
| | - |  | ----------------------------------------------------------------------



| |  |  | difficulties in collecting receivables from foreign entities or delayed revenue recognition; and
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | potentially adverse tax consequences.
| | - |  | -------------------------------------

Because Ikanos is currently substantially dependent on its foreign sales, research and development and operations, any of the factors described above could significantly harm Ikanos ability to
produce quality products in a timely and cost effective manner, and increase or maintain its foreign sales.

Fluctuations in exchange rates
between and among the Euro, the Indian rupee, the Japanese yen, the Korean won, the Singapore dollar and the U.S. dollar, and, as well as other currencies in which Ikanos does business, may adversely affect its operating results.

Ikanos maintains extensive operations internationally. Ikanos has offices in China, India and other offices in France,
Germany, Japan, Korea, Singapore and Taiwan. Ikanos incurs a portion of its expenses in currencies other than the U.S. dollar, including the Chinese Yuan, Euro, the Indian rupee, the Korean won, the Japanese yen, Singapore dollar and the Taiwanese
dollar. As a result, Ikanos may experience foreign exchange gains or losses due to the volatility of these currencies compared to the U.S. dollar. Because Ikanos reports its results in U.S. dollars, the difference in exchange rates in one
period compared to another directly impacts period to period comparisons of Ikanos operating results. In addition, Ikanos sales have been historically denominated in U.S. dollars. Currency exchange rates have been especially volatile in
the recent past and these currency fluctuations may make it difficult for Ikanos to predict and/or provide guidance on its results. Currently, Ikanos has not implemented any strategies to mitigate risks related to the impact of fluctuations in
currency exchange rates and it cannot predict future currency exchange rate changes.

Several of the facilities that manufacture
Ikanos products, most of its OEM customers and the service providers they serve, and its California facility are located in regions that are subject to earthquakes and other natural disasters.

Several of Ikanos subcontractors facilities that manufacture, assemble and test its products, and four of Ikanos
subcontractors wafer foundries, are located in Malaysia, Singapore and Taiwan. Several large customers are located in Japan and Korea. The Asia-Pacific region has experienced significant earthquakes and other natural disasters in the past and
could be subject to additional seismic activities. Any earthquake or other natural disaster in these areas could significantly disrupt these manufacturing facilities production capabilities and could result in Ikanos experiencing a
significant delay in delivery, or substantial shortage, of wafers in particular, and possibly in higher wafer prices, and Ikanos products in general. Ikanos headquarters in California are also located near major earthquake fault lines.
If there is a major earthquake or any other natural disaster in a region where one of Ikanos facilities is located, it could significantly disrupt its operations.

Ikanos investments in marketable securities may experience further decline in value, which would require us to recognize a charge and adversely affect Ikanos operating results.

Ikanos marketable securities portfolio, which totals $33.0 million at September 27, 2009, includes auction
rate securities of $1.0 million ($7.2 million at original cost). Auction rate securities are securities that are structured with short-term interest rate reset dates of generally less than ninety days, but with contractual maturities that can be
well in excess of ten years. At the end of each interest reset period, which occurs every seven to thirty-five days, investors can sell or continue to hold the securities at par. In the third quarter of 2007, certain auction rate securities with a
cost value of $7.2 million failed auction and did not sell. Ikanos recorded an other-than-temporary impairment charge of approximately $6.2 million during the three months ended September 28, 2008 related to these auction rate
securities. Although Ikanos believes that $1.0 million is the current fair value of these securities, there is a risk that the value of the securities may decline in value further, which would result in additional loss being recognized in
Ikanos statement of operations.

Changes in Ikanos tax rates could affect its future results.

Ikanos future effective tax rates could be favorably or unfavorably affected by the absolute amount and future geographic distribution
of its pre-tax income, Ikanos ability to successfully shift its operating activities to foreign operations and the amount and timing of inter-company payments from its foreign operations subject to U.S. income taxes related to the transfer of
certain rights and functions.



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Risks Related to Ikanos Common Stock

The market price of Ikanos Common Stock has been and may continue to be volatile, and holders of Ikanos Common Stock may not be able to resell
shares at or above the price paid, or at all.

The market price of Ikanos Common Stock has fluctuated substantially since
Ikanos initial public offering and is likely to continue to be highly volatile and subject to wide fluctuations. Fluctuations have occurred and may continue to occur in response to various factors, many of which we cannot control,
including:



| |  |  | quarter-to-quarter variations in its operating results;
| | - |  | -------------------------------------------------------



| |  |  | announcements of changes in its senior management;
| | - |  | --------------------------------------------------



| |  |  | the gain or loss of one or more significant customers or suppliers;
| | - |  | -------------------------------------------------------------------



| |  |  | announcements of technological innovations or new products by Ikanos competitors, customers or Ikanos;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | the gain or loss of market share in any of its markets;
| | - |  | -------------------------------------------------------



| |  |  | general economic and political conditions and specific conditions in the semiconductor industry and broadband technology markets, including
seasonality in sales of consumer products into which its products are incorporated;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | continuing international conflicts and acts of terrorism;
| | - |  | ---------------------------------------------------------



| |  |  | changes in earnings estimates or investment recommendations by analysts;
| | - |  | ------------------------------------------------------------------------



| |  |  | changes in investor perceptions;
| | - |  | --------------------------------



| |  |  | changes in product mix; or
| | - |  | --------------------------



| |  |  | changes in expectations relating to its products, plans and strategic position or those of its competitors or customers.
| | - |  | ------------------------------------------------------------------------------------------------------------------------

The closing sale price of Ikanos common stock on the NASDAQ Global Market for the period of January 1, 2007 to
September 30, 2009 ranged from a low of $1.02 to a high of $9.34.

In addition, the market prices of securities of
semiconductor and other technology companies have been volatile, particularly companies, like Ikanos, with low trading volumes. This volatility has significantly affected the market prices of securities of many technology companies for reasons
frequently unrelated to the operating performance of the specific companies. Accordingly, holders of Ikanos Common Stock may not be able to resell their shares at or above the price paid.

The pending class action litigation could cause Ikanos to incur substantial costs and divert its managements attention and resources.

In November 2006, three putative class action lawsuits were filed in the United States District Court for the Southern
District of New York against the Company, its directors and two former executive officers, as well as the lead underwriters for its initial and secondary public offerings. The lawsuits were consolidated and an amended complaint was filed on
April 24, 2007. The amended complaint sought unspecified damages for certain alleged material misrepresentations and omissions made by the Company in connection with both its initial public offering in September 2005 and its follow-on
offering in March 2006. The Court dismissed the case with prejudice on March 10, 2008. On March 25, 2008, plaintiffs filed a motion for reconsideration, and on June 12, 2008, the District Court denied the motion for reconsideration.
On October 15, 2008, plaintiffs appealed the District Courts dismissal of the amended complaint and denial of its motion for reconsideration to the United States Court of Appeals for the Second Circuit. On September 17, 2009, the
Second Circuit issued a summary order, vacating the District Courts denial of plaintiffs motion for reconsideration, and remanding the case to the District Court for further consideration. The District Court has taken no action since
September 17, 2009; however, an adverse result in the litigation could have a material effect on its financial statements.

If Ikanos is not successful in its defense of the lawsuits, it could be forced to make significant payments to class members and their lawyers, and such payments could have a material adverse effect on Ikanos business,
financial condition, cash flows and results of operations, if not covered by Ikanos insurance service providers. Even if such claims are not successful, the litigation could result in substantial expenses and the diversion of managements
attention, which could have an adverse effect on Ikanos business.



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If securities or industry analysts do not continue to publish research or reports about Ikanos
business, or if they issue an adverse opinion regarding Ikanos Common Stock, the market price of Ikanos Common Stock price and trading volume could decline.

The trading market for Ikanos Common Stock is influenced by the research and reports that industry or securities analysts publish about Ikanos or its business. If one or more of the analysts who cover
Ikanos issues an adverse opinion regarding Ikanos Common Stock, the stock price would likely decline. If one or more of these analysts cease coverage of Ikanos or fail to regularly publish reports on Ikanos, it could lose visibility in the financial
markets, which in turn could cause the market price of Ikanos Common Stock or trading volume to decline.

Delaware law and Ikanos
corporate charter and bylaws contain anti-takeover provisions that could delay or discourage takeover attempts that stockholders may consider favorable.

Provisions in Ikanos certificate of incorporation may have the effect of delaying or preventing a change of control or changes in Ikanos management. These provisions include the
following:



| |  |  | the right of Ikanos Board of Directors to elect a director to fill a vacancy created by the expansion of Ikanos Board of Directors;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the establishment of a classified Board of Directors requiring that not all members of the board be elected at one time;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | the prohibition of cumulative voting in the election of directors which would otherwise allow less than a majority of stockholders to elect director
candidates;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the requirement for advance notice for nominations for election to the board of directors or for proposing matters that can be acted upon at a
stockholders meeting;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the ability of Ikanos Board of Directors to alter its bylaws without obtaining stockholder approval;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | the ability of Ikanos Board of Directors to issue, without stockholder approval, up to 1,000,000 shares of preferred stock with terms set by the
Board of Directors, which rights could be senior to those of common stock;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the required approval of holders of at least two-thirds of the shares entitled to vote at an election of directors to adopt, amend or repeal
Ikanos bylaws or amend or repeal the provisions of Ikanos certificate of incorporation regarding the election and removal of directors and the ability of stockholders to take action;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the required approval of holders of a majority of the shares entitled to vote at an election of directors to remove directors for cause; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the elimination of the right of stockholders to call a special meeting of stockholders and to take action by written consent.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------

Ikanos is also subject to provisions of the Delaware General Corporation Law that, in general, prohibit any
business combination with a beneficial owner of 15% or more of Ikanos Common Stock for three years after the point in time that such stockholder acquired shares constituting 15% or more of Ikanos shares, unless the holders acquisition of
Ikanos Common Stock was approved in advance by Ikanos Board of Directors.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

In order to complete the BBA acquisition, the Company negotiated a $42.0 million cash investment by Tallwood III, L.P. Tallwood III Annex, L.P. and certain of their affiliates (collectively, the
Tallwood Investors) pursuant to which the Company sold to the Tallwood Investors (i) 24 million shares of Ikanos common stock, par value $0.001 per share (the Common Stock), and (ii) warrants to purchase up to
7.8 million shares of Common Stock (the Warrants). The transaction was completed on August 24, 2009 and the purchase price of each share of Common Stock and the exercise price of each warrant to purchase a share of Common Stock
under the securities purchase agreement is $1.75. In addition, the Company issued to the Tallwood Investors one share (the Voting Share) of Series A Preferred Stock, which provides the Tallwood Investors certain voting rights solely with
respect to election of a minority of the members of the Board of Directors but does not share in the economics



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of Ikanos. The 24 million shares of Common Stock, Warrants and the Voting Share collectively are referred to as the Tallwood Investment. The transaction was undertaken without an
underwriter. It is anticipated that the securities will be registered during the first quarter of 2010.

The Company has used
the proceeds from the Tallwood Investment to fund the purchase of the Broadband Access product line from Conexant.



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

Set forth is information concerning each matter submitted to a vote at the Special Meeting of Stockholders held on August 21, 2009:

Proposition No. 1: To approve the issuance of (i) 24,000,000 shares of Ikanos Common Stock, (ii) warrants to purchase
up to 7,800,000 shares of Ikanos Common Stock and (iii) one share of Ikanos Series A Preferred Stock to the Tallwood Investors in accordance with the terms of a securities purchase agreement with the Tallwood Investors.

For:
20,876,033                        Against:
927,593                        Abstain: 2,864

Proposition No. 2: To approve an amendment to Ikanos Certificate of Incorporation to increase the number of shares of authorized capital stock of Ikanos from 51,000,000 to 100,000,000,
comprised of an increase in Ikanos Common Stock from 50,000,000 to 99,000,000 shares and maintaining the 1,000,000 undesignated shares of preferred stock currently authorized.

For: 20,874,767                        Against:
929,159                        Abstain: 2,564

Proposition No. 3: To approve an amendment and restatement of the Ikanos 2004 Equity Incentive Plan, referred as the Plan to (i) increase the number of shares of Ikanos Common Stock
reserved for issuance under the Plan by 5,500,000 shares and (ii) allow Ikanos to continue to deduct in full for federal income tax purposes the compensation recognized by its executive officers in connection with certain awards granted under
the Plan.

For:
12,953,865                        Against:
8,847,056                        Abstain: 5,569

Proposition No. 4: To adjourn or postpone the special meeting to a later date or time, if necessary or appropriate, to solicit additional proxies in the event there are insufficient votes at
the time of such adjournment or postponement to approve the other proposals.

For:
18,033,851                        Against:
3,760,231                        Abstain: 12,407



|Item 6. | Exhibits
|------- | --------

An
Exhibit Index has been attached as part of this Quarterly Report on Form 10-Q and is incorporated herein by reference.

SIGNATURES

Pursuant to the requirements 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.



|                        |  |  |  |                             |  |                                             
|----------------------- |  |  |  | --------------------------- |  | --------------------------------------------
|                        |  |  |  | IKANOS COMMUNICATIONS, INC.
|                        |  |  | 
|Dated: November 5, 2009 |  |  |  | By:                         |  | /s/    Michael Gulett                       
|                        |  |  |  |                             |  | Michael Gulett                              
|                        |  |  |  |                             |  | President and Chief Executive Officer       
|                        |  |  |  |                             |  | (Principal Executive Officer)               
|                        |  |  | 
|Dated: November 5, 2009 |  |  |  | By:                         |  | /s/    Cory J. Sindelar                     
|                        |  |  |  |                             |  | Cory J. Sindelar                            
|                        |  |  |  |                             |  | Vice President and Chief Financial Officer  
|                        |  |  |  |                             |  | (Principal Financial and Accounting Officer)



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IKANOS COMMUNICATIONS, INC.

EXHIBITS TO FORM 10-Q QUARTERLY REPORT

For the
Quarter Ended September 27, 2009



|               |  |                                                                                                                                                                                                                         
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                                                             
|10.1           |  | 2009 Sales Compensation Plan for the Vice President of Worldwide Sales. Incorporated by reference to the Registrants Form 8-K filed with the SEC on March 12, 2009 (File
No. 000-51532).                               
|               | 
|10.2           |  | Summary of Registrants 2009 Executive Bonus Program. Incorporated by reference to the Registrants Current Report on Form 8-K filed with the SEC on April 27, 2009
(File No. 000-51532).                               
|               | 
|10.3*          |  | Amended and restated 2004 Equity Incentive Plan (as amended and restated through August 21, 2009).                                                                                                                      
|               | 
|10.4           |  | Entry into an Asset Purchase Agreement. Incorporated by reference to the Registrants Current Repot on Form 8-K filed with the SEC on April 24, 2009 (File No. 000-51532).                                              
|               | 
|10.5           |  | Entry into a Securities Purchase Agreement. Incorporated by reference to the Registrants Current Repot on Form 8-K filed with the SEC on April 24, 2009 (File No.
000-51532)                                           
|               | 
|10.6           |  | Entry into a Stockholder Agreement. Incorporated by reference to the Registrants Current Repot on Form 8-K filed with the SEC on April 24, 2009 (File No.
000-51532)                                                   
|               | 
|10.7           |  | Offer letter dated August 6, 2009 between the registrant and Dan Karr. Incorporated by reference to the Registrants Current report of Form 8-K filed with the SEC on
September 3, 2009 (file No. 000-51532)            
|               | 
|10.8           |  | Separation and Release Agreement with Nick Shamlou dated as of September 9, 2009. Incorporated by reference to the Registrants Current Report on Form 8-K filed with the
SEC on September 14, 2009 (file No. 000-51532)
|               | 
|10.9*          |  | Separation and Release Agreement with Chandrashekhar Khandekar dated as of September 25, 2009.                                                                                                                          
|               | 
|31.1*          |  | Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.                                       
|               | 
|31.2*          |  | Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.                                       
|               | 
|32.1*          |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                          



|* | Filed Herewith.
|- | ---------------



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