UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-Q

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

For the quarterly period ended June 30, 2002

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 0-26944

Silicon Storage Technology, Inc.(Exact name of Registrant as Specified in its Charter)



|California                                                     | 77-0225590                             
|-------------------------------------------------------------- | ---------------------------------------
|(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number)

1171 Sonora CourtSunnyvale, California     94086(Address of Principal Executive Offices including Zip Code)

(408) 735-9110(Registrant's Telephone Number, Including Area Code)

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

Number of shares outstanding of our Common Stock, no par value, as of the latest
practicable date, July 15, 2002:   92,559,824.

1









Silicon Storage Technology, Inc.
              FORM 10-Q: QUARTER ENDED JUNE 30, 2002
                                TABLE OF CONTENTS



|PART I.   FINANCIAL INFORMATION                                                                                       | Page No.
|--------------------------------------------------------------------------------------------------------------------- | --------
|                                                                                                                      |         
|Item 1.   Condensed Consolidated Financial Statements:                                                                |         
|                                                                                                                      |         
|Condensed Consolidated Statements of Operations                                                                       | 3       
|                                                                                                                      |         
|Condensed Consolidated Balance Sheets                                                                                 | 4       
|                                                                                                                      |         
|Condensed Consolidated Statements of Cash Flows                                                                       | 5       
|                                                                                                                      |         
|Notes to Condensed Consolidated Financial Statements                                                                  | 6       
|                                                                                                                      |         
|Item 2.   Management's Discussion and Analysis of Financial
                      Condition and Results of Operations | 13      
|                                                                                                                      |         
|Item 3.   Quantitative and Qualitative Disclosures About Market Risk                                                  | 28      
|                                                                                                                      |         
|PART II.  OTHER INFORMATION                                                                                           |         
|                                                                                                                      |         
|Item 1.  Legal Proceedings                                                                                            | 29      
|                                                                                                                      |         
|Item 4.  Submission of Matters to a Vote of Security Holders                                                          | 30      
|                                                                                                                      |         
|Item 6.   Exhibits and Reports on Form 8-K                                                                            | 31      
|                                                                                                                      |         
|Signature                                                                                                             | 32      

2

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Part I.   FINANCIAL INFORMATION



Item 1.	Condensed Consolidated Financial Statements

SILICON STORAGE TECHNOLOGY, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                      (in thousands, except per share data)
Three Months Ended            Six Months Ended
                                                     June 30,                     June 30,
                                            ------------------------     ------------------------
                                               2001         2002            2001         2002
                                            -----------  -----------     -----------  -----------
                                            (unaudited)  (unaudited)     (unaudited)  (unaudited)

Net revenues:
     Product revenues - unrelated parties  $    31,847  $    28,596     $    99,922  $    59,253
     Product revenues - related parties         21,050       32,884          32,904       68,522
     License revenues                            9,818        7,997          16,187       16,284
                                            -----------  -----------     -----------  -----------
          Total net revenues                    62,715       69,477         149,013      144,059
Cost of revenues                                38,037       50,235          95,395      100,737
                                            -----------  -----------     -----------  -----------
Gross profit                                    24,678       19,242          53,618       43,322
                                            -----------  -----------     -----------  -----------
Operating expenses:
     Research and development                   12,425       11,919          24,711       23,791
     Sales and marketing                         6,179        6,519          12,523       14,023
     General and administrative                  5,637        7,854          10,445       11,171
     Other                                          --           --              --           --
                                            -----------  -----------     -----------  -----------
          Total operating expenses              24,241       26,292          47,679       48,985
                                            -----------  -----------     -----------  -----------
Income (loss) from operations                      437       (7,050)          5,939       (5,663)
Interest and other income                        1,469          907           4,846        1,875
Interest expense                                   (87)         (66)           (186)        (130)
                                            -----------  -----------     -----------  -----------
Income (loss) before provision for
     (benefit from) income taxes                 1,819       (6,209)         10,599       (3,918)
Provision for (benefit from) income taxes          692       (1,987)          4,028       (1,254)
                                            -----------  -----------     -----------  -----------
Net income (loss)                          $     1,127  $    (4,222)    $     6,571  $    (2,664)
                                            ===========  ===========     ===========  ===========

Net income (loss) per share - basic        $      0.01  $     (0.05)    $      0.07  $     (0.03)
                                            ===========  ===========     ===========  ===========

Shares used in per share calculation            90,982       92,406          90,827       92,220
                                            ===========  ===========     ===========  ===========

Net income (loss) per share - diluted      $      0.01  $     (0.05)    $      0.07  $     (0.03)
                                            ===========  ===========     ===========  ===========

Shares used in per share calculation            96,001       92,406          96,212       92,220
                                            ===========  ===========     ===========  ===========

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

3

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SILICON STORAGE TECHNOLOGY, INC. AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                 (in thousands)
December 31,    June 30,
                                                                       2001          2002
                                                                   ------------  ------------
                                                                   (unaudited)   (unaudited)
                             ASSETS

Current assets:
    Cash and cash equivalents, including $36,478 which is
       restricted beginning in July 2002                          $     93,598  $    110,124
    Short-term available-for-sale investments                           71,666        66,346
    Trade accounts receivable-unrelated parties, net of allowance
      for doubtful accounts of $2,814 in 2001 and $6,810 in 2002        19,874        20,356
    Trade accounts receivable-related parties                           20,796        21,180
    Inventories                                                        108,224        94,780
    Deferred tax asset                                                  24,115        24,473
    Other current assets                                                11,839        12,300
                                                                   ------------  ------------
         Total current assets                                          350,112       349,559
Equipment, furniture and fixtures, net                                  22,006        20,377
Long-term available-for-sale investments                                 1,299         8,974
Equity investments                                                      67,007        67,195
Other assets                                                             6,336         5,763
                                                                   ------------  ------------
         Total assets                                             $    446,760  $    451,868
                                                                   ============  ============
LIABILITIES

Current liabilities:
    Notes payable, current portion                                $        316  $        334
    Trade accounts payable-unrelated parties                            24,098        31,955
    Trade accounts payable-related parties                               7,253        10,616
    Accrued expenses and other liabilities                              16,390        12,232
    Deferred revenue                                                     5,499         4,341
                                                                   ------------  ------------
         Total current liabilities                                      53,556        59,478
Other liabilities                                                        1,793         1,425
                                                                   ------------  ------------
         Total liabilities                                              55,349        60,903
                                                                   ------------  ------------
Commitments and Contingencies (Notes 5 and 6)
SHAREHOLDERS' EQUITY

Common stock, no par value:
    Authorized: 250,000 shares
    Issued and outstanding: 91,585 shares in 2001
    and 92,461 shares in 2002                                          333,989       336,246
Accumulated other comprehensive income                                     225           186
Retained earnings                                                       57,197        54,533
                                                                   ------------  ------------
         Total shareholders' equity                                    391,411       390,965
                                                                   ------------  ------------
         Total liabilities and shareholders' equity               $    446,760  $    451,868
                                                                   ============  ============

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


4

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SILICON STORAGE TECHNOLOGY, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (in thousands)
Six Months Ended
                                                                               June 30,
                                                                        ----------------------
                                                                            2001        2002
                                                                        ----------  ----------
                                                                        (unaudited) (unaudited)
Cash flows from operating activities:
    Net income (loss)                                                  $    6,571  $   (2,664)
    Adjustments to reconcile net income (loss) to net cash
      provided by (used in) operating activities:
       Depreciation/amortization                                            4,582       5,060
       Provision for doubtful accounts receivable                           2,429       3,996
       Provision for sales returns                                         24,057         206
       Provision for excess and obsolete inventories and
         lower of cost or market                                           11,765       3,427
       Deferred income taxes                                                   --        (412)
      (Gain) Loss on sale of equipment                                         25         (28)
    Changes in operating assets and liabilities:
       Accounts receivable-unrelated parties                               46,804      (4,539)
       Accounts receivable-related parties                                (12,994)       (529)
       Inventories                                                       (117,714)     10,017
       Other current and non-current assets                                (9,197)       (375)
       Trade accounts payable-unrelated parties                            17,216       7,857
       Trade accounts payable-related parties                                (439)      3,363
       Accrued expenses and other liabilities                             (10,182)     (4,234)
       Deferred revenue                                                     3,099      (1,158)
                                                                        ----------  ----------
           Net cash provided by (used in) operating activities            (33,978)     19,987
                                                                        ----------  ----------
Cash flows from investing activities:
    Restricted cash                                                       (12,490)         --
    Investment in equity securities                                       (52,052)       (188)
    Acquisition of equipment, furniture and fixtures                      (11,585)     (2,862)
    Purchases of available-for-sale investments                           (52,331)    (47,971)
    Sales and maturities of available-for-sale investments                 60,602      45,554
                                                                        ----------  ----------
           Net cash used in investing activities                          (67,856)     (5,467)
                                                                        ----------  ----------
Cash flows from financing activities:
    Borrowings                                                              1,800          --
    Repayments                                                               (115)       (154)
    Issuance of shares of common stock                                      2,067       2,257
    Other                                                                     (90)        (97)
                                                                        ----------  ----------
           Net cash provided by financing activities                        3,662       2,006
                                                                        ----------  ----------
Net increase (decrease) in cash and cash equivalents                      (98,172)     16,526
Cash and cash equivalents at beginning of period                          109,086      93,598
                                                                        ----------  ----------
Cash and cash equivalents at end of period                             $   10,914  $  110,124
                                                                        ==========  ==========

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


5

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SILICON STORAGE TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2002 (UNAUDITED):1.  Basis of Presentation

In the opinion of management, the accompanying unaudited condensed
interim consolidated financial statements contain all adjustments, all of which
are normal and recurring in nature, necessary to fairly present our financial
position, results of operations and cash flows.  The results of operations for
the interim periods presented are not necessarily indicative of the results that
may be expected for any future interim periods or for the full fiscal year.
These interim financial statements should be read in conjunction with the
financial statements in our Annual Report on Form 10-K for the year ended
December 31, 2001 and the Quarterly Report on Form 10-Q for the three months
ended March 31, 2002.

The year-end balance sheet at December 31, 2001 was derived from audited
financial statements, but does not include all disclosures required by generally
accepted accounting principles.  Please refer to the audited financial
statements in our Annual Report on Form 10-K for the year ended December 31,
2001.

Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards, or SFAS, No. 142, "Goodwill
and Other Intangible Assets," which is effective for fiscal years beginning
after December 15, 2001. SFAS No. 142 requires, among other things, the
discontinuance of goodwill amortization. In addition, the standard includes
provisions upon adoption for the reclassification of certain existing recognized
intangibles as goodwill, reassessment of the useful lives of existing recognized
intangibles, reclassification of certain intangibles out of previously reported
goodwill and the testing for impairment of existing goodwill and other
intangibles.  We adopted SFAS No. 142 during the quarter ended March 31, 2002.
The adoption of SFAS No. 142 did not have a significant impact on our financial
position or results of operations and goodwill amortization recorded in prior
periods was not material.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of."  SFAS No. 144 applies to all long-lived assets, including
discontinued operations, and consequently amends the accounting and reporting
provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results
of Operations - Reporting the Effects of Disposal of a Division of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions."
SFAS No. 144 develops one accounting model for long-lived assets that are to be
disposed of by sale and requires the measurement to be at the lower of book
value or fair value less cost to sell.  Additionally, SFAS No. 144 expands the
scope of discontinued operations to include all components of an entity with
operations that (1) can be distinguished from the rest of the entity and (2)
will be eliminated from the ongoing operations of the entity in a disposal
transaction.  SFAS No. 144 is effective for fiscal years beginning after
December 15, 2001. We adopted SFAS No. 144 during the quarter ended March 31,
2002.  The adoption of SFAS No. 144 to date has not had a significant impact on
our financial position or results of operations.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal Activities'"
("SFAS No. 146"). SFAS No. 146 addresses significant issues regarding the recognition,
measurement, and reporting of costs that are associated with exit and disposal activities,
including restructuring activities that are currently accounted for under EITF No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring)." The scope of SFAS No.
146 also includes costs related to terminating a contract that is not a capital lease and
termination benefits that employees who are involuntarily terminated receive under the terms
of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual
deferred-compensation contract. SFAS No. 146 will be effective for exit or disposal activities
that are initiated after December 31, 2002 and early application is encouraged.  We will
adopt SFAS No. 146 during the first quarter ended March 31, 2003.  The provisions of EITF
No. 94-3 shall continue to apply for an exit activity initiated under an exit plan that met the
criteria of EITF No. 94-3 prior to the adoption of SFAS No. 146.  The effect on adoption of
SFAS No. 146 will change on a prospective basis the timing of when restructuring charges
are recorded from a commitment date approach to when the liability is incurred.

6

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2. Computation of Net Income (Loss) Per Share

We have computed and presented net income (loss) per share under two
methods, basic and diluted.  Basic net income (loss) per share is computed by
dividing net income (loss) by the weighted average number of common shares
outstanding for the period.  Diluted net income (loss) per share is computed by
dividing net income (loss) by the sum of the weighted average number of common
shares outstanding and potential common shares (when dilutive).  A
reconciliation of the numerator and the denominator of basic and diluted net
income (loss) per share is as follows (in thousands, except per share
amounts):

`Three Months Ended            Six Months Ended
                                                     June 30,                     June 30,
                                            ------------------------     ------------------------
                                               2001         2002            2001         2002
                                            -----------  -----------     -----------  ----------- 
Numerator - Basic
  Net income (loss)                        $     1,127  $    (4,222)    $     6,571  $    (2,664)
                                            ===========  ===========     ===========  ===========
Denominator - Basic
  Weighted average common stock
    outstanding                                 90,982       92,406          90,827       92,220
                                            ===========  ===========     ===========  ===========

Basic net income (loss) per share          $      0.01  $     (0.05)    $      0.07  $     (0.03)
                                            ===========  ===========     ===========  ===========

Numerator - Diluted
  Net income (loss)                        $     1,127  $    (4,222)    $     6,571  $    (2,664)
                                            ===========  ===========     ===========  ===========
Denominator - Diluted
  Weighted average common stock
   outstanding                                  90,982       92,406          90,827       92,220
  Dilutive potential of common stock
    equivalents:
      Options                                    5,019           --           5,385           --
                                            -----------  -----------     -----------  -----------
                                                96,001       92,406          96,212       92,220
                                            ===========  ===========     ===========  ===========

Diluted net income  (loss) per share       $      0.01  $     (0.05)    $      0.07  $     (0.03)
                                            ===========  ===========     ===========  ===========`

Anti-dilutive stock options to
purchase approximately 3,585,000 and 2,809,000 shares of common stock with
weighted average exercise prices of $16.69 and $18.36 were excluded from the
computation of diluted net income per share for the three months and six months
ended June 30, 2001, respectively, because the exercise price of these options
exceeded the average fair market value of our common stock for the three months and six months
ended June 30, 2001. Stock options to purchase approximately 10,269,000 shares
of common stock were outstanding as of June 30, 2002 with a weighted average
exercise price of $7.52.  These stock options were not included in the
computation of diluted net loss per share for the three and six months ended
June 30, 2002 because we had a net loss for these periods.

3. Marketable Securities

We consider cash and all highly liquid investments purchased with an
original or remaining maturity of less than three months at the date of purchase
to be cash equivalents.  Substantially all of our cash and cash equivalents are
in the custody of three major financial institutions.

Our investments comprise federal, state, and municipal government obligations
and foreign and public corporate debt securities. Investments with maturities of
less than one year at the balance sheet date are considered short-term and
investments with maturities greater than one year at the balance sheet date are
considered long-term.   All these investments are classified as available-for-sale
and carried at fair value, based on quoted market prices, with the
unrealized gains or losses, net of tax, reported in shareholders' equity as
other comprehensive income. The cost of debt securities is adjusted for
amortization of premiums and accretion of discounts to maturity, both of which
are included in interest income.  Realized
gains and losses are recorded on the specific identification method.
Realized gains and realized losses for the three and six months ended June 30,
2002 were not material.

An investment in King Yuan Electronics Company Limited, or KYE, a Taiwanese
company that completed an initial public offering during 2001, has been included
in "Long-term available-for-sale investments," and we have recorded the
investment at fair market value, with unrealized gains and losses, net of tax,
reported in shareholders' equity as other comprehensive income.  Any other than
temporary loss will be reported as an "Other operating expense."  Dividends and
other distributions of earnings from the investees, if any, are included in
other income when declared.

7

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The fair value of marketable securities as of June 30, 2002 were as follows
(in thousands):

`Amortized   Unrealized       Fair
                                                 Cost         Gain          Value
                                              -----------  -----------   -----------
Corporate bonds and notes                    $    15,319  $        --   $    15,319
Foreign listed equity securities                   1,299          187         1,486
Government bonds and notes                       107,149          114       107,263
                                              -----------  -----------   -----------
Total bonds and notes                        $   123,767  $       301       124,068
                                              ===========  ===========
Less amounts classified as cash equivalents                                 (48,748)
                                                                         -----------
      Total short and long-term marketable securities                   $    75,320
                                                                         ===========
Contractual maturity dates for investments in bonds and notes:
      Less than 1 year                                                  $    66,346
      1 to 5 years                                                            7,488
                                                                         -----------
                                                                        $    73,834
                                                                         ===========`

The unrealized gains as of June 30, 2002 are recorded in accumulated
other comprehensive income, net of tax of $115,000.

The fair value of marketable securities as of December 31, 2001 were as
follows (in thousands):

`Amortized   Unrealized       Fair
                                                 Cost         Gain          Value
                                              -----------  -----------   -----------
Corporate bonds and notes                    $    56,988  $        59   $    57,047
Foreign bonds and notes                            5,418           49         5,467
Foreign listed equity securities                   1,299           --         1,299
Government bonds and notes                        58,944          255        59,199
                                              -----------  -----------   -----------
Total bonds and notes                        $   122,649  $       363       123,012
                                              ===========  ===========
Less amounts classified as cash equivalents                                 (50,047)
                                                                         -----------
      Total short and long-term marketable securities                   $    72,965
                                                                         ===========
Contractual maturity dates for investments in bonds and notes:
      Less than 1 year                                                  $    71,666
                                                                         ===========`

The unrealized gains as of December 31, 2001 are recorded in accumulated
other comprehensive income, net of tax of $138,000.

4. Balance Sheet Detail

Details of selected balance sheet accounts are as follows (in
thousands):

`December 31,   June 30,
                                                              2001          2002
                                                           -----------   -----------
Raw materials                                             $    65,518   $    47,187
Work in process                                                 4,971         8,038
Finished goods                                                 33,968        33,137
Consigned inventory                                             3,767         6,418
                                                           -----------   -----------
                                                          $   108,224   $    94,780
                                                           ===========   ===========`

8

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Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market value.  We typically plan our production and inventory
levels based on internal forecasts of customer demand, which are highly
unpredictable and can fluctuate substantially. The value of our inventory is
dependent on our estimate of future average selling prices, and, if our
projected average selling prices are over estimated, we may be required to
adjust our inventory value to reflect the lower of cost or market. Due to the
large number of units in our inventory, even a small change in average selling
prices could result in a significant adjustment and have a significant impact on
our financial position and results of operations.  Our inventories include high
technology parts and components that are specialized in nature or subject to
rapid technological obsolescence.  While we have programs to minimize the
required inventories on hand and we consider technological obsolescence when
estimating allowances for potentially excess and obsolete inventories and those
required to reduce recorded amounts to market values, it is reasonably possible
that such estimates could change in the near term.  Such changes in estimates
could have a significant impact on our financial position and results of
operations.

`December 31,   June 30,
                                                              2001          2002
                                                           -----------   -----------
Accrued compensation and related items                    $     4,372   $     4,737
Accrued liabilities-related parties                               764           440
Accrued warranty                                                2,883         1,011
Other accrued liabilities                                       8,371         6,044
                                                           -----------   -----------
                                                          $    16,390   $    12,232
                                                           ===========   ===========`

5. Commitments

In December 2000, we committed, subject to certain business conditions,
to prepay $50.0 million to a vendor in 2001 to secure increased wafer capacity
in 2002 and 2003.  The prepayment will be applied against inventory material
purchases.  In the second quarter of 2001, in response to weakening product
demand and economic conditions, we renegotiated the commitment to defer the
payment to late 2002.  As of June 30, 2002, we had prepaid a total of $5.0
million towards this commitment, which is included in other current assets on
the balance sheet.  In addition, as of June 30, 2002, we had outstanding
purchase commitments with our foundry vendors of approximately $35.9 million for
delivery in 2002.

During the third quarter of 2001, we recorded a period charge to other
operating expense of approximately $756,000 relating to an operating lease for
an abandoned building. This charge represented the estimated difference between
the total non-discounted future sublease income and our non-discounted lease
commitments relating to this building. The charge was an estimate and may be
adjusted if we obtain a sublease for the building and the actual sublease income
is significantly different from the estimate. We may be unable to secure
subtenants for such space due to the recent decrease in demand for commercial
rental space in Silicon Valley. If we are not successful in subleasing our
unused office space, we may be required to take an additional period charge for
the balance of the future lease cost.  At December 31, 2001 and June 30, 2002,
payments made have reduced the recorded liability to $662,000 and $569,000
respectively.

6. Contingencies

On January 3, 1996, Atmel Corporation sued us in the U.S. District Court for
the Northern District of California. Atmel's complaint alleged that we willfully
infringe five U.S. patents owned by or exclusively licensed to Atmel. Atmel
later amended its complaint to allege infringement of a sixth patent.  Regarding
each of these six patents, Atmel sought a judgment that we infringe the patent,
an injunction prohibiting future infringement, and treble damages, as well as
attorney's fees and expenses.

On two of the six patents, the District Court ruled by summary judgment that
we did not infringe.  Two of the other patents were invalidated by another U.S.
District Court in a proceeding to which we were not a party, but this decision
was later reversed by the Federal Circuit Court of Appeals.  As discussed below,
as the result of a ruling in another case, Atmel has withdrawn its allegations
as to another patent ("the '747 patent").  At this point, three patents remain
at issue in Atmel's District Court case against us ("the '811, '829 and '903
patents").  All of these patents have expired, so Atmel can no longer obtain an
injunction against the sale of our products.

On February 17, 1997, Atmel filed an action with the International Trade
Commission, or ITC, against two suppliers of our
parts, involving four of the six patents that Atmel alleged that we infringe
in the District Court case above.  We intervened as a party to that
investigation.  Pursuant to indemnification agreements with these suppliers, we
were obligated to indemnify both suppliers to the extent provided in those
agreements.  As more fully described below, the settlement with Winbond
terminated our indemnity obligations to that company.

9

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As to one of these four patents, Atmel's claims were withdrawn because of the
summary judgment granted by the District Court, as described above. On October
16, 2000, the ITC found the '903 patent valid and infringed, and ruled that we
could not import into the United States certain products that use the claimed
circuit made by one of our suppliers. The ITC also ruled that we do not infringe
the '811 and '829 patents. We appealed from the Limited Exclusion Order, and in
August 2001 the Court of Appeals for the Federal Circuit issued an opinion
giving its reasons for denying that appeal.  The '903 patent and the ITC's
Limited Exclusion Order expired on September 14, 2001.

In a related action in 1997, Atmel filed a claim against Macronix alleging,
among other things, that Macronix infringed the '747 patent.  Because Atmel had
filed a similar claim against us with regard to this same patent, we were
permitted to intervene in the action and represent our interests in seeking to
prevent Atmel from correcting inventorship.  On January 14, 2002, the court in
Atmel Corp. v. Macronix America, Inc. denied Atmel's motion to correct
the '747 patent.  As a result of the Court's decision, Atmel withdrew its claims
against us based on the '747 patent.

A jury trial on the '811 and '829 patents began on April 8, 2002.  The jury
found that we willfully infringed those patents, and awarded Atmel $20.0 million
in actual damages.  On May 7, 2002, the Court entered judgment in the total
amount of $36.5 million, which includes the original $20.0 million.  The '811
and '829 patents expired in February 2002.  Therefore, there will not be any
impact on our ability to sell any of our products.  We believe that there were
significant errors in both the infringement and the damages verdicts, and filed
a Notice of Appeal on July 16, 2002.  Atmel has agreed to stay its enforcement
of this judgment pending our appeal.  In July 2002, we posted a bond in the
amount of $36.5 million pending the appeal.  In connection with the bond, we
have pledged cash and available-for-sale investments in the amount of $36.5
million.  Accordingly, this amount will be accounted for as restricted cash and
investments in our balance sheet beginning in July 2002.

Trial on the '903 patent was severed and those issues will be heard before a
jury beginning on July 29, 2002.  That trial will determine whether the '903
patent is valid.  The Court has ruled that we infringed that patent, so if the
jury finds the patent valid, it will assess what, if any, damages are due Atmel.

On October 1, 2000, we announced a settlement in our lawsuit with Winbond
Electronics of Taiwan.  We filed a lawsuit against Winbond in July 1998 in the
U.S. District Court in San Jose, California pursuant to the termination of our
SuperFlash technology licensing agreement with Winbond.  As part of the
settlement, Winbond agreed to a consent judgment and will not contest the
validity and appropriateness of our termination of the licensing agreement in
June 1998.  This settlement concludes all litigation between us and Winbond.  We
received a total of $30.4 million in back royalties during 2000 and 2001 as part
of this settlement in addition to royalties relating to products sold during
2001.  No further back royalty payments are required after 2001 under this legal
settlement.

From time to time, we are also involved in other legal actions arising in the
ordinary course of business.  We have incurred certain amounts associated with
defending these matters.  There can be no assurance the Atmel complaint or other
third party assertions will be resolved without costly litigation, in a manner
that is not adverse to our financial position, results of operations or cash
flows or without requiring royalty payments in the future which may adversely
impact gross margins.  No estimate can be made of the possible loss or possible
range of loss associated with the resolution of these contingencies.  As a
result, no losses have been accrued in our financial statements as of June 30,
2002.

7. Line of Credit

As of June 30, 2002, we had no borrowings on our line of credit and no amount
outstanding in letters of credit.  On April 11, 2002, we gave ninety-day written
notice to our lender to terminate our line of credit under the agreement.  In
accordance with the terms of the agreement, we are not subject to any
termination fees due to the fact that the early termination notice has occurred
within six months of the expiration date in September 2002.  The line of credit
was terminated on July 12, 2002.

8. Segment Information

Our operations involve the design, development, manufacturing, marketing
and technical support of our nonvolatile memory products.  We offer low and
medium density devices that target a broad range of existing and emerging
applications in the digital consumer, networking, wireless communications and
Internet computing markets. Our products are differentiated based upon
attributes such as density, voltage, access speed, package and predicted
endurance.  We also license our technology for use in non-competing
applications.

10

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We manage our business in four reportable segments: the Standard Memory
Product Group, or SMPG, the Application Specific Product Group, or ASPG, the
Special Product Group, or SPG, and Technology Licensing.  We do not allocate
operating expenses, interest income or expense, other income, net of the
provision for income taxes to any of these segments for internal reporting
purposes, as we do not believe that allocating the expense is material in
evaluating a business unit's performance.

The following table shows our
product revenues and gross profit at standard margins for each segment (in
thousands):

`Three Months Ended            Three Months Ended
                                                    June 30, 2001                 June 30, 2002
                                              -------------------------     -------------------------
                                                              Gross                         Gross
                                               Revenues       Profit         Revenues       Profit
                                              -----------  ------------     -----------  ------------
SMPG                                         $    29,407  $      1,696     $    43,350  $      4,007
ASPG                                              21,683        12,087          16,488         7,111
SPG                                                1,807         1,077           1,642           127
Technology Licensing                               9,818         9,818           7,997         7,997
                                              -----------  ------------     -----------  ------------
                                             $    62,715  $     24,678     $    69,477  $     19,242
                                              ===========  ============     ===========  ============



                                                Six Months Ended              Six Months Ended
                                                    June 30, 2001                 June 30, 2002
                                              -------------------------     -------------------------
                                                              Gross                         Gross
                                               Revenues       Profit         Revenues       Profit
                                              -----------  ------------     -----------  ------------
SMPG                                         $    79,744  $      8,359     $    87,997  $     12,847
ASPG                                              49,538        27,399          37,036        13,322
SPG                                                3,544         1,673           2,742           869
Technology Licensing                              16,187        16,187          16,284        16,284
                                              -----------  ------------     -----------  ------------
                                             $   149,013  $     53,618     $   144,059  $     43,322
                                              ===========  ============     ===========  ============`

SMPG includes our three standard flash memory product families: the
Small-Sector Flash, or SSF, family, the Multi-Purpose Flash, or MPF, family, and the
Many-Time Programmable, or MTP, family. These product families allow us to
produce products optimized for cost, quality and functionality to support the
broad range of applications that use nonvolatile memory products.

ASPG includes FlashBank, Concurrent SuperFlash, Serial Flash, Firmware Hub,
or FWH, and LPC flash products. These products are designed to address specific
applications such as cellular phones, pagers, PDAs, set-top boxes, hard disk
drives and PC BIOS.  ASPG also includes flash embedded controllers such as the
FlashFlex51 controller and the ATA controller to address digital cameras,
Internet appliances, PDAs, MP3 players, set-top boxes and other types of mass
data storage applications.

SPG includes ComboMemory, ROM/RAM Combos, SRAM-related and other special
flash products.

Technology Licensing includes both up front license fees and royalties.

11

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9. Comprehensive Income (Loss)

The components of comprehensive income (loss), net of tax, are as follows (in
thousands):

`Three Months Ended            Six Months Ended
                                                     June 30,                     June 30,
                                            ------------------------     ------------------------
                                               2001         2002            2001         2002
                                            -----------  -----------     -----------  -----------
Net income (loss)                          $     1,127  $    (4,222)    $     6,571  $    (2,664)

Other comprehensive income (loss):
   Change in net unrealized gains
      on investments, net of tax                    13         (860)             85          (39)
                                            -----------  -----------     -----------  -----------
Total comprehensive income (loss)          $     1,140  $    (5,082)    $     6,656  $    (2,703)
                                            ===========  ===========     ===========  ===========`

The components of accumulated other comprehensive income are as follows (in
thousands):

`December 31,    June 30,
                                                           2001          2002
                                                       ------------  ------------
Net unrealized gains on investments, net of tax       $        225  $        186
                                                       ============  ============`

12

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Item 2.  Management's Discussion and Analysis of Financial Condition and
Results of Operations

The following discussion may be understood more fully by reference to the
consolidated financial statements, notes to the consolidated financial
statements, and management's discussion and analysis of financial condition and
results of operations contained in our Annual Report on Form 10-K for the year
ended December 31, 2001, as filed with the Securities and Exchange
Commission.

The following discussion contains forward-looking statements, which involve
risk and uncertainties.  Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors
which are difficult to forecast and can materially affect our quarterly or
annual operating results. Fluctuations in revenues and operating results may
cause volatility in our stock price.   Please refer to the section below
entitled "Business Risks".

Overview

We are a leading supplier of flash memory semiconductor devices for the
digital consumer, networking, wireless communication and Internet computing
markets.

The semiconductor industry has historically been
cyclical, characterized by wide fluctuations in product supply and demand. From
time to time, the industry has also experienced significant downturns, often in
connection with, or in anticipation of, production over-capacity and declines in
general economic conditions. Downturns of this type occurred in 1996, 1997 and
1998 and more recently in late 2000 through the first half of 2002.  These downturns have been
characterized by weakening product demand, excessive inventory and
accelerated decline of selling prices, and in some cases have lasted for more
than a year. We began to experience a sharp downturn in several of our markets
late in the fourth quarter of 2000, as our customers reacted to weakening demand
for their products.   We saw a positive change in order activities for most of
our market segments from the second half of 2001 through the first quarter of
2002.  However, in the second quarter of 2002, we experienced a substantial drop
in our products for Internet computing applications, more specifically in the PC related
business, partially due to seasonal softness in the PC market and partially due
to the inventory correction caused by our customers overbuying during the first
quarter of 2002.  The main shortfalls of shipments of our products for the Internet computing
applications during the second quarter came from PC BIOS, graphic cards and
printer applications.  Excluding the Internet computing applications, shipments
of our products for digital consumer, wireless communications and networking applications
increased over the first quarter of 2002 in both units and dollars. Our business
could be harmed by industry-wide fluctuations in the future.

Our product sales are made primarily using short-term cancelable purchase
orders. The quantities actually purchased by the customer, as well as shipment
schedules are frequently revised to reflect changes in the customer's needs and
in our supply of product. Accordingly, our backlog of open purchase orders at
any given time is not a meaningful indicator of future sales. Changes in the
amount of our backlog do not necessarily reflect a corresponding change in the
level of actual or potential sales.

We derived 77.6%, 80.7% and 88.9% of our product revenues during 2000, 2001
and the six months ended June 30, 2002, respectively, from product shipments to
Asia. Additionally, substantially all of our wafer suppliers and packaging and
testing subcontractors are located in Asia.

Our top ten end customers, which excludes transactions through stocking
representatives and distributors, accounted for 19.3%, 31.5% and 37.3% of our
net product revenues in 2000, 2001 and the six months ended June 30, 2002,
respectively.

No single end customer, which we define as original equipment manufacturers,
or OEMs, original design manufacturers, or ODMs, contract electronic
manufacturers, or CEMs, or end users, represented 10.0% or more of our net
product revenues during 2000, 2001 and the six months ended June 30, 2002.

Since March 2001, we have been out-sourcing our customer service logistics in
Taiwan to Silicon Professional Technology Ltd., or SPT.  SPT is a wholly owned
subsidiary of one of our stocking representatives in Taiwan, Professional
Computer Technology Limited, or PCT.  SPT provides planning, warehousing,
delivery, billing, collection and other logistic functions for us in Taiwan.
SPT now services substantially all of our end customers based in Taiwan and
selected end customers throughout Asia.  Products shipped to SPT are accounted
for as consigned inventory, and revenue is recognized when the products have
been delivered and are considered as a sale to our end customers by SPT.  For
the year ended December 31, 2001 and the six months ended June 30, 2002, SPT
serviced end customer sales accounting for 30.3% and 51.8% of our net product
revenues recognized, respectively.  We are in the process of working with SPT to
expand their service coverage to include all of our end customers in China and
Southeast Asia.

13

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We ship products to, and have accounts receivable from, OEMs, ODMs, CEMs,
stocking representatives, domestic distributors, and our logistics center.  Our
stocking representatives, domestic distributors and logistics center reship our
products to our end customers, including OEMs, ODMs, CEMs and end users. No
stocking representative or domestic distributor serviced more than 10.0% of our
end customer sales in 2000, 2001 or the six months ended June 30, 2002.

As of December 31, 2001, SPT, our logistics center, represented 48.8% of our
net accounts receivable and Actron Technology Co., or Actron, a stocking
representative, represented 21.9% of our net accounts receivable.  As of June
30, 2002, SPT, represented 50.2% of our net accounts receivable and Actron
represented 0.0% of our net accounts receivable.

Results of Operations: Quarter and Six Months Ended June 30, 2002

Net Revenues

Net revenues were $69.5 million for the second quarter of 2002 as
compared to $74.6 million in the first quarter of 2002 and $62.7 million for the
second quarter of 2001.  Revenues for the second quarter of 2002 decreased
compared to the prior quarter primarily due to a decrease in volume of units
shipped.  Revenues increased compared to the second quarter of last year due to
increased shipment volume of our products, offset by decreased average selling
prices.  Our quarterly results are not indicative of annual results.  Average
selling prices fluctuate due to a number of factors including the overall supply
and demand for our products in the marketplace, maturing product cycles and
general economic conditions.  Net revenues were $144.1 million for the six
months ended June 30, 2002 as compared to $149.0 million for the comparable
period in 2001.  The decrease from year to year was due to decreased average
selling prices, offset by increased shipment volume of our products.  We began
to experience a sharp downturn in several of our markets late in the fourth
quarter of 2000, as our customers reacted to weakening demand for their
products. We saw a positive change in order activities for most of our market
segments from the second half of 2001 through the first quarter of 2002.
However, in the second quarter of 2002, we experienced a substantial drop in our
Internet computing applications, more specifically in the PC related business,
partially due to seasonal softness in the PC market and partially due to the
inventory correction caused by our customers overbuying during the first quarter
of 2002.  The main shortfalls of shipments in the Internet computing
applications during the second quarter came from PC BIOS, graphic cards and
printer applications.  Excluding the Internet computing applications, shipments
into digital consumer, wireless communications and networking applications
increased over the first quarter of 2002 in both units and dollars.

Product Revenues.  Product revenues were $61.5 million in the
second quarter of 2002 as compared to $66.3 million in the first quarter of 2002
and $52.9 million for the second quarter of 2001.  Product revenues decreased
compared to the first quarter of 2002 primarily due to decreased shipment volume
of our products by approximately 9.7%, while average selling prices remained
relatively constant with the first quarter of 2002.  Product revenues increased
compared to the second quarter of last year due to increased shipment volume of
our products by approximately 43.6%, offset by decreased average selling prices
for our products by approximately 33.6%.  Product revenues decreased to $127.8
million in the first half of 2002 from $132.8 million in the first half of 2001
due to decreased average selling prices, offset by increased shipment volume of
our products of approximately 47.0%.  Shipping volumes fluctuate due to overall
industry supply and demand.

License Revenues.  Revenues from license fees and royalties were
$8.0 million in the second quarter of 2002, as compared to $8.3 million in the
first quarter of 2002 and $9.8 million in the second quarter of 2001. When
compared to the first quarter of 2002, revenues from license fees and royalties
for the second quarter of 2002 remained relatively flat.  During 2001, Winbond
paid us $5.0 million per quarter for a total of $20.0 million under a settlement
agreement.  Although the settlement payments have ceased, Winbond continues to
pay royalties. The decrease from the second quarter of 2001 to the second
quarter of 2002 was primarily due to a decrease in Winbond settlement license
fees, offset by an increase in royalty payments received from our licensees.
Revenues from license fees and royalties increased to $16.3 million for the six
months ended June 30, 2002 from $16.2 million for the comparable period in 2001.
The period to period increase relates primarily to increased upfront license
fees received during the period, offset by the termination of license fees
received as part of our legal settlement with Winbond during 2001. We anticipate
that license revenues may fluctuate significantly in the future.

14

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Gross Profit

Gross profit was $19.2 million, or 27.7% of net revenues, in the second
quarter of 2002 as compared to gross profit of $24.1 million, or 32.3% of net
revenues, in the first quarter of 2002 and $24.7 million, or 39.3% of net
revenues, in the second quarter of 2001.  The decrease in gross profit from the
first quarter of 2002 to the second quarter of 2002 is due to reduced sales of
inventory written down in 2001 and due to decreased volume of units shipped.
The decrease in gross profit in the second quarter of 2002 when compared to the
second quarter of 2001 is due primarily to decreases in average selling prices
and decreases in license revenues.  For the six months ended June 30, 2002,
gross profit was $43.3 million, or 30.1%, compared to $53.6 million, or 36.0%,
for the comparable period in 2001. Product gross margin was 18.3% for the second
quarter of 2002, compared to 23.8% for the first quarter of 2002 and 28.1% for
the second quarter of 2001.  The decrease in product gross margin from the first
quarter of 2002 to the second quarter of 2002 is due to reduced sales of
inventory written down in 2001 and changes in unit shipment mix and average
selling prices.  The decrease in product gross margin from the second quarter of
2001 to the second quarter of 2002 relates to decreased average selling prices
of our products by approximately 33.6%, offset by increased shipment volume of
our products by approximately 43.6%.  Product gross margin for the six months
ended June 30, 2002 decreased to 21.2% from 28.2% for the comparable period in
2001.  The period to period decrease was primarily due to decreased average
selling prices.

Operating Expenses

Our operating expenses consist of research and development, sales and
marketing, and general and administrative expenses.  Operating expenses were
$26.3 million, or 37.8% of net revenues, in the second quarter of 2002, compared
to $22.7 million, or 30.4% of net revenues, in the first quarter of 2002, and
$24.2 million, or 38.7% of net revenues, in the second quarter of 2001.  The
increase from the first quarter of 2002 was primarily due to a $4.1 million
increase in the allowance for doubtful accounts related to the deteriorating
financial condition of one customer and increased legal expenses, partially
offset by decreased commissions expense for the current quarter due to decreased
product revenues. The increase from the second quarter of 2001 was primarily due
to increases in the allowance for doubtful accounts by $1.7 million and legal
expenses by $1.0 million in connection with the Atmel litigation, offset by
decreased engineering and mask costs. Operating expenses increased to $49.0
million for the six months ended June 30, 2002 from $47.7 million for the
comparable period in 2001.  The period to period increase was due increased
costs related to patent and intellectual property support and an increase in the
allowance for doubtful accounts, offset by decreased engineering and mask costs.
We anticipate that we will continue to devote substantial resources to research
and development, sales and marketing and to general and administrative
functions, and that these expenses will continue to increase.

Research and development.  Research and development expenses
include costs associated with the development of new products, enhancements to
existing products, quality assurance activities and occupancy costs.  These
costs consist primarily of employee salaries and benefits and the cost of
materials such as masks, wafers and evaluation parts.  Research and development
expenses were $11.9 million, or 17.2% of net revenues, during the second quarter
of 2002, as compared to $11.9 million, or 15.9% of net revenues, during the
first quarter of 2002 and $12.4 million, or 19.8% of net revenues, during the
second quarter of 2001.  Research and development expenses remained flat from
the first quarter of 2002 to the second quarter of 2002.  Research and
development expenses decreased by approximately 4.1% from the second quarter of
2001 due primarily to decreased engineering mask and wafer costs of
approximately $1.5 million, offset by increased engineering headcount and
related costs of approximately $739,000.  For the six months ended June 30,
2002, research and development expenses decreased to $23.8 million from $24.7
million for the comparable period in 2001.  The period to period decrease was
primarily due to decreased engineering mask and wafer costs of approximately
$2.4 million, offset by increased engineering headcount and related costs of
approximately $1.6 million.  We expect research and development expenses to
increase as we continue to invest in new product offerings, drive to new deep
sub-micron technologies and reduce costs associated with our existing products.

Sales and marketing.  Sales and marketing expenses consist of
commissions, headcount and related costs, as well as travel and entertainment
and promotional expenses.  Sales and marketing expenses were $6.5 million, or
9.4% of net revenues, in the second quarter of 2002, as compared to $7.5
million, or 10.1% of net revenues, in the first quarter of 2002 and $6.2
million, or 9.9% of net revenues, during the second quarter of 2001.  The
decrease in sales and marketing expenses from the first quarter of 2002 to the
second quarter of 2002 by approximately 13.1% was primarily attributable to
decreased commissions expense for the current quarter of $440,000 due to
decreased product revenues in the second quarter of 2002 and decreased headcount
and related costs of $458,000.  The increase in sales and marketing expenses
from the second quarter of 2001 to the second quarter of 2002 was primarily
attributable to increased costs related to patent and intellectual property
support of approximately $284,000.  Sales and marketing expenses for the six
months ended June 30, 2002 were $14.0 million as compared to $12.5 million for
the same period in 2001.  The period to period increase was primarily due to
increased costs related to patent and intellectual property support of
approximately $615,000 and increased headcount and related costs of
approximately $1.3 million, offset by decreased advertising expense of
approximately $633,000.  We expect sales and marketing expenses to increase as
we continue to expand our sales and marketing efforts.  In addition,
fluctuations in revenues will cause fluctuations in sales and marketing expenses
as it impacts our commission expenses.

15

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General and administrative.  General and administrative expenses
consist of salaries and related costs for administrative, executive and finance
personnel, recruiting costs, professional services and legal fees and allowances
for doubtful accounts.  General and administrative expenses were $7.9 million,
or 11.3% of net revenues, in the second quarter of 2002, as compared to $3.3
million, or 4.4% of net revenues, in the first quarter of 2002 and $5.6 million,
or 9.0% of net revenues, during the second quarter of 2001.  The increase in
general and administrative expenses from the first quarter of 2002 by
approximately 136.8% was primarily due to an increase in the allowance for
doubtful accounts related to the deteriorating financial condition of one
customer of approximately $4.1 million and increased legal expenses related to
the Atmel litigation of approximately $551,000.  The increase in general and
administrative expenses from the second quarter of 2001 was primarily due to an
increase in the allowance for doubtful accounts and increased legal expenses
related to the Atmel litigation.  General and administrative expenses for the
six months ended June 30, 2002 were $11.2 million as compared to $10.4 million
for the same period in 2001.  The period to period increase was due primarily to
an increase in the allowance for doubtful accounts.  We anticipate that general
and administrative expenses will continue to increase as we scale our
facilities, infrastructure, and headcount to support our overall expected
growth.  We may also incur additional expenses in connection with the Atmel
litigation.  For further information on this litigation see "Legal
Proceedings."

Interest and other income. Interest and other income was
approximately $907,000, or 1.3% of net revenues, during the second quarter of
2002, as compared to $968,000, or 1.3% of net revenues, during the first quarter
of 2002 and $1.5 million, or 2.3% of net revenues, during the second quarter of
2001. Interest income decreased from the first quarter of 2002 to the second
quarter of 2002, and from the second quarter of 2001 to the second quarter of
2002, primarily due to decreasing interest rates on invested cash.  Interest and
other income decreased to $1.9 million for the six months ended June 30, 2002
from $4.8 million for the comparable period in 2001.  The decrease from period
to period was due to the decrease in average cash, cash equivalents and
available-for-sale investments balances and decreasing interest rates on
invested cash.

Interest Expense.  Interest expense was approximately $66,000 for
the second quarter of 2002 as compared to $64,000 for the first quarter of 2002
and $87,000 for the second quarter of 2001. Interest expense decreased to
$130,000 for the six months ended June 30, 2002 from $186,000 for the comparable
period in 2001.  Interest expense relates to interest and fees under our line of
credit.

Provision for (Benefit from) Income Taxes

Our income tax benefit of $2.0 million in the second quarter of 2002 is
based on a 32.0% tax rate on the loss before taxes.  This compares with a tax
provision of $733,000 in the first quarter of 2002 which is based on a 32.0% tax
rate on income before taxes and a tax provision of $692,000 in the second
quarter of 2001 which is based on a 38.0% tax rate on income before taxes.  We
expect our effective tax rate to be 32.0% for the remainder of 2002.  Our tax
rate may change depending on our profitability and the timing of the
implementation of certain tax planning strategies.

Segment Reporting

Our operations involve the design, development, manufacturing,
marketing and technical support of our nonvolatile memory products.  We offer
low and medium density devices that target a broad range of existing and
emerging applications in the digital consumer, networking, wireless
communications and Internet computing markets. Our products are differentiated
based upon attributes such as density, voltage, access speed, package and
predicted endurance.  We also license our technology for use in non-competing
applications.  Our reportable segments are: the Standard Memory Product Group,
or SMPG, the Application Specific Product Group, or ASPG, the Special Product
Group, or SPG, and Technology Licensing.  Refer to Note 8 to the Condensed
Consolidated Financial Statements for revenue and gross profit information by
reportable segment.  Our analysis of the changes for each segment is discussed
below.

16

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SMPG includes our three standard flash memory product families: the
Small-Sector Flash, or SSF, family, the Multi-Purpose Flash, or MPF, family, and the
Many-Time Programmable, or MTP, family. These families allow us to produce
products optimized for cost and functionality to support the broad range of
applications that use nonvolatile memory products.  SMPG revenues were $43.4
million for the second quarter of 2002, as compared to $44.6 million in the
first quarter of 2002 and $29.4 million in the second quarter of 2001.  The
decrease in revenues from the first quarter of 2002 was primarily due to a
decrease in unit shipments.  The increase in revenues from the second quarter of
2001 was primarily due to increased unit shipment volume, offset by decreased
average selling prices.  For the six months ended June 30, 2002, SMPG revenues
were $88.0 million, as compared to $79.7 million for the comparable period in
2001.  The period to period increase in revenues was primarily due to increased
unit shipment volume, offset by decreased average selling prices.  Gross margin
decreased from 19.8% in the first quarter of 2002 to 9.2% in the second quarter
of 2002 primarily due to the favorable impact in the first quarter of 2002
resulting from inventory valuation adjustments made in 2001 and changes in
product mix.  Gross margin increased from 5.8% in the
second quarter of 2001 to 9.2% in the second quarter of 2002 primarily due to
changes in product mix, offset by lower average selling prices.  For the six
months ended June 30, 2002, gross margin was 14.6%, as compared to 10.5% for the
comparable period in 2001.  The period to period increase in gross margin was
primarily due to changes in product mix.

ASPG includes FlashBank, Concurrent SuperFlash, Serial Flash, Firmware Hub,
or FWH, and LPC flash products. These products are designed to address specific
applications such as cellular phones, pagers, PDAs, set-top boxes, hard disk
drives and PC BIOS.  ASPG also includes flash embedded controllers such as the
FlashFlex51 controller and the ATA controller to address digital cameras,
Internet appliances, PDAs, MP3 players, set-top boxes and other types of mass
data storage applications.  ASPG revenues were $16.5 million for the second
quarter of 2002, as compared to $20.5 million in the first quarter of 2002 and
$21.7 million in the second quarter of 2001.  The decrease in revenues from both
the first quarter of 2002 and second quarter of 2001 was primarily due to a
decrease in unit shipments.  For the six months ended June 30, 2002, ASPG
revenues were $37.0 million, as compared to $49.5 million for the comparable
period in 2001.  The period to period decrease in revenues was primarily due to
increased unit shipment volume, offset by decreased average selling prices.
Gross margin increased from 30.2% in the first quarter of 2002 to 43.1% in the
second quarter of 2002 primarily due to changes in product mix.
Gross margin decreased from 55.8% in the second quarter of 2001
to 43.1% in the second quarter of 2002 primarily due to lower average selling
prices.  For the six months ended June 30, 2002, gross margin was 36.0%, as
compared to 55.3% for the comparable period in 2001.  The period to period
decrease in gross margin was primarily due to changes in product mix and decreased
average selling prices.

SPG includes ComboMemory, ROM/RAM Combos, SRAM-related and other special
flash products.  SPG revenues were $1.6 million for the second quarter of 2002,
as compared to $1.1 million in the first quarter of 2002 and $1.8 million in the
second quarter of 2001.   The increase in revenues from the first quarter of
2002 was primarily due to an increase in average selling prices, offset by a
decrease in unit shipments.  The decrease from the second quarter of 2001 was
primarily due to lower average selling prices and decreased unit shipments.  For
the six months ended June 30, 2002, SPG revenues were $2.7 million, as compared
to $3.5 million for the comparable period in 2001.  The period to period
decrease in revenues was primarily due to decreases in unit shipments and average
selling prices.  Gross margin decreased from 67.4% in the first quarter of 2002
to 7.7% in the second quarter of 2002 and from 59.6% in the second quarter of
2001 to 7.7% in the second quarter of 2002 primarily due to changes in product
mix.  For the six months ended June 30, 2002, gross margin was 31.7%, as
compared to 47.2% for the comparable period in 2001.  The period to period
decrease in gross margin was primarily due to changes in product mix.

Revenue and gross profit related to Technology Licensing was $8.0 million for
the second quarter of 2002, $8.3 million for the first quarter of 2002 and $9.8
million for the second quarter of 2001.  For the six months ended June 30, 2002,
revenue and gross profit related to Technology Licensing was $16.3 million, as
compared to $16.2 million for the comparable period in 2001.

Related Party Transactions

The following table is a summary of our related party revenues and
purchases for the quarter and six months ended June 30, 2002, and our related party accounts
receivable and payable balances as of June 30, 2002 (in thousands).  For a
description of our relationship with these parties please see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Related Party Transactions" in our Annual Report on Form 10-K for the year
ended December 31, 2001.

17

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`Three Months Ended             Six Months Ended
                                                     June 30, 2002                 June 30, 2002
                                              -------------------------     -------------------------
                                               Revenues      Purchases       Revenues      Purchases
                                              -----------  ------------     -----------  ------------
Silicon Technology Co., Ltd.                 $       483  $         --     $       956  $         --
Acer and related entities (1)                        505           223             846           489
Apacer Technology, Inc.                              233            96             427           146
Professional Computer Technology Limited              --            --             141            --
Silicon Professional Technology Ltd.              31,663            --          66,152            --
King Yuan Electronics Company, Limited                --         5,958              --         9,566
Powertech Technology, Incorporated                    --         2,152              --         4,752
                                              -----------  ------------     -----------  ------------
                                             $    32,884  $      8,429     $    68,522  $     14,953
                                              ===========  ============     ===========  ============


                                                      June 30, 2002
                                              -------------------------
                                                             Accounts
                                               Accounts    Payable and
                                              Receivable     Accruals
                                              -----------  ------------
Silicon Technology Co., Ltd.                 $        38  $         --
Acer and related entities (1)                        293           228
Apacer Technology, Inc.                              136            52
Professional Computer Technology Limited              --           209
Silicon Professional Technology Ltd.              20,713           887
King Yuan Electronics Company, Limited                --         6,379
Powertech Technology, Incorporated                    --         3,301
                                              -----------  ------------
                                             $    21,180  $     11,056
                                              ===========  ============

(1) Excludes Apacer Technology balances`

PCT continues to earn commissions for point-of-sales transactions to its
customers.  PCT's commissions are paid at the same rate as all of our other
manufacturer's representatives in Asia.  In addition, we continue to pay SPT a
fee for providing logistics center functions.  This fee is based on a percentage
of revenue for each product shipped through SPT to our end customers. The fee
paid to SPT covers the costs of warehousing and insuring our inventory,
personnel costs required to maintain logistics and information technology
functions and the costs to perform billing and collection of accounts
receivable.

Critical Accounting Policies

For information related to our revenue recognition and other critical
accounting policies, please refer to the "Critical Accounting Policies" section
of our Management's Discussion and Analysis of Financial Condition and Results
of Operations contained in our Annual Report on Form 10-K for the year ended
December 31, 2001, as filed with the Securities and Exchange Commission.

Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards, or SFAS, No. 142, "Goodwill
and Other Intangible Assets," which is effective for fiscal years beginning
after December 15, 2001. SFAS No. 142 requires, among other things, the
discontinuance of goodwill amortization. In addition, the standard includes
provisions upon adoption for the reclassification of certain existing recognized
intangibles as goodwill, reassessment of the useful lives of existing recognized
intangibles, reclassification of certain intangibles out of previously reported
goodwill and the testing for impairment of existing goodwill and other
intangibles.  We adopted SFAS No. 142 during the quarter ended March 31, 2002.
The adoption of SFAS No. 142 did not have a significant impact on our financial
position or results of operations and goodwill amortization recorded in prior
periods was not material.

18

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In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of."  SFAS No. 144 applies to all long-lived assets, including
discontinued operations, and consequently amends the accounting and reporting
provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results
of Operations - Reporting the Effects of Disposal of a Division of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions."
SFAS No. 144 develops one accounting model for long-lived assets that are to be
disposed of by sale and requires the measurement to be at the lower of book
value or fair value less cost to sell.  Additionally, SFAS No. 144 expands the
scope of discontinued operations to include all components of an entity with
operations that (1) can be distinguished from the rest of the entity and (2)
will be eliminated from the ongoing operations of the entity in a disposal
transaction.  SFAS No. 144 is effective for fiscal years beginning after
December 15, 2001. We adopted SFAS No. 144 during the quarter ended March 31,
2002.  The adoption of SFAS No. 144 to date has not had a significant impact on
our financial position or results of operations.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal Activities'"
("SFAS No. 146"). SFAS No. 146 addresses significant issues regarding the recognition,
measurement, and reporting of costs that are associated with exit and disposal activities,
including restructuring activities that are currently accounted for under EITF No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring)." The scope of SFAS No.
146 also includes costs related to terminating a contract that is not a capital lease and
termination benefits that employees who are involuntarily terminated receive under the terms
of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual
deferred-compensation contract. SFAS No. 146 will be effective for exit or disposal activities
that are initiated after December 31, 2002 and early application is encouraged.  We will
adopt SFAS No. 146 during the first quarter ended March 31, 2003.  The provisions of EITF
No. 94-3 shall continue to apply for an exit activity initiated under an exit plan that met the
criteria of EITF No. 94-3 prior to the adoption of SFAS No. 146.  The effect on adoption of
SFAS No. 146 will change on a prospective basis the timing of when restructuring charges
are recorded from a commitment date approach to when the liability is incurred.

Liquidity and Capital Resources

Operating activities.  Our operating activities generated cash
of $20.0 million for the six months ended June 30, 2002 as compared to using
cash of $34.0 million for the six months ended June 30, 2001.  The cash provided
by operating activities for the six months ended June 30, 2002 related primarily
to non-cash adjustments of $12.7 million, primarily relating to provision for
doubtful accounts receivable of $4.0 million, provision for excess and obsolete
inventories of $3.4 million, provision for sales returns of $206,000 and
depreciation and amortization of $5.1 million, a decrease in inventory of $10.0
million and increases in trade accounts payable from related and unrelated
parties of $11.2 million.  Cash provided by operating activities was reduced by
our net loss of $2.7 million for the six months ended June 30, 2002, an increase
of $5.1 million in trade accounts receivable from related and unrelated parties,
an increase of $375,000 in other current and non-current assets and decreases in
accrued expenses and other liabilities of $4.2 million and deferred revenue of
$1.2 million.  Increased accounts receivable from related and unrelated parties
relates to increased shipment volume offset by decreased average selling prices.
The cash used in operating activities for the six months ended June 30, 2001
related primarily to increases in inventory of $117.7 million, accounts
receivable from related parties of $13.0 million and other assets of $9.2
million and a decrease in accrued expenses of $10.2 million.  Cash used in
operating activities was reduced by net income of $6.6 million, a decrease in
trade accounts receivable from unrelated parties of $46.8 million and increases
in trade accounts payable of $16.8 million and deferred revenues of $3.1 million
and non-cash adjustments of $42.8 million, primarily relating to depreciation
and amortization, inventory write-downs and increased provisions for doubtful
accounts receivable and sales returns.  Decreased accounts receivable from
unrelated parties relates to decreased shipment volume and decreased average
selling prices due to the downturn in the economy.   Increased accounts
receivable from related parties is primarily attributable to SPT.

Investing activities.  Our investing activities used cash of $5.5
million for the six months ended June 30, 2002 as compared to using cash of
$67.9 million for the six months ended June 30, 2001.  Investing activities in
the six months ended June 30, 2002 were primarily related to net purchases of
available-for-sale investments of $2.4 million and capital expenditures of
approximately $2.9 million.  In the six months ended June 30, 2001, investing
activities were primarily related to a $50.0 million equity investment in Grace
Semiconductor Manufacturing Corporation, a Cayman Islands company with
operations in China, as a part of multi-phased strategic plan to expand our
market presence into China.  Additionally, in the second quarter of 2001, we
invested an additional $2.1 million in a production subcontractor,  $12.5
million in restricted cash for securing our letters of credit, and approximately
$11.6 million spent in capital expenditures, offset by net sales and maturities
of available-for-sale investments of approximately $8.3 million.

Financing activities.  Our financing activities provided cash of
approximately $2.0 million during the six months ended June 30, 2002 as compared
to $3.7 million for the six months ended June 30, 2001.  For the six months
ended June 30,  2002, the cash provided was from $2.3 million of common stock
issued under the employee stock purchase plan and the exercise of employee stock
options, offset by $251,000 in loan repayments and other.  The cash provided for
first half of 2001 was primarily from the issuance of common stock for $2.1
million and $1.8 million related to a loan from a landlord, offset by $205,000
in loan repayments and other.

19

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As of June 30, 2002 we had no borrowings on our line of credit and no
amount outstanding in letters of credit.  On April 11, 2002, we gave ninety-day
written notice to our lender to terminate our line of credit under the
agreement.  In accordance with the terms of the agreement, we are not subject to
any termination fees due to the fact that the early termination notice has
occurred within six months of the expiration date in September 2002.  The line
of credit was terminated on July 12, 2002.

In July 2002, we posted a bond in the amount of $36.5 million for the Atmel
litigation.  In connection with the bond, we have pledged cash and
available-for-sale investments in the amount of $36.5 million.  Accordingly, this amount
will be accounted for as restricted cash and investments in our balance sheet
beginning in July 2002.

Principal sources of liquidity at June 30, 2002 consisted of $185.4 million
of cash, cash equivalents, short and long-term available-for-sale investments,
of which $36.5 million is restricted beginning in July 2002.

Purchase Commitments.   In December 2000, we committed, subject to
certain business conditions, to prepay $50.0 million to a vendor in 2001 to
secure increased wafer capacity in 2002 and 2003.  The prepayment will be
applied against inventory material purchases.  In the second quarter of 2001, in
response to weakening product demand and economic conditions, we renegotiated
the commitment to defer the payment to late 2002.  As of June 30, 2002, we had
prepaid a total of $5.0 million towards this commitment, which is included in
other current assets on the balance sheet.  In addition, as of June 30, 2002, we
had outstanding purchase commitments with our foundry vendors of approximately
$35.9 million for delivery in 2002.

Lease Commitments. We have long-term, non-cancelable
building lease commitments.  We are currently seeking subtenants for
our unused office space.  We may be unable to secure subtenants, for this space,
due to the recent decrease in demand for commercial rental space in Silicon
Valley.  See also "Business Risks - If we are not successful in subleasing
our unused office space, we may be required to take a period charge for the
difference between the total future sublease income and our lease
cost."

Future payments due under building lease and purchase commitments as of June
30 (in thousands):

`Building     Purchase
                                                 Lease     Commitments      Total
                                              -----------  -----------   -----------
2002                                         $     2,498  $    80,922   $    83,420
2003                                               5,102           --         5,102
2004                                               5,221           --         5,221
2005                                               3,624           --         3,624
2006                                               2,468           --         2,468
Thereafter                                         8,647           --         8,647
                                              -----------  -----------   -----------
                                             $    27,560  $    80,922   $   108,482
                                              ===========  ===========   ===========`

Stock Purchase Plan.  In September 2001, our board of directors
authorized the purchase of an aggregate of up to  $15.0 million of our common
stock. The purchases may be made in the open market at prevailing market prices
or in negotiated transactions off the market, subject to compliance with
applicable provisions of the California Corporations Code and in accordance with
applicable federal and state securities laws and regulations.  The stock
purchase program will continue until September 30, 2002 unless earlier revoked
by the board of directors.  As of June 30, 2002, no shares had been purchased
under this program.

Operating Capital Requirements.We believe that
our cash balances, together with the funds we expect to be generated from
operations, will be sufficient to meet our projected working capital and other
cash requirements through at least the next twelve months.  However, there can
be no assurance that future events will not require us to seek additional
borrowings or capital and, if so required, that such borrowing or capital will
be available on acceptable terms. Factors that could affect our cash used or
generated from operations and as a result, our need to seek additional
borrowings or capital include:



- the average selling prices of our products;
- customer demand for our products;
- the need to secure future wafer production capacity from our suppliers;
- the timing of significant orders and of license and royalty revenue;
and
- unanticipated research and development expenses associated with new product
introductions.

20

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For more information, please also see "Business Risks - Our operating
results fluctuate significantly, and an unanticipated decline in revenues may
disappoint securities analyst or investors and result in a decline in our stock
price."

In addition, on May 7, 2002, the Court entered judgment against us in
Atmel's lawsuit against us in the total amount of $36.5 million.  In the event
our appeal of this lawsuit is unsuccessful, we may have to pay this amount to
Atmel.  For more information, please also see "Business Risks - If we are accused of infringing
the intellectual property rights of other parties we may become subject to time-consuming
and costly litigation.  If we lose, we could suffer a significant impact on our business and
be forced to pay damages."

Business Risks



Risks Related to Our Business



Our operating results fluctuate significantly, and an unanticipated decline
in revenues may disappoint securities analysts or investors and result in a
decline in our stock price.

Although we were profitable in 2000 and first quarter of 2002, we
incurred net losses for 1998, 1999, 2001 and in the second quarter of 2002.  Our
operating results have fluctuated significantly and our past financial
performance should not be used to predict future operating results. Our recent
quarterly and annual operating results have fluctuated, and may continue to
fluctuate, due to the following factors, all of which are difficult to forecast
and many of which are out of our control:



- the availability, timely delivery and cost of wafers
or other manufacturing and assembly services from our suppliers;
- competitive pricing pressures and related changes in
selling prices;
- fluctuations in manufacturing yields and significant
yield losses;
- new product announcements and introductions of competing
products by us or our competitors;
- product obsolescence;
- lower of cost or market inventory adjustments;
- changes in demand for, or in the mix of, our
products;
- the gain or loss of significant customers;
- market acceptance of products utilizing our
SuperFlashâ
 technology;
- changes in the channels through which our products are
distributed and the timeliness of receipt of distributor resale
information;
- exchange rate fluctuations;
- general economic, political and environmental-related
conditions, such as natural disasters;
- increases in allowance for doubtful accounts;
- difficulties in forecasting, planning and management of
inventory levels;
- unanticipated research and development expenses
associated with new product introductions; and
- the timing of significant orders and of license and
royalty revenue.



As recent experience confirms, a downturn in the market for products such as
personal computers and cellular telephones that incorporate our products can
also harm our operating results.

Our operating expenses are relatively fixed, and we order materials in
advance of anticipated customer
demand.  Therefore, we have limited ability to reduce expenses quickly in
response to any revenue shortfalls.

Our operating expenses are relatively fixed, and we therefore have
limited ability to reduce expenses quickly in response to any revenue
shortfalls.  Consequently, our operating results will be harmed if our revenues
do not meet our projections.  We may experience revenue shortfalls for the
following reasons:



- sudden drops in consumer demand which may cause
customers to cancel backlog, push out shipment schedules, or reduce new orders,
possibly due to a slowing economy or inventory corrections among our
customers;
- significant declines in selling prices that occur because of competitive
price pressure during an over-supply market environment;
- sudden shortages of raw materials for fabrication, test or assembly capacity
constraints that lead our suppliers to allocate available supplies or capacity
to other customers which, in turn, harm our ability to meet our sales
obligations; and
- the reduction, rescheduling or cancellation of customer orders.

21

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In addition, political or economic events beyond our control
can suddenly result in increased operating costs.  For example, we anticipate
that the terrorist attacks on September 11, 2001 will result in a substantial
increase to our business insurance costs.  In addition, there is considerable
public debate as to whether to require companies to record compensation expense
on stock option grants.  Such requirements, if enacted, would substantially
increase our operating costs and impact our earnings per share.

We incurred significant inventory valuation adjustments in
2001 and we may incur additional significant inventory valuation adjustments in
the future.



We typically plan our production and inventory levels based on internal
forecasts of customer demand, which are highly unpredictable and can fluctuate
substantially. The value of our inventory is dependent on our estimate of future
average selling prices, and, if our projected average selling prices are over
estimated, we may be required to adjust our inventory value to reflect the lower
of cost or market. As of June 30, 2002, we had $94.8 million of inventory on
hand, a decrease of  $13.4 million, or 12.4%, from December 31, 2001. Total
valuation adjustments to inventory were $72.2 million in 2001. Due to the large
number of units in our inventory, even a small change in average selling prices
could result in a significant adjustment and could harm our financial
results.



Cancellations or rescheduling of backlog may result in
lower future revenue and harm our business.



Due to possible customer changes in delivery schedules and cancellations of
orders, our backlog at any particular date is not necessarily indicative of
actual sales for any succeeding period.  A reduction of backlog during any
particular period, or the failure of our backlog to result in future revenue,
could harm our business.  We began to experience a sharp downturn in several of
our markets late in the fourth quarter of 2000, as our customers reacted to
weakening demand for their products.  Although we had improvements in total
units shipped from the second quarter of 2001 through the first quarter of 2002,
our revenues declined in the first half of 2002 when compared to the first half of 2001
due to decreased average selling prices. Our business could be harmed by
industry-wide fluctuations in the future.



Our business may suffer due to risks associated with
international sales and operations.



During 2000, 2001 and first half of 2002, our export product and licensing
revenues accounted for approximately 84.3%, 90.3% and 92.2% of our net revenues,
respectively.  Our international business activities are subject to a number of
risks, each of which could impose unexpected costs on us that would harm our
operating results.  These risks include:

- difficulties in complying with regulatory requirements and standards;
- tariffs and other trade barriers;
- costs and risks of localizing products for foreign countries;
- reliance on third parties to distribute our products;
- extended accounts receivable payment cycles;
- potentially adverse tax consequences;
- limits on repatriation of earnings; and
- burdens of complying with a wide variety of foreign laws.



In addition, we have made equity investments in companies with operations in
China, Japan and Taiwan.  The value of our investments is subject to the
economic and political conditions particular to their industry, their countries
and to foreign exchange rates and the global economy.  If we determine that a
change in the recorded value of an investment is other than temporary, we will
adjust the value of the investment.  Such an expense could have a negative
impact on our operating results.

We derived 77.6%, 80.7% and 88.9% of our net product revenues from Asia
during 2000, 2001 and the first half of 2002, respectively.  Additionally,
substantially all of our wafer suppliers and packaging and testing
subcontractors are located in Asia.  Any kind of economic, political or
environmental instability in this region of the world can have a severe negative
impact on our operating results due to the large concentration of our production
and sales activities in this region.  For example, during 1997 and 1998, several
Asian countries where we do business, such as Japan, Taiwan and Korea,
experienced severe currency fluctuation and economic deflation, which negatively
impacted our revenues and also negatively impacted our ability to collect
payments from customers.  During this period, the lack of capital in the
financial sectors of these countries made it difficult for our customers to open
letters of credit or other financial instruments that are guaranteed by foreign
banks.  Finally, the economic situation during this period exacerbated a decline
in selling prices for our products as our competitors reduced product prices to
generate needed cash.

22

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It should also be noted that we are greatly impacted by the political,
economic and military conditions in Taiwan.  Taiwan and China are continuously
engaged in political disputes and both countries have continued to conduct
military exercises in or near the other's territorial waters and airspace.  Such
disputes may continue and even escalate, resulting in an economic embargo, a
disruption in shipping or even military hostilities.  Additionally, we believe
the economic uncertainty fueled by the September 11, 2001 terrorist attacks in
the United States has caused our customer base to become more cautious.  Any of
these events could delay production or shipment of our products.  Any kind of
activity of this nature or even rumors of such activity could harm our
operations, revenues, operating results, and stock price.

We do not typically enter into long-term contracts with our customers, and
the loss of a major customer could harm our business.

We do not typically enter into long-term contracts with our customers.  In
addition, we cannot be certain as to future order levels from our customers.  In
the past, when we have entered into a long-term contract, the contract has
generally been terminable at the convenience of the customer.

We depend on stocking representatives, distributors and our logistics
center to generate a majority of our revenues.

We rely on stocking representatives, distributors and our logistics center to
establish and maintain customer relationships and to sell our products.  These
stocking representatives, distributors and our logistics center could
discontinue their relationship with us or discontinue selling our products at
any time.  The majority of our stocking representatives and our logistics center
are located in Asia.

Since March 2001, we have been out-sourcing our customer service logistics in
Taiwan to Silicon Professional Technology Ltd., or SPT.  SPT is a wholly owned
subsidiary of one of our stocking representatives in Taiwan, Professional
Computer Technology Limited, or PCT.  SPT provides planning, warehousing,
delivery, billing, collection and other logistic functions for us in Taiwan.
SPT now services substantially all of our end customers based in Taiwan and
selected end customers throughout Asia.  Products shipped to SPT are accounted
for as consigned inventory, and revenue is recognized when the products have
been delivered and are considered as a sale to our end customers by SPT.  For
the year ended December 31, 2001 and the six months ended June 30, 2002, SPT
serviced end customer sales accounting for 30.3% and 50.2% of our net product
revenues recognized, respectively.

Product shipments to Asia accounted for 77.6%, 80.7% and 88.9% of net product
revenues for 2000, 2001 and the six months ended June 30, 2002, respectively.
For further description of our relationships with PCT and SPT, please refer to
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation - Related Party Transactions" in our Annual Report on Form 10-K for
the year ended December 31, 2001.

We ship to, and have accounts receivable from, OEMs, ODMs, CEMs, stocking
representatives, domestic distributors, and our logistics center.  Our logistics
center, stocking representatives and domestic distributors reship our products
to our end customers, including OEMs, ODMs, CEMs and end users. No stocking
representative or domestic distributor serviced more than 10.0% of our customer
sales in 2000 or 2001.

No single customer, which we define as an OEM, ODM, CEM, or end user that
purchases product directly from us or through our logistics center, represented
10.0% or more of our net product revenues during 2000, 2001 and the six months
ended June 30, 2002.

We do not have any long-term contracts with SPT or PCT, and SPT or PCT may
cease providing services to us at any time.  If SPT or PCT were to terminate
their relationship with us we would experience a delay in reestablishing
warehousing, logistics and distribution functions, which would harm our
business.

The loss of our relationship with any of these stocking representatives,
logistics center or distributors, or any other significant stocking
representative or distributor could harm our operating results by impairing our
ability to sell our products to our end customers.

23

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We depend on a limited number of foreign foundries to manufacture our
products, and these foundries may not be able to satisfy our manufacturing
requirements, which could cause our revenues to decline.

We outsource substantially all of our manufacturing and testing activities.
We currently buy all of our wafers and sorted die from a limited number of
suppliers.  Substantially all of our products are manufactured by four
foundries, TSMC in Taiwan, Sanyo and Seiko-Epson in Japan, and Samsung in Korea.
We anticipate that these foundries, together with Nanya and Vanguard in Taiwan
and Oki in Japan, will manufacture the majority of our products in 2002.  On
March 6, 2001, we invested $50.0 million in GSMC, a Cayman Islands company, for
a wafer foundry project located in Shanghai, China.  We anticipate that GSMC
will begin to manufacture some of our products in early 2003. If these suppliers
fail to satisfy our requirements on a timely basis at competitive prices we
could suffer manufacturing delays, a possible loss of revenues or higher than
anticipated costs of revenues, any of which could harm our operating results.

Our revenues may be impacted by our ability to obtain adequate wafer supplies
from our foundries. The foundries with which we currently have arrangements,
together with any additional foundry at which capacity might be obtained, may
not be willing or able to satisfy all of our manufacturing requirements on a
timely basis at favorable prices.  In addition, we have encountered delays in
qualifying new products and in ramping-up new product production and we could
experience these delays in the future.  We are also subject to the risks of
service disruptions, raw material shortages and price increases by our
foundries.  Such disruptions, shortages and price increases could harm our
operating results.

If we are unable to increase our manufacturing capacity, our revenues may
decline.

In order to grow, we need to increase our present manufacturing capacity.
Events that we have not foreseen could arise which would limit our capacity.  We
have a remaining commitment to prepay a total of $45.0 million in late 2002,
subject to certain economic and business conditions, to secure increased wafer
capacity in 2002 and 2003. We are continually engaged in attempting to secure
additional manufacturing capacity to support our long-term growth.  Similar to
our $50.0 million investment in GSMC, we may determine that it is necessary to
invest substantial capital in order to secure appropriate production capacity
commitments.  If we cannot secure additional manufacturing capacity on
acceptable terms, our ability to grow will be impaired and our operating results
will be harmed.

If we are not successful in subleasing our unused office space, we may be
required to take a period charge for the difference between the total future
sublease income and our lease cost.

We have long-term, non-cancelable building lease commitments.  We are
currently in the process of locating subtenants for our unused office space.  We
may be unable to secure subtenants, for this space, due to the recent decrease
in demand for commercial rental space in Silicon Valley.  During the third
quarter of 2001, we recorded a period charge to other operating expense of
approximately $756,000 relating to an operating lease for an abandoned building.
This charge represented the estimated difference between the total
non-discounted future sublease income and our non-discounted lease commitments
relating to this building. The charge was an estimate and may be adjusted if we
obtain a sublease for the building and the actual sublease income is
significantly different from the estimate.  If we are unable to secure
subtenants, we may be required to take additional period charges for the balance
of the future lease cost, and this will harm our operating results.

Our cost of revenues may increase if we are required to purchase
manufacturing capacity in the future.

To obtain additional manufacturing capacity, we may be required to make
deposits, equipment purchases, loans, joint ventures, equity investments or
technology licenses in or with wafer fabrication companies.  These transactions
could involve a commitment of substantial amounts of our capital and technology
licenses in return for production capacity.  We may be required to seek
additional debt or equity financing if we need substantial capital in order to
secure this capacity and we cannot assure you that we will be able to obtain
such financing.

If our foundries fail to achieve acceptable wafer manufacturing yields, we
will experience higher costs of revenues and reduced product availability.

The fabrication of our products requires wafers to be produced in a highly
controlled and ultra-clean environment.  Semiconductor companies that supply our
wafers from time to time have experienced problems achieving acceptable wafer
manufacturing yields.  Semiconductor manufacturing yields are a function of both
our design technology and the foundry's manufacturing process technology.  Low
yields may result from marginal design or manufacturing process drift.  Yield
problems may not be identified until the wafers are well into the production
process, which often makes them difficult, time consuming and costly to correct.
Furthermore we rely on independent foundries for our wafers which increases the
effort and time required to identify, communicate and resolve manufacturing
yield problems.  If our foundries fail to achieve acceptable manufacturing
yields, we will experience higher costs of revenues and reduced product
availability, which could harm our operating results.

24

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If our foundries discontinue the manufacturing processes needed to meet
our demands, or fail to upgrade the technologies needed to manufacture
our products, we may face production delays and lower revenues.

Our wafer and product requirements typically represent a small portion of the
total production of the foundries that manufacture our products.  As a result,
we are subject to the risk that a foundry will cease production on an older or
lower-volume manufacturing process that it uses to produce our parts.
Additionally, we cannot be certain our foundries will continue to devote
resources to advance the process technologies on which the manufacturing of our
products is based.  Each of these events could increase our costs and harm our
ability to deliver our products on time.

Our dependence on third-party subcontractors to assemble and test our
products subjects us to a number of risks, including an inadequate supply of
products and higher costs of materials.

We depend on independent subcontractors to assemble and test our
products.  Our reliance on these subcontractors involves the following
significant risks:



- reduced control over delivery schedules and quality;
- the potential lack of adequate capacity during periods of strong
demand;
- difficulties selecting and integrating new subcontractors;
- limited warranties on products supplied to us;
- potential increases in prices due to capacity shortages and other factors;
and
- potential misappropriation of our intellectual property.



These risks may lead to increased costs, delayed product delivery or loss of
competitive advantage, which would harm our profitability and customer
relationships.

Because our flash memory products typically have lengthy sales cycles, we
may experience substantial delays between incurring expenses related to research
and development and the generation of revenues.

Due to the flash memory product cycle we usually require more than nine
months to realize volume shipments after we first contact a customer.  We first
work with customers to achieve a design win, which may take three months
or longer.  Our customers then complete the design, testing and evaluation
process and begin to ramp up production, a period which typically lasts an
additional six months or longer.  As a result, a significant period of time may
elapse between our research and development efforts and our realization of
revenue, if any, from volume purchasing of our products by our customers.

We face intense competition from companies with significantly greater
financial, technical and marketing resources that could harm sales of our
products.

We compete with major domestic and international semiconductor companies,
many of which have substantially greater financial, technical, marketing,
distribution, and other resources than we do.  Many of our competitors have
their own facilities for the production of semiconductor memory components and
have recently added significant capacity for such production.  Our memory
products, which presently account for substantially all of our revenues, compete
principally against products offered by AMD, Atmel, Intel, Macronix, Sanyo,
STMicroelectronics and Winbond.  If we are successful in developing our
high-density products, these products will compete principally with products offered
by AMD, Atmel, Fujitsu, Hitachi, Intel, Mitsubishi, Samsung, SanDisk, Sharp
Electronics, STMicroelectronics and Toshiba, as well as any new entrants to the
market.

In addition, we may in the future experience direct competition from our
foundry partners.  We have licensed to our foundry partners the right to
fabricate products based on our technology and circuit design, and to sell such
products worldwide, subject to our receipt of royalty payments.

Competition may also come from alternative technologies such as ferroelectric
random access memory, or FRAM, or other developing technologies.

25

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Our markets are subject to rapid technological change and, therefore, our
success depends on our ability to develop and introduce new products.



The markets for our products are characterized by:



- rapidly changing technologies;
- evolving and competing industry standards;
- changing customer needs;
- frequent new product introductions and
enhancements;
- increased integration with other functions; and
- rapid product obsolescence.



To develop new products for our target markets, we must develop, gain access
to and use leading technologies in a cost-effective and timely manner and
continue to expand our technical and design expertise.  In addition, we must
have our products designed into our customers' future products and maintain
close working relationships with key customers in order to develop new products
that meet their changing needs.

In addition, products for communications applications are based on
continually evolving industry standards.  Our ability to compete will depend on
our ability to identify and ensure compliance with these industry standards.  As
a result, we could be required to invest significant time and effort and incur
significant expense to redesign our products and ensure compliance with relevant
standards.  We believe that products for these applications will encounter
intense competition and be highly price sensitive.  While we are currently
developing and introducing new products for these applications, we cannot assure
you that these products will reach the market on time, will satisfactorily
address customer needs, will be sold in high volume, or will be sold at
profitable margins.

We cannot assure you that we will be able to identify new product
opportunities successfully, develop and bring to market new products, achieve
design wins or respond effectively to new technological changes or product
announcements by our competitors.  In addition, we may not be successful in
developing or using new technologies or in developing new products or product
enhancements that achieve market acceptance.  Our pursuit of necessary
technological advances may require substantial time and expense.  Failure in any
of these areas could harm our operating results.

Our future success depends in part on the continued service of our key
design engineering, sales, marketing and executive personnel and our ability to
identify, recruit and retain additional personnel.

We are highly dependent on Bing Yeh, our President and Chief Executive
Officer, as well as the other principal members of our management team and
engineering staff.  There is intense competition for qualified personnel in the
semiconductor industry, in particular the highly skilled design, applications
and test engineers involved in the development of flash memory technology.
Competition is especially intense in Silicon Valley, where our corporate
headquarters is located.  We may not be able to continue to attract and retain
engineers or other qualified personnel necessary for the development of our
business or to replace engineers or other qualified personnel who may leave our
employ in the future.  Our anticipated growth is expected to place increased
demands on our resources and will likely require the addition of new management
and engineering personnel and the development of additional expertise by our
existing management personnel.  The failure to recruit and retain key design
engineers or other technical and management personnel could harm our
business.

Our ability to compete successfully depends, in part, on our ability to
protect our intellectual property rights.

We rely on a combination of patent, trade secrets, copyrights, mask work
rights, nondisclosure agreements and other contractual provisions and technical
measures to protect our intellectual property rights.  Policing unauthorized use
of our products, however, is difficult, especially in foreign countries.
Litigation may continue to be necessary in the future to enforce our
intellectual property rights, to protect our trade secrets, to determine the
validity and scope of the proprietary rights of others, or to defend against
claims of infringement or invalidity.  Litigation could result in substantial
costs and diversion of resources and could harm our business, operating results
and financial condition regardless of the outcome of the litigation.   We own 49
patents in the United States relating to our products and processes, and have
filed for several more.  In addition, we hold several patents in Europe and
Canada, and have filed several foreign patent applications in Europe, Japan,
Korea, Taiwan and Canada.  We cannot assure you that any pending patent
application will be granted.  Our operating results could be harmed by the
failure to protect our intellectual property.

26

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If we are accused of infringing the intellectual property rights of other
parties we may become subject to time-consuming and costly litigation.  If we
lose, we could suffer a significant impact on our business and be forced to pay
damages.

Third parties may assert that our products infringe their proprietary
rights, or may assert claims for indemnification resulting from infringement
claims against us.  Any such claims may cause us to delay or cancel shipment of
our products or pay damages that could harm our business, financial condition
and results of operations.  In addition, irrespective of the validity or the
successful assertion of such claims, we could incur significant costs in
defending against such claims.

Over the past four years we were sued both by Atmel Corporation and Intel
Corporation regarding patent infringement issues and sued Winbond Electronics
Corporation regarding our contractual relationship with them.  Significant
management time and financial resources have been devoted to defending these
lawsuits.  We settled with Intel in May 1999, with Winbond in October 2000, and
the Atmel litigation is ongoing.

In addition to the Atmel, Intel and Winbond actions, we receive from time to
time, letters or communications from other companies stating that such companies
have patent rights that involve our products.  Since the design of all of our
products is based on SuperFlash technology, any legal finding that the use of
our SuperFlash technology infringes the patent of another company would have a
significantly negative effect on our entire product line and operating results.
Furthermore, if such a finding were made, there can be no assurance that we
could license the other company's technology on commercially reasonable terms or
that we could successfully operate without such technology.  Moreover, if we are
found to infringe, we could be required to pay damages to the owner of the
protected technology and could be prohibited from making, using, selling, or
importing into the United States any products that infringe the protected
technology.  In addition, the management attention consumed by and legal cost
associated with any litigation could harm our operating results.

Public announcements may hurt our stock price.  During the course of
lawsuits there may be public announcements of the results of hearings, motions,
and other interim proceedings or developments in the litigation.  If securities
analysts or investors perceive these results to be negative, it could harm the
market price of our stock.



Our litigation may be expensive, may be protracted and confidential
information may be compromised.  Whether or not we are successful in our
lawsuit with Atmel, we expect this litigation to continue to consume substantial
amounts of our financial and managerial resources.  A jury recently found that
we willfully infringed Atmel's '811 and '829 patents, and
awarded Atmel $20.0 million in actual damages.  On May 7, 2002, the Court
entered judgment in the total amount of $36.5 million, which includes the
original  $20.0 million.  The '811 and '829 patents expired in February 2002.
Therefore, there will not be any impact on our ability to sell any of our
products.  We believe that there were significant errors in both the
infringement and the damages verdicts, and filed a Notice of Appeal on July 16,
2002.  Atmel has agreed to stay its enforcement of this judgment pending our
appeal.  In July 2002, we posted a bond in the amount of $36.5 million pending
the appeal.  We have incurred certain amounts associated with defending this
matter, and at any time Atmel may file additional claims against us, which could
increase the risk, expense and duration of the litigation.  Further, because of
the substantial amount of discovery required in connection with this type of
litigation, there is a risk that some of our confidential information could be
compromised by disclosure.  For more information with respect to our litigation,
please also see "Part II, Item 1- Legal Proceedings."

If an earthquake or other natural disaster strikes our manufacturing
facility or those of our suppliers, we would be unable to manufacture our
products for a substantial amount of time and we would experience lost
revenues.

Our corporate headquarters are located in California near major earthquake
faults.  In addition, some of our suppliers are located near fault lines.  In
the event of a major earthquake or other natural disaster near our headquarters,
our operations could be harmed.  Similarly, a major earthquake or other natural
disaster such as typhoon near one or more of our major suppliers, like the
earthquake in September 1999 or the typhoon in September 2001 that occurred in
Taiwan could potentially disrupt the operations of those suppliers, which could
then limit the supply of our products and harm our business.

Prolonged electrical power outages, energy shortages, or increased costs
of energy could harm our business.

Our design and process research and development facilities and our corporate
offices are located in California, which in the past has been susceptible to
power outages and shortages as well as increased energy costs.  To limit this
exposure, all corporate computer systems at our main California facilities are
on battery back-up.  In addition, all of our engineering and back-up
servers and selected corporate servers are on generator back-up.  While
the majority of our production facilities are not located in California, more
extensive power shortages in the state could delay our design and process
research and development as well as increase our operating costs.

27

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Our growth continues to place a significant strain on our management
systems and resources and if we fail to manage our growth, our ability to
market, sell our products or develop new products may he harmed.

Our business is experiencing rapid growth which has strained our internal
systems and will require us to continuously develop sophisticated information
management systems in order to manage the business effectively.  We are
currently implementing a supply-chain management system and a vendor electronic
data interface system.  There is no guarantee that we will be able to implement
these new systems in a timely fashion, that in themselves they will be adequate
to address our expected growth, or that we will be able to foresee in a timely
manner other infrastructure needs before they arise.  Our success depends on the
ability of our executive officers to effectively manage our growth.  If we are
unable to manage our growth effectively, our results of operations will be
harmed.  If we fail to successfully implement new management information
systems, our business may suffer severe inefficiencies that may harm the results
of our operations.

Risks Related to Our Industry

Our success is dependent on the growth and strength of the flash memory
market.

All of our products, as well as all new products currently under design, are
stand-alone flash memory devices or devices embedded with flash memory.  A
memory technology other than SuperFlash may be adopted as an industry standard.
Our competitors are generally in a better financial and marketing position than
we are from which to influence industry acceptance of a particular memory
technology.  In particular, a primary source of competition may come from
alternative technologies such as FRAM devices if such technology is
commercialized for higher density applications.  To the extent our competitors
are able to promote a technology other than SuperFlash as an industry standard,
our business will be seriously harmed.

The selling prices for our products are extremely volatile and have
historically declined during periods of over capacity or industry downturns.

The semiconductor industry has historically been cyclical, characterized by
wide fluctuations in product supply and demand.  From time to time, the industry
has also experienced significant downturns, often in connection with, or in
anticipation of, maturing product cycles and declines in general economic
conditions.  Downturns of this type occurred in 1997 and 1998, and more recently
in late 2000 through the first half of 2002.  These downturns are
characterized by diminished product demand, production over-capacity and
accelerated decline of average selling prices, and in some cases have lasted for
more than a year.  Our business could be harmed by industry-wide fluctuations in
the future.  The flash memory products portion of the semiconductor industry,
from which we derive substantially all of our revenues suffered from excess
capacity in 1996, 1997 and 1998, which resulted in greater than normal declines
in our markets, which unfavorably impacted our revenues, gross margins and
profitability.  While these conditions improved in 1999 and 2000, deteriorating
market conditions at the end of 2000 and continuing through the first half of
2002 have resulted in the decline of our selling prices and harmed our operating
results.

There is seasonality in our business and if we fail to continue to
introduce new products this seasonality may become more pronounced.

Sales of our products in the consumer electronics applications market are
subject to seasonality.  As a result, sales of these products are impacted by
seasonal purchasing patterns with higher sales generally occurring in the second
half of each year.  If we fail to continue to introduce new
products, our business may suffer and the seasonality of a portion of our sales
may become more pronounced.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to risks associated with foreign exchange rate fluctuations
due to our international manufacturing and sales activities. These exposures may
change over time as business practices evolve and could negatively impact our
operating results and financial condition. All of our sales are denominated in
U.S. dollars. An increase in the value of the U.S. dollar relative to foreign
currencies could make our products more expensive and therefore reduce the
demand for our products. Such a decline in the demand could reduce revenues
and/or result in operating losses. In addition, a downturn in the economies of
China, Japan or Taiwan could impair the value of our equity investments in
companies with operations in these countries.  If we consider the value of these
companies to be impaired, we will write off, or expense, some or all of our
investments.  In the fourth quarter of 2001, we wrote down our investment in KYE
by $3.3 million due to an other than temporary decline in its market value.  At
June 30, 2002, the recorded value of our KYE investment was approximately $1.5
million, which represented the fair market value as of the balance sheet date.
We also have equity investments in companies with operations in China, Japan and
Taiwan with recorded values at June 30, 2002 of approximately $50.0 million,
$0.9 million and $16.3 million, respectively.

28

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At any time, fluctuations in interest rates could effect interest earnings on
our cash, cash equivalents and available-for-sale investments, any interest
expense owed on the line of credit facility, or the fair value of our investment
portfolio. We believe that the effect, if any, of reasonably possible near term
changes in interest rates on our financial position, results of operations, and
cash flows would not be material. Currently, we do not hedge these interest rate
exposures. As of June 30, 2002, the carrying value of our
marketable securities approximated fair value.  The table below presents the
carrying value and related weighted average interest rates for our cash, cash
equivalents and available-for-sale investments as of June 30, 2002 (in
thousands).

`Carrying  Interest
                                                                 Value     Rate
                                                               --------- --------

  Short-term investments - fixed rate                         $  66,346      2.1%
  Long-term investments (1 to 2 years) - fixed rate               7,488      2.6%
  Cash and cash equivalents - variable rate                     110,124      1.1%
                                                               ---------
                                                              $ 183,958      1.5%
                                                               =========`

PART II

Item 1.  Legal Proceedings

On January 3, 1996, Atmel Corporation sued us in the U.S. District Court
for the Northern District of California. Atmel's complaint alleged that we
willfully infringe five U.S. patents owned by or exclusively licensed to Atmel.
Atmel later amended its complaint to allege infringement of a sixth patent.
Regarding each of these six patents, Atmel sought a judgment that we infringe
the patent, an injunction prohibiting future infringement, and treble damages,
as well as attorney's fees and expenses.

On two of the six patents, the District Court ruled by summary judgment that
we did not infringe.  Two of the other patents were invalidated by another U.S.
District Court in a proceeding to which we were not a party, but this decision
was later reversed by the Federal Circuit Court of Appeals. As discussed below,
as the result of a ruling in another case, Atmel has withdrawn its allegations
as to another patent ("the '747 patent").  At this point, three patents remain
at issue in Atmel's District Court case against us ("the '811, '829 and '903
patents").  All of these patents have expired, so Atmel can no longer obtain an
injunction against the sale of our products.

On February 17, 1997, Atmel filed an action with the International Trade
Commission, or ITC, against two suppliers of our parts, involving four of the
six patents that Atmel alleged that we infringed in the District Court case
above.  We intervened as a party to that investigation.  Pursuant to
indemnification agreements with these suppliers, we were obligated to indemnify
both suppliers to the extent provided in those agreements.  As more fully
described below, the settlement with Winbond terminated our indemnity
obligations to that company.

As to one of these four patents, Atmel's claims were withdrawn because of the
summary judgment granted by the District Court, as described above. On October
16, 2000, the ITC found the '903 patent valid and infringed, and ruled that we
could not import into the United States certain products that use the claimed
circuit made by one of our suppliers. The ITC also ruled that we do not infringe
the '811 and '829 patents. We appealed from the Limited Exclusion Order, and in
August 2001 the Court of Appeals for the Federal Circuit issued an opinion
giving its reasons for denying that appeal.  The '903 patent and the ITC's
Limited Exclusion Order expired on September 14, 2001.

In a related action in 1997, Atmel filed a claim against
Macronix alleging, among other things, that Macronix infringed the '747 patent.
Because Atmel had filed a similar claim against us with regard to this same
patent, we were permitted to intervene in the action and represent our interests
in seeking to prevent Atmel from correcting inventorship.  On January 14, 2002,
the court in Atmel Corp. v. Macronix America, Inc. denied Atmel's motion
to correct the '747 patent.  We intervened as a party in the Macronix case for
purposes of opposing that motion.  As a result of the Court's decision, Atmel
withdrew its claims against us based on the '747 patent.

29

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A jury trial on the '811 and '829 patents began on April 8, 2002.  The jury
found that we willfully infringed those patents, and awarded Atmel $20.0 million
in actual damages.  On May 7, 2002, the Court entered judgment in the total
amount of $36.5 million, which includes the original $20.0 million.  The '811
and '829 patents expired in February 2002.  Therefore, there will not be any
impact on our ability to sell any of our products.  We believe that there were
significant errors in both the infringement and the damages verdicts, and filed
a Notice of Appeal on July 16, 2002.  Atmel has agreed to stay its enforcement
of this judgment pending our appeal.  In July 2002, we posted a bond in the
amount of $36.5 million pending the appeal.  In connection with the bond, we
have pledged cash and available-for-sale investments in the amount of $36.5
million.  Accordingly, this amount will be accounted for as restricted cash and
investments in our balance sheet beginning in July 2002.

Trial on the '903 patent was severed and those issues will be heard before a
jury beginning on July 29, 2002.  That trial will determine whether the '903
patent is valid.  The Court has ruled that we infringed that patent, so if the
jury finds the patent valid, it will assess what, if any, damages are due Atmel.

On October 1, 2000, we announced a settlement in our lawsuit with Winbond
Electronics of Taiwan.  We filed a lawsuit against Winbond in July 1998 in the
U.S. District Court in San Jose, California pursuant to the termination of our
SuperFlash technology licensing agreement with Winbond.   As part of the
settlement, Winbond agreed to a consent judgment and will not contest the
validity and appropriateness of our termination of the licensing agreement in
June 1998.  This settlement concludes all litigation between us and Winbond.  We
received a total of  $30.4 million in back royalties during 2000 and 2001 as
part of this settlement in addition to royalties relating to products sold
during 2001.  No further back royalty payments are required after 2001 under
this legal settlement.

From time to time, we are also involved in other legal actions arising in the
ordinary course of business.  We have incurred certain amounts associated with
defending these matters.  There can be no assurance the Atmel complaint or other
third party assertions will be resolved without costly litigation, in a manner
that is not adverse to our financial position, results of operations or cash
flows or without requiring royalty payments in the future which may adversely
impact gross margins.  No estimate can be made of the possible loss or possible
range of loss associated with the resolution of these contingencies.  As a
result, no losses have been accrued in our financial statements as of June 30,
2002.



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

Our Annual Meeting of Shareholders was held on June 21, 2002.  At the
Annual Meeting, the shareholders:

1. elected the persons listed below to serve as a director of the company for
the ensuing year and until their successors are elected,
2. approved the 1995 Equity Incentive Plan, as amended, to increase the
aggregate number of shares of Common Stock authorized for issuance under such
plan by 2,000,000 to 30,250,000 shares,
3. approved the 1995 Non-Employee Directors' Plan, as amended, to increase the
aggregate number of shares of Common Stock authorized for issuance under such
plan by 200,000 to 800,000 shares,
4. ratified the selection of PricewaterhouseCoopers LLP as our independent
accountants for the fiscal year ending December 31, 2002.



On April 25, 2002, the record date of the Annual Meeting, we
had 92,315,727 shares of Common Stock outstanding.  At the Annual Meeting,
holders of 80,734,041 shares of Common Stock were present in person or
represented by proxy.  The following sets forth information regarding the
results of the voting at the Annual Meeting.

30

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Proposal 1 - Election of Directors





|Director          | Votes in Favor | Withheld  
|----------------- | -------------- | ----------
|                  |                |           
|Bing Yeh          | 69,293,639     | 11,440,402
|Yaw Wen Hu        | 71,103,439     | 9,630,602 
|Tsuyoshi Taira    | 80,032,732     | 701,309   
|Yasushi Chikagami | 80,032,732     | 701,309   
|Ronald Chwang     | 80,032,732     | 701,309   



Proposal 2 - Approval of the 1995 Employee Incentive Plan, as
Amended





|Votes in Favor | 61,858,585
|-------------- | ----------
|Votes Against  | 18,613,748
|Abstentions    | 261,708   





Proposal 3 - Approval of the Non-Employee Directors' Plan, as
Amended





|Votes in Favor | 74,384,992
|-------------- | ----------
|Votes Against  | 6,058,107 
|Abstentions    | 290,942   



Proposal 4 - Ratification of Selection of Independent
Accountant





|Votes in Favor | 79,359,662
|-------------- | ----------
|Votes Against  | 1,321,630 
|Abstentions    | 52,749    





Item 6.  Exhibits and Reports on Form 8-K

(a)	Exhibits.







(b)	Reports on Form 8-K filed during the quarter ended June 30, 2002:
None.

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SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Sunnyvale, County of
Santa Clara, State of California, on the 12th day of August, 2002.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | SILICON STORAGE TECHNOLOGY, INC.
(Registrant)

                           By: /s/ BING YEH

                                    Bing Yeh
President and Chief Executive Officer
                                    (Principal Executive Officer)

                           By: /s/ JEFFREY L. GARON

                                    Jeffrey L. Garon
Vice President Finance & Administration,
                                    Chief Financial Officer and Secretary
                                    (Principal Financial and Accounting Officer)

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